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Technology has crossed paths with Indian logistics but where exactly does India stand right now?

Unlike many countries, India still finds itself in flux, seesawing between the developed, and the developing, the old and the new. The unique position we’re in has multiple ramifications, and this spills into the logistics industry too. Unless you have been trapped under a tyre, you’re aware of the billions of VC dollars routed into Indian logistics, primarily trucking and warehousing. But what is this going to translate into in the long run?

The relationship between hyperlocal logistics and technology

Hyperlocal logistics is an important component of the logistics industry in the country, and is significantly more dependent on technology. The industry is primed to grow 12 times by 2020 to $3.9 billion, and has raised $82.5 million in the first half of 2018, several times more than the $15.2 million raised during the same period in 2017.

So, it is easy to see that intra-city last-mile logistics providers are taking a crack at high-volume deliveries, collections and navigation that is at the core of the hyperlocal model, despite India’s dysfunctional addressing systems. However, take a minute to examine the hyper-local logistics model. Companies where last-mile delivery is the make or break factor are continually pumping in more money into logistics, however, not in the way we’d hope. By doubling salaries of delivery executives, for instance, leading food delivery companies are in a bidding war to retain executives who for the lack of a better incentive, are quick to jump ship. After all, when you’re making deliveries on a daily basis worth several lakh rupees and you earn but a fraction of the amount in an entire month, it is anything but surprising to yearn for a larger slice of the pie—a food-tech pie that has raised as much as $480 million as of August 1, 2018, over 3 times more than the amount last year.

These pay hikes are nothing but a temporary fix, a plaster on a wound that’s festering under the surface. This out of sight, out of mind approach is unlikely to work, despite what hyper-local start-ups and their investors say. The market is pushing for a permanent solution, one that’s sustainable to everyone, and doesn’t involve throwing money at the problem to make it go away.

Stagnancy in long-haul logistics

While the Indian logistics sector is pegged to grow to USD 215 billion by 2020, when you shine the spotlight on inter-city logistics, you’ll find that there are several red flags that grab your attention. For starters, empty miles or dead mileage stands at around 50% today, making freight and logistics expensive business. Only when technology is able to gather the fragments and reduce the rate of empty miles will costs drop.

Also, the infrastructure that bolsters the flow of goods continues to be a hindrance whether it’s highways, loading/unloading docks, parking facilities and basic rest stops for drivers. Trading short-term benefits for long term profitability, in cohorts with poor financial transparency, operations and creditworthiness has built a low-trust environment. Tack on to this abysmal payment terms offered by brokers and consignors and you have on your hands a ‘I’ll take what pays me right now’ attitude. So unless you’re a transporter with bottomless finances, it’s easy to see why this approach curries favour despite lower revenue realisation and poor profitability on a per asset basis.

Speaking of finances, while a few big names have been able to switch to a technologically driven framework, but a bulk of the 12 million commercial freight vehicles in the country, about 90% are owned by single-truck owners/small entrepreneurs in small towns in India, it is difficult and time-consuming to introduce technology into operations.

Drivers aren’t a part of the ride

Another facet is the on-ground, crude cultural reality that underscores the industry. On one hand you have an improvement in logistics policies, but on the other, trucking is continually viewed to be a nuisance, whether it’s by citizens on the road or the law enforcement authorities that regulate vehicles. Look beyond the superficial scarring, and you will find that the wounds of such an outlook are far more pronounced. It doesn’t take much to realise that this attitude has led to transporters being viewed as a commodity. In turn, transporters behave like commodities, with little to no regard for timeliness.

Sample this: In India, transporters clock an average speed and daily distance that’s just a measly 1/3rd of what counterparts manage in the West. In plain speak, for every 250km logged per day in India, somewhere along the Trans-Canada Highway, a truck is logging around 700km in the same duration. Also, despite the implementation of GST, truckers have only been able to increase this distance by 100km a day in some pockets. Add to this an ad-hoc approach helmed by brokers that is more focussed on closing deals than utilising fleet appropriately, and you have on your hands a deadly cocktail: a poorly designed system, where maximising revenue per asset is nowhere on the radar.

In addition, this sector remains to be one where the drivers and truckers who are on-ground, have no formal training whatsoever. Relatively high price points have led to slow and minimal adoption of smartphones and other logistics applications that depend on them, which has further held back the progress that the Indian long-haul logistics industry is capable of making.

The gradual metamorphosis to digitisation

Mirroring the Indian manufacturing industry’s steady switch to Enterprise Resourcing Planning and Management Information Systems, the logistics and transportation industry is evolving in a similar manner. Companies such as Samsung, Nestle, Coca Cola, Tata Steel, Ford, Glenmark, etc., are utilising ERPs like SAP, and setting the tone for the rest to follow. In fact, Numadic itself is a proud member of the SAP Startup cohort. Brand plug aside, logistics providers are warming up to the idea, slowly yet steadily. While in India over a 350 logistics tech start-ups were launched between 2013 and 2016, today, only a handful have survived and thrived (and once again, Numadic is proud to be one of those).

From a system of chaos to a system of information

In order to transform into to a system of intelligence, it’s important to approach it via a system of information. While it wouldn’t be fair to say that information isn’t being digitised, it most certainly is to say that this is happening at snail’s pace, and that too in pockets comprising highly technical companies. To ultimately end with a system of intelligence it is imperative to be able to dismantle the existing construct, surpassing technical and cultural obstacles. Overcoming fragmentation of ownership, high dead mileage, the broker dominated structure of the industry and better incentives for drivers are all a part of this.

Evolving into a refined, efficient ecosystem

As digital natives are establishing a foothold in the transportation industry as second generation entrepreneurs, a marked shift in dependency and involvement of technology is inevitable. In fact, in as soon as the next 3 years, mass adoption is likely thanks to the entry of 16 to 18 year old second generation transport entrepreneurs, brought up on computers. On the whole, the Indian logistics technology is on the course to evolving into a system of intelligence in the next 5–7 years.

While this shift to technology-driven logistics makes matters much more convenient for all parties involved, it’s cost-effectiveness, like all other technology, is a product of scale. The incremental cost of delivering software is very low, especially for web-based logistics and transportation management solutions such as Numadic. As the market evolves and familiarises itself with web-based/SaaS logistics, delivery costs will continue to drop. In effect, for a transportation company with one eye trained on its bottom line, it is going to amount to a sliver of its total operating costs, yet will drive double digit reductions in its field and staff operating costs.

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