Home / Industry / Infrastructure /  The ambitious plan that will fix India's logistics mess

NEW DELHI : If there is any factor that puts India high on the unease of doing business index, it is logistics. The movement of goods through this vast country is expensive and inefficient. The overall logistics cost is about 14% of GDP, significantly higher than that of many other countries. Transporting goods by rail costs 45% less (on a per tonne, per km basis) compared to road, but three-fourths of all goods are sent across the country by road because of the inefficiencies in rail transport. The government has come up with one answer to this problem—a network of multi-modal logistics parks (MMLPs). So, where are these parks coming up? How ambitious is this plan? And what stands in the way?

MMLPs: why are they needed?

These are large land parcels with rail and road connectivity, where goods coming in get seamlessly transferred to trains and other modes of transport in a hub-and-spoke model. So, freight from production zones will be shipped to nearby logistics parks, where it will be aggregated and shipped on a larger vehicle to a logistics park near the consumption zone.

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Then, the freight arriving at the destination logistics park will be disaggregated and distributed to the consumption zones inside the city. Logistics parks acting as freight aggregation and distribution hubs enable freight movement (between hubs) on large trucks, thereby aiding in reduction of freight transportation cost.

The parks will also offer mechanized warehousing services, among other things. So, for example, cold chains are available for storing perishables, racked warehousing facilities are available for packages and apparel. Value added services such as customs clearance (which currently happens at sea ports for export consignments), warehousing management services and late-stage processing facilities will also be available.

All these features will ultimately bring down the overall logistics cost.

How many such parks are planned? Have any been built so far?

The first multi-modal logistics park is coming up in Chennai. The bidding process, in which private companies were invited to take part, closed in August this year.

According to Knight Frank Research, the park will be spread over 153 acres of land and will be the first of the 35 such parks the government wants to build under the public private partnership (PPP) mode. Planned to be built across the country, they are expected to cater to about 50% of the total road freight movement in India, enabling seamless intermodal freight transfer.

Industry sources say one of India’s biggest private logistics and port companies —which also operates its own MMLPs—is among the interested bidders. Another interested party is an international logistics player, while the third is an Indian construction company with experience of building national highways.

Which is the nodal agency for setting up MMLPs?

The National Highways Logistics Management (NHLML), a wholly owned special purpose vehicle (SPV) of the National Highways Authority of India (NHAI), is the nodal agency for getting the 35 MMLPs up and running. CEO Prakash Gaur says a winning bidder for Chennai would be announced soon and the first phase of this park is expected to be commissioned by 2024.

Such parks were mooted in 2009 by the railways ministry, which proposed connecting them to the upcoming dedicated freight corridors. But talk of MMLPs remained just that—talk—till the government’s Bharatmala Pariyojana project for the development of highways revived the idea.

How much is the estimated investment in these parks?

Gaur says the estimated total investment in the 35 MMLPs would be to the tune of 52,500 crore. The government will invest 26,000 crore and the private developers will bring in a similar amount ( 26,500 crore). The 35 parks will handle 700 million metric tonnes of cargo at their peak capacity and be developed over 7,000 acres of land, catering to logistics activities in about 2.75 lakh sqm area across the country. “The development of MMLPs is a key solution that aims to reduce India’s logistics costs from the current about 14% of GDP to less than 10% of GDP, on par with international standards," Gaur says. Neeraj Bansal, co-head and chief operating officer of KPMG, India Global, says there is an active private sector participation in the bidding process for three MMLPs (which are currently at a stage where bids can be invited). The total investment by private parties in MMLPs at Chennai, Bengaluru and Nagpur would be over 2,000 crore, Bansal says. The bids for all three parks will be awarded in the December quarter, says Gaur. Bids have also been invited for Indore and the award is slated for the next quarter. At nine other locations, feasibility studies are in progress.

How does an MMLP actually work?

Take Jodhpur, Rajasthan, a key production hub for exports of textiles, furniture, etc, from India. As of now, Jodhpur has three Inland Container Depots (ICD) but only one of these depots is connected to a rail network. The frequency of trains is also low. ICDs are dry ports equipped to handle and temporarily store cargo brought in containers. But since only one of the depots has (infrequent) rail connectivity, exporters prefer to send goods by road to the nearest seaport instead of waiting to transport by rail. This saves time but costs more.

Rajeev Vijay, executive director at Knight Frank India, says with trucks there is the certainty of the cargo reaching in time, unlike with rail transport that is prone to delays. “But when an MMLP comes up in Jodhpur, it will not only lower the cost of logistics for exporters but also help in aggregation of demand. The park will ensure improved train services, use of modern equipment, and electronic data interchange which will obviate the need for manual filing of forms. So, the time taken for the entire process of moving goods from the production centre to ports will be reduced," Vijay says.

