General Dwight Eisenhower’s famous observation, made decades back, is palpably resonant in today’s times where the logistics sector has the critical task of ensuring the unhindered flow of goods and essential items across the globe amidst the pandemic, geopolitical tensions and supply chain disruptions. The Indian logistics sector, however, is beset with concerns, such as clogged transport networks, a skewed mix of transport modes, insufficient storage and handling facilities for in-transit commodities. This leaves the country in a disadvantageous position vis-à-vis other leading Asian manufacturing nations. Multimodal logistics parks (MMLPs) precisely aim to address these challenges and will help India attain competitiveness by lowering logistics cost.
What are Multimodal Logistics Parks?
Part of the
Shakti National Master Plan, MMLPs form a key policy initiative of the Government of India, which are aimed at improving the freight logistics sector by lowering overall freight costs and time, cutting warehousing costs, reducing vehicular pollution and congestion, and improving the tracking and traceability of consignments through infrastructural, procedural and technological interventions. These parks, to be set up under the Logistics Efficiency Enhancement Programme, will serve as intermodal freight-handling facilities with mechanised material handling provisions and will contain warehouses, specialised cold chain facilities, freight/container terminals and bulk/break-bulk cargo terminals. The facility of intermodal connectivity—such as dedicated railway lines, access from prominent highways and expressways—will allow the movement of commercial vehicles and connectivity to an airport or a seaport. MMLPs will also include various value-added services, including labelling, packaging, tagging and crating, thereby offering a variety of services at a single location.
Unique advantages of MMLPs
Logistics parks drive reduction in overall freight cost by enabling freight transportation on higher-sized trucks and rail. The immediate benefits of MMLPs will include:
Reduction in transportation cost: MMLPs enable small trucks to transfer load to larger trucks, which have 60 per cent[ Logistics Efficiency Enhancement Program (LEEP): Development of multimodal logistics parks, Ministry of Road Transport and Highways, accessed on 7 July 2022. ] lower freight cost on a per tonne per kilometre basis when compared to smaller-sized trucks. This is estimated to achieve at least a 10 per cent reduction in transportation cost.
Reduction in carbon emissions: Freight movement by rail has 65 per cent[ Logistics Efficiency Enhancement Program (LEEP): Development of multimodal logistics parks, Ministry of Road Transport and Highways, accessed on 7 July 2022. ] lower CO2 emissions compared to road freight on a per tonne per kilometre basis. With India targeting 45 per cent reduction in carbon intensity by 2030, MMLPs will go a long way in reducing freight pollution.
Reduced congestion: Increased freight movement on higher-sized trucks and rail will lead to a 20 per cent[ Logistics Efficiency Enhancement Program (LEEP): Development of multimodal logistics parks, Ministry of Road Transport and Highways, accessed on 7 July 2022. ] reduction in freight vehicles catering to the demands. Further, with the shifting of warehouses and wholesale markets (currently which are based in urban areas), space in cities will be freed up, thus reducing congestion.
Improved warehousing: Warehouses operating in cities will stand to benefit after shifting to MMLPs as they will incur low rentals. Additionally, modern and mechanised storage solutions provided by logistics parks will enable reduction in storage and handling losses.
Further, MMLPs will help in the transition from the current situation of point-to-point freight movement to an efficient and smooth situation of hub and spoke model freight movement, enabling faster delivery of goods among manufacturers, sellers and customers. Additionally, the strategic geographical positioning of MMLPs (such as in Jogighopa, Nagpur, Chennai, Indore and Bengaluru, to name a few) aims to restructure the supply chain in a more agile and cross-country manner.
By supporting faster and efficient freight movement and reducing logistics cost, MMLPs are expected to make Indian exports more competitive in the international market. This will also create employment opportunities and further trigger the development of Small and Medium Enterprise (SME) manufacturing clusters across MMLP areas, boosting entrepreneurial opportunities.
Capitalising on opportunities
MMLPs, well-placed to leverage the new opportunities thrown up by dedicated freight corridors (DFCs), are expected to attract INR50,000 crore[ Multi Modal Logistics Parks to be set up at 35 prime strategic locations, Press Information Bureau, accessed on 15 July 2022.] worth of investment. Of the 35 MMLPs planned under phase 1, one project is being developed in Chennai. Another MMLP in Nagpur is being created across 346 acres of land. Both MMLPs are expected to be ready by the end of 2024.
Strong push being given to enhance the efficiency of multimodal infrastructure is encouraging logistics companies to invest in the sector. A leading real estate major, for instance, in collaboration with a foreign private equity firm, is planning to invest more than INR2,500 crore to develop industrial, logistics and warehouse parks across the country. Another leading industrial and warehousing developer seems is optimistic about MMLP growth opportunities and is planning to build two logistics parks in major industrial states. A leading port operator, on the other hand, expects its MMLP, spread across more than 1,000 acres of land, to attract large investment. Investment activity in the logistics sector is likely to gain further momentum with more MMLPs becoming functional.
While MMLPs have significant potential to lower logistics cost, its viability depends on identifying land near to consumption centres and industrial clusters. For instance, the success of Logistics Park Kansas City (LPKC) in the US had a lot to do with its proximity to the urban and industrial centre of Kansas. Direct access to rail and road infrastructure—especially access to four major interstates—together with large tracts of land that could be quickly acquired and developed led to LPKC being a successful model, which generated employment, nourished local manufacturers and added to the state’s income.
So, while the benefits of MMLPs remain beyond doubt, their success will rely on parallel infrastructural development and policy initiatives (such as the National Railway Plan 2030, National Infrastructure Pipeline and National Logistics Policy). The availability of land at an affordable rate is a challenge when it comes to land allocation for MMLPs. Furthermore, multiple approvals are required from various Central and state ministries for the execution and working of these MMLPs, which can cause delays in completion of these projects. There are chances of numerous conflicts/disputes arising during the various stages of construction, which can take a long time to resolve. This can be a key concern for private players.
While infrastructure status to the logistics sector could help firms borrow money at competitive rates, the focus should also be on developing the corporate bond market, which is essential to avert the risk of asset-liability mismatch for banks. Further, state governments have a substantial role in the development of logistics infrastructure as they provide land, subsidies and requisite approvals, all of which need to be aligned for MMLPs to come up faster. Finally, the completion of these projects on time and within budget also remains a challenge, which will require a closer scrutiny.
To conclude, MMLPs have the potential to transform India’s logistics sector by reducing the transportation cost and time taken to deliver. As with other infrastructure projects, there are challenges when it comes to MMLP implementation, and addressing them at the earnest would help the logistics sector play a crucial role in propelling India to become a USD5 trillion economy.
The author is Co-Head and COO, India Global, KPMG in India.