Logi(sti)cally SpeakingAssociation of Multimodal Transport Operators of India (AMTOI) AMTOI & Ernst and Young White Paper Page 2 Foreword From a Logistics perspective, India is in an interesting space. Logistics is an important driver of world economic growth. Globally, market pressures are challenging current approaches to both international and domestic logistics activities. New innovations are the need of the hour to allow trade globally to move beyond its current state. If actions are not taken by all parties in a timely manner the window of opportunity may narrow. With this food for thought, questions were asked and ideas were exchanged between the AMTOI members and the team at E&Y to conclude the recommendations provided at the end of this report. The historical statistical analysis was conducted on data available from the secondary domain to deduce the dependencies between macro factors of a given nation with its Logistics Performance Index guided by the World Bank. We hope that through this White Paper, we can continue conversations and collaborations to enable the sector to reach its fullest potential. AMTOI - President Biren Parekh Partner Advisory Services Ernst & Young Pvt. Ltd. AMTOI & Ernst and Young White Paper Page 3 Table of Contents ! Overview of Logistics ! Industry overview ! Value Chain ! Drivers ! The India Advantage ! Global statistical correlation between a countrys economy and its impact on Logistics ! Way forward ! Future Drivers/ Outlook ! Industry growth characterized by: Inorganic Growth ! Suggested future operating models ! Success stories: Case studies ! Conclusion AMTOI & Ernst and Young White Paper Page 4 Moving products to market is vital… There is no debate on the notion that Logistics is an important facilitator of world economic growth. Supply chain demands globally are growing every day with rising need to trade finished goods, raw materials etc. from one location to another. Thus, companies seeking to lower production costs by sourcing from and supplying to far-away markets are constantly seeking ways to: ! Reduce shipping costs ! Find reliable, well managed logistics services provider ! Move freight as per their planned schedule rather than that of the carrier's schedule ! Find quality staff for effective control of their logistics services needs Several organizations are now turning to service providers who can maximize the supply chain efficiency while reducing supply chain costs while they can continue to focus on their core competencies such as manufacturing, production, processing, trading etc. This has given rise to the concept of multi modal transport. Multimodal transport (also known as combined transport) is the transportation of goods under a single contract, but performed with at least two different means of transport; the carrier is liable (in a legal sense) for the entire carriage, even though it is performed by several different modes of transport (by rail, sea and road, for example). The carrier does not have to possess all the means of transport, and in practice usually does not; the carriage is often performed by sub-carriers (referred to in legal language as "actual carriers"). The carrier responsible for the entire carriage is referred to as a multimodal transport operator, or MTO AMTOI & Ernst and Young White Paper Page 5 …however, there exist challenges and risks common to the Logistics sector • Poor port productivity, port and inland bottlenecks are making it increasingly difficult to meet customers’ demands for reliability at low prices while optimizing use of assets • Integration across multi-modes of transport is not yet seamless Infrastructure constraints • Inefficient asset utilization owing to trade mismatches and poor planning • Lack of connectivity to port or origin/ destination to door adds to these costs Imbalanced trade flows • MNC players with an end-to-end (integrated supply chain) proposition pose the risk of domestic market share • New entrants in the market who challenge the current business models by either offering ‘low-cost’ or ‘premium services’ continue to pose threats to the way traditional family-run businesses operate New entrants • As suppliers cater to the needs of a global customer, the need for reliable service persists • Real-time visibility of shipment needs to be accurate and timely, while shipping processes more streamlined Customer demands • Globally, freight forwarding largely unregulated • MTO’s not recognized as SSI (Small Scale Industry) • Lack of clarity on what kind of changes will be brought about on regulations which are not conducive for industry growth • License granted under “Served from India Scheme” (SFIS ) is not tradable Lack of regulatory support AMTOI & Ernst and Young White Paper Page 6 Industry value chain *Shipping origination, routing and capacity procurement Facilitate transport Provide and operate Load and unload shipments Inland delivery • Customer sales • Shipment routing • Capacity procurement • Customer service • Billing • Tracking • Ownership of asset (ULD, Containers, Reefers, etc.) • Storage and maintenance • Repositioning • Ownership & operation of facility/ asset • Terminal / Port/ Airport control (ownership or lease) • Terminal operation • Handling and clearance • Storage • Control of trucks (specialized services) • Ownership of railroad • Container handling Key Activities across the value chain • Container carriers, Airlines, Transportation companies, Rail • Forwarders/ NVOCCs • Container / ULD carriers • Container / ULD leasing companies • Reefer operators • Container carriers • Outsourced/ Third party • Container carriers • Captive terminal operators • Third party terminal operators • FF • Agents • Customs • CFA • Railroads • TL trucks • Drayage truckers • Container carriers (limited) Competitor types / Flow of Info A closer look at the operating models of leading logistics players indicates that market leaders (especially global players) are gradually playing a larger role across the value chain through various means to add value through diversification and enhancement. Many, have sought seamless intermodal services, extending their operations to include inland haulage and offering door-to-door transportation. Some have developed other elements of the logistics chain, expanding into warehousing and related activities. On the other hand, few have formulated the strategy of transforming from a global shipping carrier to a global logistics provider. With the expansion of the value chain, players are lifting the competition platform from low level price competition to the total logistics services value competition. The logistics supply chain has expanded from mere transportation to include custom clearance, billing & Tracking, warehousing and container handling. Booking Waybill Invoice Manifest Delivery Instruction Release of Cargo AMTOI & Ernst and Young White Paper Page 7 ..leading to evolving role of logistics facilitators Standard 3PL provider 1. Pick & Pack 2. Warehousing 3. Distribution Service Developer 1. Freight Forwarding 2. Tracking & tracing 3. Cross Docking 4. Packaging Customer Adapter & Developer 1. Handle all the end to end logistical functions Thus, the world of Logistics has evolved to include various functions and is set to get more complex as globalization has opened up new markets and created a wealth of opportunities. A closer look at Indias Logistics market throws light on the dynamics of this segment and its future growth trajectory based on the global comparatives we have looked at in the subsequent sections. According to the Council of Supply Chain Management Professionals, 3PL is defined as "a firm [that] provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. The evolution of 3PL providers can be depicted as follows: AMTOI & Ernst and Young White Paper Page 8 So what is driving the domestic market? India Advantage R&D capabilities Proximity to emerging markets Rising domestic demand Shift in consumption patterns Export potential Rising consumption from tier 2/3 cities Availability of manpower pool Continued interest from MNCs/ Investors ! Investment in logistics infrastructure ! Indian government scaling up investment in core infrastructure ! Public private partnership (PPP) expected to play key role ! Integrated services: Expected to reduce costs and facilitate movement of goods ! Change in tax laws : VAT/ CST ! Change in Supply Chain Orchestration; Industry moving towards outsourcing Logistics function ! Macroeconomic: ! Continued economic liberalization and relaxation in FDI norms ! Cost for talent in India, lower than global benchmarks Supply drivers ! Economy and trade growth ! Changing demographics, rising disposable incomes, increased domestic consumption for goods from global markets ! Due to proximity to emerging markets; shipments from India, cost-effective ! Opportunity to reduce logistics costs with increasing Infrastructure spend ! Increased liberalization leading to rise in Logistics outsourcing ! Growth across diversified industries with marked entry of foreign players leading to