Published on February 20, 2014
Logistics: A Transportation Perspective Abhijit Parekh (12P090) Shubham Tomar (12P107) Karan Jaidka (12P141) Nikhil Rana (12P153) Preetish Rao (12P094) Gautam Hariharan (12P137) Lucky Sharma (12P145) Rajesh Kumar Choudhary(12P158) Operations Strategy (OS) – Section B – Group 10 PGPM 2012-2014, Management Development Institute (MDI), Gurgaon
Transportation in Logistics
Introduction to Logistics It is the management of the flow of goods between the point of origin and the point of consumption in order to meet some requirement It originated out of requirements of military services and was developed to procure, maintain and transport material, personnel and facilities It is the process of planning, implementing, and controlling the effective and efficient flow of goods and services from the point of origin to the point of consumption The logistics cost of company is estimated to be around 2% of its sales Types of logistics: Inbound Logistics: It concentrates on purchasing and arranging the inbound movement of materials, parts, and/or finished inventory from suppliers to manufacturing or assembly plants, warehouses, or retail stores Outbound Logistics: It is related to the storage and movement of the final product and the related information flows from the end of the production line to the end user
Business Logistics It is defined as “having the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customer” The main functions of a qualified logistician include inventory management, purchasing, transportation, warehousing, consultation, and the organizing and planning of these activities The nodes of a distribution network include: Factories where products are manufactured or assembled A depot or deposit is a standard type of warehouse thought for storing merchandise (high level of inventory). Distribution centers are thought for order processing and order fulfilment (lower level of inventory) and also for receiving returning items from clients. Transit points are built for cross docking activities, which consist in reassembling cargo units based on deliveries scheduled (only moving merchandise). Traditional retail stores of the Mom and Pop variety, modern supermarkets, hypermarkets, discount stores or also voluntary chains, consumer cooperative, groups of consumer with collective buying power. Note that subsidiaries will be mostly owned by another company and franchisers, although using other company brands, actually own the point of sale
Transportation in Logistics Cargo, i.e. merchandise being transported, can be moved through a variety of transportation means and is organized in different shipment categories Unit loads are usually assembled into higher standardized units such as: ISO containers, swap bodies or semi-trailers For very long distances, product transportation will likely benefit from using different transportation means: multimodal transport, intermodal transport (no handling) and combined transport (minimal road transport) Operators involved in transportation include: all train, road vehicles, boats, airplanes companies, couriers, freight forwarders and multi-modal transport operators Merchandise being transported internationally is usually subject to the Incoterms standards issued by the International Chamber of Commerce
Growth Drivers and Challenges
Transport in India: Game Changers (1 of 4) Air: The quickest possible way! Emergence of new cargo centres: Opportunities in the air cargo sector now extend to Tier-II cities as well. Tier-II hubs have witnessed a growth of 14.5% in air cargo volumes between 2006 and 2011. Rising local demand, improved international connectivity and resulting consolidation activity, and expanding cargo-handling infrastructure are the key drivers of increased freight handling at Tier-II city airports Improving air cargo infrastructure at airports and more investments: Though India currently lags behind its global peers, increased spending in airport infrastructure through various airport projects is expected to improve air cargo infrastructure across the country. Investment in airport infrastructure has grown substantially over the last 3 Five-Year plans
