Digitization can bring the logistics share of India’s GDP to single digits

R S Subramanian | October 7, 2022

R S Subramanian, SVP South Asia, DHL Express shares his perspective on logistics and digitization in the current context, and how it can potentially transform India’s trade ecosystem.

The term logistics can mean many things to many people. Goods transportation by air, sea, land, rail, multimodal, warehousing, fulfillment, distribution, last mile, first mile, and deliveries ranging from a pin to vaccines and even spacecraft or satellite.

A large number of stakeholders and touchpoints are involved in the logistics supply chain. Hence, there is a multiplicity of interests vis-à-vis who wants to control, contribute, or be enabled in the supply chain – shipper, consignee, service providers, online platforms, regulators, Ministries, consumers, etc.

Understanding the complexity

The Indian market is large and lucrative having a worth of approximately US$ 160 billion. According to a McKinsey study, the Indian technology and services market is expected to reach about US$ 350 billion by 2025. The market is very complex and has evolved over the last 75 years. Some of the numbers tell us about the complexity and give us an indication of how we can streamline and digitalize the logistics space.

There are numerous Ministries in the Centre and State, which have their Regulatory agencies apart from Trade promoting agencies. The ecosystem covers vast regions of the country including various logistics options via seaports, airports, inland container depots, road and railway networks, inland waterways, etc. Hence, the existence of these complexities opens possibilities for eliminating waste and creating efficiencies in productivity and cost.

An NCAER study says that logistics as a percentage of gross value added can contribute anywhere between 15-22% depending on the commodity. This shows the scope of economic value that can be created from simplification, elimination of waste, automation, and the need for digitalization. Logistics is the flow of goods in one direction, which almost always leads to the flow of money in the opposite direction and data flowing in all directions. An often quoted number of logistics costs is pegged at 13-14% of GDP. In developed economies, it can be as low as 5-6%. The NPL endeavors to bring down the cost of logistics to a single digits, which can happen through digitization.

“We do about a million shipments a month typically with 3-4 copies of the airway bill for use. So about 5 million A4 size papers have been eliminated since we embraced digitalization. All the bills that DHL now gives out to its customers are digital. The collection is over 99% digital.”

Today, imagine rolling out GST without digitization. Constantly evolving Digital GST, Aadhar, UPI, and e-invoices are great examples of what digitalization can do. Speed, ease of doing business, and compliance are being enabled due to digitalization.

Over the last 5-6 years, DHL has had its share of challenges in onboarding customers onto the basics of digitalization, of which 50-60% are MSMEs. The pandemic accelerated the shift to digital, and today the airway bill, which is the most basic information or data contract between enterprises and customers, is 100% digital. We do about a million shipments a month typically with 3-4 copies of the airway bill for use. So about 5 million A4 size papers have been eliminated since we embraced digitalization. All the bills that DHL now gives out to its customers are digital. The collection is over 99% digital.

Even now, when a customer pays online or through net banking, it takes 48 hours for the amount to be available for reconciliation. Customer-friendly digitalization can make the information available real-time, which can also contribute to a reduction in transaction costs.

Sound digital processes across the regulatory environment can bring more efficiency and sustainability. Again taking the example of GST, imagine the tons of physical paperwork that would have to be archived or stored, for as long as 7 years as a requirement by the Finance Act. Going paperless and digital in a smart way is therefore the right option for India, which aspires to be among the largest economies in the world.

We cannot work on two systems

India is moving towards becoming a US$ 5 trillion economy soon and has a 2047 vision that will take India to greater heights. Trade infrastructure is essential to make this vision a reality. It takes an enormous amount of time and a huge infrastructure to realize the ambition, and almost every major project has the risk of delays. Digitalization and data interchange can result in the simplification of regulations and improvement in the automation of processes. This is necessary, so that more can be done with the existing infrastructure while allowing entities more time to create infrastructural capacities that the economy needs.

The recently launched National Logistics Policy addresses many concerns. It talks about a few elements that rely on digitalization – the Integrated Digital System (IDS), the Unified Logistics Interface Platform (ULIP), and the Ease of logistics, or E-log system. However, the basics of data compliance and data cleanliness from the grassroots level have to be adhered to for clean digital adoption rates.

“PM GATI Shakti Master Plan, NLP, and ONDC (Open Network for Digital Commerce) are three major pillars in the making. When they come together, we will see the kind of transformation that UPI has done for payments.”

The ambition of NLP is the interoperability of multimodal logistics with the standardization of ideas. Twenty years back, when I went to Germany it was fascinating to see that you can check in your luggage at the train station, get a boarding pass, walk into the airport, and get on a flight. You can be rest assured that the luggage will be checked in, as the train, road, and air networks for goods and passengers were fully interconnected.

That kind of interoperability will come if there is standardization, and IDS and ULIP are promising to deliver that. It is encouraging to see the huge emphasis on simplifying the rules for logistics across the country. This will singularly help drive the cost down. PM GATI Shakti Master Plan, NLP, and ONDC (Open Network for Digital Commerce) are three major pillars in the making. When they come together, we will see the kind of transformation that UPI has done for payments.

A significant amount of trade education is needed to build awareness so that the bottom of the pyramid understands and appreciates the need for compliance. From the regulatory side, compliances have to be made more accessible.

The appreciation for lead times for implementation is yet another critical point. We are traditionally impatient to implement rules and regulations. In a manual environment, it may have been possible despite a few challenges. However, in a digital environment, it is far more difficult to implement regulatory changes in a rush. Hence, there must be a culture of considering the appropriate transition period for implementation.

We cannot run manual and digital processes in parallel in a fully digitalized environment. Governance has to evolve along with the digitalization processes adopted, and cannot run on two parallel systems where one demands paper, round seal, and signature, and the other works on e-signatures and data, pre-audit, and risk management systems. Therefore, there has to be a marriage of thought when digitalization is rolled out.

However, I am positive about the future. Emerging from this state of great flux, let us say five years down the line, I am sure we will be amazed at the progress that India would make in the logistics industry.

R. S. Subramanian is the SVP South Asia, DHL Express and a member of the DHL Express Asia Pacific Management Board. Subramanian has more than 30 years of expertise in both the product-led and service industries, and is well-versed in company strategy, marketing, team development, and customer management.

Subramanian began working for DHL Express India as Head of Sales before being promoted to Vice President for the South Asia Cluster (RoSA), where he oversaw the company’s activities in Pakistan, Bangladesh, Sri Lanka, Nepal, the Maldives, and Bhutan. He played a key role in establishing and reforming DHL operations in these markets.

Subramanian was appointed Managing Director, DHL Express India in 2010 and promoted to the South Asia region leadership position in 2022. Prior to joining DHL, Subramanian spent 14 years working in a variety of sales, brand management, and export management positions for Hindustan Unilever Ltd.

Subramanian is an Industrial Engineer and holds a Master’s degree in Management from IIM Bangalore. He has achieved Gold-Certification under First Choice, Deutsche Post DHL’s internal quality program, , which is based on the Six-Sigma methodology. Views expressed are personal.