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COVER STORY

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SPECIAL REPORT MATERIAL HANDLING

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EVENT REPORT INDIA AVIATION 2012

LogisticsTimes www.logisticstimes.net

April 2012

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EXCLUSIVE INTERVIEW Dr. Manoj Singh, Adviser (Transport), Planning Commission

Union Budget 2012-13 What do logisticians make out of it?

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CONTENTS

All about Transportation, Distribution & Infrastructure

Volume 2: Issue No.12 * April 2012 Editor in Chief

Raj Misra rajmisra@logisticstimes.net

Editor

Ritwik Sinha ritwik@logisticstimes.net

Sub Editor Photographer Design Consultant Designer Circulation & Distribution Legal Advisor

Neha Richariya Anil Baral S. Athar Hussain Kausar Syed Kamruddin SaiďŹ Rakesh Garg

Our Bureau Mumbai Rahul Kumar rahul@logisticstimes.net Bangalore

B Shekhar shekhar@logisticstimes.net N Raju

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raju@logisticstimes.net Sudhir Kumar

Hyderabad

sudhir@logisticstimes.net

Editorial Advisory Board Paul Lim Founder & President, Supply Chain Asia Prof. Samir Srivastava Associate Professor, IIM-Lucknow Prof. Akhil Chandra Institute of Logistics & Aviation Management

28 COVER FEATURE Union Budget 2012-13 What do logisticians make out of it?

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News Briefs

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Product

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Last Page

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QUICK CHAT

SPECIAL REPORT

Ram Menen

Material Handling

38 INETERVIEW OF THE MONTH

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Dr. Manoj Singh

Logistics Talent Hunt

EVENT

EDIT NOTE

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Disappointing package again?

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his is a fact that could hardly skip your attention. Like in any other sphere of life, in business too there is a large group of aspirants at any given point in time. And in an environment where things have improved in the recent past, these aspirants usually have a long litany of expectations and demand from the government. The quest is simple: to reach close to the centerstage which would ensure more growth avenues from them.

When one looks at the Indian economic-scape today, logistics sector could simply be placed in the aspirant list. It’s a sum total of a very diverse set of activities and speaking in the Indian context, the holistic picture it presents has not been officially recognised. There are many in the govrnment circles who believe that the picture is blurred given the high unorganised quotient in the business. And, therefore, though industry luminaries have been demanding an industry status for a long time, their pleas have by and large gone unheard. Seen through this prism, it is hardly surprising that every time in the run up to the budget presentation, you would notice expectations running high. “If not anything else, then at least there would be a little push towards the centerstage,” is the prayer on everybody’s lips.

The scene was no different this time too but the union budget 2012-13 presented last month hardly seems to have responded to those prayers. As our cover feature reflects, there is disappoinment galore in the aftermath of the budget presentation in the logistics quarters. It is not that pluses of the budget have gone completely un-noticed. The point is: there seems to have been very little done in terms of recognising the importance of a process oriented sector and, therefore, sentiment perking element is largely elusive. Something which is so vital for any business to accelerate the momentum in the near run. Leaf through the cover feature to understand what logisticians make out of budget…

This edition carries a very interesting conversation with Dr. Manoj Singh of the Planning Commission. The 12th plan period has just begun and with the focus to strengthen manufacturing base, the freight related action is slated to intensify manifold. However, infrastructural bottlenecks remain key concern and so is the issue of process refinment. The interview clearly signals the thought process of national planners wherein capacity addition is the primary target over a period of next five years. Needless to say, logistics process improvement is a natural corollary to capacity enhancement and here challenges would be mounthill both for the public and private sector players in the years to come.

Waiting for your feedback.

Ritwik Sinha ritwik@logisticstimes.net LOGISTICS TIMES August 2011

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Manufacturing revival in Q 4 FICCI’s latest Quarterly Survey on Manufacturing projects a revival in the growth of the manufacturing sector in the fourth quarter of 2011-12 (Jan-March 2012) after the manufacturing growth almost bottomed out in the third quarter of 2011-12.

However, the growth is expected to be modest. The revival is a result of higher orders on the books and a somewhat better export outlook.

According to FICCI’s survey, which drew responses from 336 manufacturing units and associations, about 36% of respondents said they expect growth in manufacturing to revive in Q- 4. This is in contrast to only 13% and 26% respondents in Q-3 and Q-2 of 201112 respectively. The survey revealed that increasing cost of raw materials, not higher interest rates, had constrained growth. About 58% respondents said that rising cost of raw materials was the most important constraint for the growth of the sector; only 34% respondents felt that rising cost of interest was the most important constraint.

The survey noted some improvement in demand conditions for the manufacturing sector in Q-4 as compared to previous quarters. While in the last two quarters

(July-September 2011 & October-December 2011) over 38% and 29% respondents reported higher orders compared to the previous quarters, in Q-4 over 47% respondents reported higher orders than in Q-3 (October-December 2011).

FICCI’s survey noted some improvement in capacity utilisation with 44% respondents reporting that their capacity utilisation was higher than last year as compared to only 36% respondents in Q-3. Capacity utilisation levels are particularly low in textiles and the steel sector.

FICCI’s survey also showed that growth of manufacturing exports was expected to be better in Q-4 as against previous quarter with 65% respondents expecting their exports to rise in Q-4 compared to about 29% in the previous quarter.

Based on expectations in different sectors, the survey pointed out that seven out of twelve sectors were likely to witness low (less than 5%) growth and four sectors to witness strong growth (greater than 10%) in Q-4. The sectors which are likely to witness low growth are chemicals, cement, steel, textiles, paper and electronics. Sectors such as automotive, leather and tyres are likely to witness growth in excess of 10% in Q-4.

Freight Revenue The Railways have generated Rs. 61215.49 crore of revenue earnings from commodity-wise freight traffic during April 2011 to February 2012 as compared to Rs. 56073.37 crore during the corresponding period last year, registering an increase of 9.17 per cent. Railways carried 875.60 million tonnes of commodity-wise freight traffic during April 2011 to February 2012 as compared to 832.66 million tonnes carried during the corresponding period last year, registering an increase of 5.16 per cent. The Net Tonne Kilo Metres (NTKM) went up from 548917 million during April 2010 to February 2011 to 579063 million during April 2011 to February 2012, showing an increase of 5.49 per cent.

LOGISTICS TIMES April 2012

Awarding of National Highways Projects Highway projects for a length of 7994 km were targeted for award in the year 2011-12 by the National highways Authority of India (NHAI) under National Highways Development Project (NHDP). The length completed depends on quantum of work available for completion. NHAI awarded only 5237 km in 2007-08 to 2009-10. This comparatively lower quantum of award in previous years resulted in lesser length available for completion and lower targets/ completion rates in subsequent years.

The award of projects has since been accelerated and 5059 km were awarded in 2010-11. To meet the target of construction at an average rate 20 km per day i.e. almost 7,000 km per year, it is essential that at any given point of time, there should be almost three times this length, i.e. approximately 20,000 km awarded and under construction.

With the increase in pace of award, length available for completion and actual completed length is expected to increase. Progress in implementation has also been affected by poor performance of some contractors, delay in obtaining forest/wild life clearances from Ministry of Environment & Forest, railway clearances

for Road Over bridges (ROB’s), law & order problems in some states, delay in land acquisition etc.

This information was given by the Minister of State of Road Transport and Highways Shri Jitin Prasada, in a written reply in Rajya Sabha last month.

Integrated Shipyards The Union Minister of Shipping, G.K. Vasan, last month informed the Rajya Sabha in a written reply that the Government has requested all coastal states in the country to explore the possibility to set up a new major port or a new ship building yard or a composite Port-CumShipbuilding yard in their states and submit a comprehensive proposal to the Ministry of Shipping.

The Minister further stated that the proposals have been received from the State Governments of Andhra Pradesh, Karnataka and Gujarat.

Technical committees have been constituted to identify the suitable locations proposed by the State Governments of Andhra Pradesh and Karnataka, said the Minister.

LOGISTICS TIMES April 2012

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Leadership Change CHEP has announced a leadership change in its Indian Subsidiary. This is in line with CHEP’s focus on the India market and its strategy of ‘participating in the modernization of supply networks in emerging markets’.

Devdip Purkayastha has now taken over as President, CHEP India from early this month. He has replaced Pranil Vadgama who has moved to a global role based out of US. Pranil ran the Indian business since inception in 2008.

IFC invests in Snowman IFC, a member of the World Bank Group, is providing a $6.5 million loan to Snowman Logistics to help the food supply chain company expand its cold storage facilities in various locations in India, helping reduce wastage and promote food security.

“We offer state-of-the-art cold storage services for commodities, which promotes food security and stabilizes prices,” said Ravi Kannan, CEO of Snowman Logistics. “Expansion of our storage facilities will help Snowman be a leading player in the emerging retail and food sector.”

“IFC’s investment in Snowman will help lower overall logistics costs and reduce wastage associated with Snowman’s clients, most of whom are in the agriculture and food sector,” said Anita M. George, IFC Director for Infrastructure in Asia. “This is an ongoing strategic partnership with Snowman.”

IFC had invested $5 million in Snowman in 2009 to help it add storage capacity across India.

Snowman provides cold chain services for a variety of products, connecting more than 100 cities and distributing to more than 4,400 outlets.

Its temperature-controlled storage infrastructure is currently spread across 16 facilities, including in Mumbai, Chennai, Bangalore, Hyderabad, Kochi, Kolkata, Ludhiana, and Vishakapatnam.

LOGISTICS TIMES April 2012

Prior to joining CHEP, Devdip Purkayastha was with DHL Express for eight years and his recent role was VP - Strategic Business Development for South Asia Area in which he worked on a broad range of initiatives to strengthen the Group’s market leadership in the region.

Devdip has also spent 13 years with P&G in a variety of Country, Regional and Global assignments based in India, Singapore and Thailand. Devdip is an Engineering Graduate from IIT Kharagpur with an MBA from IIM Kolkata.

Commenting on his new assignment, Devdip said “The India supply networks are modernizingand the trend will accelerate with the advent of GST. We will continue our customer focussed approach to business as we aspire to make CHEP, the preferred vendor of choice. We are now strategically placed to be an important player in the next phase of the supply chain evolution.”

EDI messaging Kale has announced becoming first company to introduce thoroughly tested EDI messaging for Indian ICD custodian’s in compliance with ICES v.1.5 requirements. ICDs will now be able to exchange EDI messages as per the e-Trade initiative, anchored by the Ministry of Commerce.