Transport in India: Game Changers (2 of 4) Ports: The Gateways to India Growth of Non-Major Ports: With a CAGR growth of 13% from 2007-08 to 2011-12 (compared to 2% for Major Ports), Non-Major ports have captured nearly 40% of the volume of trade carried out by sea. Capacity overruns at major ports, aided by a substantial increase in the cargo traffic of fertilizers, building material and coal, have resulted in significant investments in the development of non-major ports. Mundra, Pipavav and Hazira ports are the frontrunners Emergence of East-Coast Ports: With China’s emergence as India’s leading trade partner, India’s ‘Look East’ policy and overcapacity at west coast ports, east coast ports present significant development opportunities. Non-major ports are expected to contribute 57 % of total investments in east-coast ports
Transport in India: Game Changers (3 of 4) Rail: India’s Lifeline Dedicated Freight Corridors: It is expected to mark a paradigm shift in the transportation scenario, resulting from the segregation of freight on trunk routes, improving service delivery and generating additional freight-carrying capacity. There will be a reduction in unit cost of transportation, guaranteed transit time and improved service quality for a very focussed overall approach Road: For Last-Mile Connectivity Development of National Highways: To encourage private players, the Government has announced several incentives such as declaring the road sector as an industry, providing 100% tax exemptions in any consecutive 10 years out of 20 years, duty free imports of certain identified construction plants and equipment, FDI of up to 100%, and increased concession periods
Transport in India: Game Changers (4 of 4) The desired ‘to be’ state would be an overlay of transportation networks, allowing for the efficient transportation of each commodity type as well as a natural handover point — where networks intersect and where large quantities are broken down into smaller volumes for last-mile transportation into urban centers
Transport in India: All’s Not Well! Rail Important rail networks are over-saturated Rail tariffs are quite high: Indian Railways subsidizes passenger tariff at the expense of freight tariff, resulting in Indian rail freight rates being amongst the highest in the world Long and uncertain transit times Less flexibility in carrying different types of goods: This is due to the unavailability of specialized wagons for each type of product Ports and Air Freight Road Inadequate Road Network Coverage: National Highways constitute just 2% of the Indian road network, but carry 40% of the total traffic, resulting in severe congestion Poor road quality High level of fragmentation of the trucking industry: This leads to fierce competition, resulting in truck owners trying to overload to recover their investments Multiple check-points result in unnecessary delays High Turnaround times: This is because of the congestion on berths and slow evacuation of cargo which are unloaded at the berths Inadequate depth at the ports: Depth at many Indian ports is inadequate, resulting in many large vessels choosing not to dock at Indian ports Coastal shipping is yet to take off: Inadequate port and land infrastructure and a non-favourable tax regime has inhibited the growth of this sector Higher waiting times, high fuel costs and tariffs negatively impact the air freight sector
Key Company Profiles
Rail Freight: Container Corporation of India CONCOR Functions Overview Year of Establishment: 1988 Year of Operation: 1989 Holding Pattern: MOR – 63%, Public FIIs 37% Listed Company: NSE and BSE Status: Schedule A Mini Ratna Network Strength: 61 ICDs/CFS • EXIM Pure: 17 • Domestic Pure: 12 • Combined: 32 Logistics Support to EXIM (Export/Import) and domestic traffic Coordinate containerized railway movements across country Provide warehousing facilities Design, construct and operate ICDs Operates port terminals collaborating with International Port Operators Significant player in multi modal transport services Regional Distribution North India: 19 South India: 14 West India: 14 East India: 09 Central India: 05 Total: 61 Core Business CONCOR Services Train Handling Container Stacking Customs clearance of Import/Export cargos Warehousing of Cargo (transit, multistack, air) Value Added Services Door to Door Solutions Movable Asset Details No of rakes – 240 Wagons – 10,777 Containers – 15,579 Gantry Cranes – 14 Reach Stackers - 60 Important Projects Cargo Carrier Terminal Operator Warehouse Operator ICD, Dadri (Noida) ICD,Tughlakabad(Delhi) ICD, Whitefield (B’lore)
