SHORING UP ON OPPORTUNITY
As India looks to become an automobile hub, its logistics infrastructure must undergo a transformation to open up avenues for trade. Lionel Alva…
With a significant growth in exports and international revenues (from 12 percent in 2002 to 51 percent in 2014), the Indian auto component sector is growing at an exponential pace. The government too has demonstrated its support for the automotive industry with the Automotive Mission Plan to 2026 in which it expects industry’s growth to quadruple by the end of that period.
Passenger vehicle production is targeted to be between 9.4-13.4 million units per annum (the base and optimistic cases) by 2026, with exports accounting for 35-40 percent of output.However, as India looks to become an automobiles hub, the country’s automotive supply chain must evolve significantly due to changing expectations and business dynamics. While the long-term growth story is strong, but short-term volatility is creating an environment of uncertainty. Most global OEMs (Original Equipment Manufacturers) view India as a strategic market of the future, and as a result, competition is intensifying. Undoubtedly, logistics is the anvil upon which India lays its ambitions of becoming an automobile hub in the future.
Currently, according to a Deloitte research paper, the automotive industry contributes to about one percent of India’s total logistics spend. Logistics cost in automotive industry accounts for two to three percent of sales and around three to four percent in the auto component industry. Reverse logistics cost in Indian auto and auto components industry is estimated to be around 0.5 percent -1 percent of auto and auto components industry.
At present, the supply chain for automobiles is competent enough to make products available to nearly all parts of the country and yet new competencies would be required to fulfill the industry’s long-term ambitions.
Ergo, the evolution of the automobile industry delineates a need for closer collaboration between the OEMs and logistics service providers. The nature of geographic shifts in production and consumption, and the rise of new methods of car ownership and sales have led to a highly volatile and disruptive period in the industry.
“As OEMs expand their product lines in India, we see a significant potential for car carriers which are specially designed to meet a variety of needs, both in terms of dimensions of the vehicles being carried as well as special handling requirements. We will have a very specific focus on design innovation in car carriers in 2×2 Logistics. We are already one of the largest automotive logistics service providers in India and this joint venture will allow us to directly operate assets and serve our customers with a greater degree of predictability and control,” explains Sushil Rathi, senior vice president, Mahindra Logistics.
Ostensibly, much hinges upon a tighter and closely collaborated supply chain. The automotive supply chain is currently undergoing a transitionary period and there are significant challenges driven by supply chain complexities resulting in inefficiencies that in turn lead to cost increases.
There is certainly rising demand for many industries, including automotive, to provide an immediate service. Whilst a few hours for delivery service is currently untenable for substantial purchasing decisions such as buying a new car, there is increasing pressure on the automotive industry worldwide to provide a more dynamic service with a wider variety of options and quicker turnaround of orders. Disruptive technologies like 3D printing may make this possible in the long term. New technologies can also enhance the life cycle of parts, more flexibility in the packaging and part protection resulting in reduction of the logistical costs with a better quality.
The advent of newer technologies has implications for the whole automotive supply chain, which in some organisations has potential for modernisation and the implementation of a more centralised logistics structure. Ultimately supply chain costs are an endemic part of a company’s businesses processes so require a long-term sustainable system.
“We have a deep understanding of the complex supply chain requirements of our automotive customers in India, and we are investing in building our capabilities and solutions across the country in this dynamic industry,” says Desmond Chan, managing director, South Asia, Menlo Logistics.
The challenges of managing complexity and costs for the automotive logistics industry are likely to increase given the positive movement of the drivers. These include legislative changes and the use of inland waterways for better connectivity to the hinterland.
Gur Prasad Kohli, managing director, Wallenius Wilhelmsen Logistics (India), observes, “To encourage greater coastal movement for cars, trucks and construction equipment, the government needs to improve processes for customs and CFA, bring in a simplified tax structure through GST legislation and reduce port costs.
Example – the government has announced bunker duty exemption for coastal vessels. However, the shipowner still has to buy duty paid bunkers and claim duty refund from the oil company. This is an unnecessary procedure. The government had announced an incentive of Rs 3000 per car to go on coastal trade but not yet implemented.”
Given that the road infrastructure in India is woefully inadequate and congested in terms of speed and efficacy there has been a greater degree of reliance on ports and inland waterways to formulate an efficient supply chain.
“The average speed for trucks is approximatley 12km/h in India! Main reasons for this are the poor road conditions, inter-state crossings, slow toll station operation, etc. There is a lot of scope for improvement in the infrastructure and legislature in these areas,” avers Carsten Goransch, vice president & head of logistics, Volkswagen India.
Impact on ro-ro infrastructure
There is a need to revamp the existing port infrastructure in the country to facilitate more efficient automobile logistics movement.
“Handling ro-ro requires dedicated infrastructure for staging area and needs huge land mass within or near to the port. Typically, there should be space for keeping 8,000 vehicles (parking slots) so that the vessels can be quickly loaded / unloaded. If the area is far off from the terminal, then it is going to increase the turnaround time as well as costs,” highlights Unmesh Abhyankar, CEO, Mundra Port.
India’s ro-ro infrastructure has not matched the growth in exports, and lags behind that found in other Asian markets including China, Thailand and Indonesia.
“There is need for enhanced capacity in handling auto exports. However, having a dedicated facility only for auto exports would not be commercially viable. Mundra, due to its strategic location which is close to vast land-locked hinterland in the north and situated on global maritime trade routes, is an excellent choice for auto handling,” adds Abhyankar.
Being that automobiles are highly sensitive cargo compared to other commodities. If these are not transported in near-ideal conditions, there are increased chances of damages. Lack of adequate infrastructure such as poor road quality, congestion and non-equipped rail terminals, put additional challenges in automobile transportation.
Kohli highlights the criterion that a port must fulfill to become an effective logistics hub. A good port must be:
- Well connected by road and rail to the hinterland
- Should have timely efficient processes for the movement of cargo in and out of the port
- Should have adequate space within the port for parking of ro-ro cargo and space for PDI /repairs
- Well connected to sea lanes – minimum deviation from sea lanes
- Good stevedoring /cargo handling facilities
However, may ports in India lack dedicated ro-ro facilities and have many infrastructure constraints. Containerised exports often go from Jawaharlal Nehru Port Trust (JNPT) near Mumbai. The port of Chennai is India’s largest vehicle export hub. However, it also has space issues.
Abhyankar observes, “Handling ro-ro requires dedicated infrastructure for staging area and needs huge land mass within or near to the port. Typically, there should be space for keeping 8000 vehicles (parking slots) so that the vessels can be quickly loaded / unloaded. If the area is far off from the terminal, then it is going to increase the turnaround time as well as costs.”
He further states that having a dedicated facility only for auto exports would not be commercially viable. However, the Port of Mundra, due to its strategic location which is close to vast land-locked hinterland in the north and situated on global maritime trade routes, is an excellent choice for auto handling.