Final lt june 2011p

ICRA REPORT 14

TCS REPORT 41

HIGHWAY SCENE 46

LogisticsTimes www.logisticstimes.net

June 2011

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Exclusive Interview Michael Drake, Regional MD, TNT Express (Asia Pacific)

2014: Exports@ $500 bn I

NDIA'S MOST VALUED LOGISTICS MAGAZINE

Is it Doable?

Logistics Times

CONTENTS

All about Transportation, Distribution & Infrastructure Volume 2: Issue No.2 * June 2011 Editor in Chief Raj Misra rajmisra@logisticstimes.net Editor Ritwik Sinha ritwik@logisticstimes.net Consulting Editor Ramesh Kumar ramesh@logisticstimes.net Mumbai Bureau Rahul Kumar rahul@logisticstimes.net Sub Editor Neha Richariya Photographer Anil Baral Design Consultant S. Athar Hussain Designer Kausar Syed Circulation & Distribution Kamruddin SaiďŹ Legal Advisor Rakesh Garg

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COVER FEATURE 2014: Exports@ $500 bn

Is it Doable Doable??

Editorial Advisory Board Paul Lim Founder & President, Supply Chain Asia Vinod Singhal Brady Family Professor of Operations Management, Georgia Institute of Technology, College of Management Kate Vitasek Faculty, Centre for Executive Education The University of Tennessee Prof. K S Pawar Nottingham University Business School Prof. Samir Srivastava Associate Professor, IIM-Lucknow Prof. Akhil Chandra Institute of Logistics & Aviation Mgt Sanjay Upendram Founder & Chairman, Amarthi Management Consulting Swaran Singh Soni Consultant (Oil Industry) Arif Siddiqui Chairman, Coign Consulting

Marketing & Sales Outthink Strategies Ph: 65177214, 26412476, 9818097385 Email: sales@logisticstimes.net Printer & Publisher Deepa Misra for

E-77, West Vinod Nagar, Delhi -110092 Tel: +91 11 22478538-39, Fax: +91 11 22471764, Mumbai: +91 9322811550 Printed at Personal Graphics & Advertiser Pvt. Ltd. Y -22, Okhla Industrial Area-II, New Delhi-110020

www.logisticstimes.net

Edit Note

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News Briefs

8

Events

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Last Page

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10 INTERVIEW

Michael Drake

44 QUICK CHAT

Thiru Vengadam

46 Highway Scene

Note from Bangalore

12 ICRA REPORT

Shipping

41 TCS REPORT

Smart Supply Chain

EDIT NOTE

6

Turning point for exports?

“Can we become an exporting powerhouse like China?” I remember posing this question to a leading economist ten years back. Those were the early years for me in this profession and this was quite a common question those days given the fact that the world had begun singing paens to the emerging Chinese exports might. Even the then union Commerce and Industry Minister Murasoli Maran appeared out to be quite mesmerised by the surge in Chinese exports and was particularly impressed by its special economic zones (SEZs) led exports growth story (to a considerable extent, the idea of SEZs in India owes its genesis to Maran’s intiatives based on his observations of the Chinese model). “ No, it is unlikely to happen anytime soon. We first have to manufacture for our own consumption and then we can think of supplying goods to the international market. And right now even manufacturing is not on a sound wicket. So we are not sure if we could cope with a surge in demand of goods in the domestic market,” the economist had responded to my querry in these words (Yes, around the beginning of the new millenium, a big economic issue was whether a serious overlapping has happened in the constitution of our changing GDP structure with country moving on from agrarian to services strength skipping that quintessential stage of building up a sizeable manufacturing base).

Cut to the present day. At 37 percent, the exports sector has delivered its best ever annual growth performance (in 2010-11) in its entire history and inched closer to $250 billion mark. And in the first two months of the current fiscal, the party has only become bigger with 34 percent and a mind boggling 57 percent growth in April and May respectively.

Propelled by these recent trends, the government has now set the target of doubling the exports to $500 billion by 2014. But is it really a feasible target? That is the basic probe of our cover feature this time. The responses which came from leading exporters, LSPs especially those who are aligned with exports services and economists present an interesting picture. While there is no doubt on the ability front, the critical issue is: the infrastrutural and logistical hurdles. Exporters are also citing high interest rates, the and lukewarm financing response from the banking system as the potential spoilers which could not support the gigantic scaling up drive required to attain that $500 billion mark.

On the positive sides though are the facts that alternative markets so assiduously cultivated in last ten years have started producing results and ‘Made in India’ tag is gradually gaining respectibility. Another major plus is the broadening of the exports basket where we have new robust drivers rather than traditional heavyweights like textiles, leather goods and gems and jewellery. Certainly very interesting days ahead on the exports front wherein an attempt would be made to turn it into a vibrant sub-plot of India growth story by undertaking uphill task of managing the internal contradictions. Leaf through the cover feature to get a glimpse of private stakeholders’ belief and sentiment…

Among other highlights of the edition are an exlucive interview with Michael Drake, Regional Managing Director, TNT Express (Asia Pacific). The man who is credited with creating a strong base for the company in China now tells us that India would be the top two markets in the region in TNT’s reckoning in the short to medium run. This edition also carries two interesting study papers – by TCS (on smart supply chain) and ICRA (on shipping business trends in next two years).

Waiting for your feedback Ritwik Sinha ritwik@logisticstimes.net

LOGISTICS TIMES May 2010

NEWS BRIEFS

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Cargo airport, logistics hub in Haryana Haryana chief minister Bhupinder Singh Hooda has called for greater engagement of private sector to upgrade infrastructure in industrial clusters and assured the hassle free facilitation of land acquisition for developers to help its economy grow from 30 billion dollars (about Rs 138,000 crore) to 130 billion dollars (about Rs 598,000 crore) in the next ten years. The KundliManesar-Palwal expressway will facilitate connectivity of Haryana with important sea ports located in south, west and eastern parts of India, he said while speaking at industry body ASSOCHAM’s Summit on Advantage Haryana – Land of Opportunities last month.“Its 135 km route offers new opportunities of development.

Other initiatives include a cargo airport, upgradation of national and state highways, new inter-city connectivity and intra-city transport,” Hooda said.

The state is also planning many infrastructure initiatives under

Downward revision The International Air Transport Association (IATA) has further downgraded its 2011 airline industry profit forecast to USD 4 billion.

This would be a 54 per cent fall compared to the USD 8.6 billion profit forecast in March and a 78 per cent drop from the USD 18 billion net profit (revised from USD 16 billion) recorded in 2010. On expected revenues of USD 598 billion, a USD 4 billion profit equates to a 0.7 per cent margin. “Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations to USD 4 billion this year. That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance,” said Giovanni Bisignani, the IATA’’s Director General and CEO. “The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel. But with a dismal 0.7 percent margin, there is little buffer left against further shocks,” he said. Capacity growth of 15.5 per cent is expected to outstrip demand expansion of 14.6 per cent. The cost of fuel is the main cause of reduced profitability. The average oil price for 2011 is now expected to be USD 110 per barrel (Brent), a 15 LOGISTICS TIMES June 2011

the Delhi Mumbai Industrial Corridor project. The industrial infrastructure is being strengthened through development of new industrial model townships and estates. Food parks and IT parks are being developed under the cluster development strategy. “These projects will provide a great investment opportunity for domestic and foreign investors,” said the chief minister adding the state’s land acquisition and R & R policy is a model worth emulation throughout the country and will be revisited from time to time.

Hooda said Haryana has been able to implement projects with investments of Rs 53,000 crore with another Rs 100,000 crore investments in the pipeline. Also present on the ocassion was state commerce and industry minister Randeep Singh Surjewala who maintained that the state has achieved the top position in terms of per capita investment at Rs 78,500 in recent years. “ The state is committed to build eco-smart cities, a world-class exhibition-cum-convention centre at Gurgaon, an integrated multi-nodal logistics hub and a mass rapid transit system between Gurgaon-Manesar-Bawal,” Surjewala added. per cent increase over the previous forecast of USD 96 per barrel.

For each dollar increase in the average annual oil price, airlines face an additional USD 1.6 billion in costs. With estimates that 50 per cent of the industry’’s fuel requirement is hedged at 2010 price levels, the industry 2011 fuel bill will rise by USD 10 billion to USD 176 billion. Fuel is now estimated to comprise 30 per cent of airline costs -- more than double the 13 per cent of 2001. “We have built enormous efficiencies over the last decade. In 2001, we needed oil below USD 25 per barrel to be profitable. Today, we are looking at a small profit with oil at USD 110 per barrel,” said Bisignani.

20% jump in profits Transport Corporation of India (TCI), last month announced its financial results for the quarter ended March 31, 2011. In synchronization with the projections, the company registered a jump of 20% in net profit , which increased to Rs. 51.32 crores in the Financial year 2010-11 from Rs. 42.98 crores in the corresponding period last year for the standalone entity.

During the year, EBITDA margin increased from Rs. 113.98 crores to Rs. 137.54 crores over last year resulting in growth of over 20% in absolute terms.

Also the PBT (after exceptional Items) rose by 23.71% i.e. to Rs. 80.05 crores from Rs. 64.71 crores in the same quarter last year.

Commenting on the buoyant results, D P Agarwal, Vice Chairman & Managing Director TCI said, “We have performed well in this year owing to our aggressive growth plans. The logistics industry in India is gradually maturing and we are pulling all strings to capitalise on the emerging opportunities.”

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Gifting mangoes is now easy with DHL Come this summer and you can pamper your loved ones abroad with a box of delicious mangoes through DHL’s Express Easy Mango service, a unique one-stop-shop and hassle-free service for gifting mangoes all across the world.

This unique service by DHL Express allows customers to send mangoes from India across the world to countries like Belgium, Canada, Czech Republic, Germany, Greece, Hungary, Hong Kong, Italy, Luxemburg, Maldives, Netherlands, Norway, Oman, Qatar Singapore, Switzerland and Sweden.

Mangoes can be availed of free of cost by merely paying for the Air Express service. In addition, DHL Express is assisting customers with the necessary paperwork along with procurement of quality-grade Alphonso mangoes.

Commenting on the new service, R.S Subramanian, Country Head, DHL Express India said: “With the advent of the mango season, it is no wonder that DHL Express Easy Mango is one of our most popular products. DHL endeavors to take away the hassle and expedite the process, thus ensuring that customers receive the best possible service in a timely and efficient manner.”

DHL Express Easy Mango offers an ideal gifting option for international trade partners, clients and near-and-dear ones.

The high quality of Devgadh Alphonso mangoes are picked by the best and skilled mango selectors employed by one of India’s largest exporters. The mangoes are chosen on the basis of transit time to reach its destination and time required for clearance.

Trust Agility

for the group – of owning and managing large ships to provide long term value to our businesses that are dependent on overseas raw material sources, where ocean freight is a significant cost driver. Tata brand is synonymous with Trust, and Agility is a core value of Tata Power, and Trust Agility our first cape vessel reflects the new speed with which Tata Power is integrating its fuel supply chain strategy” “In order to support the growth of thermal energy generation business at Tata Power, vertical integration into coal sourcing and overseas fuel logistics is critical. With this objective in mind, Trust Energy was set to securitize coal supply and shipping of coal. Trust Energy has a vision of becoming a world-class dry bulk shipping company with global standards in its operations, generating trust, dependability and reputation.” added Anil Sardana, Managing Director Tata Power.

Tata Power, India’s largest integrated private power utility through its wholly owned subsidiary Trust Energy Resources Pte Ltd (Trust Energy) in Singapore named its first Cape Vessel, - ‘TRUST AGILITY’ a modern 181,000 DWT in Jinhae, Korea at world famous STX Shipyard.

Trust Energy was set up in 2007 to help integrate coal supply chain to support the growth plans of Tata Power. It has already built a portfolio of a fleet of five Cape Vessels, in its first phase. It has purchased two new vessels- Trust Agility and its sister vessel Trust Integrity which is due for delivery this month both built at STX shipyard Korea. Further, it has long term charters for another three cape vessels. Trust Energy will acquire and expand its fleet of ships in future based on the thermal coal requirements of Tata Power.

R. Gopalakrishnan, Chairman, Trust Energy Resources Pte Ltd Singapore said “This marks a new strength, and competency

Reporting turnaround Shreyas Shipping & Logistics, part of Transworld group specializing in multi-modal Logistics & Shipping services, recently announced its audited financial results for the year ended March 31, 2011. According to a company release, Shreyas Shipping after the successful re-alignment of its business strategy; with a complete focus on offering integrated logistics solutions has turnaround and witnessed a healthy growth in the business and profits during FY 11 compared to previous year.

The company on a consolidated basis has posted net profit of Rs. 12.78 crores for the year ended March 31, 2011 against net loss of Rs. 15.71 crores for the year ended March 31, 2010. Shreyas’ consolidated revenue increased by 28.60 per cent to Rs 192.96 crores; as compared to Rs 150.05 crores in the previous financial year.

LOGISTICS TIMES June 2011

INTERVIEW

10

}We have a robust business platform in India ~

Michael Drake, Regional Managing Director, TNT Express (Asia Pacific) visited India early this month to announce the launch of dedicated freighter service between India and Europe.

Considered to be a veteran of emerging Asian markets (especially China), Drake maintained that India is a high-ranking priority for the group and TNT India has created a sound platform which needs to be further built upon in an agile manner. Excerpts from the conversation with Ritwik Sinha: You have extensive experience of Chinese market and now India is also on your radar. These are certainly two of the most happening economies in the world today.