Rail Freight: Container Corporation of India Business Trends Turnover IT Systems Container Traffic Trends (MT of container traffic) 2009-10 2010-11 Carried by IR 34.36 36.86 Carried by CONCOR 26.60 27.75 %ge share of IR Traffic 77.4% 75.28% Carried by other CTOs 7.76 9.11 %ge share of IR Traffic 22.59% 24.72% VSAT based network extended over 64 locations Web Enabled Customer Feedback Facility for e-filing of documents Terminal Management Systems for • EXIM (ETMS, CCLS) • Domestic (DTMS) • ERP for Finance (Oracle Financials) • Data Warehouse for commercial applications IT Applications Container Repair System, Track &Trace System Online Vigilance Clearance System
Rail Freight: Container Corporation of India Strategic Vision Continue to be leading player in India for rail based inter-modal services Be the leading “third party logistics” service provider of India Integrate rail, road, sea and air cargo logistics and operate multimodal cargo hubs in India Extend operations in foreign countries and emerge in league of international operators Certifications and Awards ISO 9000 Quality System Certification MOU Excellence Awards from FY’05 to FY’09 Dun and Bradstreet Corporate Award – 2008, 2009, 2010 Accredited with “AAA” rating by CARE – Best Credit Quality, Highest Safety for Timely Debt Service Obligation Future Roadmap Ranking Turnover Net Profit Overall 161 85 Transport and Logistics Sector 3 1 (source: Economic Times, 2011)
Road Freight: Transport Corporation of India 4.1 TCI Freight 3. Network 1. Market Position Started as ‘One Man, One Office, One Truck’ company in 1958 Leading integrated supply chain and logistics solution provider Listed on both NSE and BSE 2. Operations Fleet of 7000 trucks/ trailers/ reefer vehicles Fleet of 4 cargo ships 9.75 mn sq ft of warehousing space Skilled workforce of 6500 with 20,000 outsourced positions Own offices in 6 countries Pan India Network 1400 company owned branches nationwide, covering 99.45% of GDP Covers 17,000 locations within India and abroad Transporting 2.5% by value of India’s GDP 4. Divisions TCI Freight TCI XPS TCI Suply Chain Solutions TCI Seaways TCI Global 5. IT In-house ERP: EDI Capable Web based Track and Trace through GPS Largest Division 2400 trucks and trailers 4.2 TCI XPS Express door to door service for time sensitive and high value items 4.3 TCI SCS Logistics solutions provider Customized fleet of 1100 own trucks including 38 refrigerated trucks Auto sector -70% revenue JV with Mitsui, Japan 4.4 TCI Seaways Coastal shipping services Net Capacity: 15634 DWT 4.5 TCI Global Establish subsidiaries globally Indonesia, Brazil and Nigeria
Air Freight: BlueDart Aviation Ltd. Delivering Leadership Air Freight Services Year of commencement: 1983 Territories Serviced: 220+ Domestic Locations Serviced: 32,000+ Air Support: 7 Air Network Stations: 7 2011 Annual Shipments (mn): 100 2011 Annual Tonnage (‘000): 423 Workforce: 8,000+ Retail Outlets: 486 Advanced Technology Weight Dimension Labeling (WDL) Hand Held Device (OTM) Ground Technical Support (GPS) Smart Truck RFID Airport-to-Airport Interline Services Charter Services Co-Load India Post Proprietary Aviation Network: First scheduled cargo airline with dedicated fleet of freighters and infrastructure support Market Leading Transit Times: Fastest deliveries across B2B, B2C, C2B and C2C channels Innovator: 28+ years and numerous industry firsts
Sea: Shipping Corporation of India Total Ships: 74 Established on 2nd October, 1961 Fleet includes Bulk carriers, Crude oil tankers, Product tankers, Container vessels, Passengercum-Cargo vessels, Chemical carriers and Offshore Supply Vessels Operates 1/3rd of the Indian tonnage Services Provided: Break-bulk services, international container services, liquid/dry bulk services, offshore & passenger services Major Clients Indian Oil Corporation Ltd. Bharat Heavy Electricals Ltd. Steel Authority of India Ltd. Oil & Natural Gas Corporation Ltd. Reliance Industries Ltd. Bharat Petroleum Corporation Limited Hindustan Petroleum Corporation Ltd. British Petroleum British Gas 3 Segments of SCI: Growth Rate Dry Bulk • Growing at 6.4% Crude Oil • Growing at 3.8% Products • Growing at 2.3%
The Way Forward Increase investment in railways by reallocating from roads Creating enablers to maximize efficiency, logistics parks, standardized containers etc. Improve rail and road maintenance and existing equipment If current trends prevail, inefficiencies associated with poor logistics infrastructure will increase from $45 billion today to $140 billion in 2020. However, a well-planned infrastructure program could help India cut this waste by half and transportation fuel requirements by 15 to 20 percent. Projections
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