Sense of urgency as low investment model threatens growth
Small cars are selling well to India’s fast-growing middle class, and even exports - often overlooked - outstripped China's for the first time this year.
The huge escalation in demand and production was reiterated throughout the 2009 event, and although many of the same logistics concerns and challenges had been raised in the previous conferences in India, this year there was a genuine sense of urgency about fixing them. All delegates wanted to make the most of the demand, and get cars to the right place, at the right time, in the right condition and at the right cost.
In a week in which his ultimate boss had been sacked, and GM announced that its joint venture with China’s SAIC will be producing small cars in India, the headline speaker Robert Strain is in a company which is still going through considerable change.
But as GM’s Director of Logistics and Supply Chain for Asia Pacific, he kicked off the conference in a presentation emphasizing GM's interest and commitment to becoming a “major player” in the region. The company is already building the Spark in its new plant in Pune, with parts sourcing from India and across the world. The distribution of the finished cars, however, is complex. ‘Outbound in India is a huge opportunity to grow and change,’ he said.
Few 3PLs
That change is needed. No less than 98% of outbound movements are done by road transport, and the challenges this presents are significant limitations to growth. The infrastructure is inadequate (half of India’s roads are not paved), road tolls and state taxes are prolific, and drivers face harassment at state border crossings.
There is a shortage of good capacity in the market, partly because of the structure of fleet ownership - companies often own few vehicles (two thirds own less than five, a proportion set to increase as the market grows) - and there are few 3PLs operating in the finished vehicle business.
In addition, conference attendees bemoaned the slow turnaround times at plants and ports, leading to the capacity that does exist being under-utilised. This is made more acute by fluctuations in demand for vehicles both from the beginning to the end of the month, and from season to season, which has made fleet companies unwilling to invest in assets they may have to idle.
Jorg Mosolf, chief executive of the company which bears his name, acknowledged that the 3PL model is a solution to some of the capacity problems. Multi-brand yards and transport, combined with a hub-and-spoke delivery system, would bring efficiencies and more capacity into the supply chain, he said. Mosolf announced two new joint ventures for his company in India, demonstrating that perhaps some global 3PLs are getting serious about business there.
Fiat India's Kalpesh Pathak confirmed that OEMs want to see this kind of initiative when he called for collaborative use of cross docks. ‘I think the way forward is in this direction,’ he said.
Rail is still lagging
There is intense interest in India in using rail for finished vehicle logistics, but a mixed view at the conference about whether progress was being made to achieve that.
Maruti Suzuki's General Manager of Logistics, Deepak Sharma, described the efforts that SIAM (the OEMs’ trade association) has been making to develop a strong business case to present to the new Minister for Railways. ‘The share of rail use is indicative of the maturity of the market. It is 2% in India now. When we become volume driven, we simply cannot produce bulk volumes without developing rail,’ he said.
And he expressed real optimism. ‘Within one month you will see some progress on rail, and within three months trains will run with cars,’ he predicted.
Other speakers, however, were dismissive of rail as a viable option in the near- to medium-term. RS Kalsi, Chief General Manager of Sales at Maruti Suzuki, revealed that during the peak season he had virtually no access to rail. ‘And the vehicles I did get did not arrive in the right shape,’ he cautioned.
Outcomes
Collaboration was called for in other sectors of logistics too. A significant feature of the conference was networking and open discussion in all its forms, from the open Q&A at the end of speaker presentations through to the private discussions during the introductory cocktails, the tea breaks, and at the relaxed offsite business dinner held on the middle evening of the event.
Discussions were also factored into the conference programme, with attendees able to join round-table sessions dedicated to specific subjects. As a direct outcome, some of the transport companies present decided to form an LSP forum to meet with SIAM and government representatives to give the logistics providers’ input.
Packaging was both the hottest specific topic - the round-table had to be moved to a separate room to accommodate all the participants – and the one which made most concrete progress (see separate conference report).
.
Challenges, challenges…and opportunities
The logistics challenges in India are numerous, but so are the opportunities. This year, India's export of cars overtook China for the first time, and Bryan McCausland, Regional Head of Logistics for ocean carrier Wallenius Wilhelmsen Logistics, who is based in China, reminded delegates of the need to establish a good ro-ro port.
He emphasised the urgent need for action, given the long lead time and high investment needed to develop infrastructure projects like this.
As with many things in this region, time-scales for projects are hard to predict. The long-awaited standardisation of multiple local taxes, the national Goods & Service Tax (GST), is due to come into force in April 2010. As well as simplifying tax collection, it is also hoped that it will remove much of the high-delay bureaucracy at each state border. But many conference participants were sceptical, and thought 2011 a more realistic date for it to start.
The change could have a dramatic impact on the logistics landscape, as the current tax structure encourages suppliers to have small warehouses near the plants they supply. With GST, economies of scale and larger operations would be possible, and it would also enable the development of a hub-and-spoke system of delivery for outbound movements.
Transport Corporation of India (TCI) claims to move 2.5% of India’s GDP by value, and its Chief Executive Jasjit Sethi summed it all up: “Put India in context. India is not a country, it is more like a continent.”
The problems for logistics may be great, but the opportunities for logistics providers in India are greater.