Technological Innovations in the Indian Logistics Industry the Case of Freight Handling

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Technological Innovations in the

Indian Logistics Industry: The Case

of Freight Handling

ARTICLE · JANUARY 2009

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Kolluru Srinivas

Macquarie University

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The IUP Journal of Infrastructure Vol VII Nos 3 & 4 2009114© 2009 IUP All Rights Reserved

Overview of Indian Logistics Industry

A Brief BackgroundThe Indian economy has been growing at an average rate of over 8% over the last few years.

The economy has posted a growth rate of 9.0% in 2007-08. Similarly, the manufacturing

sector has registered a growth rate of 8.2%, which is acting as a major growth driver for

the logistics industry. The major logistics functions of the industry include transportation,

warehousing, freight forwarding, etc. Spending on the logistics industry in India is estimated

* Research Associate, International Management Institute (IMI), Qutab Institutional Area, Tara Crescent,New Delhi, India. E-mail: [email protected]

** Research Associate, International Management Institute (IMI), Qutab Institutional Area, Tara Crescent,

New Delhi, India. E-mail: [email protected]

Kolluru Srinivas* and Kolluru Krishna**

Technological Innovations

in the Indian Logistics Industry:

The Case of Freight Handling

For any industry, use of Information Technology (IT) and innovation is

necessary in order to stay ahead in the competition. The logistics industry

is a classic example of the birth and development of a vital new service-based

industry. The industry has been transformed from the business concept

of transportation to that of serving the entire logistical needs. The challengesof the modern technology-driven competition, globalization of manufacturing,

shorter product life cycles, increasingly sophisticated customers needs

and greater integration of technologies compelled the logistics industry

to develop innovative strategies and processes. The main objective of this

paper is to present a brief insight into the various cost saving technologies

that were adopted by the Indian logistics industry (road, railways, ports and

aviation) for improving the services. The paper gives a brief picture of

the logistics industry in India. It also gives a brief literature survey on thetopic. The paper also describes the recently used technologies and some

of the innovations that have taken place in all the major transportation

chains (road, rail, marine and aviation) and their benefits.


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Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling 115

around 13% of Gross Domestic Product (GDP), which is estimated at Rs. 4,068.63 bn in

2007-08.1 However, India’s spending on logistics is much higher than that of the developed

economies like the US (9.5%), Japan (10.5%) and Germany (10%). Figure 1 provides a brief

picture of India’s spending on logistics over the last few years.

Figure 1: Spending on Logistics in India

Source: MOSPI, PIB, Government of India

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

02001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

R s .

( b n )

Years

From the cost component point of view,

transportation accounts for about 35% of the

total logistics costs followed by inventories

(25%), losses (14%), packaging (11%), handling

and warehousing (9%) and customers and

shopping (6%).2

Reasons for High Spendingand Government Initiatives

The reasons for this huge spending can be

attributed to lack of efficient infrastructure

facilities, lack of implementation of Information

Technology (IT) in logistics and delay checkingpoints on the highways3 which invariably

increases the transportation costs. Another major

reason could be the regulatory obstacles, which

not only increases the cost of service, but also

1 Ministry of Statistics and Program Implementation (MOSPI), Government of India.2 Edelweiss Research.3 As per the estimate of the Planning Commission, Government of India, the economic cost of such delay is at a

minimum of Rs. 3,200 cr and a maximum of Rs. 4,300 cr for the year 2004 which progressively goes up to

Rs. 60,168 cr by 2017.

Roads 1,520

Power 4,812

Railways 1,100

Telecom 1,226

Aviation 370

Ports 800

Oil and Gas 2,210

Urban Infrastructure 1,974

Total 13,973

Table 1: Spending on Infrastructure

from 2005-06 to 2011-12E

Source: Edelweiss Research

(Rs. bn)


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The IUP Journal of Infrastructure Vol VII Nos 3 & 4 2009116

results in frequent delays and thereby higher logistics costs. To overcome this situation, the

Government of India has taken initiatives to improve the infrastructure in the country by

spending around Rs. 14 tn across the sectors (Table 1).

Freight Handling Scenario

Cargo traffic handled at major Indian ports has seen double-digit growth over the lastfew years, i.e., 10.38% in 2005-06 and 11.35% in 2004-05. Similarly, the freight carried

by railways also grew by 10.7% in 2005-06 and freight carried by road registered a

growth rate of about 10% in 2005-06 over the previous years. It has been observed that

since 2001-02, cargo traffic (both domestic and international) at all Indian airports has been

growing rapidly. Domestic air cargo traffic has been growing at a Compounded Annual

Growth Rate (CAGR) of 12.57% from 2001-02 to 2006-07, whereas international air cargo

traffic has also registered a CAGR of 13% during the same period (Table 2).