investment in logistics: Retail, Agri, Pharma, Automobile, FMCG, etc. ! Gradual phase out of central sales tax (CST) ! CST phase out likely to boost movement of goods Demand drivers AMTOI & Ernst and Young White Paper Page 9 ..and how have players tapped on this opportunity? Successful logistics companies have adopted new management resources and technologies to successfully ride the wave of globalization. The cross-border flow of goods, more than 80 percent of which is carried by sea, has been packaged into standard-dimension steel container boxes that have enabled the integration of ocean freight, rail, and trucking. Further, customer preferences have brought about buoyancy in the way logistics players are doing their business. While some of the global market leaders being family-owned businesses (Kuehne Nagel) have been prompt in adopting new business strategies, others have used a wait-and-watch approach to mitigate business risks. Several have achieved inorganic growth through mergers with players either operating in a similar model or spread across the value chain, on the other hand, some have been entirely organic. Whatever the strategy adopted, the objectives are all the same; one for cost competitiveness, two for higher service quality to meet the customers' global requirements, thus to support the desired growth. While infrastructure constraints and threat from new agile entrants continue to challenge the way industry players approach their business conduct, demand for efficient logistics will only rise with globalization; as greater number of firms continue to source, manufacture, and distribute on a global scale, making their supply chains very complex to manage. Below is an overview of the opportunity landscape: Segment dynamics & competitive scenario Major growth driver: EXIM trade Manpower: Ability to retain Entry barriers: Low Differentiator End-to-end & Value added Service Competitive differentiator: Global networks AMTOI & Ernst and Young White Paper Page 10 With an intent to facilitate trade at greater speed, lower costs… It has therefore become all the more imperative for Multi Modal Transport Operators to leverage the window of opportunity global trade has presented given the positive spillover effects of efficient logistics, especially on productivity of trade and industry: ! Minimize time-loss at trans-shipment points ! Multimodal transport, which is planned and co-ordinated as a single operation, minimizes the loss of time and the risk of loss, pilferage and damage to cargo at trans-shipment points ! MTOs maintain their own communication links and coordinate interchange and onward carriage smoothly at trans-shipment points. ! Faster transit of goods ! The faster transit of goods made possible under multimodal transport reduces the disadvantages of distance from markets and the tying-up of capital ! In an era of globalization, the distance between origin or source materials and consumer is increasing thanks to the development of multimodal transport ! Reduce burden of documentation and formalities ! The burden of issuing multiple documentation and other formalities connected with each segmented of the transport chain is reduced ! Cost savings ! The savings in costs resulting from these advantages are usually reflected through freight rates charged by the multimodal transport operator and also in the cost of cargo insurance ! As savings are passed onto the consumer, demand increases ! Single point of contact ! The consignor has to deal with only the multimodal transport operator in all matters relating to the transportation of his goods, including the settlement of claims for loss of goods, or damage to them, or delay in delivery at destination ! Reduce cost of exports ! The inherent advantages of multimodal transport system has helped reduce the cost of exports and improve their competitive position in the international market AMTOI & Ernst and Young White Paper Page 11 Regulations also moving towards business-friendly approach.. ! The Multimodal Transportation of Goods Act, 1993 was introduced to facilitate the exporters and give them a sense of security in transporting their goods. As per the MMTG Act, three categories of companies are eligible to be registered as MTO's. They are (1) Shipping Companies (2) Freight Forwarding Companies (3) Companies which do not fall in either of the above two categories. • Unlike other contracts MTO acts as the principal and not the agent of the shipper, in containerized transport it is often difficult to determine the point at which the cargo was damaged , while in case of multi modal transport cargo owner will have no difficulty because he is bound by just one contract, and is liable for the same, while in case of other transport contracts, cargo owner will have to determine the stage at which the goods were damaged, this is particularly important when customer wants to put up a claim damage from the carrier. In instances where he is not able to determine the stage of journey at which goods were damaged, then he might be forced to claim against all carriers involved and this shall lead to additional expenses How is Multi- Modal Transport Contract different from other contracts • A Multi-Modal Law was needed for reducing costs and delays& for improving upon the quality of transportation services. • For determining liabilities & responsibilities of multi-modal transport operator for loss or damage to goods • To reduce and eliminate interruption in continuous movement of goods from their place of origin to that of ultimate destination • Multi-Modal law was also necessary to enhance trade and commerce Purpose and objective behind enactment of Multi Modal Transportation law AMTOI & Ernst and Young White Paper Page 12 With special Government impetus to upgrade infrastructure … Key Government Strategies for improving transport infrastructure facilities: Indias Eleventh Five Year Plan identifies various deficits in the transport sector. Hence the Government has made substantial efforts to tackle the sectors shortcomings and to reform its transport institutions which Include: National Highway Development Program to improve connectivity Increasing public funding for transportation in its Five Year Plan Accelerated Road Development Program for the North East Region to provide road connectivity to all State capitals and district headquarters in the region Financing the development and maintenance of roads by creating a Central Road Fund (CRF) through an earmarked tax on diesel and petrol Operationalising the National Highway Authority of India (NHAI) to act as an infrastructure procurer and not just provider Improving rural access by launching the Pradhan Mantri Gram Sadak Yojana (Prime Minister’s Rural Roads Program) Reducing the congestion on rail corridors along the highly trafficked Golden Quadrilateral and improving port connectivity by launching the National Rail Vikas Yojana (National Railway Development Program) The development of two Dedicated Freight Corridors from Mumbai to Delhi and Ludhiana to Dankuni Improving urban transport under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) Upgrading infrastructure and connectivity in the country's twelve major ports by initiating the National Maritime Development Program (NMDP). Privatization and expansion of the Mumbai and New Delhi Airports and development of new international airports at Hyderabad and Bangalore. Enhancing sector capacity and improving efficiencies through clear policy directive for greater private sector participation. Large parts of the NHDP and NMDP are to be executed through public private partnerships (PPP) The Ministry of Roads, Transport and Highways (MoRTH) envisages up gradation of national highways to a minimum two-lane standard by December 2014 Minister of Railways Vision 2020 Upgradation of existing cargo terminal and construction of greenfield cargo terminal was undertaken at the Indira Gandhi International Airport (IGIA), Delhi AMTOI & Ernst and Young White Paper Page 13 Future Industry Drivers ! Boost in rail transportation ! The railway freight traffic has grown by 8 to 11%, which is projected to cross 1100 million tonnes by the end of 11th Five Year Plan ! In mid-2006, the foundation stone was laid at Ludhiana in Punjab for the Dedicated Freight Corridor (DFC) and the Indian Railways embarked on a multi-crore project to set up a direct freight link from the manufacturing bases in the northern hinterland of the country to ports on the west coast and with the coal fields and steel plants in the east coast ports. DFC will cover approximately 3300 route kilometres on two corridors – Eastern and Western corridors- and will greatly improve the freight transportation. ! Salient features of the DFC are: Exclusively for running freight trains at speeds upto 100 km/h Parallel to existing Indian Railways Corridors and connection at important junction points This corridor will bypass populated cities/towns to minimise social and environmental impacts Facilitate running of longer and heavier trains Reduce unit cost of transportation