Indian Customs has mandated ICDs to send electronic messages to customs for Export Container Exit List (COCHE07) and Import container Arrival List (COCHI02). The ICD custodians will be required to receive EDI messages from Customs ICEGATE for IGM (CHCOI01), Shipping Bill (CHCOE01) and Acknowledgement for container arrival (CHCOI02A) electronically.

According to a company release, CAPELLA software equips ICDs with the ability to send and receive shipment information electronically using standard EDI message formats. With real-time information transfer, ICDs will experience faster customs clearance and save time and manual efforts in inputting the data on ICEGATE. The EDI messaging for ICES v 1.5 software is already live in case of Air Custodians. Kale’s GALAXY-Airport Cargo Management System is empowering the operations of leading custodians like Mumbai International Airport (MIAL), AISATS-Bangalore, Cochin International Airport Ltd (CIAL) and Air India among others, for EDI message exchange with Indian Customs at their respective Airports.

Vineet Malhotra, Senior Vice President- Kale Logistics Solutions commented, “CAPELLA is a very strong web based CFS/ICD management system which imbibes global best practices and fulfills practical operational requirements of global CFS/ ICDs.”

NEWS BRIEFS

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Tie up with eBay, PayPal The Federation of Indian Export Organisations (FIEO) -the apex body of all export promotion councils, commodity boards and export development authorities in the country, eBay India (www.ebay. in) - India’s leading eCommerce marketplace, and PayPal -the leading global online payments provider, today, formally announced theirtie-up to promote retail exportsvia eCommerce from India. This strategic tie-up will stimulate the growth of Indian retail exporters by helping them sellonline to 100 million plus international consumers in 190 markets and accept payments in up to 25 currencies.

Rafeeque Ahmed, President, FIEO advised the exporters to take to aggressive marketing strategies and identify and adopt additional export sales channels like ecommerce to take on the growing difficult global market conditions. He said “We have been focussing on diversification of product baskets and markets. We now need to identify and adopt additional export sales channel like eCommerce to reach out to the customer directly thereby reducing the cost of products to the end users.”

Mr. Ahmed added that retail exports need to be recognised and provisions in the Foreign Trade Policy requires to be included to help encourage its growth. He said that FIEO has already

requested the DGFT for appropriate inclusions. This tie-up with eBay and PayPal will provide FIEO members an access to a target audience of over 100 million active users on eBay across the globe.

“The tie-up will help especially the MSMEs to make use of the ready available eBay’s global market place while they concentrate on their export productions. The marketing effort, which is quite a costly affair, will be drastically reduced for these companies with elimination of markup cost of intermediaries.

Accepting secure and seamless international payments in up to 25 currencies will be enabled by PayPal. We hope to see more Indian retail exporters transform their traditional offline businesses and seek further growth in the global marketplace.” added Ajay Sahai, Director General & CEO, FIEO.

Ground handling contract

Air India SATS Airport Services (AISATS), a joint venture between Air India Limited and SATS Limited has been appointed

by THAI Airways International Public Company Limited (THAI) in Hyderabad, India to provide ground handling services for its cargo freighter aircraft.

THAI is introducing its first Boeing 747-400 retrofitted cargo freighter aircraft. This aircraft designed to carry 100 tons per flight to and from Asia, Europe & Australia, will operate to

nine cities: Taipei, Tokyo, Hyderabad, Chennai, Delhi, Frankfurt, Amsterdam, Sydney and Bangkok. The first stop of the THAI cargo aircraft is at the Hyderabad International Airport on 12 April 2012 where AISATS will manage the entire ramp operations for the freighter.

“We wish THAI all the success with the launch of their freighter services in India.

We are proud that they have selected AISATS as their partner for ground handling services at the Hyderabad International Airport. We look forward to partnering with THAI as an extension to our successful partnership for the handling of their passenger flights. This partnership is in-line with our overall expansion strategy and we are working closely with the entire airport community to contribute to the overall growth of the Hyderabad International Airport.” said Willy Ko, CEO, AISATS. AISATS started its Hyderabad operations in March 2008 serving Air India and other leading international airlines.

AISATS has in the past year handled over 9,000 flights with staff strength of around 900 people out of Hyderabad.

LOGISTICS TIMES April 2012

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Dynamic supply chain solution To ensure flexibility, quick response and reduction in manual work, Damco has introduced Dynamic Flow Control, which claims to turn today’s static supply chains into dynamic ones while saving double digit percentages on cost. The product was launched late last month.

According to a company release, Damco Dynamic Flow Control is the result of a long development effort done at Damco – together with a number of key customers. The solution allows supply chain professionals the flexibility to constantly re-plan shipments according to what is important - whether it is delivery date, cost, or carbon footprint - without the complexity and manual workload changing purchase orders normally entails.

“As market conditions become more volatile and more difficult to predict, the answer is not to improve your ability to plan, but rather your ability to adapt quickly to demand and supply fluctuations. Damco Dynamic Flow Control automatically adjusts planning to changing requirements while still ensuring true end-to-end optimization of supply chain performance – from Purchase Order to Final Delivery,” Damco CEO Rolf HabbenJansen commented.

Dynamic planning and re-planning provides more flexibility to adjust to last minute demand and supply changes which enables lower inventories, higher customer service, and timely response to market trends. In addition, increased delivery performance

and reduced manual intervention can decrease lead times by up to 10% while lowering administration costs by up to 30%. Improved container utilization and mix, less administration, and reduced air-to-ocean ratio can help decrease cost (and carbon emissions) by up to 20%. The solution has already helped the development partner, a high-profile Damco global customer, to improve delivery performance significantly while achieving a simpler, agile, and cost effective supply chain.

Third runway at HKIA Hong Kong Air Cargo Terminals Limited (Hactl) – the major air cargo handler at the world’s largest air cargo hub – has strongly welcomed the Hong Kong Government’s inprinciple approval to adopt the threerunway option for the future development of the Hong Kong International Airport (HKIA).

Handling some 70 percent of general air cargo movements in Hong Kong, Hactl has grown in tandem with HKIA – the world’s busiest airport. It invested over USD1 billion in the LOGISTICS TIMES April 2012

construction of its SuperTerminal 1 facility at the new airport in 1998; thirteen years later, it is still the largest and most advanced in the world. Hactl’s annual cargo throughput (almost three million tonnes) already exceeds SuperTerminal 1’s original design capacity.

Hactl has been one of many businesses at the airport to support the campaign to construct the third runway. Managing Director, Mark Whitehead recently said : “The global airfreight market, and the market in this region in particular, is expected to grow in leaps and bounds in the next two decades. HKIA needs to grow to meet the increases in volumes, otherwise its status as the world’s No. 1 air cargo hub will be under threat.”

Whitehead said the airport community can now look forward to a much more positive future: “Airlines will have the room they need to grow here, bringing jobs and prosperity. The density of aircraft movements can be maintained at safe levels, and the avoidance of air traffic congestion will reduce the impact on the environment.”

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Strong result Lufthansa Cargo has reported an operating profit of 249 million euros last year, the second-best result in company history. Chairman and CEO Karl Ulrich Garnadt told a press conference in Frankfurt recently that the very good results for the year were achieved despite adverse operating conditions. In the present year, Lufthansa Cargo is anticipating severe pressures ensuing especially from the ongoing night-flight ban in Frankfurt. All in all, however, the company is expecting a good operating result once more at year-end.

Following record profits in 2010, the year 2011 began initially very positively. In the course of the year, however, demand declined significantly. “The airlines struggled against eroding demand, especially in the major airfreight markets in China and India. Lufthansa Cargo turned in an outstanding result in a demanding market environment,” emphasised Chairman Karl Ulrich Garnadt. That success is chiefly attributable to cost discipline, a broad product range and flexible capacity steering dictated by demand.

In the past business year, Lufthansa Cargo increasingly switched capacities from Asia to North America and included new and attractive destinations in its route network. On the back of those measures, the cargo carrier significantly boosted revenues and tonnage. Earnings rose by 5.3 per cent to 2.9 billion euros. The operating profit amounted to 249 million euros, the second-best in company history.

Chairman Karl Ulrich Garnadt pointed out that investment in new products and a strong focus on quality had also contributed to company success. “We raised our quality level markedly again during the year and attained top marks anew in all areas. We will stay on

that path and further expand our quality lead. That is evidenced for example by our investment in the Lufthansa Cargo Cool Center for temperature-controlled shipments at Frankfurt Airport,” he said.

With the Lufthansa Cargo 2020 programme launched last year, the company has clearly defined its long-term strategy, explained the Chairman. With orders for new Boeing 777 freighters, the upgrading of the IT platform, plans for a new logistics center in Frankfurt to replace the existing 30 year-old facility as well as other long-term projects, the key markers are in place to ensure that the company remains industry leader also in 2020.

Meanwhile, for the year 2012, Lufthansa Cargo is assuming that business will develop on a positive note and is again anticipating an operating result in the region of thee-digit millions.

Resuming Service From 4th April, American Airlines Cargo has re-commenced its popular, daily, non-stop service from Dublin to Chicago. The flight is operated on one of the carrier’s B767-300 wide-bodied aircraft. Furthermore, the carrier has also resumed daily services between Chicago and the Finnish capital, Helsinki. Operating non-stop and utilising a B767-300 aircraft, the service from Vantaa airport offers truck-feeder services to Amsterdam, Stockholm Arlanda, Gothenburg, Malmo and London Heathrow five days a week; with inbound feeder service from ARN, GOT and MMA. Commenting on the service resumptions, AA Cargo’s Managing Director, Cargo Sales and Marketing EMEA, Tristan Koch said: “Both these destinations are welcome additions to our summer timetable. They have previously been well-supported cargo destinations out of Europe as they are ideal for moving both pharmaceutical and electronics products, both of which are major commodities from these countries into the US and beyond via our network. Our Expedite and Expedite TC services are available to customers using both services. Our commitment to these destinations is shown by their addition to our summer schedule”.

LOGISTICS TIMES April 2012

QUICK CHAT

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Our present capacity

Ram Menen, Divisional VP, Emirates SkyCargo was in Delhi early this month to attend a function to felicitate company’s top cargo agents. In an exclusive conversation with Logistics Times on the occasion, Menen spoke on a host of issues ranging from global trends in air cargo business to Indian market’s contribution in Emirates SkyCargo’s growth in recent years and to company’s strong focus on African market. Excerpts from the conversation:

LOGISTICS TIMES April 2012

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in India is adequate Adjusting to difficult economic cycles since 2008 Economic cycles are always in play. This is not the first time that it has happened, nor would it be the last time. Emirates has been in existence for last 27 years and braved many such cycles. Of course, in this century, cycles have been a lot closer.