Review of Literature

With reduced trade barriers and the advent of advanced information technologies, new

opportunities and global markets have become available for service providers in the logistics

industry. As organizations globalize to access new markets and achieve higher productionand sourcing efficiencies, logistics play an important role in moving materials, products,

and services through supply chains.

The concept of innovation is regarded in most organizations as an effective tool to

create and sustain competitive advantages. The logistics function is an area that is

increasingly seeking ways of adding value through innovation (Soosay and Hyland, 2004).

It has transformed from the business concept of transportation to that of serving the entire

logistical needs of customers. The service component offers a very good change of gaining

sustainable competitive advantage in the hypercompetitive global market. Conversely,

poor service or a reluctance to innovate offers a fairly good change of losing customers

Year

2001-02 287.60 492.50 515 854

2002-03 313.50 518.74 545 979

2003-04 344.50 557.39 595 1,068

2004-05 383.70 602.10 646 1,281

2005-06 423.40 666.50 706 1,404

2006-07 463.80 726.00 763 1,553

Table 2: Cargo Handling Scenario

Source: Indian Ports Association, Ministry of Railways, Planning Commission, Airport Authority of India

Cargo Handled at Ports

(mn tons)Rail Freight

(bn tons km)

Road Freight

(bn tons km)

Air Cargo

(mn tons)

https://www.researchgate.net/publication/228216846_Driving_Innovation_in_Logistics_Case_Studies_in_Distribution_Centres?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/228216846_Driving_Innovation_in_Logistics_Case_Studies_in_Distribution_Centres?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==


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(Chapman et al., 2002; and Esper et al., 2007). Chapman et al. (2002) also found that

the advances in technology and communication have compelled this industry to strive

permanently for new products and solutions.

Several other studies that explored improving influence of innovation on logistics industry

on a widely varied spectrum of improvement areas like, quality of service production and

delivery (Parasuraman and Grewal, 2000); research and development cost-efficiency(Rao, 2001); transaction costs (Garicano and Kaplan, 2001); productivity, inventory and

demand management (Kaplan and Sawhney, 2000); increased customization capabilities

(Yingli and Laiwani, 2007); supply chain and relationships (Hyland et al., 2003; Kaltoft

et al. 2007; and Yingli and Laiwani, 2007).

Hence, logistics organizations must constantly seek new knowledge, ‘think for the

customer’, anticipate and innovate services to meet customers evolving needs.

Recently Used Technologies and Innovations

Need of Innovation in Logistics

One of the most challenging aspects of understanding innovation in logistics management

lies in the accepted wisdom that every product has its own unique value chain. Thus, innovation

is primarily a ‘pull phenomenon’ for service providers in the logistics industry.4 The competition

among industries to manage global supply chains cost effectively, created an opportunity

4 John Seely Brown and John Hagel III define pull and push systems in the context of innovation as follows:“Push systems contrast starkly with pull ones, particularly in their view of demand: the former treat it as

foreseeable, the latter as highly uncertain. This difference in a basic premise leads to fundamentally different

Figure 2: Indian Logistics Industry Structure

Logistics Industry

Airlines Shippers RoadCarriers

Railways Airports Ports Roads Railways 4PL

IndependentLogistics Service

Providers

C&FAgents

Warehousingand Distribution

Agents

MultipleServiceProviders

Key TransportationsService Providers

InfrastructureProviders

Support Services

3PL

Source: Industry Sources, 2007

Note: 3PL – Third Party Logistics; 4PL – Fourth Party Logistics; C&F Agents – Clearing and ForwardingAgents.

https://www.researchgate.net/publication/2400294_The_Effects_of_Business-to-Business_E-Commerce_on_Transaction_Costs?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/242544662_E-Hubs_the_new_B2B_marketplaces?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/27649900_Using_e-business_to_enable_customised_logistics_sustainability?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/2400294_The_Effects_of_Business-to-Business_E-Commerce_on_Transaction_Costs?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/27649900_Using_e-business_to_enable_customised_logistics_sustainability?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==https://www.researchgate.net/publication/242544662_E-Hubs_the_new_B2B_marketplaces?el=1_x_8&enrichId=rgreq-0bc90c60-f842-4060-812b-5ed3d48c1ec0&enrichSource=Y292ZXJQYWdlOzIxNTU4Nzg3NztBUzoxMDIxNjM2MzYyOTM2MzdAMTQwMTM2OTExNzUzOA==


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design principles. For instance, instead of dealing with uncertainty by tightening controls, as push systemswould, pull models address immediate needs by expanding opportunities for local participants—employeesand customers alike—to use their creativity. To exploit the opportunities that uncertainty presents, pull modelshelp people come together and innovate by drawing on a growing array of specialized and distributedresources” (www.McKinseyquarterly.com).