Ensure guaranteed transit time thus providing quicker and reliable service Accelerated industrial development in the region AMTOI & Ernst and Young White Paper Page 14 Future Industry Drivers Road • The road freight volume is projected to grow to 1,200 billion tonne kilometer (BTKM) and goods vehicles requirement will increase to six million by 2012 Rail • A growth in volume with an increase of 5.66% to 583,061 mn tonne/km in FY12 is expected • Rake capacity in the Indian rail freight industry is bound to grow from the present 300 rakes to 500 rakes by 2013. Air • Air freight tonnage growth forecast is expected to average 7.95% by 2015 Projections for growth in freight volumes: Source-Companies & Market 2011 freight transport report AMTOI & Ernst and Young White Paper Page 15 Future Industry Drivers ! Retail boom in India ! Retail is amongst the fastest growing sectors in the country. India ranks 1st, ahead of Russia, in terms of emerging markets potential in retail and is deemed a 'Priority 1' market for international retail ! Total retail sales in India will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015, according to the Business Monitor International (BMI) India Retail Report for the second-quarter of 2011. ! Indias underlying economic growth, population expansion, and the increasing wealth of individuals will boost the rapid construction of organized retail infrastructure, which in turn will help the transportation sector in increasing volumes ! There is also considerable investment in the cold chain industry by Multinational Corporations and PE firms – which is poised to be the next growth mantra for the Logistics industry in India ! India, at present does not have a comprehensive cold chain network, and is estimated to grow to INR 32,000 cr by 2015. ! With phenomenal growth in production of horticulture produce, dairy products, and meat products, there has been tremendous pressure on improving supply chain and reducing losses during produce handling and movement. Most of the new cold storages in the last decade have been constructed as multipurpose facilities focusing on all fruits and vegetables, poultry, dairy and FMCG product categories ! The Indian cold chain market is highly fragmented with over 3,500 companies in the whole value system ! Cold storage solutions form about 85 percent of the Indian cold chain market by value while the balance 15 percent is contributed by transportation. There are various standalone, integrated companies and 3PL service providers offering cold storage and transportation solutions to various food companies. However, these are not enough to cater to the growing food demand ! High growth prospects for the food processing sector along with attractive government incentives (including 51 per cent FDI) make cold chain business a lucrative proposition for foreign investors as well AMTOI & Ernst and Young White Paper Page 16 Future Industry Drivers ! Multimodal Logistics Hubs in India ! The demand for logistics has increased with increased share of manufacturing in the national GDP. The essential components of a logistics park are suitable location, rail terminal, air cargo complex, intermediate container terminal, warehousing (temperature controlled and ambient), value-added logistics services, food processing zones, open stocking yards, ancillary production etc. Logistics parks also create community and economic benefits, such as, reduced pollution, single window clearances, greater industrialisation, focused environment management, and greater use of environment-friendly rail systems. ! Some recent developments on the Multimodal parks in India: 1. The Dedicated Freight Corridor Corporation of India (DFCCIL) is in the process of setting up three parks along the Eastern corridor from Ludhiana to Dankuni in West Bengal. One of these will be at Kanpur apart from other two at Ludhiana and Durgapur. Around 32 per cent (1,002 km) of the corridor passes through the state while Kanpur has been proposed because of its industrial significance and its central location, being well connected by rail and road to all parts of the country. 2. The Container Corporation of India Ltd (CONCOR) is setting up a multimodal logistics park at the hi-tech special economic zone (SEZ) in Sriperumbudur. Industries situated in the SEZ will be able to utilize the facility to transport goods. Initially, goods from Sriperumbudur would be moved to the railway station by road and a rail link would later directly extend to the SEZ, he added. 3. MP State Agricultural Marketing Board plans to set up Multi-Modal Composite Logistics Hub in Madhya Pradesh .As of March 2011, work on the project is under planning stage. Expression of Interest/ Request for Qualification were invited for setting up Multi Modal Logistics Hub near Itarsi on PPP mode, last date of submission: 31st March 2011. 4. State-owned diversified conglomerate Balmer Lawrie is setting up four multi-modal logistics hub in India in four zones -- east, west, north and south 5. After West Bengal, the second multi-modal aerotropolis will come up at Rajasthan's Jaipur city as the government has given 'in principle' approval for the setting up of a new greenfield airport there. AMTOI & Ernst and Young White Paper Page 17 Future Industry Outlook Inorganic growth According to experts, the Indian logistics industry is likely to continue its growth momentum in 2011 as in the previous year and the sector is forecast to witness a consolidation wave in the coming months in view of the reviving fortunes of the sector with booming end-user industries. Companies have been actively looking to expand their size in India through the inorganic way. ! Allcargo Global Logistics acquisition plans ! Allcargo is looking at various acquisition opportunities and it is confident of finalising it in this calendar year. They are looking across the three verticals they are operating in, the less than container load (LCL) space, the project and engineering solutions and also in the container freight stations (CFS) vertical. ! Logistics Corporation of India ! From early 2011,there is a proposal for a `Logistics Corporation of India' to be created jointly by three public sector undertakings. Shipping Corporation of India, Concor and Central Warehousing Corporation of India will be the equity partners in the multi-modal joint venture logistics company, according to the proposal made by an expert group headed by the Director-General of Shipping, Mr S.B. Agnihotri. ! The proposed corporation will provide integrated transport services. ! Such an entity should be able to resolve the problems in ensuring seamless movement of cargo. The idea is to provide an "end-to-end transport solution ! Concor and the Warehousing Corporation can take care of the rail and road segments of the chain and Shipping Corporation can provide the shipping link. ! FedEx acquired AFL ! In 2010, the worlds largest package delivery company, FedEx, completed the acquisition of Mumbai-based integrated logistics services provider AFL through its subsidiary, FedEx Express ! The acquisition of the AFL and UFL businesses has enhanced the leadership position of FedEx in the Indian express market and offers our customers access to a range of service options, including air express, domestic ground and value added-services, ! With this transaction, FedEx Express will now provide all international services for AFL and UFL customers, who will have direct access to the FedEx international air and ground network in more than 220 countries and territories worldwide AMTOI & Ernst and Young White Paper Page 18 Leading to changing dynamics of the sector Transport Express Shipping Supply Chain Industry Growth Curve Entry Dynamics • Mature • Fragmented • Low barriers to entry • Growth niche • High entry barriers • Growth • High entry barriers • Nascent • Knowledge based • High entry barriers Industry Growth • 5 - 10 % • 15 – 20% • 10 – 15% • 50% + Customer Requirements • Low-cost • Non-time sensitive • Cost efficiency • High time sensitive • Scheduled services • Cost optimization • Value driven • Single window • Single point of contact (end-to-end) AMTOI & Ernst and Young White Paper Page 19 Dynamics of Multimodal Transport Industry AMTOI & Ernst and Young White Paper Page 20 What do the statistics say? Across country analysis of Logistics Performance Index (LPI): ! The World Banks LPI as of 2010, is a comprehensive index created to help countries identify the challenges and opportunities they face in trade logistics performance. ! The LPI assesses the performance of countries in the six areas identified below and is an equally weighted average of the following six components : ! Customs: Efficiency of the customs clearance process ! Infrastructure: Quality of trade and transport-related infrastructure ! International Shipments: Ease of arranging competitively priced shipments ! Logistics Competence: Competence and quality of logistics services ! Tracking & Tracing: Ability to track and trace consignments ! Timeliness: Frequency with which shipments reach consignee