But this is the reality of the business. All you can do is to make sure you are efficient, lean and mean. The experience has taught us a few things to manage this crisis. Upswings and downswings notwithstanding, our strategy is long-term. We have a plan for next 15-20 years which is already on papers.

The biggest thing we have to deal with is controlling our costs.

Whenever you get in difficult situation, you have to be agile and flexibile enough to adjust your efforts on the cargo side. And we have been very successful in making quick changes in the cargo operating network to suit the cargo traffic opportunities.

At the same time, we have a mix of leased airplanes and our own freighters. So we have the leeway to rightsize capacities.

The entire gameplan boils down to making sure that your assets are deployed at the right place.

Contribution of Indian market We have expanded globally and that holds true of India as well.

India presently contributes 10 percent of our total revenue.

There have been crisis spells in the recent past but Indian market has managed to held its own. In fact, India has been a bright spot for us. The freight capacity we have by way of bellycargo space in India is 3000 tonnes per week which gives us a fair amount of lift. And then we also operate our freighters when required.

The good thing about Indian economy is: it is transitioning from services base to manufacturing base. We have seen very high growth in pharma traffic. Being just next door to India has also helped us a lot.

Does India need a dedicated air cargo policy?

Logistics management can make or break any country’s economy today. Its not just air liberalisation, its also about the road infrastructure that the country creates and the integration between different modes. From air cargo perspective, I think the government should think in terms of an independent air cargo policy. Volume pressure is building up. In fact, this issue should have been addressed earlier. But its never too late. There has to be a clear policy. Don’t forget India has a huge domestic market.

And a lot of supply chain efficiencies is required. Look at the domestic air cargo network US has. There’s no reason why India can’t have something similar to that.

Africa focus Africa is the next frontier. 56 percent of world’s mineral, is in that continent. So you can imagine the wealth of raw materials there.

Countries like China have gone in there and started developing those mines, etc. Such moves have given a great boost to the local economy. South Africa has always been ahead of the game and now it is part of BRICS group as well. But countries like Kenya hold great promise. They are greend belts ready to be converted into gardens of the world in terms of agricultural production.

In developing nations, there is always an opportunity. And with borders opening up in Africa, we are looking forward to a very promising future.

Trends for air cargo in 2011 and near run outlook We are expecting the first two quarters this year to be flat. But it would be flat to positive and not negative. What was happening in last two quarters of 2011 was flat to negative. We are expecting last two quarters to be good. We are expecting confidence in the business coming back which would reflect in our business as well.

If we talk of recent slowdown, it has been more psychological in nature. If you look at the financial side, stock markets are still doing good. So the wealth creation is going on.

Emirates expanded and added capacity at a fast pace between 2006 to 2010 in India. What’s the plan now?

We are totally market driven. If the market needs capacity or our customers ask for it, we will add on to our present base. We have frieghters to add extra capacity when it is needed. That can be brought in very quickly. But we would not add capacity for the sake of doing it. At the moment, I think our present capacity of 3000 tonnes is adequate. As I said this is just the passenger belly capacity. We can add on with the help of freighters. We are inducting four new freighters. One we have already inducted and three more we would receive during the course of this year. And then we will induct four more in 2013. − Ritwik Sinha

LOGISTICS TIMES April 2012

MATERIAL HANDILING

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Trends in MHE segment

Sudhir Dabke Director ImpelPro SCM Solutions

LOGISTICS TIMES April 2012

History and evolution of MHE Man has been moving various kinds of material since ancient times and the art and science of material movement was developed since many centuries. These movements were mainly associated with construction activities and logistics during wartimes.A great journey of development marking the change since those old days up to today’s modern world has been in the way we have handled these materials.

Invention of wheel was one big milestone in this development process because this revolutionized waysof material handling.

Remember those pictures of pyramid

drive concept. The roots of modern material handling began with the industrial revolution. World war-I saw the creation of different types MHE in Europe. In 1917, the first lift truck was manufactured in USA and the industry soon began to take off. During world war-II, as the production of equipment and artillery increased, material handling grew as well. Transport, storage and handling of goods became paramount as industrialization increased.

Today, this branch has advanced and moved to a much higher level. Let us review current industry status.

construction where big stone blocks were moved using artificially created giant ramps.

With new discoveries in science and technology, slowly the concept of using special purpose methods andequipment for movement of materials came into picture and a new branch - Material Handling Equipments (MHE) was developed. It all started with small manual carts and trolleys, then hydraulics got added, then the

About Material Handling: Material handling equipments can be divided into following main categories: 1 Storage and Handling Equipments (SH) – mainly non-automated equipments used in warehouses for storage and handling of different types of product categories. These include equipments which have globally accepted standards and are generally available as stock items.

Examples include pallet trucks,

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stackersetc.

2

3

4

5

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Trolleys (TR)–BOT (Battery Operated Trolley), hand trolley, ladder trolley etc.

Engineered systems (ES) – mainly custom engineered automated systems to suit specific operational needs. Include conveyors, AS-RS (Automated Storage and Retrieval System), AGV (Automated Guided Vehicle) and are mostly integrated to ERP system.

Industrial trucks (IT) – versatile, operator driven, motorized warehouse vehicles powered manually, diesel, propane or electricity. Forklift is the most common industrial truck.

Lifting equipments (LE) – used to move cargo in heights without the use of any storage and handling equipment, generally fixed at a point.

Includes goods lifts, scissor lifts, lift tables.

Bulk Material Handling (BMH) – used to move and store bulk materials such as ore, liquids, cereals etc. and mainly deployed on farms, mines, shipyards, refineries etc.

On Rail Transfer Carts (ORTC) – moves on rails and handles very heavy cargo, widely used in metal and engineering industries.

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Conveyors (C) – are of many types such as uni-built, power and free, chain, towline, roller etc.

9 Cranes (CR)–Small jib-cranes up to very heavy industrial EOT cranes, tower cranes, and goliath crane etc. belong to this crane category – where the equipment is primarily stationed at one place or has limited movement accessibility.

A comparison between various MHE types on the basis of their load capacity, lift capacity, speed of operation, sophistication will give more insight on this:

Note: 1. Categorization done above is based on factors such as price, use of technology, extent of automation & sophistication and is applicable for the purpose of this paper only 2. Current paper is more focused on handling equipments which are used for warehouse & logistics industry.

Global MHE Industry Status: The fast-expanding economies of the Middle East are among the key growth engines driving global demand for materials handling equipment. The region, along with Latin America and Asia, are the fastest growing markets for this sector, which is expected to be worth a whopping $98 billion worldwide by 2015 (` 4,80,000 Cr). There are other estimates that this industry was worth `4,68,000 Cr in 2010 and is expected to grow annually by 4.5%. By any analysis one thing is very clear, that this is one of the biggest contributors to global supply chain.

After world financial crisis in 2010, China has become the world’s largest market and production base for forklifts and material handling equipment for the first time. The country now accounts for over a quarter of global forklift sales.

Status of MHE industry in developed countries: Developed countries are using advanced MHE with computerized and robotics controls.Man less machines are becoming a new trend in MHE sector. Advances are happening in the following areas: 1. The load carrying capacities and lift height 2. Control system 3. Safety features 4. Attention on ergonomics 5. Operating aisle width 6. Alternative green fuel system LOGISTICS TIMES April 2012

MATERIAL HANDILING

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Middle East along with Latin America and Asia, are the fastest growing markets for this sector, which is expected to be worth a whopping $98 billion worldwide by 2015 Use of these new technologies help in minimizing human fatigue and improve safety of operators and products.

MHE are now able to handle higher loads and are able to reach to more heights. New ergonomic controls allow safe handling at these great heights.

There are other attachments such as barcode scanners, operator’s camera which add to safety features which include over-load triggers, height indicators, speed controls, fuel level indicators, password protected startup, pedal controlled safety systems etc. These features make the MHE handling equally safer for operators as well as products.

Fuel cells though invented century and half ago, are being successfully used in LOGISTICS TIMES April 2012

MHE only in recent past. A fuel cell is a device that converts chemical energy from a fuel into electricity through a chemical reaction with oxygen. Hydrogen is the most common fuel used. Toyota and Crown have started manufacturing MHE using fuel cell technology which is greener and efficient as compared to existing fuels.

Renting of MHE is a much evolved service in advanced countries. It is a good option for someone who does not want to invest in the high capital costs. Various types and brands of MHE are available on rent with many rent options. But getting a required capacity and type of MHE can be a bit difficult at times.

Resale of MHE is also an equally developed option where one can buy –

even online – MHE of various types and features at discounted prices.

In comparison to the above, let us discuss the situation in India.

Regulations in MHE Industry: Occupational Safety and Health Administration (OSHA) of USA has specified various standards for use and handling various types of material handling equipments. These include standards for safety requirements, handling of equipments; load testing, other tests such as over-turning, breaking, lifting heights, types of hazards in handling, etc. Apart from these, there are emission regulation standards for forklift trucks, standards for ergonomics published by various organizations.

In India, there is no such mention of any specific standards available though there is a need to have one unified standard that will govern the MHE industry in a broader form. In absence of such standard, we have no option but to follow available standards such as OSHA etc.

Indian MHE scenario: It took a long time for India to come in line with advanced countries in terms of use and manufacturing

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of MHE. The first fork-lift was manufactured by Godrej in 1961. Till that time, most of the MHE used in India were imported diesel folk-lifts or counter balanced trucks. They proved to be very useful in reducing human efforts in material movements. It is only in last 20-25 years that Indian MHE industry started taking modern shape. Many big industries and small entrepreneurs took up the task of developing technology or transfer it through technical collaboration/jointventure with world’s leading MHE manufacturing companies.

Technology development mainly happened in the lower end MHE sector such as pallet trucks, stackers, BOPT’s or even forklifts. Looking at the potential of the market, like Godrej, other Indian companies then started manufacturing of even middle end and in some cases higher end MHE’s. Some have even started exporting these to other countries.

As far as use of MHE is concerned, India is yet to reach to a high end level. Our handling needs are still satisfied by low to middle end equipments.

As far as use of MHE is concerned, India is yet to reach to a high end level.

Our handling needs are still satisfied by low to middle end equipments.

A logical reason for this could be affordability of huge capital required in these high end equipments and availability of labour and manpower at cheaper rates for these handling needs. Non-availability of skills required to operate and maintain high end equipments could also be another reason.