5 RIS has several components, which can be categorized into two groups, that is, core system and supportmodules. The core system comprises of Locational Referencing System, Asset Management System, PavementManagement System, Environmental Management System, Traffic Management System and PerformanceMonitoring System. On the other hand, Support Modules are Security and Access Control Module and System

Information Module (Information available at www.nhai.org).

for innovations. Innovation in logistics could improve internal efficiency within a logistics

organization or could help serve customers better. The purpose of this paper is to understand

the need of innovation in the logistics industry, therefore, we begin with a classification

of the industry (Figure 2).

Surface Transportation (Roadways and Railways)

Recently, in India, the major thrust of the surface transport sector (both road transport and

rail transport) is on Research and Development (R&D). The major reason is to build a

comparable and sustainable road infrastructure in the country. In this context, the sector has

been improving designs, using modern construction techniques, introducing improved

material, coming up with better and appropriate specifications and using new technologies.

An outlay of Rs. 60 mn has been provided for road transport R&D in 2006-07. On the same

lines, the railway network continues upgrading its systems to take advantage of the latest

features and technological applications. In this context, close attention is paid to

maintenance, quality control and cost efficiency as these factors play an important integralrole in the efficient operation of the Indian Railways. The allotted total IT budget of Center

for Railway Information Systems (CRIS) for the year 2006-07 is Rs. 3,500 mn, where the

focus was on upgrading the existing

technology and infrastructure and

implementing newer tools and

techniques for building IT

infrastructure in Indian Railways

(Table 3). Table 4 describes the

recently used technologies in thetransport chains.

Table 3: Focused Areas by the Railways

• Web-enabled services.

• Building an IT application that can reflect the existing

business performance.

• Shift towards data mining from data warehousing.

Road Transport Sector • Use of geo-synthetics in improving the performance of pavement overlays.

• Introduction of Geographical Information Systems (GIS) basedNational Highways Information System (NHIS) to overcome thetraffic and transportation problems.

• Road Information System (RIS)5

for Golden Quadrilateral (GQ)project. The RIS comprises of computerized time-series.

Table 4: Recently Used Technologies in Surface, Marine and Aviation Sectors


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6 Horizontal integration has various forms such as operational arrangements on vessel sharing, slot sharing,consortia and strategic alliances. Consortia are agreements between liner shipping companies to operate jointlyin services like technical, operational, or commercial coordination. Strategic alliances are emerged to providecombined services on various routes to shipping lines. In addition, these alliances were formed to increaseefficiency and ensure better util ization of vessels through numerous arrangements.

7 In many developed countries, port information systems have been transformed into integrated logistics informationsystems through interconnected efforts with other logistics-related information systems. Some of the examplesare INTIS at the Port of Rotterdam, ADEMAR at the Port of Le Havre, DAKOSY at the Port of Hamburg, SEAGHat the Port of Antwerp, and FCP80 at the Port of Felixstowe. Generally, the IT systems facilitate electronic

submissions and clearance of shipping information.

Table 4 (Cont.)

database on the national highways information like trafficanalysis, pavement condition, road inventory and assetcondition.

Indian Railways • Freight Operation Information System (FOIS), for controlling

and monitoring the multifarious activities in freight operations.• Rake Management System (RMS) for handling commercial

transactions.

• RMS to track and manage freight wagons, freight-classlocomotives and other operations of the freight system.

• Implementation of Terminal Management System (TMS) toprovide information on freight at the freight terminals, status of the train and expected time of arrival and cost of the freight tothe customers.

Marine Sector • With an emphasis on cost reduction and to ensure optimumcapacity utilization, there has been an increase in horizontalintegration among the shipping liners.6

• Use of IT like Internet services to improve supply chainprocess, enhance cooperation between freight carriers andtheir customers by enabling communication and eliminatingthe heavy procedures and regulations.7

• Vessel Traffic Management System (VTMS) to provide effectiveguidance on navigation of ships, which is already installed atMumbai, JNPT, Kolkata, New Mangalore and Mormugao ports.

• Computerization of container handling operations like managingcontainer traffic, major ports connectivity, etc.

• Implementation of Radio Frequency Identification system for identifying the movement of ships wirelessly using radiowaves.

