Multimodal transportation: The multiplier effect

With the Indian manufacturing companies increasingly relying on multimodal transportation, the potential for this logistics segment is enormous. However, to get the full benefit, there is an urgent need to fix the infrastructure gaps, increase the container penetration, and accelerate investment in infrastructure through the PPP model. Jasleen Kaur

The growth of India’s economy and international trade is largely dependent on two key sectors – services and manufacturing – which are driven by a large pool of bright and young workforce – be it Pizza Hut in the service sector or Tata Nano in the manufacturing sector. To maintain a robust growth in services and manufacturing industries there has to be adequate development in infrastructure and logistics. Therefore, it is important to boost those logistics models which can match the growth rate of the manufacturing sector. And it is here that the multimodal transportation offers tremendous potential. Multimodal logistics involves carrying freight from point of origin to final destination, using more than one mode of transport — road, rail, air and waterways. In this model, the carrier does not have to own all means of transport; sub-carriers are roped in to help in freight movement. The carrier, responsible for the entire process of integrated transportation is called the multimodal transport operator or MTO. To keep the momentum of economic growth, the Indian government has recognized the value of multimodal logistics of domestic companies in improving their performances. This logistics model helps improve a company’s competitiveness. At macro level, it helps in propelling the country’s economic growth. In order to have an efficient multimodal transport and logistics operations, the government works closely with the private sector on capacity building in multimodal transport operation, management and operation of container terminals. Multimodal logistics in India has various dimensions. Containerisation involves domestic movement and import and export from ICDs, including LCL and FCL cargoes. There are about 685 registered MTOs in India and over 100,000 consignments move on door-to-door basis. Multimodal transport has grown at a rate which is higher than that of the GDP; in addition, as a greater percentage of international trade cargo moves on multimodal transport, the growth is even higher than the general growth in logistics. According to Manish Saigal, managing director at Alvarez & Marsal - Leader for Strategy and M&A/PE consulting services, the expected size of the overall logistics industry is $92 billion. This is expected to grow approximately 10 percent over the next three to five years. Giving a breakup, Saigal said, “Approximately 60 per cent of the goods are moved by road, 35 per cent are moved by rail, four per cent by air and remaining one per cent is moved by water.” Talking about the annual growth rate of multimodal transportation in India with respect to current EXIM trade, Ashok Goyal, managing director, BLR Logistiks, said, “Little focus is given to anything other than container movement and that also goes for EXIM trade. About 2 million TEUs move internally and this logistics movement has a size of about $1 billion in India. There cannot be any factual data to support this but this applies to import and export of containers from ICDs. The annual growth rate – which should have touched about nine percent, is presently running at about 5 to 6 percent only.” While Sailesh Bhatia, president, Association of Multimodal Transport Operators of India (AMTOI) confirmed that there is no reliable data available on the current size of multimodal logistics and it should not be viewed only for EXIM. “Logistics as industry is expected to contribute around $130 billion by 2015 and growth rate of around 12 percent,” he said. Containerisation is considered to be one of the most vital factors of today’s multimodal transportation as it combines the consistency of rail, the flexibility of road, the cost effectiveness shipping, and the speed of air transport. “There is no doubt containerisation has revolutionized the transport industry and has been the main catalyst for growth of global trade. It has made possible to move large volumes of merchandise from points of origin to points of consumption at high speed, lower costs, without multiple handling and minimal risk of damage or pilferage. Containers will be there for long time,” Bhatia explained. Containerisation in India is not only growing at fast pace but will also boost the growth of multimodal transportation in India. “It is correct to say that containerisation is a vital factor,” said Goyal. “The very purpose of containerisation was to gain its flexibility on road, rail and sea. It would have helped in inland water ways but then India has not developed its inland waterways sufficiently enough. With the development of the Golden Quadrilateral, Sagar Mala (now called NMDP) and the Dedicated Freight Corridor containerisation is bound to pick up speed in the coming years,” Goyal added. Multimodal logistics is considered as a solution to reduce logistics costs and time, which can prove to be the biggest advantage for the shipper. “Multimodal Transport Operator offers one stop service, taking care of all modes of transport, handling, customs warehousing, and distribution from the point of origin to point of consumption. Thereby minimising the resources required which in turn reduce costs for the merchant,” Bhatia opined. India has become one of the fastest growing economies in the world, but its logistics infrastructure remains woefully inadequate to meet demands generated by industrial growth. “India is woefully short of infrastructure. The government should address the problems and offer a level playing field to Indian multimodal operators,” Bhatia shared. Road and port infrastructure in this country is still not up to international standards. The major projects in these two sectors, currently being undertaken by the government, will help reduce the time taken to transport goods from one place to another. Goyal believes that today all modern equipment for handling containers are available everywhere. However, there are other problems which relate to customs procedures. “The Customs Act is 50 years old but it has not simplified anything. Regulations and paperwork make it difficult for multimodalism to take off in India. While technology can help a lot, Customs are unwilling to use such technology. Port gates are crowded because Customs want to see every small paper and permission before allowing the box to go in or out. The government needs to take some measures which will improve processes for clearances,” Goyal said. Since multimodal logistics is a newer concept, there are lots of obstacles in the legal framework that the stakeholders face. Multimodal logistics faces many constraints in enabling smooth and seamless operations and is left at the mercy of reluctant regulatory and bureaucratic mechanisms. An exporter is required to submit a bundle of documents to export or import. “The Multimodal Transport of Goods (MMTG) Act enacted in 1993, has changed a lot. The concerned Department and Ministry are aware and corrective steps are expected,” Bhatia said. “The legal framework of multimodal logistics needs to be diluted instead of being made strict. Presently, the international laws are not in sync with the MMTG Act 1993 and as such the procedures given in the MMTG Act are not helpful in any way. MMTG should be liberalized to some extent. Presently, it takes months and piles of paper to get an MTO license. At the end of it, using that gives no particular advantage. Moreover there has to be discipline of self-regulation,” Goyal explained. Our Industry has taken some very positive initiatives like forming of Grievance Redressal Forum which is the forum of all apex Maritime associations like CSLA, AMTOI, FFFAI, BCHAA, ACAAI and these forums have been able to resolve most of the issues successfully. With more and more players from the manufacturing sector relying on multimodal transportation, the potential for this segment of logistics is enormous. But what is required to do urgently is to plug the infrastructure gaps. As containerisation has a key role to play, so its penetration should be increased. As government alone cannot meet these objectives, it needs to encourage more and more private participation through PPP mode. “Demand for logistic service provider is increasing, especially by automotive, engineering, pharma, FMCG and other sectors. I hope logistics industry will maintain steady growth in coming years,” predicted Bhatia. With more players from the manufacturing sector relying on multimodal transportation, Saigal said the potential for this segment of logistics is enormous. “A coordinated approach is required from an empowered government body to oversee all infrastructure projects spanning road, rail, air, coastal shipping, and inland waterways. This will not only speed up things, but also brings in transparency,” he added.n