within the scheduled or expected time ! The index ranges from 1 to 5, with a higher score representing better performance. Data is from Logistics Performance Index surveys conducted by the World Bank in partnership with academic and international institutions and private companies and individuals engaged in international logistics. ! Ernst &Young analysis: To understand the correlation and regression between LPI and various other relevant macro-economic indicators, we analyzed the regression of LPI against Imports, Exports, Merchandise Trade, Gross Domestic Product (GDP), Industry (%GDP), Services (%GDP) and Gross National Income (GNI). Regression analysis has been used in this paper for 2 purposes: ! To establish the dependence of the Logistics Performance Index on certain macroeconomic factors for a data set of 55 countries as of 2009. This regression gives the trend of how the logistics performance of an economy is related to its general economic condition. ! To establish the trend of the revenue generated by the logistics sector of India and to find its dependence on various growth drivers. This is a time-series analysis, meaning the trend is checked from 2004-2010 based on annual data. AMTOI & Ernst and Young White Paper Page 21 Country LPI Exports (%GDP) Imports (%GDP) GDP growth (annual %) GNI per capita (current US$) Industry, value added (%GDP) Services, value added (%GDP) Germany 4.11 47.4718 41.0455 0.988 42670 29.6436 69.4593 Singapore 4.09 220.5319 202.583 1.7825 37650 25.9362 73.9951 Sweden 4.08 53.2558 46.4015 -0.4088 52440 27.4969 70.7446 Netherlands 4.07 76.5986 68.4423 1.9958 48520 25.5883 72.6033 Switzerland 3.97 56.497 45.1088 1.8972 56770 27.6857 71.0468 United Kingdom 3.95 29.1982 31.8053 0.5479 45760 22.5594 76.6584 Belgium 3.94 85.6927 84.8336 1.0042 44720 23.2019 76.1255 Norway 3.93 48.1225 29.2066 1.8151 84840 45.0713 53.7316 Finland 3.89 46.955 42.9545 0.9221 48100 32.2531 64.8733 Ireland 3.89 82.6004 73.6331 -3.0358 49810 31.078 67.6359 India* 3.12 23.4809 28.912 28.217 1080 28.217 54.1964 Macroeconomic factors of top 10 countries with highest LPI and India* Source-World Bank data 2010 *India does not feature in the list of top 10 countries with highest LPI. It is mentioned here for the purpose of comparison with the top performing countries Implications from cross-country analysis of the Logistics Performance Index: What do the statistics say: a comparison of LPI with countrys economic growth Parameter Impact Trade variables Trade variables (Imports and Exports as a % of GDP) have a positive impact on the LPI. Countries with a higher contribution of trade to the GDP will have better logistics performance Gross National Income (GNI) Logistics performance is directly related to the GNI per capita Services sector Services sector performance has a positive impact on the LPI. Countries where the services sector is dominant show better logistics performance Industrial sector Industrial sector performance has a negative impact on the LPI. Countries where the industrial sector is dominant show poorer logistics performance possibly due to: 1.Cheap availability of labour and raw materials promotes industrial production without improvement of the infrastructure required for better logistics 2.Inefficiency of customs facilities, clearance processes which are not necessary for industrial production 3. Nascent stage of technology usage – inability to track consignments, inefficient supply chain management AMTOI & Ernst and Young White Paper Page 22 What do the statistics say: In terms of Trade Based on the implications of the macroeconomic indicators on the Logistics Performance Index (LPI), the key drivers for the logistics sector in India can be concluded to be: Taking the analysis forward, all of the above variables are taken as regressors. The regressand for the analysis is the total revenue generated by the logistics sector (total revenues of 20 companies selected by the ISI Emerging Markets* as an overall indicator of companies comprising of all sizes present in the sector). A time- series analysis is performed on the variables and the dependency of the revenues generated by the logistics sector is measured against each of the above mentioned drivers. *List of 20 companies selected by ISI Emerging market, ISI, EMIS, CEIC: ABC India Ltd. Aegis Logistics Ltd. Agarwal Industrial Corporation Ltd. Allcargo Global Logistics Ltd. Aqua Logistics Ltd. Arshiya International Ltd. Asian Logistics Ltd Balurghat Technologies Ltd. Chartered Carriers Ltd. Coastal Roadways Ltd. Container Corpn. Of India Ltd. Frontline Corporation Ltd. Gateway Distriparks Ltd. Inter State Oil Carrier Ltd. NR International Ltd. Patel Integrated Logistics Ltd. SER Industries Ltd. Sical Logistics Ltd. Transport Corporation Of India Ltd. VRL Logistics Ltd The result of time-series analysis is mentioned in the subsequent pages Trade- import and export Extent of containerization Total spending on infrastructure – road, rail, ports Services sector performance of the country AMTOI & Ernst and Young White Paper Page 23 What do the statistics say: In terms of trade 1. Trade Trade primarily consists of imports and exports. Indian imports and exports have risen in volume over the years. An increase in trade also leads to increased need for peripheral industries. ! The growth in export volumes since January 2009 to January 2012 has been around 52%. With rising trade volumes the need for transporting them within time and at minimal cost also rises ! The growth in import volumes has been 52.63% form January 2009 to January 2012. The import trade specifically needs services that have the capability of reaching to the remote areas of India AMTOI & Ernst and Young White Paper Page 24 What do the statistics say: In terms of trade Trade Portfolio From being a largely agricultural- traded economy, India has emerged as a nation dealing with multiple products. The major export items include agricultural products, gems and jewelery, leather products, textile and handicrafts, whereas the major import items include capital goods, fuel, iron and steel, food grains and equipments. The export pie chart is represented below: Source: Handbook of Statistics on the Indian Economy, RBI 2010 ! With increasing trade volumes, the scope for logistical providers also increases. The trade gateways open the potential for logistic players. Since the trade volumes are high the capacity utilization can optimized, thereby reducing the idle time cost. ! A diverse product portfolio requires the logistics service providers to specialize the services based on the product handled. This specialization could act a key differentiator in the market. With products like fuel, gems and jewelery & agricultural products being the major trade components, they require special handling during transportation. Such specialized handling also claims higher margins. For example DHL provides logistical services to different industries like cold chain transport, Warehousing and Order Fulfillment Services for the Chemical industry whereas reverse logistics and distribution to stores for the retail industry 8.74 2.87 38.15 1.11 7.57 12.73 6.57 9.58 0.07 0.53 9.26 2.84 Primary Products Ores and Minerals Manufactured Goods Leather and Manufactures Chemicals and Related Products Engineering Goods Textile and Textile Products Gems and Jewellery Handicrafts (excluding Handmade Carpets) Other Manufactured Goods Petroleum Products AMTOI & Ernst and Young White Paper Page 25 What do the statistics say: Growth of containerization ! On account of encouraged trade between emerging countries the flow of goods is expected to increase. The multi modal service providers will have to cater to the demands arising from these markets as well. Underlying Opportunity ! Logistical service providers can use this opportunity of distinguished needs of different industries to as a selling proposition. These service providers can work back with the various supply chain players like warehouse agents, movers and packers etc. to provide an end to end package to the customers. Due to the need for specialized services increasing LPI can afford to invest in trainings provided to staff for sensitive handling. 