Aviation Sector • Air Traffic Management (ATM) to modernize air traffic controlservices. Under the ATM, the following services are to beprovided such as, Air Route Surveillance Radars, MonopulseSecondary Surveillance Radars, Airport Surveillance Radars,Airport Surface Detection Equipment, Radar Data ProcessingSystems, Flight Data Processing Systems, Automatic MessageSwitching Systems, Automatic Self Briefing Systems, 12 VORs.


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Marine and Air Transport Sectors

Over the years it has been observed that around 90% of India’s external trade is moving

by sea. With the economy growing at a rate of over 8% and positioning itself as manufacturing

outsourcing base, new technologies are needed to be developed in the light of the emerging

scenario in the Maritime industry. On similar lines, the air transport sector in India is also

growing fastly and adopting new technologies for delivering qualitative services.

DVORs with Remote Monitoring and Maintenance facilitycolocated with High Power DMEs for uni-directional airways.

• Communication, Navigation and Surveillance (CNS) to facilitateand support systems for air navigation. The CNS discharges

the services like coordination among all concerned agenciesand organizations, preparation of estimates, invitation of tenders, evaluation of technical and commercial bids,placement of orders of equipment and its subsequentinstallations, etc.

• Electronic Data Interchange (EDI) to know latest informationand status of export/import cargo via Internet.

• Flight Data Processing System (FDPS) to achieve improvedautomation of air traffic services.

• Automatic Dependence System (ADS) for enhancing the

surveillance over Indian air space.

• There are also few other technologies that were proposed tobe taken up for the development of the Civil Aviation Sector in the country, such as:

– IT-based system to assess vehicular traffic volume for airport public access.

– LED-based airport lighting and display technology.

– Intelligent digital surveillance.

– Integration techniques for information.

– Information dissemination and online payments throughInternet.

– Radio frequency-based identification techniques.

– Wireless information technologies.

– Smart card technology.

– Common use IT systems.

– Online simulation of terminal congestion.

– Electronic perimeter security system and intrusion

prevention.– Explosive detection technology.

– Satellite-based CNS/ATM systems.

Table 4 (Cont.)


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Innovations in Road Transport Sector

Over the last few years, India is experiencing the problem of traffic congestion owing to

growth in vehicle population, which is growing at a rate of 8-9% per annum. To overcome

the problem, the Government of India has come out with an ambitious program, i.e.,

Jawahar Lal Nehru National Urban Renewal Mission (JNNURM) for improvement of urban

transport infrastructure in the country.

Generally, investments in the transport infrastructure, particularly in the highways,

were being made by the Central or State governments in India.8 But as an innovative tool,

now the Central as well as State governments are attracted towards the private sector owing

to the managerial efficiency and consumer responsiveness. In this context, the government

has laid down certain comprehensive policy guidelines for private sector participation in the

road transport sector. On the policy guidelines front, the government has announced several

incentives such as tax exemptions, duty free import of road building equipments and

machinery, etc. As a result of the government’s initiative to involve the private sector in

the infrastructure projects, the National Highway Development Program (NHDP) Phase III

to Phase VII were taken up on the basis of Public Private Partnership (PPP) on Build, Operate

and Transfer (BOT) mode or Annuity mode.

Innovations by Indian Railways

• As an experiment, by leasing out catering and parcel services, the Indian Railways

(IR) has reduced catering and parcel losses of about Rs. 10 bn in 2005-06. The Railways

has also enhanced wagon capacity by attracting private investments in the wagon

investment schemes and siding liberalization schemes.

• While retaining the core activity of train operations, the IR awarded licenses to private

parties for running container trains, which is likely to attract investment in wagons

and construction of terminals in the coming years.

• The IR also plans to explore more PPP schemes with an aim to modernizing metro

and mini metro stations with world-class passenger amenities, development of agro

retail outlets and supply chains, construction of multimodal logistic parks, warehouses

and budget hotels, expansion of network and increase in production capacity.

• The IR also constituted a PPP Cell to develop the policy framework to providenon-discriminatory level playing field to investors, prepare the bankable documents

and set up a procedure for awarding partnerships through the open tendering system.

Innovations in the Marine Transport Sector

Radio Frequency Identification (RFID) system is commonly used to describe a system which

transmits the identity of an object wirelessly, using radio waves. RFID consists of various

components such as tags, tag readers, edge servers, middleware and application software.

8 The main reason is due to the requirement of huge volume of resources, long gestation period, uncertain returns

and various externalities associated with the projects.


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RFID is nowadays extensively used in the retail and logistics sectors as a replacement for

Universal Product Codes (UPC) or EAN Article Number Code, barcodes, having number

of important advantages over the barcode technology. RFID is generally costlier than

barcode and may for that reason, not be able to replace the barcode fully, but definitely

it is more advantageous than barcode which is having a higher storage capacity. It is

expected that almost all of our major ports will sooner or later implement RFID technologyin all shipments.

