The logistics sector plays a crucial role in any nation's development story. In India, the sector has made immense strides in recent times courtesy GST, relaxed FDI regulations, the granting of infrastructure status, et al, a lot remains to be done. India's rank in the World Bank Logistics Performance Index (2016) was a dismal 35 - albeit up 19 places since the previous survey in 2014. Also, logistics costs at home are among the highest in the world.
To address this issue, back in 2016, the government announced plans to develop around 35 Multi-Modal Logistics Parks (MMLP) across the country under the Logistics Efficiency Enhancement Programme. The idea was that these parks would provide a variety of services in a single location, thus enabling firms to produce more and deliver faster to customers, which in turn translates into major savings.
Flipkart, India's homegrown e-commerce leader, has just announced plans to help build this critical infrastructure by setting up a 4.5 million sq ft state-of-the-art Flipkart Logistics Park in Karnataka. According to Flipkart Stories, the company will acquire 100 acres of land in the outskirts of Bengaluru to build the carbon-neutral, fully-integrated park. The latter intends to improve supply chain efficiency by deploying mechanised warehousing, acting as a freight aggregation and distribution hub, and by leveraging technology for intelligent transport systems.
"We will invest hundreds of millions into this project as it is aimed to bring down overall costs and improve delivery efficiency. For any e-commerce business, logistics is perhaps the most important piece and this project will help with that," Amitesh Jha, head of Ekart, the logistics arm of Flipkart, told The Times of India. According to him variable costs of the company's logistics costs could go down by about 20% once the project kicks off. "Your standard e-commerce delivery time will come down by as much as 50%," he added.
Apart from catalysing the logistics industry, the company lists several economic benefits of the park. To begin with, it pegs direct job creation at around 5,000 people by 2020, and a further 15,000 jobs indirectly through peripheral industries like trucking, services, etc. Apart from attracting new investments in the vicinity, rural development will also see a boost through construction, increased settlement and connectivity. Flipkart reportedly aims to complete the first phase of this project - one third of the total - by mid-2019.
But, why Bengaluru?
Apart from the fact that the etailer is headquartered here, the city's proximity to Chennai offers the opportunity to serve a vast consumption base of over 17 million people. According to the Asian Development Bank, which last year conducted a pre-feasibility study to gauge the suitability of MMLP locations for the government, Bengaluru made a strong case being home to 315 large-scale industries with aggregate investments of $2.3 billion, with two national industrial corridors nearby.
If the much-hyped talks with Walkmart Inc prove fruitful - the world's largest retailer is reportedly eyeing a big stake in Flipkart and is willing to shell out as much as $10 billion for it - then funding these grand plans won't be a challenge. But even if the above deal does not pan out, Flipkart can't afford to go slow on its logistics plans. Not if it wants to retain its lead over arch-rival Amazon. According to media reports, Amazon owns 56 fulfilment centres, boasting over 13 million cubic feet of storage space across 13 states, compared to Flipkart's 21 centres across nine regions.
Once set up, this one-of-a-kind logistics park will reportedly take over as the hub of Flipkart's operations.