Role of Logistic Industries in the Economy

Give data about how much it contributes to the economy now

When you consider the impact of logistics in the economy, the scale is so massive that it is hard to quantify all at once. You have to delve deep into the various sectors that are heavily dependent on logistics. In the truest sense, logistics truly does drive the economy. The effective movement of goods creates larger trade and economic growth opportunities in an economy. If we talk about things on a global scale, the connection between logistics and the economy of a country is quite obvious - it facilitates international trade. In India, over the last two decades, we have seen a huge increase in the demand for consumer goods which have risen in conjunction with the boom in delivery services. This has led to an upgrade in customer expectations. The volume of products to be delivered has increased exponentially and there is an increased expectation for them to be delivered faster. Part of the credit for this goes to the steady and inevitable growth of e-commerce. This has changed and evolved to faster and more streamlined practices which have grown to reflect the changes in consumer behaviour and transportation patterns, among other things.

Globally, the logistics industry is a whopping $4.3 trillion business that thrives on international co-operation and cross-country transportation. The facilitation of smooth and efficient movement of goods between domestic and international boundaries dictates the opportunities for a country to grow its economy and trade opportunities with international partners.

The efficiency of transportation and logistics systems in a country like India is the connective tissue that facilitates connectivity between the various macroeconomic sectors such as agriculture, production and tourism. For example, a country that has very complicated customs processes, a broken infrastructure and varying state policies when it comes to border crossings, will have a higher cost of business, which in turn will detract from attracting potential business opportunities. This is especially true for developing countries where the share of the global business in any sector is relatively smaller and competition is very intense. An efficient system can have a boosting effect on the economy of a country through its attractive operations and potential.

In a 2018 report by the World Bank called “Connecting to Compete”, it was noted that when it comes to logistics, on average high-income countries score about 48% per cent better than low-income countries. So what does this tell us? This means that improving logistics infrastructure and systems can have a very real and direct impact on economic development. It can also lead to real-world social empowerment and improvement. Its importance is also highlighted by the focus leading countries put on international supply chains and logistics.

Let us take a moment to focus more on the logistics industry within the country. The forecast based on the current rate of growth looks encouraging. There has been significant investment in the industry, and as a result, there is an expected evolution in the sector that will lead to significant job creation. In fact, by some estimations, by the year 2022, the industry will potentially become the largest creator of jobs in the country. With current employment of about 22 million in the country, the industry is growing at a rapid pace, and as a result, exports are expected to be up by 5 to 8%. Before the ongoing pandemic, the projections for the industry by 2020 were near the $215 Billion mark. As a direct result of this growth, the government has stepped up infrastructure and policy support.

There are plans to create a new logistics plan which will create a more streamlined and economical system for the transportation of goods and logistic solutions by the year 2035. The government has recognised that if it has to improve the national GDP, it will have to target international business, which in turn is facilitated by an upgraded and robust supply chain. Removing bottleneck barriers and reducing government tariffs will go a long way in reducing costs and improving the potential for GDP growth.

Part of the growth we see in the industry is induced by the increase in the sheer volume of global trade. This has forced countries to improve, upgrade and increase their logistic capacities. Today, economic growth is intuitively connected with the expansion of logistics and transport infrastructures that is supported by data analysis. Since the nature of infrastructure building requires heavy time and monetary investment, it has to be supported by warehouse management, information systems and labour.

How it has impacted on the economy because of Covid 19

Like you would expect, logistics and transport have been hit hard by the pandemic. Initially, the flow of goods took a big hit. With countries unsure about the next steps, logistics between nations dealing in trade was halted until the next steps could be planned. Logistics disruptions have in the months since the outbreak, had a big impact on the economy and job creation.

There was a shortage of labour as truck drivers became unavailable and as per studies, over 50% on the country’s trucking fleet was stranded. Local transport also came to a temporary halt which affected local supplies in cities. While Railway transport tried to make up for the logistic demand, there was a big difference in the service of key sectors with doorstep pickup and drop is an issue.

Remedying such unforeseen and unpredictable tasks was a daunting challenge. However, steps have been taken in this direction to ensure that the disruption does not have long-term crippling effects. Some of the steps taken were:

    1.Restarting and rebuilding logistics functioning.

    2.Unlocking supply of essential retail goods

    3.Fast-tracking digitization of supply chain and logistics

The pandemic has had some short-term effects that will only be remedied with the application of smart data-driven changes. The challenges faced by the sector as a whole will require close quarters coordination for data-sharing and communication between the government offices and logistics companies and service providers.