Where is the gap: If we do the gap analysis between the uses of MHE in advanced countries v/s India, then following few points stand out loud and clear: Types of MHE use – High end as against medium to low end Number of MHE used – we in India always keep the numbers low than what is required. And there are generally no standby arrangements considered while deciding the numbers. Due to this, our operations

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face many situations where the MHE is not in operation and we have to resort to non-standard means for handling materials.

As our warehouses are more flat, they actually do not require any high end/ high reaching equipments.

Many of our operations are manual and not hooked to any warehouse management system.

Carrying right stock of spares is generally not our focus area.

We mainly resort to break-down maintenance rather than well planned preventive maintenance schedules.

With this attitude, Indian companies do not venture in going for high end equipments.

Generally high end equipments warrant high quality infrastructure, mainly flooring and power. Though power may not be a critical factor, creating good quality floor is an area of concern. For efficient and effective use of the high end equipments, a super flat and smooth floor is required. Now in past few years, technologies are getting available in India to construct such super-flat and super smooth floors.

Our operations have not been customer focused. With this, our KPI’s were never tuned to operations which finally satisfy customers. This led to attending to other factors which did not require use of efficient material handling systems.

Future Roadmap Let us first see the change process that is happening in the Indian industries that use MHE’s and their impact on type of MHE. Firstly the availability of land and land prices are increasing in all parts of India at an exponential rate. This will obviously have a great impact on the new facilities as well as old ones which plan to go for expansions in the future. Our warehouses will have to fit in smaller foot print which means they have to go higher andutilize maximum possible cube.

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This will have great impact on the type of MHE use. Facilities will have to go for more advanced and higher end MHE which can cater to higher heights.

Operations are becoming more and more customer focused. This will warrant for more speedy and accurate warehouse operations requiring more efficient and effective MHE and their use.

Focus on employee, equipment and product safety is increasing day-byday. For such safe operations, industry will have to go for higher end MHE which are safer in their operations.

MHE operators are key personal on which any warehouse operation efficiency depends. In the current situation where getting and retaining good MHE operators is a challenge, industry will have to go for more user friendly and ergonomic equipments that provide comfort to operators.

With the GST coming in force few months from now, the warehouse consolidation process is likely to start. This will result in concentration of warehouses in certain locations according to market and industry presence. So this consolidation process will require more MHE in terms of numbers and types.

Customer’s service level expectation are increasing and becoming stringer.

This is the result of increasing consumer awareness. To fulfil the SLA’s, logistics operations have to respond in a positive manner requiring again higher end and efficient MHE’s.

What is next?

India has high planned industrial growth for coming years GST will come in force shortly Awareness of consumer and customers Need for more efficient operations All above factors will impact positively on MHE industry in India in the coming years. Use of MHE will move from low to middle end MHEs to middle-tohigher end MHE’s. Industry will tend to use higher number and more advanced

equipments. This situation has been forecasted by all major international MHE manufacturers and their Indian trading/servicing/JV partners. They have set up bigger organization structures in different parts of India. These set ups include sale and marketing teams, technical support, after sales servicing centres, inventory holding of spares and consumables, mobile service teams and user friendly AMC procedures. All these companies and even importers are increasing their visibility in the market by sponsoring, organizing and participating in industrial trade exhibitions. Such exhibitions are now happening in smaller cities as well.

Some of the major brands now available in India are: Godrej in tie-up with Crown andEfacec for MHE and ASRS systems along with their own Godrej brand equipments Linde in tie-up with Jungheinrich of Germany Kirloskar Textile Machinery tie-up with Toyota and BT Voltas tie-up with Kion Group along with their own Voltas brand equipments Nilkamal tie-up with Mitsubishi Yale with Maini SSI Schaefer for Automated storage solutions Datar Engineering in tie-up with Rite-Hite for dock equipments, goods lifts Gandhi Fabrication for dock equipments Elite - dock equipments Above is not an exhaustive list and there are many other international and local brands now available in India providing all types of material handling solutions from simple conveyors to very heavy duty cranes and handlers.

All these are positive trends for the MHE industry in India which is poised for growth and high level of automation in the coming years. The industry is thus expected to experience a total change and we should be ready to face and accept the change.

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Simply calling it a mixed response could be an understatement.

Though bright spots have not gone completely unnoticed,

Budget

2012-13 What do logisticians make out of it?

representatives of logistics and allied businesses by and large have dubbed Pranab Mukherjee’s budget as a ‘package with little punch’...

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Like the rail budget, union budget was also quite disappointing in terms of laying a clear plan for addressing key priorities for our economy. With a more focus towards populist policies, it has not addressed key issues such as tackling one of the most important aspect of our economy ‘logistics Ajay S. Mittal cost’ which is around 14% of our CMD Arshiya International GDP as compared to 9-10% in other developed economies. As per the honourable minister, the GDP growth expected in coming year is 7.6%, but he has not identified how this growth will be managed with our existing logistics infrastructure bottleneck especially in roads and rail. Although recognising the need of PPPs in country’s infrastructure development, no roadmap was discussed to broaden the scope of the existing policy to include crucial logistics infrastructure such as ‘Warehousing’ being allocated the much needed ‘Infrastructure Status’. The biggest challenge India faces today which also is country’s biggest opportunity is to reduce logistics inefficiencies. Logistics typically accounts for one of the highest costs of doing business, second only to materials in manufacturing or cost of goods sold in wholesaling or retailing in India. Therefore, targeting this huge cost centre has been a constant endeavour of most developed countries over time. Globally, countries have steadily and successfully brought down logistics cost in a bid to improve their competitive advantage and curb inflation. On India’s USD 1 trillion GDP, the net effect of the excessive logistics related costs translates to an amazing USD 65 billion per year on account of the existing inefficiencies. This is purely due to lack of logistics infrastructure and regulatory framework. This challenge needs immediate attention especially in a country like ours. Logistics costs are high in India because we don’t have the infrastructure to support large scale consolidation and evacuation of goods resulting in 65% of the cargo being moved by road and only about 30% through rail. Road transport is ridden with various challenges like being more expensive over longer distances, longer travel times blocking precious working capital. The biggest testament to the in-efficiency of road transport is reflected by the fact that India burns over USD 2.5 billion on account of fuel that is used by trucks standing idle on state check-posts. Mis-management also adds to the woes as the average time taken to clear import and export cargo at ports is about 19 days in India as against threefour days in Singapore. Thus a financial budget for the country needs to have these important variables highlighted and road map identified to tackle these bottlenecks, which was lacking in this year’s budget. Taking into consideration India’s unique demography, geographical positioning to competitive economies such as China, Singapore, and Dubai, India needs policies to propel growth of integrated logistics infrastructure such as Free Trade Warehousing Zone (FTWZ), Rail Infrastructure which also include Rail Sidings and Domestic Distribution hubs which is a crucial factor once GST is implemented in the country, as

announced by the finance minister.

From a logistics perspective, the decision to boost the road infrastructure with 8,800 kms of roads being added during the coming fiscal is noteworthy. The proposal to allow domestic carriers access to ECB’s up to $1 billion for a period of one year and active consideration of Anil Khanna allowing 49% equity participation by MD BlueDart foreign airlines, will give some respite to the cash-strapped aviation sector.

Also, with direct import of ATF by airlines termed as end user consumption there has been some much needed relief from state VAT which ranges from 3 to 33 percent. It is heartening to note that the Government recognises that India has the potential to establish itself as a third party MRO hub and has granted a full exemption of basic customs duty and CVD on aircraft spares, tyres and testing equipment.”

The union budget 2012-13 has given major thrusts to the infrastructure sector with a slew of incentives to boost growth.

Road Sector: The government has invited bids for about 15 projects worth 20,000 crore to widen 2,000 km of highways helping the National Vineet Agarwal Highway Authority of India (NHAI) Joint MD TCI inch closer to its target. The Finance Minister’s announcement to award over 8,000 kilometers of road projects would provide much impetus to the logistics sector.

Railways: The decision of the ministry to create a separate Railway Research Development Corporation is a positive step.

It has sent a positive message of the seriousness of the Indian railways in help in speeding the implementation of the pending projects. The Indian Railways has done a separate budgetary allocation for developing special type of rolling stock including for automobiles & double stack container movement.

Ports: The government proposes to develop two new major ports, one each on east and west coasts and build facilities for full mechanization of cargo handling and movement and plans to develop of two hub ports each on west and east costs. The proposed policy measures also targets corporatization, formulation of a new land policy for major ports, and establishing of a port regulator for all ports for setting, monitoring and regulating service levels and technical and performance standards.

Aviation: The aviation ministry is considering a proposal to work out a separate air cargo policy as 200 freighter aircraft will be required in the next 20 years to meet the industry’s demand.

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Warehousing Facilities: The announcement by the Finance Minister for the allocation of Rs. 20,000 crore on rural infrastructure development along with an investment of Rs 5,000 crores for creating warehousing facilities is a welcome move and will add to the growth of the sector.

Implementation of GST: In the recently announced Union Budget 2012-13, it was said that the Goods and Services tax (GST) will be operational this year. Significant progress has been made in the conceptualization and design of the GST Network (GSTN) - a common portal for the centre and states that will enable electronic processing of the key business processes of registration, returns, and payments.

The implementation of GST will further accelerate the implementation of the much awaited GST. PPP: Government’s plan to come up with a comprehensive policy for further developing PPP projects will definitely improve the infrastructure conditions however what is currently required is a speedy single window approval system. Augmentation of storage capacity through private entrepreneurs and warehousing corporations has been fast tracked.

Withholding tax rate on interest payments on ECB availed by airlines, roads, ports and shipping sectors is proposed to be reduced from 20 percent to 5 percent which would help companies to look at overseas market for their borrowing needs.

Given the economic situation and uncertainty in the Indian political environment I welcome this budget, as the finance minister has tried to balance the need for growth with ongoing fiscal compulsions.

On the positive side, we have the long awaited Goods and Service Tax Mr. Pirojshaw Sarkari (GST) still having a mention, albeit CEO

by August 2012. Sustained support to Mahindra Logistics critical infrastructure will also bring about a gradual but palpable change. A more clear focus is now being brought to bear on improving road infrastructure, with PPP projects aimed at developing infrastructure at and around ports, airports and the railways. The additional incentives to cold chain and agri-warehouse operators are another step in the right direction. However, the increase in service tax rates will definitely raise the end to end supply chain costs for the manufacturers.

The logistics players would have liked to see logistics being

recognized and given a status under the ministry.

The coming financial year will bring opportunities and challenges.

The demand for both domestic, as well as international logistics solutions will be stable. The major industries – automotive, consumer goods, telecom, retail and engineering goods (amongst others) will doubtlessly continue to drive logistics demand and growth.

