In October, G.R. Gopinath, who revolutionized air travel in India by starting Air Deccan, the country's first low-cost airline
This time around, though, he'll be transporting cargo, not passengers.
"Deccan 360 will change the way deliveries are made all over India," Gopinath says. "At present, next-day connectivity is limited to the metros and a few cities. My goal is to connect 75 cities in India to each other on a 24-hour delivery schedule within the next year."
When Gopinath launched Air Deccan in 2003, only 1% of Indians traveled by air. By the time he sold his venture to industrialist Vijay Mallya in 2007, the figure had jumped to 5%.
Why is Gopinath, a former army pilot and farmer, venturing into the logistics space now?
"Many entrepreneurial decisions are taken at a subterranean level," he says. "The idea of starting a logistics business was was both instinctive as well as fueled by my own frustrations."
Gopinath notes that many times in Air Deccan's early days, a flight cancellation could be attributed to the lack of adequate logistics services in India.
Gopinath's experience largely sums up the state of the logistics industry in India: inefficient and expensive.
Industry players and analysts say logistics costs in India are among the world's highest -- accounting for 13% of GDP, according to a report by KPMG. That is far greater than in the United States (estimated at 9%), Europe (10%) and Japan (11%). Outside of the metros and a few cities, the timing of deliveries is uncertain.
Big Hurdles
1. A lack of adequate infrastructure and complex taxation and regulations are big hurdles. For example, most domestic airports don't have adequate cargo terminal facilities.
"In this business, turnaround time is critical," notes Anil Khanna, managing director of Blue Dart Express. "If one does not have the right facilities in terms of size and site within an airport, it is a huge challenge." Blue Dart is the only logistics player in India with dedicated cargo aircraft (just seven).
2. Moving cargo by road has its own set of problems. National highways form only 2% of India's road network, but they handle more than 40% of road freight traffic. This naturally leads to traffic jams. Regulatory requirements and cumbersome documentation also compromise speed. "On average, a commercial vehicle in India runs at a speed of 20 miles per hour. In Western Europe and the USA, the average speed is over 60 miles per hour," notes Vineet Kanaujia, general manager at Safexpress, which has a fleet of 3,500 vehicles.
3. Moreover, India's tax system is complex. To avoid multiple taxation, companies typically have warehousing operations in every state. The result is a large number of small warehouses across the country that lack the latest warehousing processes and technologies and don't offer economies of scale.
HUB and SPOKE
Gopinath, for one, is betting big. He is creating India's first hub-and-spoke distribution model for express logistics. A 100-acre state-of-the-art cargo handling facility in Nagpur in central India will serve as the hub for his operations and will connect the metros as well as tier two and tier three cities through an air and surface network. Deccan 360 will begin operations in October with three Airbus aircraft and a network of 30 franchisees (for surface transport, warehouses and collection points). At first, Deccan 360 will offer next-day connectivity to 30 cities in India. Within a year, Gopinath plans to increase the air fleet to five Airbuses and four aircraft from French-Italian manufacturer ATR, ramp up the franchisee network and offer next-day connectivity across 75 cities.
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