What are the similarities you find between these two markets?

It is true that both India and China have a lot of similarities. I have lived in China for four and a half years and I have seen things from close quarters. Frankly speaking, I don’t know India that well.

But I do have some strong impressions

about this market. In terms of similarity, the single biggest thing is the general enthusiasm and the energy of people.

There is that sweeping feeling that this is our time and we will mark our presence in the world and that our economic situation will be better than what it has ever been in the past. You have hundreds of millions of people who will be coming up from the low income bracket over a period of next one decade. These two countries are certainly going through a very exciting phase. There are challenges

and problems but people here have motivation to get over them and move on. Sheer enthusiasm, ability to overcome challenges and succeed at all cost – this is something which simply stands out for these two countries.

Now tell me from your impressions, what are the peculiar qualities you would attribute to the Indian market?

I have not spent much time here though I will doing that in the future. But one

LOGISTICS TIMES June 2011

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thing which has impressed me the most is intelligence and education level of the people. Indian professionals are determination to succeed, willing to become globally competitive and for this they are ready to learn and develop. This market certainly has host of challenges in terms of operating environment.

Infrastruture is not great and processes also pose big challenge. But there are some positive indications that things would change for better. Take the case of GST. People are discussing it and when

it is implemented, it can ease the burden around administrtation. It would become easy to do business here and help them to grow.

You have practically been associated with all the hip and happening markets in Asia. Now if you take a view of next fourfive years, in terms of strategic importance where would you place India within Asia?

India is very important. If we take a view

of the medium run, then India is clearly in top two bracket. China and India are the markets we have to win. China for two reasons – firstly, for its sheer size.

The numbers are big espeically for our business because exports are very big.

And we have already taken steps to link China with Europe. Having done that and achieved succcess there, we have now come to India which has now also been linked with Europe. The other interesting trend I find is the link between China and India. That is the linkage we need to LOGISTICS TIMES June 2011

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INTERVIEW

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}I

would say we have a good

platform to build on. But we need to

continuously

build

because

India is a dynamic and growing market. We need to ensure that

develop. Look at these countries - they are big domestic markets where income levels are going up. So domestic consumption would increase and that means more business for us within their domestic circuits. And now we have linked both of them with Europe. It’s a wonderful combination of TNT strength.

You are speaking so enthusiastically about India-China trade lane. After linking India with Europe, would you be thinking of putting your freighter on this lane? FedEx has done that recently.

To be clear, you don’t need your own aircraft to connect two points and have a business proposition for your customers.

There is commercial uplift model which we use and it has advantages over fixed capacity. In some cases, it provides flexibility.

Just because you do not have your own plane does not mean you don’t have value proposition to offer to your customers on that lane.

In fact, the head of the China division has come alongwith me and he is discussing with Indian management how to improve and develop this trade lane. We would very carefully formulate a strategy over next few months to further develop Indo-China lane.

What is the frequency of your frieghters in China?

Its 12 per week but we are operating Boeing-747 frieghters there and each one of them have 100 tonnes payload

capacity.

I have a feeling that you have put in a small capacity here - Boeing 767 which has 42 tonnes capacity.

How would you respond to it?

It’s a smaller plane and we would like to see how it matches with market expectations. But as I said, we are using commerical bellyspace as well. If you look at the long term, the flexibility of the business is really important. All countries, all businesses are somewhat cyclical. Business does not always go up.

So you better as flexibile as you need to be when there is a downturn. The best way to deal with the cyclical trends in the market is to have a combination of fixed cost and variable cost model.

Some market observers believe that TNT as a group has not been as aggressive in Asia as some of its esteemed global rivals. What do you have to say on it?

I would disagree with that. Our investments and success in China simply negates this assumption. We have become market leader in the country where we wanted to take the leadership position.

We have domestic business massively bigger than any competition. We are also leader in China to Europe lane. In that market, we have done exactly what we had set out to do.

We have a great position. In India too we have built a very robust domestic infrastruture and we have very successfully integrated it with our business.

}

the platform remains robust.

Now we have also linked two key markets with our own freighter – India and Europe.

For me, we could have demonstrated our commitment by investing in a plane on Indian route three years ago. But there is no point in linking two hubs without vibrant platform. We have a great platform in India now and linking it with Europe is the natural expansion.

In India, we had acquired a leading road express company way back in 2006 and then we built a domestic network on the basis of which we have taken a leadership position in road which no other MNC has done. We are competing head on with the leading domestic road express companies.

Am I safe in my conclusion that the sum total of what you are saying is: these many years have been invested in creating a basic platform for TNT in India and now is the time to further build on?

I would say we have a good platform to build on. But we need to continuously build because India is a dynamic and growing market. We need to ensure that the platform remains robust.

Consolidation drive in Indian logistics sector has intensified. Are you also looking at any further acqusition? A lot of specualtive theories are doing the rounds that TNT is keen to take inorganic growth route to expand its base further in India.

I have no real comment to make on it.

LOGISTICS TIMES June 2011

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REPORT - SHIPPING

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ICRA

Rough weather for shipping business The days of rosy prospects in shipping business are still far off. This seems to be the most defining statement of the shipping report which leading credit rating and research agency ICRA has recently released. Here are the major highlights of the report:

LOGISTICS TIMES June 2011

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Introduction The global shipping industry has been going through a challenging phase, with the collapse of freight rates in Q4 CY 2008 and only a feeble recovery since then. On the trade flows front, demand for most commodities has recovered and is slated to increase at a healthy rate in the medium term on the back of strong GDP growth in emerging economies such as China and India. However, recovery can falter if oil prices are to surge from their current levels and, therefore, remains a key imponderable.

On the supply front, the existing surplus vessel capacity and large scheduled deliveries in 2011 and 2012 should result in lower fleet utilisation levels and limit any sustainable improvement in freight rates in the near-to-medium term. Among the various classes of ships, weakness in the tanker and dry bulk class should persist in the medium term. The container segment is relatively better placed as demand growth is expected to match the increase in fleet capacity and as extra slow steaming allows for reduction in vessel supply. Capital values of the new builds have seen significant erosion since their peaks in 2008. Companies that placed orders during the recent boom cycle would face suboptimal RoCE in the foreseeable future, besides pressure from lenders to bring in any additional collateral to maintain loan to value (LTV) covenant. The operational cash flows are expected to remain low on account of the weak freight rate outlook, thereby limiting any improvement in key profitability metrics for major Indian shipping companies. Moreover, with debt-funded fleet acquisition programme by several shipping companies, debt levels are unlikely to reduce meaningfully and hence coverage metrics will not see any material improvement in the medium term.

Key Sector Trends Demand recovers but market is roiled by supply overhang; recovery unlikely before 2013 The performance of the shipping industry is highly correlated with the global flow of trade and vessel supply and demand situation, which also shows cyclical variation. The orders for new ships from ship owners during periods of high freight rates increase substantially. However, the market dynamics of the

underlying commodity and ships invariably change at the time of delivery of the vessel, which takes two-to-three years from the placement of orders. Since the collapse of the shipping markets, with freight rates having declined by 55-75 percent from their peak levels, the prevailing freight rates are close to their charter rates for the period from 2002 and 2003. However, from the trade perspective, the demand has recovered. More importantly, the expansion of trade area with new sources of supply being far from main consumption centres as well as extension of trade turnaround has resulted in the extension of shipping distance and growth of shipping frequency, respectively, which bodes well for the shipping industry.

Despite the pick-up in trade growth, the net addition to fleet during 2011-2012 would be significant and the world trade growth is unlikely to be able to absorb the incremental capacity, notwithstanding the cancellations and slippages during the aforementioned period. The downtrend in the shipping industry is likely to be prolonged and improvement in freight rates would be modest on account of the high scheduled deliveries in the near-to-medium term.

Industry Outlook by Segments Dry Bulk Carriers - Weakness to Persist Dry bulk vessel demand is driven by demand for natural resources (primarily iron ore and coal) and the distance over which these cargoes are transported. Most of the dry bulk carriers seldom operate on round trip voyages and the norm is often triangular or multi-leg voyages. Hence, trade distances covered play a significant role in determining the demand supply dynamics and any increases in long haul shipments has a greater impact on the overall vessel demand. The demand growth for dry bulk cargo is estimated to be healthy because of the increase in iron ore demand from China, which is largely met through long haul routes (Brazil & Australia); rising coal imports from India; shift of China from being net coal exporter to importer and recovery in demand from other emerging and developed countries. This is also reflected in the improvement in charter rates of bulk carriers from their lows witnessed in 2009, although freight rates continue to be down by around 50-70 percent from their peak

LOGISTICS TIMES June 2011

REPORT - SHIPPING

16

levels across vessel classes.

The supernormal profits during 2004-2007 and strong demand outlook led to building of massive order book (of about 54 percent of the existing fleet size) and worsened the tonnage balance. The large order books of new buildings, if delivered on time, could create significant imbalance between supply and demand and put pressure on freight rates. The impact on freight rates for large size carriers may be more pronounced as deliveries are maximum in this category. While the additional tonnage entering the world fleet is high, the scrapping of older vessels, cancellation & delivery slippages due to financial & liquidity constraints and port congestion are certain mitigating factors that could limit the negative impact of the delivery of new tonnage. The gap between vessel supply and demand growth is expected to narrow from end 2012 or early 2013, thus leading to modest recovery in freight rates.

Tankers – Slow Recovery The freight rates of oil tankers are directly correlated to the volume of crude oil and refined products moved by sea. The transportation of crude oil is typically unidirectional as oil is transported from a few areas of production to many regions of consumption whereas transportation of refined petroleum products and associated cargoes is multi-directional as there are several areas of production and consumption. The long haul trade account for nearly 80 percent of the total cargo movement is on ton mile basis.

VLCC and Aframax together account for nearly 73 percent of the total cargo movement. While trading patterns of oil are evolving from west-centric to east-centric, there would only be limited future increase in long-haul trades due to limits on increased production from Venezuela, Mexico and North Sea, Russia to East.

While crude oil demand has recovered in 2010 with increasing demand from China and other emerging economies, overcapacity is a concern. With substantial amount of tonnage likely to enter the world wide fleet in 2011 and 2012, the net fleet growth would be considerable in certain vessel classes. The demand must grow considerably in 2011 and 2012 in order to absorb all LOGISTICS TIMES June 2011

the new vessels. However, the ongoing Middle East and North Africa (MENA) crisis has led to increase in crude oil prices. If the situation escalates or any other geopolitical event results in rise in crude oil prices beyond a reasonable level, it could lead to destruction in demand growth.

Container Vessels Relatively Better Recovery Prospects Most of the major carriers had reported negative operating margins in 2009 – US$ 20 billion industry wide loss in 2009.

However, the cancellations, deferrals, lesser new contracting, recovery in international trade and concentrated effort by operators to reduce total vessel supply by extra slow steaming (ESS) facilitated improvement in average container freight rates.

Additionally, the low ship idling and the continuation of ESS will prevent a collapse in the supply-demand balance like that seen in 2009 and also provide savings in bunker cost, thus improving the operational economics of container operators. Currently, the container idle ratio is around 1.5-2 percent, significantly down from the peak of over 10 percent for most of 2009.

The global container fleet consisted of 4719 container carriers with a total capacity of approx 14 million TEUs and an order book of 4.7 million TEU’s as on January 1, 2011, representing 36 percent of the existing fleet at that time.

The construction of a container vessel requires more advanced manufacturing technology than is the case for dry bulk carriers.

Since significant increase in rates is not expected, the speculative ordering is limited. In most cases, the vessels would be actually delivered.

The order book is skewed towards vessels of more than 4000 TEUs, representing 90 percent of the capacity on order, thereby limiting the increase in freight rates for large-sized container carriers.

Overall demand in container segment for the next two years is estimated to grow at a CAGR of 10-11 percent as against average capacity increase of around 9-10 percent thus closely matching the demand and supply. Looking ahead, the container shipping market is expected to report stable growth in the nearto-medium term, albeit freight rate outlook presents a mixed

17

picture for different trade routes.

Offshore Vessels – Better demand supply position The demand for various offshore vessels such as OSVs, MSVs, PSVs and AHTS is correlated to the offshore E&P activity. The offshore vessels market also saw a correction in charter rates because of the sharp fall in oil prices in 2009 and consequent decline in E&P spending, although the extent of correction was relatively low as compared to the bulkers (dry & wet) market.

However, the market has now recovered with the rise in E&P capital expenditure programme. Going forward, with shallow water and deepwater capital expenditure programme spending estimated to remain high because of elevated oil price levels and depleting oil reserves, the demand for offshore vessels is likely to remain robust. On the supply front, despite impending oversupply, the market is likely to see some relief by way of phase-out of older vessels.

Credit Outlook for Indian Companies Profits to remain under pressure The sharp fall in charter rates has resulted in decline in revenues and profitability across the shipping entities. Some of the

domestic companies, which had their fleet operating on longterm charter rates, had to renegotiate the freight rates; and/or after completion of the contract period, the charter rates were entered at significantly low rates. The vessels on spot charters were more affected by the lower freight rates as against time charter rates and lesser vessel utilisation. Additionally, the vessels ordered during the period of high valuation, have led to increase in capital servicing charges, thus putting pressure on net profits.