Budget announcements are rarely exhilarating! The tendency for the government to play safe continues and as such, affects the overall quality of the budget. This year’s announcement is a mixed bag…, things could have been much better, had the government taken a stand Harry Lagad, to put together a strategic growth VP (South & South East Asia), Toll Logistics plan for making India a key point in global supply chains. After all, our neighbours are doing their part much better and we are still lacking in many areas, making sourcing, supply and distribution from and within India a challenge.

While I appreciate the re-newed focus on making the GST a play as well as the focus on FDI on retail, the news is still not so encouraging. GST is pushed back to August 2012 while FDI in retail is only allowed to a single brand entity. There is a commitment to get FDI limits pushed for Multi Brand retail, but nothing firm.

Infrastructure drives growth for any GDP. Sadly, SOPs on Infra are still lacking a big focus and also the fact that there is nothing clear about a quicker way to clear decisions for development of the vital transport and logistics sector, which is the key to the future of this country.

Overall, the industry will see some improvements. Specially the warehousing sector ( more so for the those related to the agri industry and the smaller size warehouses, ), the Container Depots and policies related to the benefits derived from usage of such depots. Road sector will see good growth with the planned release of infrastructure bonds.

The cold chain industry gets a further much needed boost but investments are still lacking by industry players, given the challenges of the infrastructure which increases the cost of operations. Some welcome news for the air courier and express services due to the reduction of VAT on airline fuel and of course the focus on strengthening the port infrastructure further will see better productivity out of the shipping industry.

It has not addressed key issues such as tackling one of the most important aspect of our economy ‘logistics cost’ which is around 14% of our GDP as compared to 9-10% in other developed economies.

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The proposal to allow domestic carriers access to ECB’s up to $1 billion and active consideration of allowing 49% equity participation by foreign airlines, will give some respite to the cashstrapped aviation sector.

An annual ritual which is awaited with anticipation by all like expectant parents, the budget for 2012-13 was possibly not as joyous as when a baby is born. The Finance Minister seemingly trod a prudent path while unveiling the Union Budget 201213, pledging reforms whilst setting relatively modest targets for trimming Devdip Purukaystha President, Chep India a ballooning fiscal deficit..

The benefits announced for key sectors like infrastructure, agriculture and education are bound to improve the overall economic scenario in the long term.

However, in the short term the budget does not bring much relief to the Indian consumer, who has been facing the impact of rising price inflation. The increase in excise duty and service tax by 20% (10% to 12%) will possibly lead to an escalation in prices of products and services across the economy.

Shifting focus to the logistics sector which we all are a part of, the impact of the budget largely depends on infrastructure thrust.

We believe that the government has made an honest effort to address this issue as they too believe that the progress of the country depends on infrastructure.

Realizing that the government cannot drive this change on its own, a big positive is the move towards the Public Private Partnership (PPP) model.

While addressing the nation during his budget speech, the Finance Minister Pranab Mukerjee added while commenting on the PPP model “The Japanese PM had announced $4.5 billion for Delhi-Mumbai Industrial Corridor.” Announcing the allowance for the sector, Mukherjee said: “The ministry has set the target of constructing 8,800 km of highways under the National Highways Development Project during 2012-13.” The allocation for the road, transport and highways ministry was hiked by 14 per cent.

The infrastructure sector, including the Metro network and highway projects, has got a major boost in the budget.

Investments worth Rs.50 lakh crore have been proposed in the 12th Five-Year Plan, half of which will be pumped in by private investors through public private partnerships (PPP) and by raising tax-free bonds worth Rs.60,000 crore.

The plan of setting up mega logistics hubs in Eastern and Western Corridor and the policy to allow private freight terminal, as proposed in the Railway Budget will give the much-required boost to the logistics sector. Better transportation infrastructure will lead to unitized and efficient flow of goods on standard pallets and crates.

Vijay Kalantri President AIAI

The All India Association of Industries (AIAI) welcomes the decision to implement Goods and Service Tax (GST) from August 2012 which will simplify and rationalize the tax structure. We further welcome the much needed increase in viability gap funding for the infrastructure sector like roads, port., power and further inclusion of Oil & Gas and tank farm will boost the growth of the

infra sector .

The allowing of External Commercial Borrowing (ECB) for sector like aviation and low cost housing introduction of doubling the amount of tax free bonds for infrastructure sector such as Ports, Power, Road etc will give the much needed impetus to achieve over 7% of GDP growth.

However, increase in the Excise duties and Service Tax by 2% will adversely impact the automobile, engineering and manufacturing industry and various provision and alteration made in rules of Service Tax, Excise and Customs duty will make the procedure more cumbersome for the assessee and increase harassment.

The Finance Minister, should have initiated measures and incentives to boost the infrastructure related industries. However, the budget will add to the inflationary trend and in turn could have a cascading effect on the economic/manufacturing growth.

AIAI feels that the negative list on the Service Tax may be relooked into.

Going by the popular perception, budget 2012-13 presented by the finance minister last month has not exactly been adjudged as ‘a great package.’ However, when it comes to accepting a budget and attaching adjectives to it, more often than not the outcome is primarily the function Vineet Kanaujia of degree of expectations. With VP, Marketing Safexpress many macro-economic parameters not exactly being in fine fettle in last one year, like low GDP growth and inflationary issues, the expectations were simply too high this time.

In my view, this year’s budget deserves to be qualified as ‘a balanced package’ and it does have a set of strong offerings in LOGISTICS TIMES April 2012

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terms of setting new directions for the future economic growth.

The major highlight this time I believe is the emphasis on going beyond metro, tier I and tier II locations and provisioning for a facelift of the rural infrastcuture. That too in a holistic manner by committing for better employment opportunities, physical assets, sanitation and education related avenues in the pockets where real India lives.

Take for instance, Rural Infrastructure Development Fund (RIDF). The allocation has been enhanced to Rs 20,000 crore.

But it’s not merely the allocation hike which is the shining point.

The point is there is a strong endeavor to push rural productivity with better wherewithals and hence out of Rs 20,000 crore allocation, Rs 5000 crore has been provided for just creating warehousing units. For our fraternity, it’s a matter of delight that at last the government is thinking in terms of structured and inclusive expansion of the storage and distribution units.

Another encouraging signal is the setting up of 8,800 km of highways construction target for 2012-13. The government has clearly sent the message that it is quite serious about expediting the road infrastructure development exercise, something which is so critical for us going ahead. To make it happen, the FM has not only enhanced the allocation for the Ministry of Road Transport & Highways to Rs. 25,360 crore – a 14 % increase, but also proposed to allow External Commercial Borrowings (ECB) for capital expenditure on the maintenance and operations of toll systems for roads and highways.

However, there is a sense of disappointment with ambiguity still remaining on the issue of implementation of GST. Though the FM has given a date, what remains to be seen is whether all state governments would contribute their bit within the stated deadline to finally convert the idea into reality.

Like always, this year’s budget adds focus to selected sectors and growth aspects in India’s development story.

And like always, benefits accrued across any such sector is going to bring benefits in terms if hard business to the associated logistics sector. The sad element is, that while Pawanexh Kohli no country’s development can be Principal Advisor CrossTree Techno-visors complete without logistics serving as its lifeblood, this time, again as always, there has been no real structured move to view or support logistics as an industry to reckon.

True... there have been measures announced, aimed at improving fund availability (both expenditure and working capital: from

warehousing across to airlines), but consistent direction to the logistics sector as an industry is missing. I fear that investment linked deductions and such measures will only allow for more fragmented development of infrastructure in the logistics landscape. This budget lacks in providing continuity to strategic direction to this hopeful ‘industry’.

India, seems to continue to want to develop capacity in terms of infrastructure, yet ignoring that development of such hard assets should be in synchronicity with the larger directional road map of a nation’s development. Case in example, a strong focus is evident to make a success of the National Manufacturing Policy (NMP) with weighted deduction being tabled for skill development in manufacturing. This same allowed for skill development in manufacturing sector should include logistics – frankly, my take is that all manufacturing will come to naught, unless skills are developed in the management and movement of said goods across that value chain. The acknowledged dearth of skill in the logistics trade is not addresses in any proposal. In fact, I would suggest that it this kind of capacity building which should attract utmost importance in the logistics arena today.

Other aspects covered, such as enhanced allocation for NHAI coupled with customs duty exemptions (including CVD/SAD) on importing of road associated equipment; the maritime agenda targeting new major and hub ports; etc, will also indirectly impact the logistics trade... any improvement to available infrastructure is bound to. Yet, a cohesive approach in policy and planning such development is expected so that such infrastructure is not isolated from the larger intent.

One good sign is the promoting of trending unitisation of cargo through the thrust on facilitating new development of container freight stations. This coupled with declared intent for mechanisation of cargo handling, should give strategic direction for the future to both logistics and manufacturing sectors. Any increase in unitised handling of goods will bring efficiencies to operations and benefit the nation at large. One truly hopes this will fructify so!

Rationalising point of taxation rules, alignments to harmonize the tax code, amendments to the service taxations, etc seem evidential forerunners towards preparing for GST. Any changes to ST and other cost changes would typically be passed through to end users, whereas the proposal for monthly filing of service tax returns could add somewhat to administrative costs. The announcement to roll in a GST IT network within this year is a healthy signal - one hopes that the logical conclusion is secure and not again subject to other vagaries.

The enhanced deductions on infrastructure build for agriproduce and cold chain, and equating with the same deductions

This year’s announcement is a mixed bag…, things could have been much better, had the government taken a stand to put together a strategic growth plan for making India a key point in global supply chains.

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An annual ritual which is awaited with anticipation by all like expectant parents, the budget for 2012-13 was possibly not as joyous as when a baby is born. to large hospitals, brings to fore, that our food chain is perceived equally critical to the health of our future. Yet, I fear that in taking advantage of such enhanced deductions, various non logistics players would view this as opportunity and build captive capacity; adding to inexperience and in-efficiencies. Such blanket allowances lead to infrastructure build-outs which are not necessarily conducive to efficient supply chain and logistics.

Clear directional impetus as an industry would have been more welcome.

Logistics is the sole crucial physical link between producer and markets. There can be no efficient trade, or growth in any nations GDP, unless logistics serves to close the product life cycle loop. An inefficient and unskilled logistics industry will always surface as the bottleneck on a country’s developmental roadmap. Logistics is not just road networks or warehouses or ports and it seems that several critical expectations are not formally appreciated.

In ending, I would say that this budget has little definitive impact on the logistics players, leaving this sector to its own innovative devices to support India’s forward motion.

