Express Delivery Services are a key component of trade facilitation
The growth of domestic and international trade has created the need for just-in-time deliveries, which has led to the growth of Express Delivery Services. Dr. Arpita Mukherjee, Professor at ICRIER and an esteemed Member of Committee for Advanced Trade Research, TPCI emphasises on the importance of this sector, when it comes to improving competitiveness of our firms, enhancing exports, creating jobs, and securing investments.
IBT: What are your views on the potential in the express delivery system in India and how it will impact the GDP of the country? Also, what are the future opportunities in the sector?
Dr Arpita Mukherjee: The current size of the express delivery services (EDS) sector in India is small. The sector contributes to around 2% of the industry’s global turnover. However, this is a high growth sector. It grew at a compound annual growth rate (CAGR) of 15.8% from US$ 1.7 billion in 2012 to US$ 5.5 billion in 2020. In the past, the sector grew at around 2.5 times the GDP and this trend will continue in the future.
Express delivery services help to improve competitiveness of our firms and when competitiveness improves, it has a positive impact by enhancing exports, creating jobs, and getting investments. So, basically, it does everything that efficient logistics or infrastructure services do. Today, our firms are facing competition from firms in ASEAN countries. Many times, you will hear that we do not have efficient logistics, and there are delays. This is what express delivery tends to address. When we focus on improving overall logistics facilitation, express delivery is a key component of that entire trade facilitation progress.
IBT: How will the express delivery system help local businesses, SMEs and MSMEs in the future? How will we be able to connect the global value chain? Are EDS services affordable to MSMEs?
Dr Arpita Mukherjee: SMEs account for around 80% of global trade and they can directly use express delivery to send samples and small consignments or use the e-commerce platform which also utilises EDS. The EDS service providers offer integrated door-to-door delivery. While large firms can invest in in-house logistics, EDS and e-commerce support SMEs and MSMEs by providing just-in time, door-to-door deliveries, which can be tracked by users. SMEs can also connect to global clients or global consumers and express delivery services help in growing their B2B and B2C business, both in domestic and international markets. SMEs in sectors like handlooms, gems and jewellery and handicrafts, have small high-value consignments, which express companies carry safely to the destination.
When you look at the question on whether SMEs can afford the services of express delivery companies, affordability actually increases when business volumes increases and this along with an integrated supply chain can lead to cost reduction. As we have seen, sometimes, e-commerce platforms offer products and services at a cheaper rate. Further, costs depends upon what mode of transport you are using. If you have to send a consignment within a week/very tight deadline, you might not take a logistics provider and use the express mode.
So time is also an important criterion. Let us take the example of perishable products like vaccines of pharmaceutical products. Today, EDS companies in India are not allowed to import such products so importers bring them through the logistics mode, but they have to use air transport. The Express Delivery Services does not use international shipping. So if some SME has time he/she will use general cargo and shipping.
It’s not always about the cost, it’s about the need also. What kind of services do the users need? The user, in this case the SMEs, should have the freedom to choose their mode of transport and services (general cargo or express) that they want to take. In many countries, where there is a level playing field between general cargo and express, the latter offers competitive prices.
IBT: How does India fare in comparison to other major economies like China in this sector and how do we improve our global standing?
Arpita Mukherjee: While India is among the fast-growing countries for the EDS industry, the size of the industry is still small and its share of 2% is similar to our share in the world exports. The industry faces some hurdles in India which is not so in other competing countries. The biggest hurdle is the value limit on exports. The other issue is restriction on imports of perishables.
Most countries have some restricted commodities that are not allowed to be exported or imported through courier/express services. These restrictive commodities include arms and ammunition, alcohol, harmful chemicals, antiques, etc. However, in India, commodities requiring a regulatory approval (for eg. from regulators such as the Food Safety & Standards Authority of India) before customs clearances are not allowed to be carried through the express mode. This is at variance with global best practices and results in the lack of a level playing field with general logistics. We have not used railways, as of date, for express delivery – with fast trains this is a possibility. Railways are used in many countries for long-haul express cargo and it is also energy efficient.
Many countries such as Australia, Singapore and USA have a Voluntary Disclosure Programme. Under this, individuals and EDS companies are encouraged to voluntarily disclose their declaration errors and omissions. Disclosure applies to all types of offences under laws and regulations administered and enforced by the customs department and this help the EDS companies to work closely with the customs to identify fraud and/or malpractices. In India, in case of any issues, the licences of courier/express companies can be immediately suspended by the Customs Officer even before proper investigation.
The licences should logically be suspended only after proper investigation and if proven guilty of regulatory non-compliance. The customs should have a process similar to other industry regulators in sectors like aviation, banking and telecommunication, where suspension is not resorted to unless investigation is completed, and the service provider is found guilty to ensure that the interests of other stakeholders are secured.
IBT: How do you think the express delivery system has performed in tier two and three cities? What further steps are being taken to boost development in these cities?
Arpita Mukherjee: With the penetration of e-commerce and measures taken by the government to source products from different districts, the EDS is percolating at a fast pace to Tier 2 and 3 cities. Our industry hubs are also in such cities. The recent Foreign Trade Policy made several suggestions like sourcing from districts and Towns of Excellence, which will help the EDS industry to support the linkage of our companies to global value chains.
A couple of things need attention. First, how fast trains can be used with a secure courier compartment and uploading and downloading facilities at stations for long-haul cargo. This will also be energy saving. Second, for penetrating into the interiors of the country, there is a need for safety, security and roadside amenities. Third, while GST is a path breaking reform, the requirement of EDS companies to register in each state undermines the benefits of a single market. Any measures like single GST registration that support India as a single market will help.