(Shown in the chart in the previous page) ICRA expects further weakening of profitability metrics for major participants in the Indian shipping industry in the medium term because of the weak outlook for freight rates. RoCE to be muted in the medium term because of weak freight rate outlook and induction of high-cost new ships.

Most of the domestic shipping companies reported high return on capital employed (ROCE) until FY 2007-08 on the back of robust earnings. However, lower operating profits due to collapse in freight rates and increase in asset base with the acquisitions of new vessels have resulted in sharp decline in return on invested capital in the business. ICRA expects this trend to amplify in the medium term, as the induction of new builds is set to acquire momentum during this period.

(Courtesy: ICRA)

LOGISTICS TIMES June 2011

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COVER FEATURE

2014: Exports@ $500 billion

Is it Doable?

LOGISTICS TIMES June 2011

19

FIRST THINGS FIRST. There is no attempt to subtly underline that $500 billion exports is such a peak figure that India is unlikely to scale it in the foreseeable future. Afterall this is a country which has shown incredible transormation in past two decades soaring to the stratsophere of economic growth by successfully shedding that Hindu growth rate syndrome which was in existence for almost four decades after independence.

And in the process, the country has more or less proved to the world that in terms of ability, ‘anything is possible’ spirit is not a scarce push factor anymore. The moot question is: whether it could be really achieved within the time constraints of just three years since it entails committing to stage a skyrocketing trend as the present base is $245 billion ? In practical terms, it means the exports number which the country has cobbled up in over 60 years, the same value has to be added in next three years.

But here one can’t ignore the fact that the traditional infrastrutural and logistical hurdles are yet to become extinctive. When one looks at the scenario through this holistic prism that an element of suspicion strongly emerges on the feasibility of Indian exports really touching the milestone of $500 billion by 2014. Has the government set up an over-ambitious target?

Is it an expression of over-confidence? Or has the government deliberately set up a high post so that if it is missed by marginal to modest notches (say 10-15 percent), even then we would have reached to a stage where the world would be calling us an emerging export powerhouse. Hypothetically speaking, even if the figure comes around $425-450 billion by 2014, exports growth will be the new shining chapter of India growth story.

The exports growth registered last year seems to have surprised everybody. Even the government. According to leading exporters, in the intial part of the last fiscal the commerce ministry was not even sure of $200 billion target. But then the year ended with $245 billion figure with the largest ever single year exports growth of a whooping 37 percent.

And this spectacular growth has acted as the catalyst for the government to revise the target by 2014. The draft stratgy paper released early last month calls for doubling of exports in a time span of less than 1100 days and in stratgic terms identifies some pillars. Let’s take a close look at the broader strategy.

The strategy paper hinges on four pillars – (a.) Product Strategy: (b.) Market Strategy: (c) Technologies and R&D and (d) Building LOGISTICS TIMES June 2011

COVER FEATURE

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}We must aim for more than doubling of exports in the next three years to $500 billion. This is achievable with a determined effort. We cannot afford any less Union Commerce & Industry minister Anand Sharma: Aiming High?

a Brand image. At product level, certain high growth segments have been identified which would act as drivers of the projected exports’ surge and they include engineering goods, basic chemical industries and organic and inorganic chemical industries, pharmaceutical industry and electronics (refer to the growth target chart).

The second pillar deals with the market diversification strategy wherein better alingnment would be pusued with markets in Asia, including ASEAN, Africa and Latin America through an active engagement by way of bilateral and regional trade agreements.

Simulatenously, efforts would be made to expand Indian exports’ market share in established developed country markets in Europe and North America. Promotion of high technology exports (this includes electronic hardware, automobiles, computer based smart engineering, environmental goods, high end areas of aerospace, engineering and electronics) is another vibrant constituent of the new strategy. Last but not least, would be the emphasis to take Brand India to the next level. “We must aim for more than a

LOGISTICS TIMES June 2011

than this

~

Government Projection of India's Export

doubling of exports in the next three years to $500 billion. This is achievable with a determined effort. We cannot afford any less than this,” stated the strategy paper which was released by Commerce and Industry Minister Anand Sharma.

There does not seem to be an outright rejection of government’s doubling exports theory. In fact, exporters and those who are operating on the logistical

side of sending Indian goods to all across the globe are willing buyers that this is an opportune moment to strike. And there are a host of positive trappings to believe so. In statistical terms, reaching to $500 billion in next three years would mean an annual average growth rate of around 27 percent on a consistent basis. And the good news is: on a couple of ocassions in last one decade, the annual growth rate

21

of exports have been higher than 27 percent ( one could always argue that growth in those years were on a low base). Secondly, the Indian exports basket has significantly broadened with new drivers like engineering, chemicals and pharmaceuticals emphatically replacing the front runners of yesteryears like textile, gems and jewellery, etc. And much like in China, the establishment of SEZ units in the country has also started producing results. The market diversification drive pursued for last ten years too is adding punch to the strenghthening exports story (refer to the chart – region wise percentage share of India’s exports).

Asian markets have taken a huge lead in terms consolidation as the largest consuming block of Indian goods. Global manufacturing gaints especially in automobile and other high-value businesses have taken position in the Indian market with a key objective to use it as an exporting base. And lastly which probably is ‘the’ booster is the fact that ‘Made in India’ tag is gradually becoming a force to be reckoned with in the global market.

The bottomline is as government would like us to believe and stakeholders endorse, almost in no uncertain terms: a platform is there for epic-scale show, a momentum has started. However, the reservations which stakeholders are expressing are over inherent systemic spoilers which are not showing signs of signing off anytime soon. If the words of Ramu Deora, President of Federation of Indian Exports Organisation (FIEO), are to be believed then apart from infrastuture blues, exporters are embroiled with a host of probalems including high rate of interest, an unsupportive banking system which does not liberally lend to exporters, taxation anomalies and very high transaction cost. Deora asserts that sky is the limit for the Indian exports sector now but only if these bottlenecks are urgently taken care of (Refer to the interview).

For the logistics players especially

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Rising interest rate for exports

Falling credit line

LOGISTICS TIMES June 2011

those who are working on a pan-global basis and obviously eyeing for their share in Indian exporting action, infrastruture continues to remain the serious concern.

Congestion at ports and airports almost occur with regular monotony and in the given situation, dealing with a mammoth incremental volume in next three years is a big puzzle for them. Even as they do not seem to be low in confidence, the two areas of major revamp pointed out by them: infrastruture and application processes. And then there are other serious issues like the external environment ( European markets are still not on a sound footing) and whether we are going to have a favourable exchange rate regime for exporters in the coming years. The balance of trade (BOT) is titlted in favour of imports which is also growing and hence having an exchange regime which favours exporters fraternity would not be easy. On an overall basis, certainly a very intersting scene poised to unfold on the exports front wherein attempt would have to be made to assert India’s position as also an exporting giant now by managing inherent contradictions which seem to be mounthill in nature. ─Ritwik Sinha

If hurdles are removed, then sky is the limit Ramu Deora, who is serving his fourth tenure as the President of the apex body of exporters FIEO (Federation of Indian Export Organistions), is convinced that no target could be big if the basic hurdles are removed. But in terms of basic bottlenecks, the list is also not small – ranging from infrastruture and logistical impediments to high transaction cost and interest rates to difficulties in exports finance by the banking system. In a free-wheeling interview with Ritwik Sinha, Deora points out at the brighter side as well as areas of grave concern: 2010-11 has seen exports sector registering best ever annual growth performance. What are the factors you would attribute to this significant surge last year?

I think more than anything else, exporters were in a very aggressive mood in the last fiscal. Here, you need to take a look at the immediate backdrop. Last few years prior to 2010-11 were not good for us because recessionary conditions in the global market particularly in Europe and American markets. And during that phase exporters had begun exploring alternate markets which were: ASEAN countries, Latin America, Middle East and African

countries. And these regions have started providing good support.

The year 2010-11 also saw a wider support in favour of Indian goods which could be the result of years of painstaking efforts by all stakeholders.

Earlier, Indian goods used to reach to their ultimate destination via a third country with changed labels. But today foreign buyers are willing to buy goods from India. In some items, we have more credibility than made in China tag even as our pricing could be slightly higher. Indian exporters are considered to be more relaible when it comes to settle any kind of dispute.

Secondly, currency was volatile last year but it was in favour of exporters.

It broadly hovered in the range of 43.99 to 47.45 – broad fluctuation of 7.8 percent. Additionally, we have become more competitive because we have imporved our quality and also cost of production, etc thanks to improved processes. In the past, we made a number of suggestions to the government about the alternate markets and prospects there and Ministry of Commerce and Finance Ministry has given reasonable DPB for new products, new markets under various schemes.

The idea of exploring new markets is quite old – almost a decade ago. Are you saying that some LOGISTICS TIMES June 2011

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Ramu Deora, President, FIEO: Anything is possible if bottlenecks are knocked off

concrete steps set afoot to actually tap these markets have started showing results?

Yes, of course. We must complement Indian enterprenuers who played a very pivotal role in jumping in these markets and convincing the buyers.

Of course, it has taken sometime but we have started getting the results.

This is the prime reason for the spectacular show of 37.2 percent annual exports growth in 2010-11 with enginnering sector being in the forefront of this surge.

The growth in 2010-11, no doubt, has been exceptional. But now the government is talking of doubling the exports figure in just a short span of three years taking it to $500 billion level. From outside, it does look an over-ambitious target. Your comments.

In December, when I became President of FIEO, the government was hesitant to even talk about $200 billion exports in 2010-11. And I had announced $220 billion for the LOGISTICS TIMES June 2011

previous fiscal and $537 billion by 2014-15. And there is no change in that stance. The target is definitely achievable if the government improves the infrastruture – roadports, transport, etc. Today we don’t have roads which can take a container of 80-120 feets. Whereas in markets like China, Taiwan, America, etc. containers less than 80 feet are don’t normally used for major consignments. This is a critical gap.

The figures and the potential – all that sounds great. But you have already briefly pointed out at the infrastrutural bottleneks. Take me through to some other potential spoilers which could make the realisation of exports target of $500 billion by 2014 difficult?

Infrastruture certainly could be a major spoiler. The second major hurdle is high transaction cost and substantial paperwork which is part of our process. I must complement the Ministry of Finance that they have very succefully introduced the EDI system

in the customs and excise. Today we pay customs duty, excise duty, service tax and income tax sitting in our office. Similarly, we can process our exports shipping bill from our offices.

These measures have somewhat reduced the transaction cost. But I had told the finance minister in the pre-budget meeting that similar online facility should also be provisioned for rebates and refunds and they can be directly sent to the banks. I have now been told that the process would be implemented soon, probably by the end of the year. You see, we are losing a lot of time in litigation. If it is removed, then we can become more productive. I have even suggested to the finance minister to appoint a nodal secretary to look into the expeditious clearance of these litigations.

The rate of interest is another major hurdle. I am in the export business since 1966 but I have never seen the rate of interest on exports increasing so siginifcantly in just within a couple of months – almost more

25

than 50 percent. Indian exporters are competing with countries where credit rates are below 5 percent. Base rate of Indian Banks have moved up between 2 to 2.50 percent in last 7-8 months pushing up export credit. And interest subvention for exports has been withdrawn from 1st April 2011. Thus, cost of export finance which was 7 percent in July 2010 has now moved up between 11 to 11.5 percent ,a whopping increase between 57-64 percent.

On the interest rate front, we do understand that there are inflationary pressures. But a distinction has to be made between exports and domestic finance and provide export credit to MSME Sector at 7 percent and others at 9 percent to maintain export momentum. Then availability of finance is another critical bottleneck.

Government and RBI have directed banks to offer 12 percent finance for exports. In December 2000, exports credit as a percentage of net bank credit stood at 9.8 percent. But now it has dwindled to 4.1 percent.

And then there are a host of tax anomalies.

You had been vigorously pursuing with the government to keep Duty Entitlement Passbook Scheme (DEPB) in existence till GST is implemented. The government had earlier indicated that the scheme would be taken off from 1st of July but now it has been extended by another three months. Does it provide you some relief?

We wanted DEPB to stay at least till GST is implemented and we had raised this issue in the pre-budget meeting. The government has paid attention to our plea and has extended the scheme till September end now. After that, my sense is DEPB benefits will be replaced by the duty drawback scheme. The critical issue here would be the rates which would be fixed on export items which would move on from DEPB

“

I have never seen the rate of interest on exports increasing so siginifcantly in just within a couple of months – almost more than 50 percent.

”

ambit to duty drawback. Under duty drawback scheme, government’s various departments fix the rate for every product and the entitlement is immediately sent to your bank account. It’s a good scheme and the going ahead the ideal thing for exporters would be the application of same rate under duty drawback which has been available under DEPB. But yes, the extension of DEPB by three months is indeed a relief.

You pointed at some major hurdles. Coming back to them, if some corrective measures are not introduced soon, do you think that target of $500 billion by 2014 might not be achieved? $500 billion or $537 billion are medium term targets. Before that, let’s take a look at the present year’s prospects. If we look at the target of 2014, then the CAGR we are talking about is around 27 percent on a trot for three years. But I think in 2011-12, the growth will not be that high but probably in be the region of 13-14 percent with the prevailing hurdles.

Rate of interest and refund of taxation levies are major hurdle in the near run.

But in the medium run, among the potential spoilers you pointed out, do you hold infrastruture conditions as the prime bottleneck.

In export driven giant economies, the mutli-modal facilities have become a regular affair but in India we are simply far off from that matured stage.