Innovations by Aviation Sector

Electronic Data Interchange (EDI) is a standard format for exchanging business data. It is

the inter-organizational exchange of business documentation in structured, machine-processable

form over computer communication networks. In India, the EDI implementation agencies

are Ministry of Civil Aviation and Airport Authority of India.

• Automation of cargo processing activities and online data capturing was introduced

in 1999 at four metro airports, viz., Delhi, Mumbai, Kolkata and Chennai.

• The Airport Authority of India (AAI) is assisting automation of cargo processing

activities at three non-metro airports such as, Bangalore, Hyderabad and

Thiruvananthapuram.

Benefits from EDI

• Availability of latest information on status of import/export cargo to the trader

via Internet.

• Drastic reduction in human power deployment by the agencies at the cargo terminal

for processing of their consignments, which will ultimately reduce the transaction

cost of import as well as exported cargo.

• Information on the AAI charges that are applicable for a particular consignment

at any given time via Internet.

• Availability of information on the regulatory and the facilitating agencies, cargo

handling systems and procedures, facilities available, AAI-prescribed charges/rates,

dos and don’ts, etc.

ConclusionLogistics, an extension of physical distribution management, usually pertain to the

management of the materials and information stream of business, down through a distribution

channel, to the end customers. In the Indian context, the scope and role of logistics have

changed dramatically over the years. Logistics used to have a supportive role to primary

functions such as marketing and manufacturing. But now the industry expanded to cover

warehousing and transportation activities, purchasing, distribution, inventory management,

packaging, manufacturing, and even customer service. More importantly, logistics management

has evolved from passive, cost-absorbing function to that of strategic factor that provides

unique competitive advantage. The global marketplace has compelled every industry to


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transform itself into a truly customer-oriented, service-focused enterprise, irrespective of the

products and services it sells.

To stay ahead in the modern global marketplace, organizations must constantly look for

innovative strategies to improve their competitiveness. As organizations globalize to access

new markets and achieve higher production and sourcing efficiencies, logistics play an

important role in moving materials, products, and services through supply chains. It is evidentfrom the paper that logistics organizations that are willing to sustain their position in the

market, will have to conform and adopt innovations of the information era. Especially,

logistics service providers have to adopt and creatively deploy up-to-date technology, because

logistics industry strongly depends on information for efficient operations. Logistics

technologies refer to the hardware, software, and network design required to facilitate

processing and exchange. It includes related components in the supply chain, such as satellite

transmissions, web-based ordering, EDI, bar coding, systems for order entry, order processing,

vehicle routing and scheduling, inventory replenishments, automated storage, and retrieval

systems, etc. The correct implementation of technologies can be a significant source of

competitive advantage to the service providers.

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9. Rao P M (2001), “The ICT Revolution, Internationalization of Technological Activity,

and the Emerging”, International Business Review, Vol. 10, No. 5, p. 571.

10. Soosay C A and Hyland P W (2004), “Driving Innovation in Logistics: Case Studies

in Distribution Centres”, Creativity & Innovation Management, Vol. 13, No. 1,

pp. 41-51.

11. Virginija Kavaliauskiene and Neringa Survilaite-Bagdonaviciute (2004), “Trends in

Logistics: Innovations in Logistics Industry”, available at http://internet.ktu.lt/en/science/

journals/econo/ inzek040.html#Virginija_Kavaliauskiene,_Neringa_Survilai te-

Bagdonaviciute

12. Yingli W and Laiwani C S (2007), “Using E-business to Enable Customized

Logistics Sustainability”, International Journal of Logistics Management, Vol. 18,

No. 3, pp. 402-419.

Websites1. Airport Authority of India.

2. Center for Monitoring Indian Economy.

3. Centre for Railway Information Systems.

4. Edelweiss Research.

5. Eleventh Five Year Plan (2007-2012).

6. Indian Port Association.7. Ministry of Civil Aviation.

8. Ministry of Railways, Government of India.

9. Ministry of Road Transport & Highways.

10. Ministry of Shipping, Government of India.

11. Ministry of Statistics and Program Implementation.

12. National Highways Authority of India (NHAI).

13. National Highway Development Project (NHDP).

14. Planning Commission, Government of India.

15. Railway Budget, 2007-08, Ministry of Railways, Government of India.

16. www.Mckinseyquarterly.com

Reference # 27J-2009-09/12-07-01


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Documents

Technological Innovations in the Indian Logistics Industry the Case of Freight Handling