Fourth area where penetration can happen is a very innovative area – India Post, since it has a wide-spread network of post offices. Our country will benefit if India Post and express delivery services industry, which is a network-based industry, can enter into collaboration and partnerships. One area for partnership can be last-mile delivery. But, for that, India Post should have tracking infrastructure in place. The postman should have hand held devices to upload delivery status, because express companies are making a promise of providing end-to-end tracking services to clients.
IBT: How privatization in this sector has impacted this sector’s growth with new start ups and technologies emerging? How will it speed up the process?
Arpita Mukherjee: EDS is primarily a private sector success story. In a few countries, including India, public sector like Department of Post also has an express service – the Speed Post. EDS, like telecommunication, is a network-based industry and it performs well under collaboration and partnerships. Start-ups and technology are driving the growth of this sector. India is a bit different from other countries, as many other countries had already undertaken postal reforms and privatization.
Our study did not cover the government or India Post, and we only looked at the EDS sector giving the user industry a choice to decide on their service provider – which can be Speed Post, private courier or even normal logistics, each of them has its strengths. For example, the pan-India coverage of India Post is excellent, but it may be lacking behind private players in digitalization. If a company provides fast-track services, is sustainable, has ensured end-to-end control over the consignment, is efficient and meets client commitments, it has to innovate and upgrade technology. The world is competitive, and customers/users are looking for fast and efficient delivery. If any service provider can provide such delivery, it will survive.
Speaking of upcoming technologies, drone deliveries are being studied but it has its positive as well as negative sides. In India, there are many areas where vaccines etc. have been talked about being delivered by drones, but it also has its security issues. Digital locker is another initiative, which even Department of Post is looking at. Any technology can be used for human welfare and growth. There are many localities in India, where certain medical facilities do not reach on time, so drones are being used. For example in Afghanistan, it has been used to carry blood samples, etc., but they are at the trial stage in many countries.
IBT: What are the major barriers faced by this sector, and what steps do you suggest the government should consider to reach the revenue of US$ 484 billion, as projected by ICRIER, by 2030?
Arpita Mukherjee: Our report detailed out the issues faced by the sector in terms of regulatory issues, infrastructure related issues, skill gaps, technology gaps, state level issues, etc. Issues like value limits on exports can be resolved immediately, while others like use of dedicated rail corridors may take some time.
There are technology gaps – for example, the IT system of the EDS Custom clearances has to be integrated with allied agencies for fast-track clearances. This can be done through a project in public-private partnership mode. The entire electronic Express Cargo Clearance System (ECCS) for Customs clearance of express shipments in India was developed as a successful partnership between Customs and Express Industry Council of India (EICI).
On the regulatory front, first, the biggest problem is the outdated Courier Imports and Exports (Electronics Clearance) Regulation (2010), which is outdated. This regulation was a cut and paste of the 1998 Regulation. The Customs has technological modernization and the regulation is from 2010, a time when digitalization for a robust risk management system had not taken off in India.
Second, GST has integrated the market and that’s a massive measure, but there should be single registration for a single market. Registering in each state does not make sense. In case of the infrastructure gap, each of the different modes of transport (road, railways and air) have their own infrastructure issues, which the government is trying to handle through the National Logistics Masterplan and the National Logistics Policy.
India needs dedicated freight corridors. While airports are being upgraded, there has to be dedicated space for courier services, fast-track clearance services and air site facility. Also, there should be loading-unloading facilities for any mode of transport – be it air or railways in stations. If you look at some of these infrastructure issues, they are handled in India at the state level. For example: municipalities have restrictions on entry and exit of vehicles. But, in many countries like the US, if it is a courier vehicle, it is allowed to enter and exit the city limit to facilitate fast track delivery. Again, the USA has dedicated parking space for courier vehicles. So, there are some practices that we can look into, and select some of these best practices from other countries.
But, the biggest problem we are suffering from today is probably the technology linkages. The courier export cargo courier technology (ECCS) has to be linked with the allied agencies. It is already a robust management system for customs. Other agencies have their regulations in place. For example: FSSAI 2017 Regulation allows for perishable cargos and samples etc., but the IT system between Customs and FSSAI, Drug Controller, etc. has to be interlinked.
When you interlink the systems, you also need skilled people in the custom and allied agencies to facilitates cargo clearances. Today, there is also a shortage of skilled staff, which needs to be addressed. Thus, 2010 Courier regulation has to be updated, technology has to be interlinked across clearance agencies and there should be skilled staff to use a technology-driven robust risk management system. Given that similar risk management systems are there is general cargo, this is pretty easy to replicate.
During our report release on April 4, 2023, Honorable Minister of Commerce and Industry, Shri Piyush Goyal, has already suggested that a committee may be formed under the Joint Secretary Shri Surendra Ahirwar consisting of stakeholders and this committee should come up with an Action Plan within one month, i.e., May 4, 2023. This is an excellent suggestion. Given the focus of our government on improving the efficiency of the logistics sector, I am sure that if the reforms can be implemented, the projected growth in our study is achievable and our exports will increase exponentially.
Dr Arpita Mukherjee is a Professor at ICRIER and Member, Committee for Advanced Trade Research, TPCI. She has several years of experience in policy-oriented research, working closely with the Government of India and policymakers in the EU, US, ASEAN and in East Asian countries. She has conducted studies for international organizations such as ADB, ADBI, ASEAN Secretariat, FCO (UK), Italian Trade Commission, Konrad-Adenauer Stiftung (KAS), OECD, Taipei Economic and Cultural Centre (TECC), UNCTAD and the WTO and Indian industry associations such as NASSCOM, FICCI, IBA, IDSA and EICI. Her research is a key contributor to India’s negotiating strategies in the WTO and bilateral agreements. The views expressed here are her own.