I totally agree with you. Forget China,

even take example of Singapore, Taiwan, Indonesia or Gulf countries and see how they have developed their infrastruture. Government also has become sincere here on this subject but results are not coming at the desired pace. Import and exports combined, we will be hitting one trillion dollar mark in next few years. And to facilitate it, the task is simply gigantic on infrastruture front. We need more container terminals and better terminal handling systems, deep water berth facilities at ports, etc. Government will need to give a major push to infrastruture. If we can turnaround our infrastuture in a massive way, then forget about $500 billion. We can skyrockets to much higher levels.

Am I safe in my conclusion that you are not concerned about the targets, they would eventually happen. But if hurdles are removed expeditiously, we will reach there faster.

Target is certainly not a concern. We can even jump to a trillion dollar exports figure by the end of this decade. We are quite capable. And a host of very positive steps have been taken in last ten years are delivering desired results now. So many licenses have been given for Special Economic Zones (SEZs) which are fast becoming the big ticket catalysts to promote exports. We have signed free trade aggreement (FTAs) with so many countries – Chile, Korea, Taiwan, Malaysia and now we are negotiating with EU and Japan. So the trade is going to increase.

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GST will be immensely beneficial

Ajai Sahai Director General & CEO FIEO

The rationale for bringing GST is to remove burden of “tax on tax” in the pre-existing Central excise duty of the Government of India and sales tax system of the state governments.

The introduction of Central VAT (CENVAT) has removed the cascading burden of “tax on tax” to a large extent by providing a mechanism of “set off ” for tax paid on inputs and services upto the stage of production, and has been an improvement over the pre-existing Central excise duty. Similarly, the introduction of VAT in the states has removed the cascading effect by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime.

GST, which will be two tier, will cover both

lottery, etc, state cesses/ surcharges and entry tax not in lieu octroi Basic customs duty will remain outside the GST regime. Thus, the applicable basic customs duty will continue to be leviable on import of goods.

In addition, both the CGST and the SGST are expected to be levied on imports of goods.

Thus, the additional duty of customs in lieu of excise (CVD) and the additional duty of customs in lieu of sales tax / VAT will both be subsumed in the import GST. (Refer to Table 1 & 2 which demonstrate benefit to exporters.

In addition, exporters will also be entitled for Duty Drawback in lieu of basic customs duty which at the total duty of 10% will be 3.6% (As at present ,against total payable duty of

TABLE 1: Garment Exporter under the present regime Stage of supply chain

Purchase BCD+ value of ACD+ Import of SAD woven fabric of cotton

Manufacture Rs 1,00,00

24.421

Value of Value import duty addition

Value at which Excise duty on supply of goods and Exports services made to next stage(Exports)

Rs24,421

1,50,000 0

50%

0

Duty Drawback @8.8%

Rs 13,200

TABLE 2: Garment Exporter under GST regime Stage of supply chain

Purchase value of Import of woven fabric of cotton Manufacture Rs 1,00,00

Basic Rate of Customs GST duty

GST on input

Value addition

Value at which supply of goods and services made to next stage(Exports)

GST On Exports

GST admissible

10%

12,000

50%

1,50,000

0

12,000

12%

Central and state levies. The following taxes will be merged in GST: Central levies – excise duty, additional excise duty, service tax, countervailing duty special additional duty, surcharges, cesses and excise duty on medicinal & toiletries preparation act State levies – VAT/ sales tax, state entertainment tax, luxury tax, taxes on LOGISTICS TIMES June 2011

24.421, the DBK rate is 8.8%) which will be Rs 5,400/.Thus total benefit to exporter will be Rs 12,000+ 5,400= Rs 17,400 Net gain to exporter under GST : Rs 17,400Rs 13,200= Rs 4,200.

However, the real gains to exports will be when other state duties and cess like sales tax on petroleum products, electricity duty ,turnover tax etc are also brought within the ambit of State GST and the two tier GST finally merges into a single unified GST.

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Survival of the fittest

*Debdulal Thakur Economist National Institute of Public Finance & Policy

Crisis of confidence, perhaps, is the worst thing to happen for any individual and similar may be the case with an economy as well. Is it not?

Readers would agree that the financial crisis erupted from the heart of the capitalist world, spread like an infection, affecting all countries big and small. International trade contracted sharply, as did global investment flows with rising unemployment rendering over 50 million people jobless. Protectionist measures once again acquired the hot seat.

During this period on 27th August 2009 India`s Foreign Trade Policy (FTP) 2009/14 was announced. It stated out a goal of doubling India’s exports of goods and services by 2014, with the long term objective of doubling India’s share in global trade by the end of 2020 through appropriate policy support.

like Africa and Latin America.

However, to sustain the achievement of the policy objectives the economy has to rely upon not only on endogenous factors but also on some exogenous factors. Nevertheless, prospects of a robust economic recovery seem a far cry, as of now despite the fact that during 2010, there was some improvement in a few of the developed economies like United States, United Kingdom, Japan and Germany. One of the prime reasons of this volatility lies in the disturbed fiscal position of several highincome economies in Europe having perennial indebtedness of many developed economies resulting in not just facing a liquidity problem but also a solvency crisis. To overcome the situation the developed countries opted for both fiscal consolidation and export-led growth strategy posing a challenge to our

Major Issue: Will exchange rate regime favour exports growth in the near to medium term?

Why doubling of exports?

The call for the policy was more of an attempt for aggressive marketing of ‘Brand India’ and reducing transaction cost to make exports more competitive. It was designed to arrest and reverse the trend of declining exports and provide further support to those sectors that had been badly hit by the crisis. The target was to achieve exports of US $ 200 billion by 2010/11, and resume a high growth path in the last three years of the policy.

Indeed it is very encouraging to mention that the merchandise shipments aggregated $246 billion in the current financial year despite problems in some European markets. The export drive was led by sectors like engineering, gems and jewellery, chemicals and textiles supported by a surge from United States, some western European markets and budding destinations

exporters in accessing overseas markets. It is therefore expected that the call for ‘doubling exports’ would be beneficial for the economy from several counts.

Recent trend in Export & Imports In a recent dialogue (Courtesy: PTI, 13th March 2011/NDTV Profit) Prime Ministers Economic Advisory Council Chairman Prof.

C. Rangarajan clearly mentioned that we should bring down our current account deficit (CAD) to 2.5 per cent or less next fiscal. He mentioned that the unexpectedly high rise in merchandise exports can play a huge role to bring down trade deficit, but equally true that the services exports should also keep pace with the merchandise shipments.

To mention that the 10th Plan period (2002/07) reflected a buoyant economy

*Views expressed are personal and not binding upon any individual or institute.

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as the annual average growth rate of merchandise imports (29.6 %) was much more than the same for merchandise exports (23.7 %). This is not to suppress the fact that during 2002/03 to 2008/09 India`s exports increased 3.5 times; but then it declined by 3.6% during the fiscal year 2009/10. Taking together all these factors the trade deficit which was at a mere level of US $ 8.7 billion during 2002/03 reached US $ 118.3 billion during 2008/09 (refer to Chart 1). Though there was a little reduction of the trade deficit during 2009/10 but it is expected to rise to a level of US $ 281.8 billion during the fiscal 2013/14.

Therefore, as stated, even if CAD were to stabilize at a lower level of around 2.5 per cent, it is evident that large capital inflows will have to come in. For the same to happen it is imperative that the domestic conditions need to be favorable to attract the right type of inflows, foreign direct investment (FDI) and more importantly, those that do not create debt.

Will ‘Rupee’ matter?

appreciation

The said projected trade deficit of around LOGISTICS TIMES June 2011

US $ 281.8 billion during 2013/14 amounts to 10.5 % of the gross domestic product (GDP). Quite clearly depending ‘only on export led’ strategies might not work. Technically speaking, relying upon foreign portfolio investment is still a major part of capital inflows and trend suggests that these flows are anything but steady. Thus, assuming similar patterns to exist now and in near future in regard to these foreign flows a moderate widening of the trade deficit can literally hinder smooth flow of the payments.

This is where we need to draw a line. Are we going to accept it without enough checks and balances and ultimately paralyze the entire growth process?

Hopefully, a rationale mind would not agree and rather emphasize on balance of trade deficit to remain within manageable limits. Well, these limits need to be arrived after brainstorming and on a case to case basis as there is no hard and fast rule to arrive at ‘the number’.

Nevertheless, one way to maintain the CAD could be by dealing with the exchange rate. Generally speaking, by ‘foreign exchange rate’ between the currency units of two countries we mean,

the number of units of one national currency that are needed to buy one unit of the other national currency. Thus the exchange rate impacts macro variables like trade and investment flows and also affects domestic inflation level. For a long time, the Reserve Bank of India (RBI) followed a policy of careful monitoring and management of exchange rates, while allowing the underlying demand and supply conditions to determine exchange rates movement in an orderly manner.

RBI’s major goal on exchange rate has been to reduce excessive volatility, prevent emergence of speculative activity, and maintain adequate levels of reserves.

So far the approach towards the exchange rate has been that compensatory actions are called for only if and when major exchange rate swings occur, as these are going to have a negative effect upon trade flows. To note that during 2010/11, the rupee dollar exchange rate showed twoway movements in the range of INR 44.03-47.58 per US dollar. On an average basis, the 6-currency real effective exchange rate (REER) appreciated by 12.7 per cent in 2010/11, the 30currency REER by 4.5 per cent and the

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36-currency REER by 7.7 per cent. The CAD during April- December 2010 was US $ 38.9 billion, up from US $ 25.5 billion during the corresponding period of 2009. During the fourth quarter of 2010/11, exports grew at a robust pace of 46.6 per cent, while growth in imports decelerated to 22.8 per cent. This reduced the CAD to around 2.5 percent of GDP, as mentioned. However, since net capital inflows increased significantly from US $ 37.6 billion during April-December 2009 to US$ 52.7 billion during AprilDecember 2010, the composition shifted towards volatile flows such as foreign institutional investments (FII) and trade credits. Net inflows under foreign direct investment (FDI) were lower.

Therefore, since the CAD is expected to be significant in 2011/12, the sustainability of financing it gains enough rationale. To remind, in case the nominal and real exchange rate appreciates sharply our exports would be adversely affected and compensatory action would be necessary to realize the targets. But, keeping in mind the current scenario, it would perhaps not be equally wise to counter the appreciation just for the benefit of the exporters- there are much larger objectives, as well.

Encouraging infrastructure development has always remained a challenge for the government; this has assumed the much more importance on account of the weak recovery in the industriliased economies and the recent natural disaster in Japan.

Fearful minds started anticipating world trade to return to the pre-crisis level once more. So, beyond any argument, it is the call of the hour that Indian exports should be encouraged by one and allwith all possible means.

Improving infrastructure & reducing cost: Two broad strategies In terms of trade related transaction costs the latest ‘Doing Business’ report of the World Bank has placed India at 134th position. Needless to reemphasize that the trade related transaction cost is one of the major determinants of export competitiveness of an economy. These

costs refer to a number of regulatory requirements; compliance measures; procedures and infrastructure related costs, including, communication costs with clients; domestic transport costs to bring goods from the production site to the border; time and money spent in ports on border procedures or to make products ready for shipment; international transport costs and inspection and certification costs. Simplifying the processing of documentation, trade facilitation, reducing human interface with exporters, working out web based solutions are needed initiatives.

Keeping in view of the massive infrastructure requirements the Department of Commerce projected that the capacity of the major ports be enhanced to 598.53 million metric tones in 2014. The total road length at present

at the rate of 12.1%. With this rate of growth, Indian Airports by 2013/14 are expected to handle International cargo traffic of 2668 thousand metric tonnes.

Similarly to keep the wheels running at the desired pace electricity generation needs to increase to 974.06 billion units The government has been working towards improving efficiency of export processes by implementing suggestions of the Task Force on Transaction Cost and now intends to introduce a system of self-assessment of duty liabilities by importers and exporters.

Survival of the fittest So, in the next five years India would need US $ 1 trillion worth of investment for modernizing and upgrading its infrastructure from ASEAN, a glimpse of which is provided in table 1. This

Table1: Requirement of capacity enhancement by 2013/14 Infrastructure items

Capacity to be enhanced by 2014

Major Ports

598.53 metric tonnes

Road length

33% (23408 Km)

Railways

30% over and above the expected traffic

Civil aviation

Enable to handle 2668.60 thousand metric tones of international cargo

Power (electricity generation) 974.06 billion units Source: Ministry of Commerce & Industry, GOI.

is 70,934. To note, there exists a gap of 33% in the existing road structure, so the ideal road length should be 94342 km. This reflects the gap of 23408 km in the entire length of national highways.

Out of total road network, 1% are six lane roads and 20.6% are four lane roads.

Now, according to the Department of Commerce’ estimate, of the total projected road length in 2014, share of six lane roads and above should increase to 3% and four lane roads share should increase to 50%. Similarly, in case of Railways as well it is felt that the ideal capacity should be 30% over and above the expected traffic which thus becomes i.e. 2658.36 million tonnes for 2014.

Further, as per the report of working group on civil aviation for 11th Plan, the international cargo is expected to grow

investments and renewed infrastructure would also create enough employment opportunities within the country. Even one might not wonder if India could achieve higher growth than China in the next three to five years. In fact the world’s fastest growing economies are the flagships of the global economic revival after 2008. Indeed true that the rising Rupee did threw a short term challenge for the exporters as a whole. This might force some industries to look beyond labour costs arbitrage to create value for its customers. But, as said all well if it ends well. So there is enough room for India to renew its confidence in the global market and achieve the magic figures of the so called developed economies.

