How does the transportation industry work?

. 5 min read
How does the transportation industry work?

The transportation industry is vital to the functioning of every other industrial sector. The industry can be divided into the main sub-sectors of road transport, airlines, pipelines, water transport, and railways. The transport sector is organised in a very complex manner, every sub-sector is divided further into several denominations. Though it remains fairly disorganised at the basal level, rapid urbanisation and infrastructural projects have created a huge market for the transport sector and opened up many employment avenues. Urban and rural spaces are being connected at high speed in order to bridge the gap. The transport systems in India are some of the most widely used globally.

Basic structure of the Indian Transportation Industry:

1. Railways

Indian Railway system is the fourth largest in the world. This sector has a large carrying capacity, operates in all kinds of weather, and ensures continuous delivery. Railways is also one of the cheapest modes of transport in India. Railways can be subdivided into high-speed, light, commuter rail, metros, tram, suburban local rail, and international links.

2. Airways

India has yet to reach its full capacity in terms of air transport. This is the most costly means of transport and has limited reac. The airways is also the fastest and most weather endurant transport sector. It has provided reliable service during natural disasters. Airplanes and helicopters are the main long-distance air-carriers.

3. Roadways

India boasts of  one of the largest and most branched roadways in the world. The National Highways are subjected to nearly half of all the national traffic. The roadways are the most versatile in terms of penetration, it has the widest reach. The main long distant land carriers are trucks, tractors, and buses. For short distances, taxis, scooters, bikes, and utility vehicles are preferred. The only downside to roadways is its dependence on good weather thus, decreasing reliability.

4. Waterways

Ports are major centres of trade, there are 12 major ports in India. India also has an extensive collection of in-land waterways. More than 90% of foreign trade, in terms of quantity, takes place through ports. The Waterways sector is most relaxed in terms of taxes and ensures independent movement of goods. The downsides to water transport is very limited reach and slow speed.

5. Pipeline Transport

This sector is specially designed to transport crude oil, petroleum products, iron ore, gas etc. The benefits of pipe-line transport include no waste, uninterrupted service over long distances and speed of transport.

6. The most profitable types of transportation and logistics businesses are; cab services (app-based and others), trucking services (interstate and inter-city), ambulance services, auto-rickshaw services, tourism travel, private bus services, livestock and farm produce carriers, private cruises, packers and movers (interstate and intercity), renting out vehicles to other transportation businesses, freight transport, luxury cab service for VIPs, etc. The Government of India has several financial schemes for small businesses and start-ups to help them get established.

7. All transportation companies must be registered with the MCA (Ministry of Corporate Affairs). For that, several documents must be present to the ROC (Registrar of Companies) for their approval. The documents in question include the company’s MOA (Memorandum of Association), AOA (Articles of Association), LLP agreement (based on requirement), letter of consent, affidavits, power of attorneys, and application for company incorporation (form INC-7 or Form-2 (LLP)). Depending on the nature of business various legal compliances have to be met with, for eg. Labour and Employment Laws, ESI (Employees’ State Insurance) and PF (Provident Fund) regulations, environmental Laws etc.

Some important stats concerning Indian Transportation Industry:

  • The Indian transport industry caters to a population of 1.35 billion, demand is more than availability and there is a dire need for accessible and safe transportation.
  • This industry caters to logistics and transport of people, goods, raw materials etc.
  • The transport and logistics industry is mainly dominated by the roadways sector, in totality, the entire sector contributes a whopping 6.7% to the GDP.
  • This is an ever-green industry which will never go out of demand, opening a transport business is a lucrative opportunity, as can be seen by a promising compounded annual growth rate (CAGR) of 10.5%.

Transportation and Logistics

  • Transportation and logistics are interconnected. Logistic reliability is dependent on a robust transportation system which in turn increases government productivity.
  • Transport is a part of logistics. Logistics requires planning and transportation is a very important component in all the different stages of logistical operations. From acquiring raw material to transporting finished products, transportation allows interaction and trade.
  • Businesses and organisations spend one third to two thirds of their logistics budget on transport.

Effect of Covid-19 on Transportation Industry:

The Covid-19 pandemic has gravely affected the transportation sector, especially public transport. During the lockdown, many small scale transportation ventures went out of business but large scale transportation businesses remained functioning albeit at a lesser scale than before. However, the industry has adapted to changing times, due to excessive medical supply demands several idle aircraft and trains are being used to transport emergency supplies and essential commodities. Now that the lockdown is lifting in phases the demands in transport and logistics are increasing.

Conclusion

Currently, the Indian Transport Industry is facing infrastructure-related challenges. Roads are under-developed and mostly saturated. The fuel prices are not thoroughly subsidised and there needs to be a wider distribution of CNG (Compressed Natural Gas). The demand for fast and efficient transportation of goods and people are not met. The Government has undertaken ambitious initiatives such as the opening of new national highways, better maintenance of roads and increased connectivity of remote areas. The increasing investments in construction and infrastructure projects are showing a lot of promise in terms of requirement of transport services .This sector is un-organised and underfunded, because of this it is difficult to make breakthroughs. New initiatives through PPP (Public-Private Partnerships) plan to make this sector grow faster but without compromising on transparency. This sector is going through monumental changes to make it easy to run a business in transport.

Also read:

1) How to Start a Private Bus Transportation Business in India?
2) The-5 Biggest Markets / Industries In The World
3) How Does the Tourism Industry Work? Structure of Tourism Industry
4) How does the packaged food industry work?

FAQs

Q. What is LLP?

Ans In a  Limited Liability Partnership (LLP) all or some of the partners have limited liabilities.

Q. What is the Memorandum of Association (MOA)?

Ans. MOA  is a public document which covers the scope of the company. It contains details about the powers of the company and the limits of the same.

Q. What is AOA (Articles of Association)?

Ans. Articles of Association (AOA) is a document which defines the internal regulations of the company, it contains the by-laws of the company.

Q. What is GSTIN?

Ans. GSTIN (Goods and Service Tax Identification Number), has replaced the TIN (Tax Identification number). The GSTIN is a fifteen digit number allotted to companies while registering under the state’s VAT law.

Q. What is TAN?

Ans. TAN is Tax Deduction and Collection Account Number, it is a ten-digit alphanumeric number quoted by the proprietor with regards to tax returns to the Income Tax Department.

Q. What is CAGR (Compound Annual Growth Rate)?

Ans. CAGR denotes the return rate required for an investment to grow from its initial to final balance. The calculation of CAGR assumes re-investments of profits at the end of each year of the lifespan of the investment.