Critical Challenges in the Logistics Sector and a Way Forward

The Indian logistics sector has been on a path of steady and robust growth for the past few years, owing to the rising retail and manufacturing ecosystem in the country. According to the notification[1] of the Ministry of Finance, logistics infrastructure includes “Multimodal Logistics Park comprising Inland Container Depot (ICD) with minimum investment of Rs 50 crore and minimum area of 10 acre“. The importance of the logistics industry is not only paramount to maintain the economic ecosystem of the country, but also balance the national and international trade.

Introduction to the Logistics Sector

In practicality, the industry has broadened to include transportation and warehousing, protective packaging, material handling, order processing, marketing, customer service, distribution, value-added services, payment collection, packaging, documentation, customer brokerage facilities, kitting, repair management and reconfiguration and also reverse logistics. Ergo, all activities in the logistics supply chain.

Illustration I: Basic Logistics Supply Chain Process


 

The Importance of the Logistics Sector and the Role of Logistics Lawyers

 

As per the data published by Indian Investment Grid[2], an initiative of the Ministry of Commerce and Industry, the Indian logistics sector was valued at USD 160 billion in 2019, and by the end of 2022, it is expected to be valued at USD 215 Billion.. As per the World Bank’s Logistics Performance Index, India’s rank has escalated from 54 in 2014 to 44 in 2018. .

Further, in 2021 India’s logistics sector was valued at $160 billion that employed over 22 million people directly. It is expected to grow at a CAGR of 10 per cent to $215 billion by 2022.[3] Consequently, the logistics industry provides an overall positive scope and opportunity to the Indian economy as well as India’s infrastructure sector.

Since the logistics industry is vast, the role of logistics lawyers and infrastructure lawyers too is dynamic in nature. It ranges from carrying out due diligence, feasibility studies, regulatory approvals, drafting important project and transaction documents, contract management, risk management, regulatory-commercial-financial advice to dispute resolution and handling and advising in litigation.

 

Challenges in the Logistics Sector

 

One of the foremost challenges that the logistics sector faces today arise due to poor infrastructure. Physical infrastructure impacts transportation which facilitates logistics. The country faces challenges in port and roadways infrastructure which directly impacts the transportation of goods. Fuel costs and policy changes directly impact the logistics sector, since the higher the costs of fuel, the higher are the transportation and freight costs which would directly impact the logistic companies and businesses to stay afloat. The economic and socio-political changes in policy would also result in inflation of prices, and in turn, affect costs and disrupt the supply chain. Although the logistics industry has shifted to a more technological friendly environment over the past few years, the industry still faces challenges in safeguarding the documentation, which would be paramount in substantiating claims at the time of arbitrations and litigations. Lack of accurate data at the time of documentation along with several manual processes further aggravate this problem.

The ongoing pandemic has led to several policy changes such as perpetual and partial lockdowns which have directly affected the workers and the labourers of the nation, resulting in delay and/or stoppage of work. This is one of the causes of time overruns and an important cause of disruption in the supply chain. Furthermore, other challenges in the logistic sector involve several compliances that need to be followed in a timely manner, along with maintaining import and export licensing. Other legal issues involve insurance policies, bank guarantees and traversing through taxation compliances and implications.

Some of the challenges faced by the logistics sector are displayed below:

Illustration II: Challenges in the Logistics Infrastructure Industry in India

A vast majority of India’s trade is facilitated by the shipping industry. Furthermore, it is also known that the Government intends to encourage public-private partnerships in the shipping sector and help the local shipping industry with financing ship acquisitions [4]. Therefore, the shipping logistics sector has a promising outlook in the Indian economic ecosystem in the coming future

Commercial disputes in shipping logistics are adjudicated under civil courts with pecuniary jurisdiction and high courts with admiralty jurisdiction. Furthermore, there are established special commercial courts under the Commercial Courts Act, 2015 which deal with subject matters of commercial logistics disputes ranging from admiralty and maritime disputes,  issues related to the sale of goods, and those related to import-export, carriage of goods etc. However, prior to approaching the courts, mediation is mandated. Procedurally, along with the pre-institution mediation and settlement, the Commercial Courts Act, 2015 brings along a firm and time-bound approach into the maritime and logistics legal procedures. In the case of M/s SCG Contracts India Pvt. Ltd v. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors[5], the importance of the timely process was asserted wherein the Supreme Court held that interim applications for rejection of statement of claims or plaint will not pause the 120-day deadline process. Certain challenges in litigations and disputes also relate to jurisdiction, cause of action and limitation barred suits.