After all it’s all about Darwin’s theorySurvival of the fittest!

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Case for modern methodologies

Christoph Remund, CEO - DHL Global Forwarding (India)

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The logistics industry is becoming more complex with business transcending geographies and the logistics chain becoming multimodal. Every manufacturer / distributor is looking towards the logistics service provider to reduce cost and provide an efficient supply chain to keep ahead of the competition and plug the leaks.

Today Indian companies spend about 13% on logistics; this is far too much compared to the 9-10% spent by other developed economies.

Logistics players hence have to look at innovative ways of plugging gaps in the chain and adding value to customers. The only way this can be addressed is by keeping a pulse on various industries and understanding their pain points.

The demand for logistics services in India has been largely driven by the remarkable growth of the economy. The Indian government foresees a growth of exports to about $500 billion by 2014, which is a fairly ambitious target, compared to the last fiscal's figure of $245 billion. More significantly the feasibility of accomplishing this target is eclipsed by daunting infrastructure and logistics problems. India has to adopt modern logistics methodologies and repair a largely sub-standard transportation infrastructure. That's where the bottlenecks develop and costs escalate.

India and other emerging markets are a key sourcing, manufacturing and distribution base for global industries. Increasingly, they will also be key markets for consumption.

This favors organizations such as ours, since our business depends on customers doing business domestically and internationally, which drives our volumes.

DHL being a leading market player in express, logistics and supply chain, our focus is on executing strategies and capabilities, and constantly adapting them to changing market needs, seamlessly integrating our global experience and local expertise. Deutsche Post DHL, the group company, recognizes India as a key market with high growth potential and continues to invest in developing infrastructure facilities in the country.

Quick off the block to offer customers innovative solutions, DHL Global Forwarding is the first global logistics company to have a facility inside a Free Trade Warehousing Zone (FTWZ) in India. With an investment of $10

million, the company is constructing a state-ofthe art warehouse at the strategic location of Sriperumbudur, on the outskirts of Chennai, which offers customers the benefits of a duty free zone with high quality infrastructure.

Our FTWZ facility will provide consolidated operations for distribution management and trading, both into and out of India, with inventories held in India on account of foreign or Indian entities. The company’s experience in managing customs and tax issues on behalf of customers, will make trading easier by not only providing sound infrastructure, but will considerably improve quality standards while reducing overall logistics and storage costs, especially for companies without their own set up in India.

The impending introduction of a uniform Goods and Service Tax (GST) in India will help the country enormously as there will be an increased demand for high-quality, reasonable-cost services in the logistics sector, if tax legislation changes are introduced. It will give us huge opportunities to leverage our global skills as also present the corporate sector with the opportunity to critically examine their current supply chain and potentially shift from a regional to a national landscape.

Any industry which expands rapidly needs qualified manpower to keep pace with its requirements. The logistics industry is no exception. There certainly is a need for good quality manpower in this industry. Though India has a sizeable educated population, few educational institutions teach logistics. The key is to raise awareness about logistics as an industry and the significant role it plays in the economy of the country, as a trade enabler.

Although infrastructure challenges do exist, it is encouraging to see India is increasing outlays on ports and roads, with more tangible economic reforms. Further expediting the construction of improved ports, roads and airports will allow the industry to take better advantage of business opportunities. But infrastructure development projects have a long gestation period.

We work closely with industry associations and government bodies, and welcome the changes and infrastructure upgrades that are taking place as this will benefit and facilitate our services to our clients.

31

Forget volume, think value

Harry Lagad Executive Director Gati

India is a country which has to lead in exports, if it has to balance its global foreign exchange.

In the next decade or so, China will become one of India's largest trading partner, by virtue of the fact that most household goods and textiles will be imported from China. The sheer magnitude and scale at which China is developing its mass manufacturing capabilities is mind boggling. At the same time, consumerism led inflation is driving up the costs within India. No longer is retail cheap, nor housing or agricultural produce. When a situation as this

Lets also not forget the dark horse, Vietnam, which is lurking behind the scenes. Nokia just announced its biggest low cost manufacturing base to be set up in Vietnam.

One also has another train of thoughts. Forget Volumes, Think Value. There is enough merit in the case that Value products should be promoted (products that require precision and have a very high value in terms of its sell price, eg, Aero Engines etc).

If India becomes the hub for the manufacturing of some of the world's best value products,

takes place, a country's dependance on imports keep on increasing as local manufacturing and input costs keep rising.

But will India ever become a dominant nation in terms of exports? I think this question can only be answered if there is a serious dialogue between businesses and the government. Our policies and our processes are still fraught with a lot of intricate issues which makes exporting out a lengthy process. The ports (both air and sea) are still not adequate enough to handle current volumes, let alone what is being predicted. Do our internal rail and road networks allow for faster transit of goods towards these ports for exports? or for that matter, towards making our own manufacturing facilities much more capable? And then, finally, the matter of vision, quality and scale has to come across for our business houses. More so, on the matter of quality. If we have to beat the Chinese on this matter, then our quality should speak volumes.

we still have a good chance to be deemed a country that has surpassed its goals in terms of exports. But that too requires a lot more focus from both Business houses and the government. Here then is the challenge when it comes to value production. First and formost, the Quality.

Its not the Quality at the time of manufacture, its equally important that Quality is the norm followed by all input providers. Time to Market is almost of critical nature here and hence, the infra and the social - economic conditions need to be favourable. Look at the current Maruti issue. A complete stand-still on the manufacturing. Or for that matter, disruptions due to other reasons which are a plague in India.

We will have to adopt some new strategies to overcome these challenges and its not an easy task for the government in its present form.

In conclusion, I would say, there is a future, but its a long uphill task!

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32

Ambitious but achievable

Rajat Khosla Country Manager FedEx Trade Networks

The exports scenario has certainly become very interesting now. A trend has gradually emerged in last ten years or so which has positioned the export sector to a point wherein the time has probably arrived for big ticket aspirations.

The exports performance in the previous fiscal 2010-11 has been nothing short of spectacular (37 percent annual growth rate can’t be explained in any other term). And going by government’s projections, the big milestone which we are looking at now is $500 billion by 2014. From $245 billion recorded last year, the targets in next three years entail a little more than doubling. However, some people find it an over-ambitious target and they can’t be blamed for their suspicion. Afterall, the proposition is

to add the same value to the exports kitty which has been cobbled up in past six decades or so.

But I wouldn’t go to the extent of calling this target as something which amounts to asking for the blue moon. In my opinion, the target is ambitious yet it very much lies within the doable realm. Let’s look at statistical equation. What does doubling in three years mean? It entails an average exports growth rate of 26.7 percent on a consistent basis for next three years. Now if we look at the exports trend of past six –seven years, then there have been annual spells when the yearly growth rate has been more than the required CAGR between now to 2014. Almost 29 -30 percent. The point here is: an underlying momentum for high growth is already there and with little push and favourable external trade environment, $500 billion can be well achieved.

Now the question is what kind of strategy we LOGISTICS TIMES June 2011

need to have in place to actaully make it happen?

First of all, I think we need to have a consistent trade policy. Reciprocal free trade agreements (FTAs) with more countries are required. In the recent past, India has done well by forging alliance with countries in Latin America, Africa and Asia and the surge which we are noticing in exports now is also a function of the fact that these new markets have emerged as the vibrant consuming hubs for Indian goods. Till few years ago, we used to discuss about exports possibilities in the alternative markets but early experience clearly shows that they have responded well to our aspirations.

Another major plus for Indian exports scenario is the significant emergence of some new industrial segments. For decades, we had textiles, leather goods and gems and jewellery as the key constituents of Indian export basket. But now there has been a tectonic shift. While the traditional stronghold areas continue to grow at their own pace, the real booster is coming from sectors like engineering ( last year the total engineering exports stood at $60 billion and the target for 2014 is $125 billion). This coupled with pharmaceuticals and chemicals is rescripting Indian exports’ fortune. I anticipate a major surge in automobiles and autocomponent exports also since global gaints in these domains have positioned themselves in India and one of the basic premise of their operations here is to also use the country as a dynamic export base for their products. The same holds true for many other businesses as well.

The poor state of infrastruture, however, remains a major concern which could spoil the grand party we are imagining. And here some swift action is required. Congestion at ports and airports occur almost with monotonous regularity and as we seek to double our exports, there is an urgent need to expand the capacity of our cargo and ocean terminals.

Investments in these projects have to be expedited especially in those which entails providing seamless linkage between inland industrial clusters and container terminals at the ports. It is not that the action is completely missing in terms of infrastruture revamp. The point is: the pace has to be expedited almost on a war- footing level.

33

Better alignment evolving

Sanjiv Kathuria Country Director (Sales & Marketing) TNT India

The government’s target of $500 billion exports by 2014 can’t be looked upon something which is impossible to achieve. It is certainly possible though at the first glance, it does appear out to be somewhat difficult since the task is to just double it in a short span of mere there years.

First look at the supporting factors. If you look at the historical trends of Indian exports, then jems and jewellery, textiles, leather goods have been the driving products for a long time.

But today if export sector is promising major turnaround in the coming years, its primarily due to the emergence of new segment catalysts like automotive, engineering, chemcials and pharma. They have become very big and they are the main drivers of the export boom story.

In addition to that, India is making its presence felt in the new markets in the world in the geographical sense.

So these factors are encouraging signs which may help in doubling from the present base in three years even as I strongly believe that we should have reached $245 billion much earlier.

The critical issue which we have to grapple is on the front of logistical and infrastrutural hurdles. In concrete physical sense, there are two parts of this issue - ports and the airside given the growing demand in exports of high value goods. I can comment about the latter. The growth which we are envisaging in air cargo segment is mammoth (to meet the dopubling target) and you can’t expect to have that nature of growth without adding infrastruture in air capacity. Where will that air capacity land? Where is the cargo infrastruture? Where are the dedicated cargo terminals? We need to see now how cargo can move more efficiently and how we can use new technology in our cargo operations. We are still doing a lot of things manually. We will have to move things faster. There is no escape from that. Just look at the business equation. I am the best product manufacturer at the right cost. And people want that product but they also want it at a particular time. And if that delivery part is inefficient, they will say its too burdensome to trade with India.

The task certainly also calls for better alignment between LSPs and exporters. There

are various forums where LSPs, exporters and manufacturers are coming together in order to understand each other’s requirements. I look at it as a continuous process and this alignment would not happen overnight. But an element of sincerity is certainly evolving for better alignment between players in the exports value chain.

Meanwhile, a major plus which is probably emerging is the gradual evolution of made in India tag. You have to understand that we were left out of the manufacturing bit for quite sometime. I think, with the revival of manufacuturing and exports, the brand is slated get more respectability. The fact of the matter is nobody in the international market disbelives

that we are growing at a fast pace and we will continue to do so. And in the process would add to the world trade.

I won’t be surprised if this target is met on the stated deadline. But I must say it’s a stretch even as it is doable. The biggest hope of course is the revival of manufacturing where we were earlier missing in action. Meanwhile, there is another positive indication which needs to be examined closely.

Going by several reports, the cost of labour in China is going up. In the coming years, they may not continue to be the cheapest manufuaturing hub in the world in critical areas like in automotive, hi-tech and pharma. So probably it would be the opportune moment for us to strike in segments like pharma where we have already begun scoring over China in the international market.

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India is a business magnet

Samar Nath MD, CEVA ( Indian Sub-continent)

LOGISTICS TIMES June 2011

India with its potential is a magnet for global companies who outsource, manufacture, source, assemble and sell among others. In addition, augmentation of business from Indian business houses has also spruced up the export scenario. The rapid expansion of the Indian logistics segment has contributed to some interesting challenges, but with the support of the government in developing Indian infrastructure and network connectivity, this export target is achievable.

Leading logistics players like CEVA are investing heavily to ensure high service levels in transportation and storage of goods. However, over utilisation of existing ports and operational issues at ports have led to delays and impairment of goods. On an overall basis, India is a nascent market with a huge opportunity and growing market in pharmaceuticals, engineering goods among others. However, the momentum of infrastructure development needs to pick up pace to absorb this growth.

In addition to developing the infrastructure and connectivity which is crucial for a vibrant multi-modal platform, there is a requirement of skilled labour that will be in a position to fulfil the growing demand for higher levels of operational and quality compliance at these ports. Global logistics has now shifted focus from share of market paradigm to share of customer. The goal now is to create value for more profitability, and sustain competitive edge in the long run. There is certainly immense potential for organized players in this industry and companies are gearing up to meet the increasing requirement.

The good news is: it is now proved beyond any doubt that India growth story is certainly strong. India caters to the world market as other countries look at India both as a potential market for their products as well as a country where they can rely on quality products and services. And that propels players like us to have a vibrant strategy in place to be part of this projected surge in exports in the near to medium run.

CEVA’s three year strategy is underpinned by our existing asset-light operating model, and our clear goal to become the most admired company in the supply chain industry. We will focus on five strategic priorities, underpinned

by our values and the credo of impeccable execution. Our five priorities over the next three years include delivering best in class customer account management; being at top five ocean forwarder globally in total volumes; delivering industry leading Freight Management solutions through improved efficiency and productivity; significant growth and market leadership by building contract logistics and being an employer of choice.