2. Containerization ! Containerization incorporates supply, transportation, packaging, storage, and security together with visibility of container and its contents into a distribution system from source to user. The containers make the entire goods handling process very standardized thereby reducing stoppages at every stage of the shipment. ! Containerization in India, which is at 68%, is expected to see significant growth since the current level is well below international levels of around 80%. ! Container traffic at major ports has almost doubled in the last 5-6 years and shows growth at an average rate of 13.27 percent per year ! Even though movement is small as compared to some of the largest ports and shippers in the world, it has shown stable growth and is likely to be an increasingly important mode of transport in India and the South Asian region in the coming years. Also, the size of the country and the hinterland region from the ports makes for a variety of choices for land movement Source: Ministry of Shipping AMTOI & Ernst and Young White Paper Page 26 What do the statistics say: Proportionate demand for Logistics with growth in Services 3. Service sector performance ! The graph above draws a relationship between the Logistic Performance Index and the contribution of service sector to the GDP of the economy. The term R^2 depicts the extent of dependence of LPI and Service contribution. ! Countries like Hong Kong, China, Singapore and the USA share a highly positive relation between Service sector contribution and LPI. These countries have a good score (above 3.5 out of 5) on the LI as per the World Bank statistics. ! This phenomenon can be substantiated as follows: Czech France Germany Hong Kong Italy Singapore South Korea UK USA Brazil Russia India China Malaysia Mexico Phillipines South Africa Thailand Turkey Poland Saudi Arabia Cuba Pakistan R" = 0.22797 1.5 2 2.5 3 3.5 4 4.5 20 30 40 50 60 70 80 90 100 L P I Services, value added (%GDP) Services, value added (%GDP) Line Fit Plot Source: World Bank for the year 2010 COUNTRY HONG KONG CHINA SINGAPORE UNITED STATES LPI 3.88 4.09 3.86 Export (% GDP) 212.57 220.53 12.82 Import (% GDP) 202.38 202.58 17.77 Industry, value added %( GDP) 7.98 25.93 21.29 GDP Growth 2.16 1.78 -0.0008 AMTOI & Ernst and Young White Paper Page 27 What do the statistics say: Investments in Infrastructure to facilitate Logistics 4. Infrastructure Infrastructure is one of the biggest enablers for the Logistics sector. As mentioned in the earlier part of the report, India faces typical infrastructural challenges such as poor hinterland connectivity, gateway productivity, utility constraints, etc. The time-series analysis carried out between three important constituents of infrastructure (i.e. Indian Government expenditure on transportation, Gross Fixed Capital Formation in roads, railways, ports and storage, FDI in construction (includes roads and highways) –Planning Commission 2011 data) reveal the following results on impact of the above parameters on the revenue of logistics players. Also, statistics released by the World Bank, reveals the following cross-country comparative analysis on the overall operational excellence (for the year 2010): Parameter Impact on revenue Government expenditure on transportation A 1% increase in the government spending on transport will lead to a 0.759% increase in the revenues generated by the logistics sector Gross Fixed Capital Formation in roads, railways, ports and storage a 1% increase in the GFCF in roads, railways, ports and storage will lead to a 0.739% increase in the revenues generated by the logistics sector FDI in construction (includes roads and highways) a 1% increase in the FDI in construction sector will lead to a 0.172% increase in the revenues generated by the logistics sector Parameter India China US UK Exports (% GDP) 23.4809 34.9795 12.8289 29.1982 Imports (% GDP) 28.912 27.2643 17.7729 31.8053 Cost to export (US$ per container) 1055 500 1050 950 Cost to import(US$ per container) 1025 545 1315 1045 Time to export (days) 17 21 6 7 Time to import (days) 20 24 5 6 Burden of customs procedure, WEF (1=extremely inefficient to 7=extremely efficient) 4.0382 4.5344 4.4798 4.842 Quality of port infrastructure, WEF (1=extremely underdeveloped to 7=well developed and efficient by international standards) 3.8603 4.3215 5.5372 5.4887 AMTOI & Ernst and Young White Paper Page 28 2 8 So how do we get there… Consolidation Service-driven strategy Talent Management IT Capability & Value Added Services Current State Time & Growth in Market Share ‘Future State’ Global Networks The need to efficiently meet a countrys demand for Logistics services requires a relook at the organizations operating model from various dimensions such that it is able to cater to the dynamic changes in the external environment through a robust internal operating mechanics. Some of these areas of focus have been highlighted below: AMTOI & Ernst and Young White Paper Page 29 Proposed Operating Model Dimensions Organization: Cultures Structure/ Ownership Asset base Employees Geog presence Customers: Types, services Services offered: in- house/ outsourced Technology: Automation, security Processes: Standardization AMTOI & Ernst and Young White Paper Page 30 Future Operating Model Dimension: Organization AMTOI & Ernst and Young White Paper Page 31 Organization: Service-driven ! Service driven organizations are required to understand the customers better and mine their insights accurately in serving them. ! The main idea of service driven logistics systems is to meet predefined service goals. Ideally all logistics service systems are defined along the following lines: ! Identify customers' service needs ! Define customer service objectives ! Design the multi-modal route ! Fulfill the need i.e. transport the cargo accordingly ! Identify customers service needs The approach to service segmentation suggested here follows a three stage process: ! Identify the key components of customer service as seen by customers themselves ! Establish the relative importance of those service components to customers. ! Identify 'clusters' of customers according to similarity of service preferences ! Defining customer service objectives ! Exactly defining the value proposition for the customer, and understanding their unmet need ! Design the multi-modal route ! Depending on the cost and time of transportation, urgency of the cargo, service route availability, value added services and customer preferences, the multi modal route is designed by the MTO ! Fulfill the need i.e. transport the cargo ! Finally, the cargo is transported to the set destination, adhering to the schedule and safety means AMTOI & Ernst and Young White Paper Page 32 Organization: Structure ! A matrix structure groups employees by both function and product ! This structure can combine the best of both separate structures ! A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, or functional and decentralized forms ! In case of MTOs, the matrix structure can be based on the functional heads and the type of route serviced Functional heads Sales Marketing HR Routes A B AMTOI & Ernst and Young White Paper Page 33 Organization: Performance-linked growth ! Employee Ownership is a relatively new concept in India (primarily started by software development companies) as far as ESOP is concerned. But, a century back, job opportunities were not many and employees felt morally responsible to do their best without much incentives other than salary. But today, Managers like to believe that simply introducing ESOP would lead to the creation of an ownership culture (causing culture effect ) within the organization. In this culture, it is assumed, managers and workers would always think of the company first when faced with any sort of problems in the course of their day-to-day activities. ! One of the ways to link productivity can be achieved through Employee ownership – only if there is parity and fairness in the proposed plans (ESOP) affecting actual employee commitment, easy access to decision making to all involved, besides realizing a culture effect conducive to better performance. Most of the companies (other than MNCs) in India are family owned and unfortunately in such a scenario, factors other than employee performance are considered pivotal. Close proximity to the owner ( or his family) for reasons not related to job creates an undue advantage for the one who is close and in effect results in loss of parity in remuneration scales. In such conditions, productivity does not play any role to earn employee ownership. ! Employee ownership plans have positive effects on the employees if they perceive that it helps in bringing greater income, better control over their jobs and builds job security. On the contrary, it may have negative effects if employees do not perceive any difference in their work lives despite the plans, have unfulfilled expectations or feel the plans bring forth an extra risk to their current income levels. ! Eg. Allcargo Global Logistics Ltd announced that the Committee of the Board of Directors of the Company at their meeting held in January 2011 that the company has issued and allotted 12,236 equity shares of Rs. 2 each fully paid of the Company to its employees in exercise of options granted to them under 'Allcargo Employee Stock Option Plan 2006. AMTOI & Ernst and Young White Paper Page 34 Organization: Talent Management ! A look at the financials of a set of 80 logistics companies in India across sectors reveals that manpower spends comprise 8-10 percent of overall sales of the sector. This roughly translates to about an INR 500 billion spend on logistics manpower in the country annually. Only about 13 -14 percent of the overall manpower costs are spent on non-salary, manpower development items (welfare, training etc.). This share for the unorganized companies would expectedly be much less. As against this leading