The Indian Carriage of Goods by Sea Act, 1925 applies to outward cargo i.e., ships carrying cargo from India to foreign ports. The Multimodal Transportation of Goods Act, 1993 applies to multimodal transportation of cargo from one place in India to a place outside India using more than two means of transport. For cargo claims, the Indian Bills of Lading Act, 1856 is applicable. The Specific Relief Act, of 1963 deals with the specific performance of contracts from an equitable remedy standpoint. Other contractual obligations, disputes and damages arising out of breach of contract would be dealt with by the Indian Contract Act, 1872.

As per a report released by RedCore, the Indian Road Logistics market is said to reach about 330 billion by the year 2025[6]. The Ministry of Road Transport and Highways (“MORTH”) and the National Highways Authority of India (“NHAI”) are entrusted with the task of formulating and administering policies on road transport and freight. Whereas, the Carriage by Road Act, 2007 provides for the regulation of common carriers of goods by road. The Carriage by Road Rules, 2011, stipulates conditions for the grant of registration which applicants must comply with. Some of the challenges that the road transport sector faces are lack of road infrastructure, poor network connectivity and unorganized players with high levels of competition.

 

Case Study: The Ever Given, the Cargo Ship Stuck in the Suez

 

It is known that in the year 2020, more than 50 ships per day on average passed through the 190-km-long waterway of the Suez Canal, which accounted for around 12% of international trade. One of the ships during the time was ‘The Ever Given’. It is estimated that about 90 % of the world’s trade is transported by sea. Ever Given was stuck in the Suez Canal for a period of 6 days. It is estimated that more than $9 billion worth of goods pass through the 190 km waterway each day, amounting to around $400 million per hour. Therefore 6 days of the Ever Given being stuck in the Suez Canal caused cascading havoc to global trade and the logistics supply chain. 

Another instance of how the Ever Given stuck in the Suez affected the global logistics supply chain is the hindrance of trade between Asian and European nations in the following year. It is a known fact that waterways are one of the important mediums for transportation and trade between Asia and Europe. Cotton is regularly supplied from India to Europe by the Suez Canal, similar to the movement of petroleum along the Suez from the Middle East. This directly impacted the supply chain as it resulted in problems with warehousing.

 

A Way Forward for the Logistics Sector

 

As it is noted by the above case study, not having sufficient means of warehousing results in a higher possibility of facing challenges resulting in the disruption of the logistics supply chain. Force Majeure events such as the pandemic have unveiled the need for more warehouses to combat this situation. Furthermore, the GST regime of the Indian Government in recent years has brought about a positive impact to the logistics industry by enabling quicker transportation due to the uniform rate of taxes in all states of India and unhindered transit of goods by the abolition of entry levies. The need of the hour is to develop adequate warehousing infrastructure in the fringe areas of major metropolitan trade hubs of the country and in high commerce corridors. To combat other legal challenges, it is suggested that there should be an organized inventory of all logistics and supply chain documentation for the purpose of claim substantiation which will be necessary at the time of arbitrations and bilateral disputes. Furthermore, moving forward to a technology-driven documentation approach would highly impact the logistic sector by avoiding transit delays and untimely deliveries caused due to improper documentation.

References:

 

[1] Ministry of Finance, Department of Economic Affairs, Notification.No.13/1/2017-INF dated 26th April 2021

[2] Invest in logistics sector in India, National Infrastructure Pipeline, India Investment Grid, https://indiainvestmentgrid.gov.in/sectors/logistics (last visited Nov 25, 2021

[3] https://www.thehindubusinessline.com/opinion/impact-of-logistics-industry-on-economic-growth-amidst-a-pandemic/article36139749.ece

[4]  [4] https://www.thehindubusinessline.com/economy/logistics/budget-gives-a-leg-up-to-ship-leasing-from-international-financial-services-centre/article64962397.ece

[5] M/s SCG Contracts India Pvt. Ltd v. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors. C.A. No. 1638 of 2019

[6] https://www.pgurus.com/indias-road-logistics-market-to-see-a-surge-expected-to-reach-330-bn-by-2025/

 

Image Credits: Image by fancycrave1 from Pixabay 

The need of the hour is to develop adequate warehousing infrastructure in the fringe areas of major metropolitan trade hubs of the country and in high commerce corridors. To combat other legal challenges, it is suggested that there should be an organized inventory of all logistics and supply chain documentation for the purpose of claim substantiation which will be necessary at the time of arbitrations and bilateral disputes. 

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