At CEVA, we understand that every industry has its own characteristics and priorities.

Our customer’s customers have specific requirements that they need to meet to stay ahead of their competition.

We have organized our business to meet the specific challenges of different industry sectors.

Our specialist teams apply their expertise in

our customer’s market to provide the most appropriate solutions for their business and an open, honest, responsive approach, giving them fast access to senior decision makers.

Working within regulatory guidelines, our focus is always on cost-effectiveness and flexibility, so our customers always get the service and performance they demand. Building our solutions around our customers' needs, we offer a global infrastructure, competitive pricing and end-to-end visibility.

In addition, CEVA recently launched a new SMART Solution: End to End. Designed to address the increasing supply chain complexity, SMART End to End provides solutions to manage global sourcing strategies, inventory supply and demand, total logistics spend, complete supply chain visibility and supplier performance management. CEVA’s integrated global network forms the foundations of the solution, exploiting the already established Control Tower network in key, strategic locations across the world.

35

How do we get there?

Pranil Vadgama President CHEP INDIA

Today when India is looking to double its global trade in the next three years the focus has shifted from ‘Can we get there?’ to ‘How to get there?’ We will require a robust support structure in terms of production capacities, financing, support infrastructure, supply chain efficiencies and symbiotic collaboration across allied industries to produce world class goods, services and solutions at competitive costs.

Is India geared to take the challenge? Have we what it takes in terms of infrastructure to achieve the challenges we have set for ourselves.

“One of the biggest challenges to sustain and stepping up industrial growth lies in removing the infrastructural impediments,” said a survey tabled in the Lok Sabha by Finance Minister Pranab Mukherjee recently.

The industry is very keen that the government focuses on the Indian infrastructure in the areas of electricity, oil & gas, ports & shipping, roads & bridges, telecommunications, aviation, water and most importantly world class storage and warehousing facilities.

In some of the former fully government-owned infrastructure sectors, such as telecommunications and domestic civil aviation, the opening to the private sector has produced exemplary results.

In both sectors, new private entrants now have market shares of over three quarters. Since the easing of regulatory constraints in 2004, the telecommunications network has become the third largest in the world. In both sectors, choice has expanded and prices have fallen. Even so, more needs to be done to promote competition in the fixed-line market, given the possibilities offered by broadband technology.

Electricity is one sector where public enterprises are still dominant and demand consistently outstrips supply, representing a major constraint on growth, particularly in electricity-intensive sectors such as manufacturing. On the basis of current plans, electricity generating capacity will rise by 6% annually over the period 2010 to 2015, double the rate of the past five years and the second largest absolute increase in capacity in the world. However, this is still well below the likely growth rate of GDP. The under investment in this sector is caused by low profitability. In 2000, as much as 40% of electricity was not paid for due to poor management of distribution enterprises and a failure to eradicate theft.

The Golden Quadrilateral (GQ) was the first serious road infrastructure project by the government to spur industrialization and urbanization across the nation. The GQ project establishes better and faster transport networks between many major cities and ports. It provides an impetus to smoother movement of products and people within India. It enables industrial and job development in smaller towns through access to markets. It provides opportunities for farmers through better transportation of produce from the agricultural hinterland to major cities and ports for export, through lesser wastage and spoils. Finally, it drives economic growth directly through construction as well as through indirect demand for cement, steel and other construction materials. It gives an impetus to truck transport throughout India. The GQ connects to major national highways running through the length and breadth of the country connecting major ports, state capitals, large industrial and tourist centers, etc. The National Highways represent only 2% of the total network length, and they handle about 40% of the total road traffic.

The most important bottleneck yet to be addressed is quality storage and warehousing.

The industry is ramping up on this aspect with the anticipation of the GST era in India.

We need to follow global standards in creating world class infrastructure that will allow dynamic collaboration throughout the supply chain, right from the point of first manufacture to the point of consumption. Goods need to flow from the vendor to the manufacturers production lines to the 3PL storage locations for onwards shipping through ocean or air freight to global destinations. This will encase standardization in racking systems, material handling equipment, palletized and unitized loads based on global standards to ensure minimal damage, leakages, shrinkages and optimal efficiency in handling and turnaround times, making the entire cycle not only effective but cost efficient.

In summary, the success of the government in getting more private participation in building road, electricity and other infrastructure through the PPP model, implementation of GST and creating a tax regime conducive to global trade and the industries responsive to these measures will define and decide the success of doubling export by 2014.

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Glaring gaps in air infrastruture

Sunil Kohli MD, Rahat Cargo & President, Air Cargo Club of Delhi

LOGISTICS TIMES June 2011

The phenomenal growth in air exports from India during the preceding years has been extremely encouraging to the entire industry interlinked with the export trade. The government too has been rendering all the possible assistance to the exporters in order to provide a smooth passage to the export-related activities and to further promote the exports in order that it must almost be doubled by the year 2014.

The government intentions are undoubtedly honest but these must also be looked at with a different perspective considering availability of the infrastructures, market tools and friendly logistic support which should be made conveniently accessible to the exporters and the regulating agencies. But unfortunately as per the present scenario, there seems to be scant consideration by the authorities concerned in respect of the provisions of a proper infrastructure which could accelerate the entire process of exports right from the moment the goods are loaded from the exporters’ godown upto the final stage of its actual uplift by the transporting air carriers and the subsequent safe delivery at the destination. Needless to mention, the smooth and timely execution of the desired functions to the satisfaction of the buyers abroad shall act as catalyst in reposing their confidence in the Indian market and hence can be expected repeat, broader and extended orders from them.

However, it would be prudent to mention that for ensuring growth of exports, the essential and timely action and activities would have to be accomplished at home. Unfortunately, two of our major air export stations namely Delhi and Mumbai suffer from acute infrastructure constraints. The dearth of such necessary facilities almost act as bottlenecks thus leading to a number of roadblocks thereby delaying and hampering the whole process.

Lack of the assisting and logistics tools which are expected to be provided by the regulating agencies prove to be a dampener for the exporters and their agents.For providing an export friendly infrastructure it is first and foremost that there should be sufficient big and spacious waiting space for the goods-carrying vehicles with the necessary public amenities facilities for the accompanying staff. Secondly there should be regulated, orderly, disciplined and well-monitored system of the vehicles’

entry into the warehouse. The vehicle doc area should be free from hindrances to facilitate a smooth unloading, weighment etc. It would be extremely important to take the capacity of the bonded warehouse prior to authorizing intake and acceptance of cargo since overcrowding of the goods beyond the warehouse ability to handle is bound to create congestion thus further leading to mishandling, chaos and confusion. Once the cargo gets inside the warehouse, there should be adequate number of x-ray machines available duly manned by the authorized personnel who can complete the required functions without delay. The binning locations in the warehouse should be spacious and conspicuously marked to avoid any incorrect storage. The unitization area in the warehouse should be able to withstand the multiple loading activities while the ETV needs to remain functional round the clock.

While the need to equip the warehouse with necessary gadgets and infrastructure has been highlighted above, the role of the airlines and its ground handler also becomes crucial since the responsibility of getting the loaded cargo out of the warehouse for uplift lies with them.

Here again, the actual results leave much to be desired for various reasons which keep shuttling and shifting from one agency to another. Such anomalies lead to a number of mishandling which eventually affects the quality of export action and conveying a negative impression among the buyers abroad.

Taking the examples of two major air export hub centres namely Delhi and Mumbai, it can be emphatically stated without doubt that there happens to be plenty of infrastructural-related deficiencies mainly concerning the issues mentioned above.

Yes, going by the infrastructure presently available at almost all the air cargo cities, it is certain that we may not be able to achieve the anticipated double growth in exports by 2014. At the same time, it is not an impossible goal as well provided that all the regulatory agencies, airlines and agents community get together under one umbrella to chalk out a coordinated and time-bound action plan while the ministries of commerce and civil aviation may function as the watchdog of the proposed actions’ implementation.

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39

Pushing to the next level

Sanjay Aiyer Director Blue Bird Logistics

I do sincerely believe that we must go beyond our fractured cliché of comparing India with China. The world as we see it in 2014 will be dynamically different from today. What we really need to do is to project our trend databases to what the future will be like? We need to identify today, what the growing markets of the future will be like? This will help in determining accurately the amount of investments and more importantly the exact areas where the investments need to be made and ensure that the ROI's will put the prognosis of the Fortune 500 companies to shame. If a country with the intellect of India cannot manage that – nothing else will.

implementation and they should be facilitated on a war footing. FTZ's, Logistics Parks, Privatized ICD's, must be within easy reach of business community.

The intent to double exports by 2014 will fructify, not because of the government, but like a famous personality once said, “inspite of it”. It takes back of the envelope calculations to arrive at these figures. The fact remains that unless basic challenges are addressed, we will find ourselves in large conferences and meetings, spending expensive man hours deliberating on how to make things work rather than how to refine and simplify. Negative energy and frustrations, unfortunately, make up

The aim over the next few months should be to take processes and systems to the next generation. Our biggest issues lie in the smallest processes. Clearances within one day should be the norm – Air or Ocean , Import or Export. Systems issues if at all should allow the benefit of doubt to the parties involved.

Indian companies / enterprises should not be paying an extra, unforseen / unaccounted for dollar to ensure that the country earns its nickel - that’s just not economics. Our products must be competitive in the global market – its not only by giving sops to exporters but also by ensuring that industrial areas are given the amount of "clean" energy that they require and are accessible. While the talk of private rail / freight corridors have begun in all earnest, the real effect will come about only on

for majority of the hours that we are awake.

In the Automotive Logistics Conference – Dec 2010, Car Makers were crying foul on an issue as basic as the approach road to the ports, delaying trailers by days over a stretch of mere 60 kms. What the government must understand is that instead of several trivial problems being thrown in to delay, there should be solutions that are made available at every step. Putting assets like trailers out of circulation due to inaccessible roads and delaying a RORO vessel at port as a domino effect will take the charm out of the manufacturing process and make companies rethink their India strategy. At the port and with a vessel berthed, the old saying "Time and tide wait for no man" cannot be a more precise pun. Dare I say its an old Chinese Proverb.

LOGISTICS TIMES June 2011

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40

Infrastructure - A spoilsport?

Prof. Samir K Srivastava IIM, Lucknow

LOGISTICS TIMES June 2011

India is the fourth largest economy by market volume and one of the fastest growing markets in the world. The question arises; do we have the requisite infrastructure to leverage it to our advantage? The UPA Government’s Foreign Trade Policy Document now expects to double India’s exports of goods and services from $245 billion in the current fiscal to $500 billion in 2014. The draft paper calls for setting up a technology upgradation fund, financial support to various sectors and special focus on new markets, besides clearing infrastructure bottlenecks. It also talks of leveraging emerging technologies to reduce the transaction cost and institutional bottlenecks. Initiatives are on to diversify our export markets and offset the inherent disadvantage for our exporters in emerging markets of Africa, Latin America, Oceania and CIS countries through appropriate policy instruments, specially in context of incentives, duties and tax structures.

Primary focus in on value added activities in manufacturing and on sectors like engineering, chemicals, gems and jewellery, agriculture and leather products. The least focus seems to be on ‘clearing infrastructure bottlenecks’. India was ranked 39th in terms of the logistics performance index and indicators in a recent World Bank Survey. A report by Amarthi Consulting and Confederation of Indian Industries (CII) estimates the annual loss on account of inefficient infrastructure in India at $65 billion. The Growth Competitiveness Index survey conducted by the Geneva-based World Economic Forum (WEF) for 2010-11 clearly mentions that India has failed to improve significantly on any of the basic drivers of its competitiveness. Among 133 countries, it is placed at a lowly 86th position in infrastructure ranking falling 10 places this year! So, it seems quite probable that infrastructure may play spoilsport in India’s desire to double exports by 2014 unless suitable necessary actions are taken by all the stakeholders, particularly the government.

There have been significant investments in roads, railways, ports and highways which have shown some good results but much more is needed. The Indian infrastructure comprising roads, railways, airports, seaports, ICT and energy production, is poorer as compared to

other developed and developing countries.

We suffer from inadequate infrastructure, fragmentation, complex tax laws, insufficient technological aids, inertia and red-tape.

Furthermore, supply chain costs in India are 13 percent of the GDP compared to seven percent in most developed countries. Out of this, more than 90% is accounted for by the unorganized sector. We therefore need to upgrade, especially with respect to both quality and quantity of roads, ports and power supply. Some of these infrastructural challenges may also be mitigated/ reduced by new and innovative applications of ICT such as the success use of mobile telephony in drug supply chain pilots in rural Karnataka by Logistimo. Most private players consider India as a future market driven by growing domestic demand and have been investing reasonably in infrastructure. However, the biggest boost has to come from the Government. International players like DHL, Warburg Pincus and DB Schenker have increased their infrastructure presence in India. Firms are also exploring new distribution and manufacturing models. For example, Coca-Cola has asked its independent franchisee bottlers in India to adopt the model that it follows in China. The model involves pooling of investments and setting up common manufacturing capacities.

There are some good signals and trends.

Warehousing sector is growing rapidly.

Development of cold chain and other logistics infrastructure is also going on well. On policy front, the government has been moving from a regulator’s role to a facilitator’s role. Policy hurdles and red-tape are being addressed, albeit slowly.