Ramesh Krishnan Head (Supply Chain) SAHARA Q Shop

While Government has finally shown some positive direction in GST but still it does not give a clear intention of whether it will finally be introduced in August 2012. The dual GST with 16% for services and 12-20% for goods is just a mathematical effort of balancing act. However, if GST is introduced it would completely change the way business is conducted and the way supply chain is planned

in India.

There would be major consolidation of warehouse facilities and hopefully larger and more modern infrastructure will come into existence. For the first time probably from locating warehouse at consumption centre now there will be probably plan to locate the mother warehouses near the manufacturing base which definitely would lead to good inventory management and storage would be based on actual transportation cost and economics rather than tax saving effort by doing branch transfer.

Even much needed FDI in multi Brand retailing was not introduced this time. While Government showed haste in increase of 2% service tax, a cohesive approach of simultaneously introducing GST and allowing FDI in multi branding retail also would have a very positive impact in the market.

With increase in Excise in FMCG goods, the impact is going to be inflationary and the relief given to individual in his income tax is not good enough to offset the inflationary pressure on the common man.

Allocating substantial funds for farm development, and plan to have 15 mega food parks and incentives for cold chains and storage infrastructure for farm products definitely looks interesting from theoretical point of view, how much is actually converted into practical benefit is to be seen.

However few large corporate are already trying to utilize this opportunity by foraying in a big way into organic farming and Food parks.

Over all it was a so-so budget for logistics and supply chain and retail industry.

TS Narasimhan Executive Director DARCL

“I must be cruel only to be kind” and the FM said it all. Fewer reprieves to common man battered by continuing inflationary pressure as goods and services to cost further more as Excise, service tax going up to 12 percent. Growth without inflation has been a monetary policy challenge and FM has done a reasonably good job within the political frame and balancing act

required.

Mobilization through tax free bonds of Rs. 60,000 crores for financial infrastructure projects is a welcome sign . So is the 8800 km of road projects to be awarded against 7300 km in 2012. Allocation of the Road Transport and Highways Ministry enhanced by 14 percent to Rs.25,360 Crores seems and FM’s thinking on this line is a good augury for logistics infrastructure boost.

Skill development has been the issue not only for logistics sector but also in other sectors too; allocation is Rs.1000 core and 6.2 crores persons targeted in 10 years.

Regulatory frame work getting strengthened -Tax reforms: Direct Taxes Code (DTC) at earliest; GST network to be operational by August 2012 hopefully achieved! Central Excise and Service Tax being synchronized , way forward for GST. A General Anti-Avoidance Rule (GAAR) to be introduced to counter aggressive tax avoidance. When seen with open mind all these measures would make the economy more resilient.

Looks like ground is being prepared for India becoming largest economy in 2050. With all these India’s Logistics Performance index (current ranking at 47 out of 155 countries) is expected to scale up !

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This budget promises the carrot in the future but delivers the stick now. The optimists will showcase various positive announcements like - the 10,000cr tax free bonds for road infrastructure or GST etc., the Anil Arora question is what is paralyzing the MD MJ Logistics road sector, lack of funds or tardy execution and delayed deadlines of project after project. Announcement of GST implementation in August is merely passing the buck to another date, which if not upheld (as the case has been since last five years) the people will forget if there is a bigger crisis around the corner at that time.

There is 20% achievement of the Maritime agenda 2005-2012, no problem lets announce Maritime agenda 2020 promising the same capacity which was to be delivered in 2012. Let the country wait another eight years as 2020 sounds better in a cricket crazy nation than 2012.

Taxation treatment to agricultural warehousing and cold storage are true benefits that will surely accrue to the industry within this year, the rest are announcements to nullify the resentment from increasing service tax or granting us the ever elusive “Industry Status”.

This budget is a reflection of what is happening in reality, which by no means is as rosy as our wishful thinking wants it to be. In one of my previous columns “Ignore us at your own peril”(published in this magazine) I had highlighted that if the logistics industry and related infrastructure is not developed at a commensurate pace, it will choke the economy sooner or later. I risked being called the devil’s advocate but the fact is that GDP growth is 6.9% against an expected 9%. This industry is the arteries and veins of the country through which the blood (business) flows, if you want it to flow faster, you need to strengthen and expand the channels, not choke them with the plaque of laws and taxes.

Lars Sorensen CEO DAMCO South Asia

For us it is important that the annual budget positively impacts the growth prospects of our customers as our growth is linked to the growth in the business of our customers. Having said that we believe that Union Budget 2012 has laid down in principle some of the key focus areas where the government wants to move forward

and implement much needed reforms. Policy measures such as the introduction of Goods and Service Tax (GST) by August 2012 and re-emphasizing the focus on allowing 51% FDI in multi-brand retail are welcome moves. The Maritime Agenda 2020 has been created which aims to generate around 3000 MT capacity for ports by 2020. It is proposed to develop two new major ports, one each on east and west coasts and simultaneously construct advance facilities for cargo handling and movement.

Further it is suggested to establish a port regulator for all ports who will be responsible for setting, monitoring and regulating service levels and performance standards. The proposals in the budget are expected to also encourage the development of warehouses across different states. However, some of the other areas that the budget could have also addressed are according infrastructure status to the logistics industry, setting up an logistics authority to monitor and facilitate the growth of the logistics industry, investment proposals to develop cold chain infrastructure. To summarize, the budget 2012 is forward looking since it focuses on developing infrastructure to address capacity related issues at ports and warehouses while continuing to reinstate government’s intent of introducing policy measures which will be appreciated by the industry at large.

I think the Union Budget 2012-’13 lays great emphasis upon agriculture, the social sector, infrastructure and skill development, and is overall, a very doable and balanced budget. By enhancing the allocation for National Rural Health Mission and that for Integrated Child Development Dr. Rajeev Singh Scheme this fi scal, the Finance Director General ICC Minister has given a boost to the social sector in a big way. Also, Rs 1000 crore has been allocated for National Skill Development Corporation in 2012-13, which will play a significant role in improving the skill standards and employability of the population. The credit target for the Agriculture sector has been raised to Rs. 5.75 lakh core from Rs. 4.75 lakh crore, and this will help the country move towards achieving a 2.5% growth rate in agriculture.

Among other positive moves, I will make special mention of the steps to improve the infrastructure sector – given the fact that infrastructure will require Rs.50 lakh crore during the 12th Plan period, and half of this has to come from the private sector. The doubling of tax-free infra bonds to Rs.60,000 crore is surely a step towards the right direction. The reduction of Securities Transaction Tax (STT) on delivery transactions by

While no country’s development can be complete without logistics serving as its lifeblood, this time, again as always, there has been no real structured move to view or support logistics as an industry to reckon.

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Announcement of GST implementation in August is merely passing the buck to another date, which if not upheld (as the case has been since last five years) the people will forget if there is a bigger crisis around the corner at that time.

20% , extension of R & D deduction for five years, and removal of the cascading effect of the Dividend Distribution Tax are positive steps.

However, the budget should have laid down a clearer roadmap for rollout of DTC & GST – these measures are necessary for fiscal consolidation, and can boost growth. Also, Service Tax has been raised from 10% to 12% on all services except 17 – though this will generate a revenue of Rs. 18,660 crore, it may have some negative impact upon the thriving services sector.

Excise Duty has been raised from 10% to 12%, which again can be a growth dampener.

Growth had already moderated due to continuous increase in fuel price and higher interest rates in last one year. The burden shall further increase with additional excise duty of 2%. However big relief came from “no additional tax on Diesel powered vehicles”

which was rumored to be imposed.

The overall increase in excise duty in different segments, will certainly lead to increase in price by all OEMs. Already market sentiments are weak due to various reasons and this increase will put extra pressure on industry to meet the growth targets.

Kalpesh Pathak There is a steep increase (15%) in Asst. VP(SCM) FIAT India premium CBUs costing more than US$ 40K. This will affect the segment to some extent but not have any impact on overall market since the segment is very small. However with the general increase all set of customers are going to feel the pinch and start paying higher prices for their joy ride.

Higher allocation of funds to infrastructure projects is good

LOGISTICS TIMES April 2012

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news from long term auto industry growth perspective, provided the projects are implemented properly and on time.

The announcements for the manufacturing sector, R&D activities, hybrid vehicles and skill development should help enhance the competitiveness of Indian industry.

We could see the continuation of “POLICY PARALYSIS SYNDROME” in the budget 2012 proposal of FM due to political compulsions which is keeping our country away from economic growth booster dose.

Every sector looks forward to the Indian government’s yearly budget as it reports on their performance and makes budgetary allocations, many of which have an everlasting impact on that sector. Indirectly, the budget also signals the government’s stance on various policy and regulatory fronts.

Prof. Samir Srivastava This year’s budget indicators suggest IIM, Lucknow that economy is turning around as core sectors and manufacturing are showing signs of recovery. It puts India’s expected GDP growth in 2012-13 to be 7.6 per cent +/- 0.25 per cent. This should augur well for the Indian logistics and supply chain industry whose total revenue is around ` 5000 billion presently.

This year’s budget gives sufficient but less than desirable attention to infrastructure and industrial development – the two prime drivers of logistics and supply chain industry. During Twelfth Plan period, investments in infrastructure are expected to go up to `50 lakh crore with half of this, expected from private sector.

Tax free bonds of ` 60000 crore have been allowed for financing infrastructure projects in 2012-13. IIFCL has already put in place a structure for credit enhancement and take-out finance for easing access of credit to infrastructure projects. Adding more sectors as eligible sectors for Viability Gap Funding under the scheme “Support to PPP in infrastructure” is a welcome step.

Various measures have been announced to improve farm infrastructure. The budget allocates ` 5000 crore under the Rural Infrastructure Development Fund for meeting warehousing shortages for building additional storage capacity. In fact, Food Corporation of India (FCI) has approved the construction of new capacity for storage of additional eight million tonnes (MT) of food grain under the 10-year guarantee scheme. The new capacity is likely to be available for usage in the coming 18 months. FCI owns a storage capacity of 13 MT now and has also taken on hire 15 MT of warehousing space from private and

government agencies. The government has also decided to bring cold chains in the Warehousing (Development and Regulation) Act. This will enable farmers to use cold storage receipts for borrowing from banks. Besides, cold chain receipts will now allow transfer of ownership of the commodity stored in a warehouse without having to deliver the commodity physically.

This will prevent distress sale of fresh produce and increase investment in supply chain management. Further, agricultural credit has been raised by ` 1 lakh crore to ` 5.75 lakh crore to ensure that farmers get access to easy credit.