global logistics companies spend around 20 percent of their employee expenditure on non-salary items. Position Skill Gap Skill Required Manager/ Owner Inadequate knowledge of: • Procedures, paper-work for inter-state movement, taxation related aspects • Importance of long term investments in capacity building, manpower development, etc. • Training needs of personnel employed with them, leading to no incremental skill improvement • Sound knowledge of taxation policies and inter state laws to train and educate supervisors and drivers for applicable laws and policies • Ability to undertake activities such as fleet management, network optimisation, etc. • Ability to take decisions on long term and short term investments or spends, new equipment etc. • Ability to be conversant with new technologies such as the use of GPS in road transportation and ensure efficient usage – this helps keep pace with emerging needs of clients • Effective communication skills to be able to correspond with customers on a daily basis AMTOI & Ernst and Young White Paper Page 35 Organization: Talent Management Position Skill Gap Skill Required Supervisor Inadequate knowledge of: • Best warehousing practices • Technologies such as IT in the transportation sector, SCM techniques such as LIFO, FIFO, inventory management etc. • Taxation policies • Ability to ensure efficient route planning, so that it is cost effective, entails less turnaround and highest safety levels • Practical knowledge of equipment usage in loading or unloading goods in trucks - such as the optimum or efficient use of truck loading racks, lorry loaders, etc. • Adequate spoken and written language skills for efficient record keeping and effective communication even locally with diverse agencies such as client, the driver, truck owners • Knowledge of inter-state transport laws applicable • Ability to record and track transactions AMTOI & Ernst and Young White Paper Page 36 Organization: Talent Management Position Skill Gap Skill Required Driver/ Helper Characterized by a largely illiterate workforce that has inadequate formal training in: • Driving • Handle increasing tonnage and higher capacity trucks • Safety and first-aid • Octroi, applicable VAT • Safe driving practices and special precautionary measures in case of handling sensitive materials such as chemicals, petroleum tankers, etc. • Basic reading and writing skills to be able to read signage, proper documentation of tax levied, octroi paid etc. • Ability to understand routes and the geographical profile of the route being traversed • Ability to handle increasing tonnage and heavier trucks • Excellent driving skills - Apart from the basic driving skills, knowledge of precautions in case of transporting is critical • Knowledge of road safety practices, basic knowledge of the tax regime (region wise), traffic permit rules, etc. • Ability to handle dangerous, sensitive and perishable cargo • Basic spoken language skills for communication with supervisors and fellow drivers or unloaders and supervisors at the customers end • Ability to understand basic sanitation and hygiene requirements ! Some of the training institutes offering specialized course to service this skill gap include: ! Indian Institute of Logistics, Chennai ! CII Institute of Logistics ! ISB&M, Pune ! All India Institute of Management Studies ! Indian Institute of Materials Management AMTOI & Ernst and Young White Paper Page 37 Future Operating Model Dimension: Customer AMTOI & Ernst and Young White Paper Page 38 Customer: 5PL ! The 5PL solutions focus on providing overall logistics solutions for the entire supply chain. ! 5PL is a business field with very good prospects for the future: more and more companies are recognising that they have to concentrate on their core activities and are outsourcing all their logistics operations. 5PL organizations are providers who plan, organize and implement logistics solutions on behalf of a contracting party (mainly information systems) by exploiting the appropriate technologies ! The drivers of for the 5PL industry are: ! Economic imperatives ! Technological innovation ! Managerial competence in the provision advanced logistics services ! Some types of services offered by a 5PL are mentioned below: Intermediary 5PL Types of Services Strategic-IT Supply Chain Basic Idea Turns customer’s supply chain into a function that is completely driven by technology Resources Few physical assets, extensive knowledge, and technology based-assets Potential Benefits Large companies with highly complex supply chains Potential Drawbacks Loss of control and relationships with supply chain members, risk in long-term partnerships AMTOI & Ernst and Young White Paper Page 39 Customer: Value Added Services ! Value added services are services that enhance transportation, warehousing, and certain logistics offerings. ! By using value added logistics it helps companies and providers to lower inventory footprints of finished goods by postponing the labeling and final assembly of the products until the customers orders are received. ! Value added services can be performed directly by the participants in a business relationship or may involve specialists. ! Some of the value added services offered by 3PLs and MTOs globally are: ! Transportation management ! Order management ! Vendor managed inventory capabilities ! Repacking ! Kitting ! Specialised labelling ! Reverse logistics ! Swap service ! Cleaning and disposal management ! Returnable packaging management ! Subassembly AMTOI & Ernst and Young White Paper Page 40 Customer: Value Added Services ! The value added processes that are performed on customer returns, as well as the whole returns process, have been described by the term Reverse Logistics. ! This process covers the method by which items are returned from the customer and the processing of the returns by servicing and returning to the customer, putting the material back into stock or refurbishing the items for resale. The returns process has now become an important part of the processing that takes place in the warehouse. ! Remanufacturing and refurbishment activities may be part of the procedure. ! For an MTO, the disposition choice is determined by the expertise and the most profitable alternative: ! Reconditioning – when a product is cleaned and repaired to return it to a like new state ! Refurbishing – similar to reconditioning, except with perhaps more work involved in repairing the product. ! Remanufacturing – similar to refurbishing, but requiring more extensive work; often requires completely disassembling the product ! Recycle – when a product is reduced to its basic elements, which are reused – also referred to as asset recovery. ! Specialised Indian reverse logistics companies such as RT Outsourcing Services have grown in response to the niche service environment bridging the gap between 3PL and 3PSP AMTOI & Ernst and Young White Paper Page 41 Future Operating Model Dimension: Technology AMTOI & Ernst and Young White Paper Page 42 Technology Enablers ! The logistics value chain in India is characterized by lack of transparency and existence of legacy systems, which result in huge inefficiencies causing delays, penalties and lack of shipment visibility ! Therefore, it is not surprising that in India the logistics costs are as high as 11-13% of the countrys GDP ! Communication technologies like Electronic Data Interchange (EDI) and automated vehicle movements like digitalized toll gates can help address these industry issues to bring in greater transparency, visibility and real-time tracking ability ! The features of EDI include standard templates, standard protocols for data interchange and access to statutory authorities. This Web-enabled enterprise application has drastically reduced communication costs and integration complexity ! The real benefits of EDI are its ability to incorporate back office applications and legacy systems with the information received and sent from/to clients, generate operational efficiencies, lower costs and higher consumer satisfaction levels ! In addition to changing demographic profile and increasing consumer awareness, the online payment service providers can help bridge the gap between the service provider, customers, and payment channels with their customized, secure, and relevant e-commerce solutions, and are largely instrumental in the turnaround and growth in e-commerce ! EDI can be used for filing of details by the MTOs who are Authorized Economic Operators. These operators may be allowed to consolidate cargo in a private warehouse without customs supervision after Out of Charge and move the container under self certification/sealing without customs supervision. AMTOI & Ernst and Young White Paper Page 43 Technology Enablers ! Each of the entities in the cargo community such as shippers/consignees, carriers, customs and freight forwarders realize the numerous benefits of EDI, some of which are as follows: Supply Chain entities EDI system features Benefits Shippers Single point data entry Enables multiple Request for Quotation (RFQ) floating to multiple service providers Single window view to manage and track multiple RFQs floated Receive online scheduled updates of status via SMS/e-mail Facilitates cost savings, ensures reliability and ease of process monitoring Facilitates transmission and storage of documents and e-payments Carriers Data is received in the correct format Automated status inquiry and booking processes Significant cost and time reduction Minimal human intervention Quick response to enquiries, thereby enhancing customer service and sales Freight Forwarders Shipment data can be shared by shippers electronically Data is received and processed by internal system without any manual intervention Reduced shipment turnaround time EDI messages giving status updates provide complete shipment visibility Customs Ensures e-governance Increased data security Reduced congestion at customs station Better connectivity with regulatory authorities involved in transportation and commerce Industry Error-free order registration 2-3 days earlier to the system of the sub-agent Gain from reduced data transmission time from 3 weeks to 1 day Enhanced speed and accuracy in data transmission to suppliers Banks/ License Authorities Availability of post shipment confirmation Reduced documentation like receipt and export promotion copy of the shipping bill AMTOI & Ernst and Young White Paper Page 44 Future Operating Model Dimension: Process AMTOI & Ernst and Young White Paper Page 45 Processes ! With proposed growth through either organic or inorganic route, it becomes imperative to be structured in a manner which best meets business objectives ! Processes need to be defined taking all dimensions into consideration: ! People ! Technology ! Strategy ! Support ! Organizational culture ! Processes should be benchmarked against leading practices while customizing to meet existing and future business needs and which enable users to follow them efficiently thereby, making them task- oriented ! Benefits to customers should be measurable ! Processes should be standardized, uniform across locations and should promote SLA-driven culture to best meet customer expectations AMTOI Page 46 Success Stories AMTOI Page 47 Success Stories: Deutsche Post DHL Strengths: Large scale and global network Exposure to high growth geographies and services Diversified port-folio of customers Weaknesses: Service and geographical coverage gaps Underperforming freight management business Opportunities: Asia-Pacific market Cost savings from integration and restructuring Threats: Middle East and Latin America Low economic growth and high input costs Growth Story primarily through increasing network coverage and offering innovative solutions Through collaborative approach with group companies, DHL remains one of the prominent market players with dominant market share. With its Express, Global Forwarding, Freight, Supply Chain divisions, DHL offers International Express, Air Freight, Ocean Freight, European Road Freight, Contract Logistics, Document Management and Outsourcing. Deutsche Post AG progressively acquired DHL as global air express service provider from 1998 to 2002 and enhanced its expertise by purchasing other leading logistics companies, e.g. 1999 acquisition of Danzas, 2004/2005 acquisition of 88 percent of shares of Indian express company Blue Dart, and acquired Exel in the end of 2005 Source: Company annual report, Press Releases AMTOI Page 48 Success Stories: Deutsche Post DHL (Contd.) Broker intermediaries between customer and freight carrier • DHL being an asset light business model based on brokerage of transport services between their customers and freight carriers. This enables consolidation of cargo and ability to carry higher volumes. • Due to wide network coverage DHL can manage to optimize the goods routing Providing services to a range of industries • Caters to wide range of clientele - Technology, Automotive, Chemicals, Consumer, Retail (including Fashion & Apparel) and Energy sectors • Depending upon the nature of the industry, offers products and services ranging from standard transport, multi-link transport chains and specialized industrial projects for specific sectors, including temperature- controlled and secure shipments and customized solutions to niche industries such as motor sports Technology usage DHL uses one of the most advanced technology interventions to enhance their operational excellence: Two examples of the same are mentioned below 1. SmarTruck- intelligent technology for route planning based on satellite-supported geo and telematic data, which locates the vehicle and analyzes the traffic situation 2. Parcel Robot: It is the first unloading system that can independently unload containers with loose parcels. The robot now makes it possible to automate the physically strenuous work of loading on the ramp, which was previously performed manually Strong focus on strengthening brand DHL • In addition to traditional advertising, they continue to use sponsorships as a vehicle to strengthen their brand image. In 2011, they maintained international logistics partnerships with Formula 1, IMG Fashion Weeks and the Leipzig Gewandhausorchester. • Involved in the Volvo Ocean Race for the first time. Likewise, they became a main sponsor and the official logistics partner of Manchester United • As the official logistics partner of the 2011 Rugby World Cup in the autumn of 2011 in New Zealand, DHL was also able to showcase its brand. • Took part in around 120 events in 40 countries in the financial year 2010-11 as part of the DHL partner programme Key differentiators: Source: Company annual report, Press Releases AMTOI Page 49 Success Stories: UPS Supply Chain Strength: Global reach and scale Inorganic growth Financial strength Weaknesses: Unionized labor European contract logistics Opportunities: Expanding Asia Pacific market Growth in e- commerce services Threats: Slowdown of US economy Rising oil prices Growth Story primarily through acquisition and unique value propositions: UPS Inc. introduced supply chain management into its service portfolio in 1993. In 1998 , it invested in technology to promote traceability of its services and to sustain the owner-managed philosophy of its operations. UPS also formed a financial services subsidiary which offered lines of credit for small business owners further expanding this offering to companies in the emerging markets. The company became public in 1999, when it floated on the NYSE. Since becoming a publicly traded company in 1999, UPS has expanded its capabilities primarily through the acquisition of more than 40 companies, including industry leaders in trucking and air freight, retail shipping and business services, customs brokerage, finance and international trade services. Source: Company annual report, Press Releases AMTOI Page 50 Success Stories: UPS Supply Chain (Contd.) Integrated Global Network • Integrated global ground and air network • Handle all levels of service (air, ground, domestic, international, commercial and residential) through a single pickup and delivery service network • Sophisticated engineering systems allows them to optimize network efficiency and asset utilization on a daily basis Global Presence • UPS serves more than 220 countries and territories around the world. They have a presence in all of the worlds major economies Leading-edge Technology • New keyless entry systems automatically enable the ignition, unlock the doors, and open the bulkhead door • Telematics sensor technology gathers and analyzes data from vehicles to improve safety, efficiency, and customer service • Next Generation Small Sort (NGSS) improves efficiency of small sort operations by eliminating the memorization of ZIP codes • With the Network Planning Tool (NPT) and the On Road Integrated Optimization and Navigation (ORION), UPS links its operations technology with advanced analytics Broad Portfolio of Services Customized services • Service portfolio enables customers to choose the delivery option that is most appropriate for their requirements. Increasingly, customers benefit from business solutions that integrate many UPS services in addition to package delivery. For example, their supply chain services—such as freight forwarding, customs brokerage, order fulfillment, and returns management—help improve the efficiency of the supply chain management process. Employee-friendly distinctive culture • Employees dedication results in large part from their distinctive employee-owner concept. Their employee stock ownership tradition dates from 1927, from their founders, who believed that employee stock ownership was a vital foundation for successful business • To facilitate employee stock ownership, they maintain several stock-based compensation programs. Their long-standing policy of promotion from within complements the tradition of employee ownership Key differentiators: Source: Company annual report, Press Releases AMTOI Page 51 Success Stories: Sree Kailash Logistics Strength: Infrastructure development in logistics parks Technology and System integration