The use of public–private partnerships (PPPs) for infrastructure development has received significant attention, but there remains a need for more work at the programme level. Specifically, there is a need for work that recognizes the way that PPP programmes are implemented differently in different regions, progressing beyond an effectively ‘one size fits all’ view of these programmes. We can learn from PPP experiences in countries like Canada, Australia and South Africa. Along with improvement of the physical aspects of infrastructure, there is also an ongoing need to rationalise and improve the regulatory environment.

TCS

Drivers Shaping the Smart Supply Chain PHDCCI organised a supply chain seminar in Delhi last month and as the knowledge partner of the event, TCS unveiled a study paper titled “ Drivers Shaping the Smart Supply Chain.� The paper primarily focuses on supply chain in Food and Retail sectors in India and presents a comprehensive picture of changes which would define the supply chain advancement process in the two domains. Excerpts from the report:

LOGISTICS TIMES June 2011

REPORT - SUPPLY CHAIN

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REPORT - SUPPLY CHAIN

42

Introduction India’s GDP has been growing at an impressive pace since the commencement of reforms. The retail market in India is set to grow to US$ 615 billion by 2015. Similarly, India’s food industry is also expected to grow rapidly. The supply chain in this sector has so far has been characterised by inefficiencies, huge losses and stock outs due to presence of large number of intermediaries, lack of infrastructure and complicated laws. India spends close to 13 percent of GDP in logistics, which is far higher than the efficient level of eight percent. The key questions are: Is the supply chain in retail and food sectors ready for transformation? What are the key drivers which can bring such transformation?

Supply Chain Evolution The supply chain for retail and food is in its early stages of evolution. Majority of the Indian players would fall in phase I of the evolution (see the accompanied chart). However, with strong drivers in place, we anticipate that the industry is ready to leap frog to the next orbit in its journey to become Smart Supply Chains. TCS estimates that this could potentially result in increased productivity and savings of US$ 3 billion per annum.

Lean, Green and Agile Consolidation and outsourcing will set foundation for a leaner supply chain, multimodal transport and energy efficient infrastructure will keep it green and collaboration between channel partners and integration of various stakeholders will keep the supply chain agile and competitive.

Game Changers We believe that the following drivers could potentially change the shape of the supply chain and help it evolve into the next orbit.

Policy Reforms The implementation of Goods and Services Tax (GST) would be a landmark step in the history of tax reforms in the country.

With this we expect to see simpler and efficient supply chain network. Consolidation and upgradation of warehousing facility is one of the biggest implication expected by the supply chain fraternity and businesses at large.

Modernisation of Retail and Advent of New Channels Modern retail in India is likely to pick up and can get further impetus through likely liberalization in FDI regulations. The advent of players like Wal-Mart and Carrefour the availability levels at the stores and at warehouses have considerably improved. We believe that Cash & Carry wholesale format shall play a very important role in restructuring the supply chain.

Change in Demand Structure India is highly unique and dispersed market. The economic reforms and initiatives being taken by the government is propelling growth in the smaller towns and rural India. There is LOGISTICS TIMES June 2011

a growing aspiration to consume modern products in thousands of towns and lakhs of villages. At the same time reaching out to these new centres of consumption would have its own set of challenges in terms of logistics, costs and so on. The industry would need to take up highly innovative yet practical steps to meet these requirements.

Impetus to Infrastructure The country’s existing network of roads, rail and waterways will be insufficient as freight movement will increase about threefold in the coming decade and the shortfall in logistics will put India’s growth at risk. The country requires billions of dollars to build the necessary infrastructure. Although still way short of what is required, several initiatives have been taken in the right direction. Infrastructure projects like Logistics Park /Food Park/Golden Quadrilateral/Dedicated Freight Corridors/ PPPAir Ports/ Central Air Cargo Hubs are likely to play important role in building smart supply chain capabilities.

Empowerement through Technology India’s logistics technology market is set to grow at 20 percent.

Some of the large retail firms have adopted new technology like ERP and Demand Forecasting tools to integrate demand and supply. Warehouse Management System (WMS) for managing warehousing and distribution, Transportation Management Systems (TMS) for managing fleet and capacity, Enterprise Resource Planning (ERP) for organisational integration and Track and Trace techologies like RFID, Telemetry, etc. are becoming the need of the hour. We anticipate availability of new technology at affordable costs would play an important role in transformation.

Key Implications Cold chain will emerge as a hot sector for investment It is a well known fact that India looses 20-40 percent of its fresh produce because of lack of adequate cold storage capacity.

Currently India has about 5,400 cold storage facilities with a

43

total capacity of 24 million tonnes; this is against production of 180 million tonnes of agricultural produce every year. The industry is largely fragmented and unorganised with current size of US$ 2.5 billion per annum. To add to this inadequacy, most of the storages are located in three or four states and 80 percent of the capacity is only catering to potatoes.

Various estimates indicate that there is a storage shortage of more than 30 million tonnes, which requires immediate investments of US $3 billion. The industry could potentially reach to US $10 billion per annum in five-seven years. Infrastruture status to cold chain is government’s major step to boost the investment in this sector. This will provide improved focus and benefits like viability gap funding and exemption of taxes for the investors.

Development of Multi Modal transport network Cost benefit analysis of different modes of transport reveals that railways and waterways are the most cost effective and energy efficient modes of transport for long distance transportation requirements. Whereas roadways have better reach and airways are fastest. However, today majority of transportation happens through roadways and we do not leverage advantages provided by different modes of transport due to lack of smooth integration of these modes. A multi-modal transport network built from an integrated mesh of road, rail, water and airways will help leverage each modes’ proven reach, cost, speed and environment to flourish.

Demand Driven Supply Chain Changing consumer demand, availability of multiple options, fierce competition and technology enablement has driven business to make changes from push to pull driven supply chain strategy. Businesses will have to design smarter supply chains that are responsive to the demand variation and are able to resupply, redistribute, reroute and reallocate inventory on the basis of real time customer demand.

Stakeholders in the value chain will have to collaborate, integrate and share insights on planned promotions, extraordinary events, capacity constriants, new product introductions, operational problems, and other issues that are not covered by electronic date interchange, transmitted orders and shipping notices.

Outsourcing would increase A third party involvement into an organisation set up not only helps increase efficienices but also allow the firms to focus in its core activities like product management, marketing, etc.

Drivers like 100 percent FDI in 3rd party logistics, rollout of GST, modernisation of retail, increasing pressure on cost and improving infrastuture will help existing logistics service provider to move from basic to advanced level. This sector is all set to witness emergence of 4th party logistics service providers, players with national footprint and implementation of advanced technology for improving serviceability.

Increased Collaboration The need for reducing stock outs, improving the supply

chain efficiency and effectiveness of promotions would drive players across the supply chain to collaborate more. Through collaborative planning approach, the retailer shares the necessary information regarding the category, trends in seasonal product, forecasted demand, whereas the supplier shares the information upon the constraints if any for advance planning and the lead time to supply. Reduction in invesntory not only reduces cost but also helped improve availability, leading to better customer satisfaction and increased sales.

Key Suggestions For supply chain to leap frog to the next orbit of evolution, each of the stakeholders has to play its role individually and jointly.

Based on our research and interactions with various stakeholders, we have the following suggestions: Support for the Industry Supply chain is a capital intensive industry. The Government has been creating favourable conditions for private sector investments in the sector and has extended several benefits to the agriculture and cold chain sectors. In light of the importance of the sector, we urge the government to give similar fiscal concessions to other segments as well namely, granting industry status to warehousing industry and involving warehouse design and development as part of the town planning.

Liberalise FDI in Retail Large and growing modern trade would encourage the supply chain players to invest in infrastructure, automation and processes. Additionally some of the large retailers shall also invest in the supply chain themselves and bring in the necessary management and technical expertise. The current laws have stymied the growth of existing international players and discouraged the entry of many in the country. We recommend a gradual opening up of the sector in a phased manner.

Collaboration and Adoption of Common Supply Chain Standards and IT Systems.

There is a need for greater collaboration among players across the supply chain. India can derive lot of leanings from concepts like Efficient Consumer Response (ECR) implemented by food and grocery industry in the west, which lead to significant benefits in terms of availability and efficiency.

Skill Development A major part of the industry is unorganised and there is dearth of necessary skilled manpower. We anticipate with growth the gap shall widen considerably. The stakeholders need to plan and create the necessary infrastruture to bridge the gap. With millions of people to be trained, this could be an attractive business opportunity for players in the education segment. The viability of such institutes is possible through private public partnership (PPP). ( Courtesy: PHDCCI)

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“Retail, F&B are next frontiers�

IFS, the global enterprise applications major (with a topline of over $360 million annually) which also specialises in supply chain processes, has been operating for over a decade in India focusing on heavy industry segments. But according to Thiru Vengadam, MD & CEO, IFS Solutions India, the company now plans to expand its base and is eyeing for opportunities in other fast growing verticals. The expansion strategy of the company also includes forging alliance with some of the most noted IT brands in the country. Excerpts from a quick chat with Ritwik Sinha: LOGISTICS TIMES June 2011

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Indian Operational Profile IFS in India has been operating for over ten years - in last five years as the direct subsidiary of IFS Sweden. And we have made substantial investments in terms of our own presence to support the fast growth of infrastructure sectors like power and defence. These are the industries we have been largely focusing. While we have solutions which support 10-12 other sectors as well, we have chosen these verticals because heavy investments are going into them. And they require IT solutions we specialize in.

Going beyond heavy industries: Besides our stronghold areas of heavy industries, we would like to make aggressive penetration in new domains. And probably you would notice some action by the end of this year itself. These areas could be: retail distribution, food & beverages, etc. We have a large number of global customers in these domains using our applications.

We would probably look at some partners to launch these applications in the Indian market. Other reason why we want to look at them is: this country has 1.2 billion population and requires mega scale food and retail industry. A lot of investments are also going into them. The government is also slowly relaxing the FDI norms in the retail sector. So there would be many large players coming in the ring and mom and pop stores would gradually transform into local supermarkets. And they would require our solution.

As a global entity (with presence in over 50 countries and more than 2000 customers), we have done well with all the notable industry verticals. Here in India, the initial focus has been on heavy industries which was based on our existing capacity. But now we have taken a conscious decision to foray in new areas. We can expand our reach by forging new partnerships. We are already working with Infosys in India- we have recently signed a partnership deal with them. Before the end of this year, you will notice at least three-four major names in this country being signed up as our strategic partners. The parent company clearly looks at India as the potential country among BRIC nations where our growth could be fastest.

Big picture on India: We would like to match the growth rate of IT companies. They are typically growing between 20-25 percent. It is quite doable because market is so big. The ultimate goal is to ensure Indian unit contributing around 15 percent of our global topline in next few years.

State of supply chain: At the moment, Indian supply chain industry is quite fractured and not integrated. There are too many players doing too little.

They all can syndicate themselves toghether in some manner by making use of information technology and if they resort to this route, they can achieve a lot in terms of qualitative delivery.

Alignment with LSPs: We concentrate on four core processes. They are: projects, service and asset management, manufacturing and supply chain. So as you can see, supply chain is a core focus area for us. And though so far we have not dealt with LSPs directly in the Indian market, going forward when we get into retail distribution, food and beverages, paints and chemicals ( we are doing very well in these verticals in Europe), we definitely would like to have better alignment with LSPs. We are working on a strategy for them.

LOGISTICS TIMES June 2011

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Payload pains for ODC During a recent tour of National Highways on heavy commercial vehicles, I could not help marveling at the developmental activity India has embarked upon. Leave alone the ordinary HCVs that ferry goods to various parts of India. What amazed me is the frequent sighting of ODCs or Over Dimension.

Cargo movement on national highways.

Sometimes it is BHEL turbines.

Sometimes huge boilers for power utility enterprises. Huge masts for windmills.

Well, the ODCs ferry list would be too long to list out here perhaps.

These ODCs move at snail’s pace given the heavy payload they carry. Average speed, I reckon, is barely 25 kmph.

Unlike the ordinary HCVs, the ODCs need special permission due to their “extraordinary size” – maybe heightwise or widthwise. These cargo do not simply fit in the normal dimensions of items any HCV would be carrying on an ordinary day. Needless to say, these items ferried for creating “manufacturing capacity” so that government’s growth goals over the coming decades are on a faster clip than in the past. We are doing fine at 8 per cent annual GDP growth and hope to step up by a few notches in the Twelfth Five Year (2012-16) that would kickstart soon.

But the ODC movement is a big hassle for transporters. Take for instance, the blades for windmasts being carted out of the Union Territory of Daman on the western coast to southern states where windmills are sprouting up as an alternate energy generation programme. Though government incentives have dried up for this sector, entrepreneurs continue to repose faith in this energy route and that perhaps explains the massive movement of windmasts and wind blades along the national highways. Or for that matter, the huge BHEL turbines or boilers that move from BHEL Haridwar to nooks and corners of India.

There can be no two opinions that these equipments are of utmost importance for national development. The quicker they LOGISTICS TIMES June 2011

move to their destination for unloading, installation and commencement of work for which they are bought and paid for.

The Indian transportation fraternity – fragmented no doubt – has managed to get a slice of this business – let us not forget that the Indian economy is bound to grow into double digits in the years to come given the level at which we are perched at this stage and the aspiration level of the humongous Indian populace which is hungry for growth in their personal space. HCV manufacturers – Volvo, Man Force, Tatas and Ashok Leyland and Bharat Benz have either already rolled out low bed trailers or in the process of ushering them on the Indian

this statement. Yes, top end trucks have descended on the Indian roads.