The National Manufacturing Policy has been announced with the objective of raising the share of manufacturing in GDP to 25 per cent and creating of 10 crore jobs within a decade. The budget also proposes to provide weighted deduction at 150 per cent of expenditure incurred on skill development in this sector which should impact the connected sectors positively. The raise in standard rate of excise duty from 10 per cent to 12 per cent, merit rate from 5 per cent to 6 per cent and the lower merit rate from 1 per cent to 2 per cent with few exemptions will however dampen the spirit of all the stakeholders and connected sectors.

Overall, the government has been gradually moving from a regulator’s role to a facilitator’s role. Some steps have been suggested to bridge gaps in distribution, storage and marketing systems to help in more effective management of logistics and supply chains. However, the intra-state tax regime remains a significant issue for logistics operators and FDI in retail continues to be a contentious issue. Probably, there should have been a proposal to provide weighted deduction on expenditure incurred on skill development in the logistics sector as well.

Many new announcements in this year’s budget augur well for the logistics industry. Focused efforts to increase manufacturing to 25% of GDP, higher outlays on all infrastructure sectors, encouraging PPPs in more and more infrastructure services, easier Amrit Pandurangi access to finance for infra sectors, Senior Director Deloitte Touche India etc. all are positive measures that will boost logistics industry directly or indirectly. Specific measures for the cold chain logistics, container freight stations, ICDs and warehouses also help a great deal.

However, as always there are negatives as well. The biggest impediment is the lack of any focus on logistics as invariably it

The overall increase in excise duty in different segments, will certainly lead to increase in price by all OEMs. Already market sentiments are weak due to various reasons and this increase will put extra pressure on industry to meet the growth targets.

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The raise in standard rate of excise duty from 10 per cent to 12 per cent, merit rate from 5 per cent to 6 per cent and the lower merit rate from 1 per cent to 2 per cent with few exemptions will dampen the spirit of all the stakeholders and connected sectors.

is no one’s baby. There are no national level focused programs for the Logistics Industry (such as NHDP for Roads or JNNURM for Urban). Concepts of modern warehouses or logistics parks are not understood by policy makers at all.

On the ground issues (such as land acquisition for logistics activities; delays due to border crossing, etc.) are generally ignored and no ministry takes up such issues, as logistics doesn’t come under any specific ministry. The budget could have been an excellent opportunity to bring in a few focused measures.

The budget also brought in the service tax levy on many logistics related services that will add to logistics costs.

Nothing much has been done to reduce the cost of financing for logistics or indeed infrastructure sectors and thus investments will not happen in a rapid way. With the Railways also adding to increases in freight costs, the logistics

in India will continue to be expensive. While Government’s move to raise revenues is understandable, pushing the overall competitiveness down will only go against exactly what we are trying to drive forward.

What is required is not a tinkering of policies and rates every year, but a much more comprehensive and longer term package that will reduce the cost of logistics by rewarding technology, scale and efficiencies and penalizing or discouraging inefficient, fragmented and technologically backward industry. If energy efficiency and solar energy can get policy boosts, why is the logistics industry neglected? Let there be a “Bureau of Logistics Efficiency”, a “Logistics Modernization and Technology Fund”, a “Ministry of Transport “(rather than separate ones for roads, railways, shipping, inland water, etc.); and in the short run at least a Board of Approvals for logistics investments (like for SEZs).

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COVER FEATURE

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The Union Budget for 2012-13 was the penultimate budget of this government before the country goes to polls in 2014. The expectations from this budget were high- may be too high- and what Pranab Mukherjee presented was a rather damp squib. In a non-election Sanjiv Kathuria year there was a clear opportunity CEO ISIS Consulting to provide some bold reformist direction to the economy in this budget. And it is in that area of reforms this budget singularly fell short. The issue of high subsidies on fertiliser, oil etc was not tackled, nor was there any decision on FDI in multi-brand retail. And Direct Taxes Code is still awaiting a final nod.

From the logistics sector perspective, the long pending GST is still far from seeing the light of the day and there is no firm date for its implementation. Going by what happened to the railway budget and this continuous refrain of “compulsions of coalition politics” the industry would do well to plan its future course without considering GST as a key variable.

Also, with the increase of 2% Service Tax which the industry will pass on to the customers the overall cost of logistics will go up. With the world crude prices continuing to be high, it is expected that there would be no option but to increase the price of diesel and petrol very soon and that would mean one more struggle to pass on the increased costs to the customers.

In summary one would say that this budget was at best a good accounting exercise. It achieved the distinction of neither being populist nor reformist. It was insipid.

Service tax rates have been enhanced from 10% to 12% and the rates of daily tonnage tax for computing income under Tonnage tax scheme have been increased, which may lead to increase in cost and hence negative impact on Transport & Logistic sector. However, allowance of capital expenditure to ICD and Girish Mistry Partner, KPMG CFS is a positive move. Reduction in withholding tax rate on ECB loans from 20% to 5% would attract foreign investments and reduce financial strain. Similarly, allowance of ECB

for working capital by Airlines would improve operational economics. Additionally to boost funding, NHAI has been allowed to raise Rs 10,000 crs from Infrastructure Tax Free Bonds. Driven by growing demand, rising investment and increasing interest by global players, the Budget proposals would help the logistics landscape in India to witness a promising future.

Finance Minister deserves kudos for delivering an honest assessment of the current economic environment and has presented a Budget based on realistic assumptions. The GDP forecast for 2012-13 at 7.6 per cent is credible in today’s scenario. He has not been overly aggressive on the Verendra Kalra fiscal deficit target or disinvestment Co-Chairman proceeds.

Garhwal Region, PHD This year’s union budget statement stands out for two reasons. One, it contains a candid admission on the state of the economy; two, it has a pragmatic and bold approach to drive the economy back on track from a difficult situation.

Need for fiscal consolidation was a foregone priority for the finance minister given the unexpected rise in fiscal deficit to 5.9 per cent during the current financial year against a Budget projection of 4.6 per cent.

It is unrealistic to believe that the finance minister can redeem all the ills of the economy through a Union Budget announcement. Markets, unfortunately, have unrealistic expectations more often than not. However, considering the conflicts and compromises that go into the Budget-making exercise, it is not unjustified to say that this is a good Budget in difficult times.

The Budget is a statement of resolve to lay a robust foundation in a challenging economic environment, for continued growth. A strong evidence of this is that the finance minister has not compromised on the quantum of subsidies for food, fertilisers and petroleum products, while simultaneously working on higher tax revenues and greater delivery efficiency through deployment of the UID-Aadhaar platform, mobile based solutions and internet portals. Skeptics though are already out with their verdict that it will be next to impossible to pare subsidies down to 2 per cent in absence of a strong road map to do so, such as postponement of food Security program, deregulation/increase in prices of diesel, kerosene and LPG.

This budget was at best a good accounting exercise. It achieved the distinction of neither being populist nor reformist. It was insipid.

LOGISTICS TIMES April 2012

37

Budget has not only phased dent on the logistics industry by increasing service tax but also by paving no provisions to improve the industry.

Budget seems to deliver nothing in concrete, but language of passive stances- let’s say he (Finance Minister) is politically correct! Layman words “he is eyeing elections due in 2014”.

Budget seems to be doing see-saw between the plans and proposalsGST, Gaar, DTC, FDI versus Prof. Rajeev Sharma Direct taxes and indirect taxes.

BIMTECH Industries expectations are eyed but with futuristic concern through implementation of Gaar & DTC which actually is not received happily at the industry end in case of “Direct Taxes” – It will moot tax litigations rather.

Rather than making provisions for new spending, the budget makes a somewhat partial shift away from direct taxes toward indirect taxes. Alleged losses on the direct tax accounts, by rolling back individual tax increases, are set aside by raising excise taxes on the manufacturing and service sector from 10% to 12%. Howsoever inclusion of negative sector list gives a gesture of bent towards GST implementation. Equalizing the duties on manufacturing and service sector to 12% also supports the thought process. Again being politically correct the GST ball is serviced to the court of state governments as to the implementation of the GST. Hike in excise and service tax by 2% shifts tax load on manufacturing and service sector, primarily adding to the cost of service to the consumer, with less said on the FDI for retail and passing comment in the beginning of the budget presentation as to consult with the stakeholders and try to build a “consensus” around the policy proposal on “Multi brand” retail. Thus a simple communication from his end – “That nothing will happen in retail” and this commensurate in all its ancillary sectors e.g. logistics, transportation, supply chain solution providers etc.

Budget has not only phased dent on the logistics industry by increasing service tax but also by paving no provisions to improve the industry. Howsoever FM has made cconcrete steps to expedite work on the “Dedicated Freight corridors and DelhiMumbai Industrial Corridor”. He promised many provisions as PPP based infrastructural development by announcing ECB financing system, VGF for infrastructural development but all needs well established controlling system.

Thus conclusion can be that the budget has nothing at all to push forward the halted economic reform agenda. Rather, it’s the conventional simmer of a lot more public spending and a reshuffling of taxes, none of which will either resolute the flow of red ink or revitalize the hindered engines of growth. Thus

creating more load on to the consumers, manufacturers and providers, than to the income earner.

The budget has not announced any real incentives or support programs for the logistics industry. The key need for logistics in India is for it to be recognised as an Industry and for a department/ministry/nodal body from the Government of India to co-ordinate multi-modal, multistate, regulatory, infrastructure, and Saurabh Goyal MD, ThinkLink international issues to support this Industry.

The Annual Budget was a great opportunity for establishing such an Authority, while acknowledging the critical support the Logistics industry provides to the Indian economy. This opportunity has been missed again.

There are some critical challenges with regards to Logistics in India, and some of these the private sector can unilaterally bridge with government support, here are a few – Excessive reliance on road transport – The Private Container operators continue to not get a level playing field and this can enable us to move more freight to the rail from the road Absence of world-class multi-modal logistics infrastructure or Logistics Parks – Such infrastructure can lead to economic growth, jobs, higher efficiency, and support domestic and international trade; there is no move to incentivize creation of this infrastructure in large cities and major hubs through earmarking of zones for these activities in the Masterplan and classifying this as Infrastructure investment.

Cold Chain development – The schemes that the government has brought out till now have not spurred development in this sector, more needs to be done and more engagement with the Private sector is needed to drive this development Development of India as an International Logistics Hub – Free Trade Zones have not come up in the way it was envisaged. Hubs like Nagpur have also not moved forward in the way it was projected. We are missing out on a large opportunity and steps should be taken to incentivize and develop such projects and classify them as infrastructure investments Skill Development of Logistics professionals – Logistics is one of the most manpower intensive sectors. While the government has announced further support for the Skill program, the NSDC or the AICTE in their current roll-outs have not yet addressed skill gaps in logistics.

