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Ever since the liberalization of its economy, India has been on a path to become one of the top economic powers in the world (Gupta et al., 2012). Logistics performance is an important factor that affects the competitiveness of nation as well as firms. Shortening of production cycles, amplification of competition globally, sharing and outsourcing of production, shorter delivery times and plethora of choices for customers has made logistics as a source of competitive advantage. High logistics costs and low levels of service are a barrier to trade and foreign direct investment and thus to economic growth (Arvis et al., 2007).
Logistics is about moving materials, information and funds from one business to another or from a business to the consumer. It is an important part of the business economic system and is a major global economic activity (Mohan, 2013). A few years ago, logistics was considered as the necessary evil by most businesses in India, but now they are seen as a matter of survival and competitive advantage.
Figure 1. Logistics costs and losses due to transportation, accidents, and mishandling accounting
The logistics industry in India is in a nascent stage. It was valued at an estimated US$ 130 billion in 2012-13 (IBEF, 2013). The annual logistics cost in India is estimated to be 13% of the GDP (Deloitte, 2012).
Table 1. Problems in the Indian Logistics Sector
Although the growth is exponential, it is faced by numerous problems as shown in Table 1, leading to very high logistics cost. A fragmented market increases paperwork costs and efforts required to channel resources. The poor condition of roads translates directly to higher vehicle turnover, which increases operating costs and reduces efficiency and increases the rate of accidents. These inefficiencies are passed on to the logistics industry, with transportation costs accounting for nearly 41% of logistics costs and the losses due to accidents and mishandling accounting for nearly 14% of logistics costs as shown in Figure 1. In addition to increasing the logistics cost, the transit time also gets increased and the useful assets like the driver, labour and truck are deployed for a longer period of time to complete a delivery. Indian logistics sector will be worst hit by acute shortage of skilled professionals at all levels which is equally true in case of other advancing countries like China, Canada, USA but India is likely to be worst hit due to lack of any basic institutional mechanism that addresses the acute shortage of skill gap and bridging the gap (Dubey and Singh, 2009). Internationally while truck drivers do an average of greater than 600 km per day, in India the struggle is to get 400 km per day (Viswanathan, 2014). Furthermore, the logistics cost as the percentage of product cost is 20-21%, which is very high compared to 4-5% in developed economies (Kaur, 2011).