Weaknesses: Over dependence on in- house facilities Opportunities: Capitalize on clientele from other segments Growth in cities other than Chennai Threats: Instability among the construction clients which form a main composition of the client base Growth Story primarily through acquisition and unique value propositions: Sree Kailas group was founded by Sri. S.Sivathanupillai with a modest beginning in the year 1983. Sree Kailas Group has planned its Logicity in Chennai, Asias Detroit, for its strategic positioning in the world market in terms of growth, connectivity and proximity The group has its interests in Paper, Logistics, Residential Projects and Construction. It has a turnover of over 400 crores for over a decade. Source: Company annual report, Press Releases AMTOI Page 52 Success Stories: Sree Kailash Logistics (Contd.) Infrastructure Facilities • Warehouses of different measurements to handle electronic appliances, pharmaceuticals, sanitary, furniture, garments, automobiles and retail • Spaciously designed for easy diagonal movement of 40 ft. containers. • Individual electric supply to each warehouse • Adequate water supply with overhead tanks. • Well-planned and connected drainage and sewage network. • Storm water management and rainwater harvesting. Investments in expansion plans • Shri Kailash Logistics Limited (SKLL) to INR 800 crore in five warehouses. • Out of these five parks, three will be large warehouses spread over 10 lakh sq.ft each in North Chennai, Pune and Bangalore. and two will be small of about 5 lakh sq ft each • The bookings for the first park have already begun Logistics Park facilities • Information kiosk and helpdesk • User-friendly directional signage and guide maps at various points. • Resting lounge for drivers and support staff. • State-of-the-art bus stop inside the park. • CCTV cameras for enhanced security. • Presence of National transporters and clearing agents. • High-end security for the entire park. • Mobile communication tower. • Professionally-run park administrative office Global Alliances • Sree Kailash is planning to launch a logistic park in Chennai in technical collaboration with BPS Global,Singapore. • The group is planning for a 300 crores project specializing in Logistics Park, Villas and Comfort Homes • The project is very near to industries viz, Nokia, Hyundai, Saint Gobain Glass, Flextronics, Dell, Delfi Nissan, Komatsdu, Avera, Tristler Ltd, Ashok Leyland , Ford Ltd, etc. Key differentiators: Source: Company annual report, Press Releases AMTOI Page 53 Success Stories: Transcon Freight Systems Pvt. Ltd. Strength: Single Window Logistical Services Trained Personnel Weaknesses: Network coverage only in Maharashtra Opportunities: Developing owned tank containers and container freight stations Threats: Congestion in the containerization market Growth achievement through integration: Transcon freight Systems Pvt. Ltd. was established in 1984 in Biriya House, Fort in a rented office with a only a table space. Since then it grew to own its offices in Biriya House, Wadala truck terminal, Afzhar Building Fort, Kalamboli, Pune, Dronagiri, Raigad and Belgium. It has its head quarters in Ghatkopar. Transcon has expanded its gamut of services from Sea and Air freight Forwarding to Container transportation, Cargo Consolidation, Warehousing and Distribution, Haz ChemicalExpert, Multimodal Logistics and Tank Management. Source: Company Profiles, Annual Reports AMTOI Page 54 Success Stories: Transcon Freight Systems Pvt. Ltd. (Contd.) Container Fleet • The company owns a fleet of 45 trailers • Ownership of these assets allows the customers to avail competitive prices under one roof • These containers are used for transporting dry boxes and liquid cargo in tanks from various parts of the country • End to end (in bound and out bound) solutions can be provided due to in-house infrastructural facilities. Tie ups with small and medium players across the value chain: • Transcon provides services across the supply chain by leveraging on their internal capabilities as well as by using the best of medium and small players to allow flexibility • This allows Transcon to diversify risks and take advantage of the regional and geographical networks of the small players Online Vale Add Services: • The customers can check details of their shipment and evaluate shipment options based on the following online services available:- • Currency Calculations • Shipment Schedules • World weather conditions • Online Tracking • Distance Calculator • Container Specifications • Metric Conversions Expertise in handling hazardous substances: • Transon has experience in handling primary and subsidiary chemicals like explosives, compressed liquefied or dissolved under pressure gases, flammable solids, oxidizing substances, toxic and infectious substances, radioactive substances and corrosives. Key differentiators: Source: Press Releases, Annual Reports AMTOI Page 55 Success Stories: Hind Terminals Strength: Self owned transportation vehicles In-House maintenance technicians Weaknesses: Type of cargo handled Opportunities: Expansion of transport routes to the east and South of India Threats: Inability to provide sea and air transportation services Growth achievement through diversification of services: Hind Terminals started its operations December 2005 at Nhava Sheva. The Container Freight Station is spread across an area of 30 hectares at Logistics Park, Dronagiri, near JN Port, Navi Mumbai under Strategic Alliance Agreement with Central Warehousing Corporation (CWC) to develop, operate and maintain the CFS for 15 years. The company is amongst the 15 private players to be granted the License for container train operations. The company has received "Principle Approval" from the Indian Railways and also executed the Concession Agreement for operating container trains throughout India for a period of 20 years. It provides services such as ICD / CFS warehousing, stuffing / de-stuffing, handling and transportation including rail, road and all allied activities. Source: Company Profiles, Annual Reports AMTOI Page 56 Success Stories: Hind Terminals CFS Amenities: • Customs clearance • EDI Connectivity • Fire Fighting and alarm systems • Wiegh in bridge for railway wagons • CCTV surveillance with footage upto 45 days • Yard management and automated cargo/container location finding system • 4 lane gate complex • Shuttle service for customers with a frequency of 15 minutes for transportation within the CFS • Bank of India for Duty Payment Rail cargo tracking via SMS: • Customers can view the container status at both the CFS and rail movement by sending one SMS request • For rail tracking the customers need to know details like Container number whereas for CFS Tracking container number details are required • Further tracking for multiple containers can also be managed through the tracking system Mobile Maintenance Vehicle: • The mobile maintenance van is equipped with wireless communication system for immediate response and the necessary equipments • Incase of breakdowns the mobile van is communicated. The van then reaches out to the concerned vehicles any immediate redressal • Hence the vehicles do not have to wait till to be taken to repair stations thereby reducing the response time. The shipments can be then be carried forward as per the original plans E Track and E Performa • Hind terminal allows the customers to track shipments online and check on the payment facilities Key differentiators: Source: Press Releases, Annual Reports AMTOI & Ernst and Young White Paper Page 57 In Conclusion Over the years, need for logistics in India has largely been driven by the phenomenal growth of the economy. While macro-economic conditions may have been cyclical in nature in the past few years, the interest of global players in India remains promising. In spite of a dismal performance of the infrastructure segment, investments in strengthening logistics to facilitate global and domestic trade continues to raise hopes for the sector. Countries and players who have been successful in this space are ones who have played a balancing act in innovating, understanding their customer segments and expectations from all stakeholders while maintaining a unique value proposition as discussed across this paper. Investments trends in India have super imposed the significance of the pivotal role multi- modal operators are likely to play in this space. Investments in SEZs, Logistics Parks, Ports only go to validate that the boundaries in this opportunity space are widening. The future remains fertile, however, it can be sustained with synchronized coordination between the public and private sector with focus on exploring ways to reduce time, costs and energy and improving operational excellence while successfully integrating businesses with widely different asset profiles and core competencies. AMTOI & Ernst and Young White Paper Page 58 AMTOI & Ernst & Young offices Association of Multimodal Transport Operators of India C/o. 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