In FY19, the Indian GDP is expected to cross USD 2.7-2.9 trillion in nominal terms. Of this, the spend on logistics is a massive 13-14%. This makes it clear how important it is to improve the efficiency of this industry.
Diving deeper into the logistics market, the Indian road freight market for 2018 is estimated to be in the range of USD 150-160 billion. About USD 130-140 billion of this is the Full Truck Load (FTL) market. Within this, it is estimated that the spot freight market is about USD 110-130 billion and is growing at 9%-10% per year. Efficiency of the spot freight marketplace will determine how this growth is compounded.
Existing logistics market structure
In the existing logistics market structure, there are high inefficiencies due to information asymmetry. There is lack of visibility on existing spot market prices for road freight. This means that both demand side (transporter/whoever has the load to be sent) and supply side (fleet owner/ whoever provides the truck) are negotiating blindly, without any data. This often results in high transaction costs, and money being left on the table.
The lack of price transparency not only affects the parties directly involved in spot transactions but also policy and decision makers across government bodies, consulting firms, financial institutions and manufacturing industries impacted by the performance of the freight industry. Further, the challenge is that the information asymmetry of location pair and vehicle type is a deterrent to creation of a composite index, which could reflect the performance of the spot freight market in the country.
Information is disparate with low refresh frequency, disseminated only with press releases, limited to few key lanes, marred with lack of specificity and gathered through select sources where the risk of a sampling bias is high. The industry needs an equivalent of a NIFTY or a Baltic Dry Index or a Wholesale Price Index.
Introducing the National Freight Index (NFI)
In a bid to overcome these challenges and transform the logistics sector in India, the National Freight Index (NFI) was launched on 20th June for public use. This aims at bringing transparency to the previously opaque industry. This first-of-its-kind barometer of the road freight market in India is based on the Rivigo rate exchange, which gives a live spot rate on over 7 million lane and vehicle type combinations in the country.
NFI offers an aggregated picture of both live rates and historical trends of spot price movements in the road freight industry. The index is represented in two main forms: In terms of actual freight rates condensed to INR per ton-km and in terms of relative movement with respect to a base month.
Both the index and the exchange are based on machine learning and economics powered pricing algorithms, which are continuously improving on accuracy. The rates on the exchange and index are computed using millions of data points from historical transactions, current market dynamics, micro market insights and other factors - with the ultimate purpose of giving a fair and precise representation of the state of the spot market in the country.
You can visit the National Freight Index at www.nationalfreightindex.com to view historical trends of freight rates. On this page, you can look at the live freight index across adjustable filters on truck types, origin zones and haulage distance and lane-wise live spot rates. Additionally, a 13-month index history, a dedicated page on insights generated from indices, and a 6-month price history for top lanes are also available.
5 step guide to use NFI
Users can go to www.nationalfreightindex.com and make use of the following features. Please refer the image below:
- History section: Here, a 13-month historical trend is available, where users can overlay fuel prices relevant to the filters chosen to draw insights
- Smart Filters: A user can view indices at 150 different combinations of truck type, origin zone and haulage distance depending on the use case
- Rivigo Rate Exchange (RRE): The ticker gives users complete access to live full truck load rates across 7 million origin, destination, vehicle types in the country
- Live section: This section gives users the live rates at the granularity chosen through the filters. The same is represented in the pegged form with the base month as Apr-18. A comparison with the previous month and the same month last year is also shown
- Top lanes: This section gives a view of the prevailing market rates and a 6-month price history on some of the key lanes referenced to compute the index for the particular selection of truck type, zone and distance
The National Freight Index, or NFI (www.nationalfreightindex.com) is a first-of-its-kind, free to use tool for improving transparency of the Indian logistics industry. This is in-line with National Logistics Policy of the Indian government as well. The objective of this article is to spread awareness of how NFI can help various stakeholders in the supply chain and logistics space make smarter, data-backed decisions. For any suggestions on NFI or its applications, please feel free to leave a comment here.
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