Mumbai, Oct. 27 -- The next phase of India's logistics transformation will be determined by how well infrastructure assets are utilised, alongside a broader industry effort involving manufacturers, logistics providers, warehouse operators, technology partners and policymakers, declares Samarnath Jha.
India has made substantial investments in highways, dedicated freight corridors, ports and multimodal connectivity. The challenge today is to improve how efficiently existing capacity is planned and utilised. The next phase of logistics advantage will depend more on planning freight movements better, improving coordination across the supply chain and extracting higher productivity from the infrastructure already in place.
India's logistics costs often come under scrutiny whenever diesel prices move. The immediate impact is reflected in freight rates, but the effect extends across the supply chain. Warehousing, inventory carrying costs and distribution all become more expensive when fuel prices rise. Nearly 70 per cent of the country's freight continues to move by road, making fuel prices one of the biggest variables influencing logistics costs across industries.
Infrastructure Needs Alignment The pace of investment has changed. Infrastructure development is now being planned as a network rather than as isolated projects. More than 350 multimodal projects valued at over '16 trillion have already been assessed by the Network Planning Group (NPG) mechanism under the PM GatiShakti National Master Plan. Freight corridors and new port capacity are beginning to improve connectivity across all transport modes. The question for industry is no longer whether infrastructure is improving. It is whether businesses are redesigning their supply chains to take advantage of it. These investments are beginning to reflect in national logistics performance. India's logistics costs are now moving towards approximately 8 per cent of GDP, a significant improvement from the 13-14 per cent estimates that defined the industry for years. While commendable, this improvement should not breed complacency. Lower logistics costs improve competitiveness only when businesses translate better infrastructure into sound operating decisions. In many organisations, logistics continues to be managed as a sequence of independent activities. Procurement focuses on material availability, manufacturing on production schedules, warehousing on storage and transportation on freight costs. Each function may achieve its individual targets, yet the supply chain frequently performs below its potential because decisions are taken independently rather than collectively.
Fragmented decision-making This fragmentation has tangible commercial consequences. Rail remains significantly more economical for long-distance freight, at around '1.96 per tonne per kilometre, approximately 48 per cent lower than road transport. However, businesses prioritise reliability, delivery schedules and customer requirements over freight cost alone, which explains the continued dominance of road transport. The same pattern is visible across the trucking sector. India's trucking industry remains highly fragmented, with more than 80 per cent of the fleet owned by operators managing fewer than five vehicles. The industry has built a remarkable reach despite this structure. The next opportunity lies in improving load consolidation, reducing empty return trips and increasing vehicle utilisation, which continue to add avoidable costs across the logistics network. Fragmentation extends beyond transport. Warehousing decisions frequently follow a similar path. Facilities are commonly established based on customer proximity, land availability or historical operating patterns. Transportation, inventory and warehouse planning are then calibrated around those decisions. Many businesses end up inflating their logistics costs by 15-25 per cent owing to uncoordinated inventory, freight and warehousing decisions. The consequences quickly extend across procurement, production, transportation and distribution. Businesses that plan these functions independently have fewer options available when circumstances change. With integrated planning, businesses can reduce inventory, improve asset utilisation and eliminate avoidable freight movement. The benefits extend well beyond freight costs. This shift in planning is likely to determine where the next meaningful reduction in India's logistics costs comes from.
Efficiency through planning Businesses often compare India's logistics costs with those of developed economies. Such comparisons are meaningful only when viewed alongside how those logistics systems operate. Lower logistics costs are rarely the result of infrastructure alone. They reflect years of coordinated planning across transport networks, manufacturing, warehousing and trade. Germany offers a useful example. Despite relatively high labour and energy costs, it remains one of the world's strongest manufacturing economies. Rail and road serve different purposes within the same supply chain. Rail is the preferred choice for long-distance bulk movement, while road provides the flexibility needed for regional distribution and customer deliveries. The transport mode is selected based on the economics of the shipment rather than organisational preference or historical practice. The Netherlands provides another perspective. Looking only at the Port of Rotterdam can be misleading. Much of the efficiency associated with the Dutch logistics system comes from the way ports, inland waterways, rail and road operate as a connected network. The port succeeds because the network succeeds. Singapore has adopted a similar philosophy within a very different geographical context. With limited land available for expansion, efficiency has become the primary driver of competitiveness. Port operations, customs processes and digital documentation have evolved together, improving cargo velocity and schedule reliability. Businesses spend less time building contingencies into their supply chains because the logistics ecosystem itself is predictable. India's operating environment is fundamentally different. Our geography, freight mix and industrial structure cannot be directly compared with those of these economies. What remains relevant, however, is the underlying lesson. Infrastructure delivers its greatest value when planning, technology and operations function as an integrated system.
Deriving next competitive advantage The logistics strategy for a chemical manufacturer moving bulk cargo over long distances will naturally differ from that of an electronics company handling high-value, time-sensitive products. Both approaches have their place. The question is not whether freight moves by road or rail. The question is whether transport planning begins early enough. In many organisations, transport is planned only after sourcing, production and inventory decisions have already been made. At that stage, the logistics team is left with execution rather than optimisation. The available choices are narrower, and so are the savings. Proactive businesses, however, can reduce overall logistics costs by 20-30 per cent by integrating transport planning with production and inventory decisions at the outset. Planning transport earlier creates greater opportunities to consolidate freight, reduce empty movements and respond more effectively when customer demand changes unexpectedly. Manufacturers, logistics providers, warehouse operators and transport partners often optimise their own operations. The overall network, however, performs best when decisions are taken with a shared view of demand rather than in isolation. Integrated planning becomes most valuable during disruptions. Delays, sudden changes in demand or supply interruptions rarely remain confined to one part of the network. They rapidly affect production plans, inventory availability and customer deliveries. Businesses that have already aligned these functions usually recover faster because they have more options available. Technology has made it easier to access real-time information across the supply chain. The organisations that consistently outperform are usually the ones that convert information into decisions before small operational issues become larger commercial problems.
Turning infrastructure competitive Logistics can no longer be viewed as a downstream function concerned primarily with transportation costs. It has become an integral part of supply chain design, influencing sourcing strategies, production planning, inventory deployment and customer fulfilment. As supply chains become more distributed, decisions taken in one area increasingly affect performance across the network. This assumes greater significance as India strengthens its manufacturing base and integrates more deeply with global value chains. The scale of investment being directed towards manufacturing is substantial. Converting that investment into long-term competitiveness will depend as much on supply chain design and execution as on production capacity itself. The next phase of India's logistics transformation will require a broader industry effort. Manufacturers, logistics service providers, warehouse operators, technology partners and policymakers each influence the efficiency of the overall ecosystem. The objective is not simply to improve individual operations, but to improve the way they function together. India has already made significant progress in strengthening its logistics infrastructure. The next set of gains will come from using that infrastructure more effectively through higher asset utilisation, stronger multimodal integration and better coordination across the supply chain. The country's logistics competitiveness will now be determined less by the assets it creates and more by the way those assets are used. The infrastructure is steadily falling into place. The bigger opportunity lies in redesigning supply chains to use it better.
About the author Samarnath Jha, CEO, Accex Supply Chain Solutions, brings over two decades of expertise in commercial strategy, planning, and M&A, with deep domain knowledge across manufacturing, supply chain, and freight services.
Published by HT Digital Content Services with permission from Infrastructure Today.