The biggest hitch is the attitude of RTOs on various National Highways. They are downright anti-national to put it bluntly. In mid-May, during the course of my onroad sojourn from Delhi to Chennai using HCVs as the only mode of transport, I spent considerable time at KarnatakaTamil Nadu border interacting with ODC crew and operators on the challenges they face onroad while executing their job. One common thread that emerges out of this dialogue with them is that Karnataka is the biggest challenge. Right from the moment they enter Karnataka from Maharasthra, the RTO menace

roads because there is a huge demand for such vehicles. Hydraulic axled vehicles are no more a rarity on Indian roads.

Travel on the Jamshedpur-Ludhiana stretch or Delhi-Udaipur-Bangalore national arteries to check the veracity of

becomes unbearable. They are fleeced at every point: Belgaum, Dharwad, Haveri, Davengere, Chitradurga, Tumkur and Bangalore.

Under one pretext or another, ODC carriers are charged with violating one

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provision or another of Motor Vehicles Act. If ODC crew whom I had met are to be believed, their average spend in single direction through Karnataka is nothing less than Rs.50,000. Mind you, not a single Rupee out of this collection goes into the state exchequer, but into the personal pockets of each RTO – the collection agent on behalf of allegedly minister in charge of transport, to local MLA to government officials in the Transport Department. Needless to say, the amount of black money generated in this process. For a second, forget about the black money generation. Look at the time wastage and the loss of economic asset creation caused by RTOs holding ODCs for days together on national highways till they get their pound of flesh. A consignment of BHEL turbine that could cover the distance from Haridwar to Tuticorin in flat 10 days at a 25-30 kmph and limited national highway access to ODC carriers invariably takes almost double the time, according to ODC crews.

It is very unfortunate that RTOs – I would call them “Roadside Vultures” – fall under state category and most state governments use transport department

as revenue-generating avenue and succeed immensely (Gujarat, for instance, incentivizes RTOs for huge collection).

The Federal government has very little say, even though the National Highways are built from national funding by National Highways Authority of India.

It is pertinent and equally painful to note that Karnataka – one of the fast developing states and prosperous candidate as well – tops the list of most corrupt RTO regime in the entire country. Transporters are no angels themselves. Every law of the land is violated to profit as quickly as possible through overloading mostly. Despite Supreme Court 2005 ruling giving clear directions, no state government is ready to strictly enforce the overloading stipulations.

In the light of this fact, government’s periodic announcement that they are going ahead with 20 km per day new national highway creation sounds ludicrous. While fresh road addition is addressed, very little attention is paid to the maintenance of the already existing national arteries. In net, our performance will never be what we wish to achieve.

If the central government is keen on enhancing the contribution of

manufacturing sector from 16% to 25% over the next decade, this necessitates the movement of raw materials in whatever form on roads mostly within the country.

Therefore, surface transport has to be made more industry-friendly.

Last but not least, the transport fraternity that enjoys huge clout in the state of Karnataka with the All India Motor Transport Congress President Shanmugappa himself hailing from this state, should prioritise fighting corruption on national highways as Priority No. 1 instead of frittering away its collective energy by focusing on toll fees. Taking the RTO and traffic inspector menace on national highways would save the national exchequer huge dollops of money than begetting fringe benefits in the form of toll fee reduction.

Honestly, transport operators are willing to pay toll fees for benefits that accrue to them in the form of better maintained roads (than in the past) instead of “bribing” RTOs and getting nothing in return. It is time the menace of highways hooliganism is taken head on before it devours all of us.

-Ramesh Kumar

LT PROMOTION Nano Cranes arrive in Gujarat Nano Cranes Pvt Ltd (NCPL), an Uratsun Group, announced the launch of vector Nano crane in one of the most industrialised states in the country Gujarat last month. Former chief minister of the state Shri Keshubhai was the chief guest at the announcement function which was held at Karnavati club, Ahmedabad.

Commenting on the launch of Vector nano cranes in Gujarat, Rahul Marwaha, Managing Director, NCPL said “We are very happy to launch world’s first compact career in the most industrialised state like Gujarat. The vector cranes will serve different industry specific requirements. The vector nano crane has salient features like it can lift the load upto 1 ton with less than one litre in one hour. It has minimal maintenance cost and it can operate in camped/small areas."

Harish Sharma, VP (Marketing), NCPL added, “The vector nano crane can be useful for container stuffing, event management and film industry, ports, railway stations, cargo handling, airports, mining, engineering, plastic, construction, supermarkets/malls and various small and medium scale industries.” The Vector Nano cranes will be available in the showroom of M/S Pruthvi Enterprises(PE),Ahmedabad for Gujarat.

For more information, please contact: Harish Sharma(NCPL)-09811447037, Nirav Patel(09925036797), Nrujal Patel(9376006797) Dealers Name

BHAVNAGAR(GUJ): JAIMATAJI ENTERPRISE, 1ST FLOOR, PRATHAM COMLEX, GHOGHA ROAD. MOBILE NO-09898225687 BARIELLY: PRASHANT AUTOMOBLIES NERAWAL, SHAHJANPUR ROAD, MOBILE NO-09760077889 KANPUR: UNIVERSAL ENTERPRISES, (HOIST DIV),78/38, LATOUCHE ROAD, KANPUR-20800, MOBILE NO- 09935029113

LOGISTICS TIMES June 2011

International Warehousing Conference Leading industry chamber ASSOCHAM in association with Warehousing Development Regulatory Authority (WDRA) organised a day long International Warehousing Conference in Delhi last month. The conference was inaugurated by Prof. K V thomas, Minister of state, Ministry of Consumer Affairs, Food & Public Distribution. Other eminent speakers at the conference were: Rajiv Aggarwal, Secretary, Ministry of Consumer Affairs; bhushan Chander Gupta, Secretary, Department of Food & Public Distribution; Dinesh Rai, Chairman, WDRA; and B B Patnaik, MD, Central Warehousing Corporation. A study paper titled ‘Recent Advances in Warehousing Management: Sharing of Global Experiences – Financial, Technical and Logistics’ prepared

by ASSOCHAM was also released by the minister on the ocassion. The conference was attended by over 125 delgates from the private sector.

LOGISTICS TIMES was magazine partner of this event

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Smart Supply Chain Noted industry chamber PHDCCI organised Smart Supply Chain conference in Delhi on 27th May at The Lalit hotel. The one day conference saw some leading names from the industry elucidating on the core issue of facilitating the use of lean and green supply chain solutions in the future. Some of the eminent speakers at the conference were: Anil Rajpal, HeadRetail & CPG, Tata Consultancy Services; Ravi Mathur, Chief Executive Officer, GS1 India; Sanjeev Khanna, Head, Supply Chain, Metro Cash & Carry; Atul Ahuja, Vice President- Retail, Apollo Pharmacy; Sanjay Agrawal, Chairman & Managing Director, Dev Bhumi Cold Chain; A.S. Ramanujam, Business Head, Adani Agrofresh and Nitesh Prasad, Zonal HeadNorth, DIESL. During the conference, TCS which was the knowledge partner also unveiled a study paper titled “ Drivers Shaping the Smart Supply Chain.� ( Read the excerpts of the report in this edition)

LOGISTICS TIMES was print partner of this event

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Awards for Innovation The third edition of Annual Supply-Chain Summit (ASCS), a mega conclave for the logistics industry, was held in Taj President in Mumbai last month.

The summit brought together supply-chain thought leaders to deliberate upon critical industry issues.

The event was inaugurated by Kishor Chaukar, Managing Director, Tata Industries and had host of speakers including corporate leaders, supply chain heads and academicians in attendance. The summit witnessed the first ever awards for Innovation in Supply Chain. The awards, validated by Miebach Consulting, were received by Marico Ltd. (for Best Innovation in Supply Chain Strategy Award), Hyper City (which won two awards for Best Use of Technology in SC & Best Innovation in Logistics - Warehousing and Storage), L&T (for Best Innovation in Logistics - Transportation) and Ericsson (for Green Supply Chain Award). The event was supported by Drive India Enterprise Solutions Limited (DIESL).

End Child Hunger May 29th marked an important day for Mumbai as Mumbaikars joined World Food Programme (WFP) and its major corporate partner TNT, in a walk to raise awareness and money to feed hungry school children in some of the poorest countries in the world.

On sunday morning, the walk started from Hotel Ramada at Juhu Tara Road proceeded towards Amitabh Bachchan’s Bungalow - Pratiksha and back.

It witnessed people from all age group. Actor Shiv Pandit and Ms. Mihoko Tamamura, WFP India Representative and Country Director participated in the walk.

Radio City was the Official Radio Partner for this event.

“End Hunger: Walk the World” – an annual event now in its ninth year – saw people walking for hunger in 70 countries.

The walk is a 24-hour relay with participants in each of the world’s time zones walking five kilometres. It begins in Auckland, New Zealand and finishes in Samoa.

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Changing the Way We Do Business The complex tax structures in India tend to skew supply chain networks towards fiscal advantages.

These ‘fiscal’ supply Varun Dhawan chains are inefficient VP (Taxation) in as much as they lead Blue Dart companies to operate warehouses in each state rather than be burdened by the additional Central Sales Tax which is levied on inter-state sales.

Further, local levies of octroi and entry taxes make organizations to have their warehouses outside city limits till such time that the sale is effected. There is no inter-dependence or pass through of these taxes paid which results into multiplicity of tax costs being embedded into product prices which ultimately cascade to the final consumer.

India is at the threshold of its biggest tax reform in its independent history. India would soon be adopting a Dual Goods and Services Tax (GST) model under which both the Centre as well as the States levy the tax. GST will be a broad based, single, comprehensive tax levied on goods and services wherein it will get levied at every stage of production till distribution chain with input tax credits and set-offs available in respect of taxes paid up to the previous stage, thus eliminating the cascading effect of all taxes with the tax sticking only on the final consumption of goods or services.

GST which will get charged by the centre will be known as Central GST which will subsume central excise duties, CVD, and service tax. The State would levy a State GST which will subsume VAT/sales tax, state taxes and levies. Whether octroi and entry taxes would be subsumed is still not known, but we hope it does.

As the GST structure evolves, organizations will adjust their supply chain strategies to meet the changing landscape of manufacturing, consumption as well as distribution of goods across India.

Therefore, GST is likely to be the biggest inflexion point especially for the entire logistics industry in India throwing up LOGISTICS TIMES June 2011

immense opportunities under the new GST regime. The biggest opportunity which it brings in for supply chains is that it will unify India into a common single market allowing organizations to consolidate their supply chain operations on a pan India basis. The tax disincentive of interstate sales and supplies will go away and there will no longer be a necessity for setting up Distribution Centres at a state level.

With a single tax rate, which will bring neutrality of tax costs across states, manufacturing will move closer to the places of demand, and warehouses would lose their fiscal significance.

Supply chains will get re-engineered and aligned to the real market dynamics based on product flows and a need to faster reach the markets of consumption.

Organizations will try to find ways to improve their performance; supply chains and warehouse operations will be the area where the logistics managers will focus to gain maximum efficiency for minimum cost.

It will make large regional warehouses economically viable and business will consolidate their warehouse operations and extensively operate on the hub and spoke as their distribution model. The need for large scale quality warehousing space will increase since it will be better to have a few efficient centralized inventories at regional levels than several small distribution centers at every state level, which are difficult to track and maintain. Warehousing will move up the value chain and will no longer be meant for mere stocking but will be an integral part of the sales activity of order fulfillment and improving service levels.

Going forward, the growth in warehousing will come from investments in space optimization, automation and technology adoption, and skilled manpower. Investments would see an upswing specially into operations and technology integration which will help reduce costs, improve productivity and accuracy, while giving complete visibility of the inventory data to the organizations.

Integrated Warehouse Management System, Transport Management Systems, RFID tagging, ARAS, use of mechanized handling equipments will be some of the differentiating factors which will help in increasing the efficiency and productivity of warehouses and as the industry matures, it will see a move towards outsourcing to advanced 3 PL service providers.

The Government’s focus on infrastructure development in projects like the Golden Quadrilateral, North-South and EastWest Corridors and the dedicated freight lines will provide a further impetus to the overall growth of the logistics industry and warehousing will get aligned along these freight corridors.

Like any path breaking tax law, it will come with its own challenges. In absence of a framework to determine the place of supply rules to define which respective state would have the jurisdiction to levy the State GST on the inter-state goods and services under the destination principle, will be one of the crucial issues under the Dual GST model. Hopefully the Place of Supply Rules will get announced soon to address this issue.

At a macro level, GST will undoubtedly provide an impetus to economic growth in India leading to a gain in GDP. As per the Task Force Report, India’s GDP gain will be within a range of 0.9 percent to 1.7 percent corresponding to between Rs. 43,000 Crores to Rs. 84,000 Crores.

Further, GST being destination based taxation would mean zero rating of exports thereby Indian products becoming internationally more competitive. Exports are estimated to register an increase especially in sectors like textiles, readymade garments and machinery. Gains in exports are expected in the range of Rs. 24,000 Crores to 48,000 Croore and imports likely to gain in the range of Rs. 31,000 Crores to Rs. 62,000 Crores.

In conclusion, every stakeholder would gain under the GST regime which has the potential to transform not only the tax system in India but also the way we organize and do our business.

RNI No. DELENG-17848/2010-TC