Not just for exports, MMLPs will also facilitate the movement of containers to seaports for inland demand. As of now, inland goods movement—say between Delhi and Bangalore, or Delhi and Chennai—is usually not done via containers. With MMLPs, container movement will get a leg up.

Take the example of another production hub, Pantnagar in Uttarakhand, which has several companies (pharma, automobiles etc) that need efficient and low-cost transportation to seaports. But in the absence of an integrated facility like an MMLP, truckloads of goods have to first come to either Dadri in Noida or Tughlaqabad in Delhi. From there, they are put on freight trains to the Mundra port. Like Jodhpur, Pantnagar also has an ICD, but again frequency of trains is low and the nearly 2,000 km distance to Mundra means the cargo movement is not viable via road. Which is why both road and rail routes have to be used. Inside an MMLP, the seamless transfer of goods from road to rail is possible since railways will build infrastructure inside the park.

There are other benefits of MMLPs too: lower warehousing charges since these parks are typically situated outside city limits where land costs are lower; reduction in freight movement on busy city roads, leading to lower costs and lesser pollution; movement of goods in larger trucks which will also lower overall cost of freight.

This is in line with the new National Logistics Policy, which aims to create a system to transport goods from point A to point B in the cheapest way. Gaur of NHLML says MMLPs will act as catalysts in centralizing freight cargo consolidation and distribution. These parks are envisaged on a hub-and-spoke model (versus point-to-point movement of goods). “MMLPs are expected to lower handling costs due to the presence of best-in-class modern and mechanised handling infrastructure. They are expected to reduce secondary freight costs by co-location of large warehouses and value-added services," Gaur says. MMLPs, in turn, benefit from economies of scale by creating shared infrastructure and due to availability of more options for selection of competitive and reliable logistics providers.

What is the process of setting up an MMLP?

NHLML, along with respective state governments, first identifies land parcels which can be used to set up the park. Typically, land parcels between 100 and 300 acres are needed. Then the state government does due diligence and starts the process of land acquisition. Thereafter, consultants are appointed and together with NHLML they decide which land parcel is best suited for an MMLP, based on proximity to land location, connectivity with other transportation modes etc. Once the ideal location has been picked, NHLML floats a request-for-proposal inviting private parties to build the MMLP by forming a three-way SPV between itself, the state government and the private concessionaire. As per the concession agreement for MMLPs, the private investor is given land on a 45-year lease.

Gaur says NHLML has entered into MoUs with state governments in Maharashtra, Madhya Pradesh, Tamil Nadu, Andhra Pradesh, Karnataka and Telangana to build the logistics parks.

What are the terms of the concession?

The type of PPP under which MMLPs will be built is called DBFOT—design, build, finance, operate and transfer. In the first phase, which is to be completed within two years from the award of the concession, the private developer must bring in at least 30% of the promised investment and the MMLP should have begun commercial operations. The second phase can be completed within 10 years and by then, investment should be at least 60% of the committed sum. The third phase would be completed in 15 years, marking the end of the project.

The concessionaire is required to pay a percentage in gross revenue from the third year and the bidding parameters include declaration of the minimum guaranteed revenue share. NHLML, on its part, will be responsible for construction and maintenance of access roads—minimum four-lane paved road within two years from the appointed date. It will also be mandated to provide rail connectivity in the form of a single line rail siding within four years from the appointed date. External power and water supply connections are also to be provided by NHLML within 18 months from the appointed date.

The terms of the concession also clearly specify that neither NHLML nor any government entity shall construct a new, competing MMLP within a minimum 50 km radius of the project site for 10 years from the appointed date.

What are the challenges for MMLPs?

It’s an ambitious plan, but challenges abound. First and foremost is viability for the private parties which will be making the investments and will also be sharing revenue with the government. A logistics industry veteran pointed out that several industry bigwigs are hesitant in coming forward to participate in bids.

Bansal of KPMG says that the three MMLPs for which bids have been invited have seen good interest from the private sector. But “challenges with respect to the viability of a proposed project are currently being encountered by the government. To tackle this, feasibility studies are being conducted across the proposed cities. So far, studies are in progress in Mumbai, Pune, Hyderabad and Coimbatore. It will also be initiated at Anantapur, Visakhapatnam, Jammu, Kanpur and Jalna."

Another aspect is the multiplicity of government agencies involved in setting up MMLPs. Soaring fuel and land prices are some of the other key concern areas for the industries. Also, availability of land at an affordable rate and the challenges of land acquisition remain barriers.

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