LOGISTICS TIMES April 2012

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Capacity creation is the top most priority

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12th plan period began early this month wherein the major emphasis would be to build up more strength in the manufacturing sector.

This obviously entails more action on the freight front but with infrastructural bottlenecks, can we expect a better logistical regime to support the high manfacturing growth the government LOGISTICS TIMES April 2012

39

would be aiming in next five years? In a freewheeling conversation with Ritwik Sinha, Dr. Manoj Singh, Adviser (Transport), Planning Commission talks about the possible challenges the stakeholders in the business would have to combat to create right equilibrium in terms of capacity and processes. Edited excerpts: LOGISTICS TIMES April 2012

INTERVIEW

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If we talk about logistics in Indian market place, to a large extent it means transportation. According to a study paper, as much as 65 percent of logistics spent is shared by transportation. Now for past one decade or so, we have been hearing that logistics cost in India is very high because of bad infrastcurure and poor transportation management, etc. The unfortunate thing is: the scenario does not seem to be changing much. How would you respond to this assumption? Have you noticed any collaborative public-private effort emerging to deal with serious logistics bottlenecks?

the sector is doing quite well and there also the capacity creation has happened to a considerable extent. It has especially happened in non-major ports where private sector is playing a big role. There has been a well structured PPP programme for capacity addition of ports and that has helped even as turnaround of ships at Indian ports is still not comparable with international benchmarks. At least, we can say today that capacity is there though going ahead we would need to create more deeper berths. Container capacity too has also grown in last five years. Civil aviation on the passenger side, things have changed significantly. On the freight side, more needs to be done and integrated vision is required. Coming to

In India because there are stand alone ministeries and stand alone sectors, there is a great need of collaboration. Integration of modes and related issues have to be looked in a comprehensive manner.

It’s a very important point and you have referred to two things. Firstly, things have not changed much in the past and secondly, if there is any collaborative effort to change the scene? Let me deal with the issue of change first. If you look at the logistics spent and other related indices then I would slightly differ with you in two ways. On the road front, things have improved because in the 11th plan the road building programme assumed a more organised and comprehensive nature. The NHDP stabilised and private sector involvement became quite high.

So I think quality of roads has improved.

We would assume that trucks are now moving at a faster pace though I have not seen any concrete data on this. Now on the other modes like ports, I think LOGISTICS TIMES April 2012

railways, 11th plan period has not been as good as 10th plan in financial terms.

10th plan period saw the turnaround of railways when the capacity of carrying goods went up dramatically and that reflected in its financial numbers. Today, unfortunately the financial position of railways is not that strong. In terms of the freight carrying capacity, they are able to carry commodities like coal most of the year even as during peak spells, their capacity often fall short and that is an area which has to be addressed. But the space where railways really have to work hard is to get that part of the cargo which is moving by road and there is a serious potential for that getting diverted to railways. Congestion on road and also from the point of environment and

energy security, I think there is no doubt in the minds of the national planners that more freight should move by railways.

On the basis of my interaction with the industry, I can tell you that industry too is waiting for the moment when railways expand and create a robust regime for transportation.

Yes, of course. But let me now move on the issue of collaboration. In India because there are stand alone ministeries and stand alone sectors, there is a great need of collaboration. Integration of modes and related issues have to be looked in a comprehensive manner. Especially the surface transport and rail must have to be looked in a more integrated way. Let me tell you, this is a challenging exercise all across the world which includes advanced countries. In India too we have this issue and because of lack of co-ordinating mechanism, this role to a large extent is being played by the Planning Commission as of now. It is the only body that looks at all the elements of the transportation sector. And we are trying to bring in some harmonisation. Fortunately there is a body – National Transport Policy Development Committee (NTPDC) headed by Rakesh Mohan which is working on a National Transport Policy. They are looking at all transportation segments and drawing development plans for next 20 years. I think, they will also recommend for some strong collaborative mechansim.

You must be interacting with senior officials of different ministeries related with transportation. Tell me, have you noticed this seriousness in them that trimming logistics cost in the country is an imperative?

Policy makers are definitely aware about it and look at it as a serious challenge. They look at it more as capacity creation issue.

So capacity addition mindset is there. To that extent, management of capacity is the secondary issue. And I think they are not top of the mind issues as of now. The top of the mind issue in all the sectors is capacity creation. Undoubtedly, that’s a commentary on times because capacity is

INTERVIEW

42

needed in all sectors. For example, there is a great need of capacity creation in railways - somekind of balance has to be developed between railways and roadways.

As of now, the investments in roads have been higher. But coastal shipping, inland waterways also need higher investments for capacity creation. Coastal shipping in US and China are contributing a great deal in freight transportation and we need to emulate these examples. When we talk of logistics, integration of all modes should be facilitated to create a better environment for the first mile and last mile connectivity. And integration issue is very much on the top of the mind of the policy makers.

So you are saying that the thought process within the government’s circle is that capacity addition would eventually lead to better logistical processes falling in place. But the critical issue here remains the pace and the determination to make it happen. For instance, there are a lot of oberservers and industry players who believe that a lot of railways’ financial problems would be taken care of if it unleashes its true freight potential. Players, for instance, in auto-logistics sector. They are waiting for better provisions to ferry finished vehicles and schemes too are there. But somehow things are not falling in place.

That is something which railways would need to sort out. The speed of implementation has to be accelerated.

The finalisation of the policy, discussions etc should be translated into action on an urgent basis. I think, in the case of railways things are taking a little longer.

I think auto is a very good example.

Volumes are there but presently railways’ share in ferrying finished vehicles is very low. It can be improved and railways can certainly enhance its share in this segment. The problem is rail share is still confined to the bulk cargo. But if the 12th plan focus on manufacturing leads to the anticipated growth,then railways would need to perform differently. They would LOGISTICS TIMES April 2012

have to ensure more containerisation and more advanced type of logistics solutions. The silver lining, however, is dedicated freight corridor. Once that comes up, the speed, etc. will come down drastically from Mumbai to Delhi and Kolkata to Ludhiana. It is scheduled to bring down the time consumed in transportation presently by as much as three times. Railways should also look at logistics parks and a progressive policy is already in place to this effect. With DMIC also coming up, if the busy freight stretches of the country also eventually have advanced logistics parks, there could be good integration between industry and railways.

all these service providers. I think there is a serious scope of improvement. A more pro-active custom friendly approach of all statutory bodies is needed. We do see an upswing in air cargo business happening but there are issues. We have been told that Ministry of Civil Aviation has constituted some task force to look into the issue.

From the standpoint of logistics players, there is immense potential of growth in this business with the gradual opening up of retail sector.

Do you share industry’s enthusiam that GST is going to be a major game changer?

Yes, I do. This will be one of the important drivers and would improve

In the case of railways, things are taking a little longer. I think auto is a very good example. Volumes are there but presently railways’ share in ferrying finished vehicles is very low. It can be improved and railways can certainly enhance its share in this segment.

On the aviation infrastcuture side, we have seen some concrete action by way of greenfield projects and scores of upgradation exercise. Do you feel attention has also been paid to improve freight operations at these hubs? Can we claim to have better air cargo facilities in the country now?

Capacity upgradation in airport infrastructure either through AAI’s own efforts or through PPP mode, has certainly led to better working conditions for the air cargo industry. Things have improved for them. But we are aware that there are regulatory or procedural issues vis-à-vis the interface between customs, airports, cargo agents, etc and here what we require is better integration between

the environment for logistics players. We are all awaiting this. Initially there might be some problems but in the long-run, it would provide a major boost to the warehousing sector.

The models of developed countries show that they have eventually established a very vibrant multimodal structure. What’s the view here within the government circles?

It’s a serious missing link and will there be more efforts on this in the future?

There are two aspects of multi-modalism.

First is physical - what I initially mentioned to you in terms of integration.

For example, there should be good rail connectivity at an inland waterways

43

Report Card: Capacity Addition (11th Plan) Road

More than 9044 km of national highways were upgraded in the various phases of NHDP programme. In case of state highways, 1956 km has been improved to four lane standards and more than 24000 km were improved to two lane standards.

Rail

Around 2200 km of new lines, 5200 km of metre gauge converted to broad gauge, 2500 km of converting single lines into double lines and 4500 km of electrification. 63000 wagons were procured and 2500 new locomotives were added to the existing fleet.

Shipping & Ports

Total capacity added by major and non-major ports would be more than 300 million tonnes.

Airports

The cargo handling capacity has increased from 0.5 million tonne to 3.3 million tonne. Four international airport projects were successfully completed through PPP mode – green field development of Hyderabad and Bengaluru and modernization of Delhi and Mumbai international airports.

Airport Authority of India (AAI) is in the process of upgrading 35 non-metro projects as well as expansion and modernization of Chennai and Kolkata airports.

terminal or ports and there should be good road and railways connectivity with an airport, etc. Ultimately when we say multi-modalism, it means the ease at which we can switch modes.

And this physical aspect is now coming into sharper focus. But we also need to understand the legsitalive or procedural issues and identify the hurdles. At the moment, this is not much in focus. I am aware from my past experience that there are a lot of issues which need fine tuning.

At the moment, the Multi-Modal Act is piloted by Ministry of Road Transport and Highways and we have to actually see that this becomes more effective. Maybe some review of this is necessary.

We have entered into the 12th plan period and as you said the major emphasis would be in strengthehing the manufacturing sector. This simply means there would be more action on the freight front. What are the key challenges you are envisaging on transportation and distribution front?

I think, the integration of manufacturing and logistics- this is something we would have to do on an urgent basis. We have not done it quite succesfully in the past.

We have had examples of million tonne or above capacity steel plants not even thinking of railway sidings. Some of the western coast plants suffered from this.

And later when they realised, it was so much difficult because of alignment and other issues. As we aspire for a significant jump in the manufacturing sector, the quality of logistics has to improve. Justin-time (JIT) kind of concepts has to be adopted more aggressively. The point is: the reliability factor has to be improved.

For example, rail has to come up in a major way. It is doing well in ferrying coal and iron-ore which are its traditional strongholds but when it comes to nontraditional areas, that’s where more innovation would be required. There are two possible solutions: the RoRo concept which has been taken up well by Konkan Railways. Here you have flat wagons where trucks are placed and you move.

The second one is containerisation. We

have to improve the productivity of the wagons.Furthermore, to cater to the requirement of manufacturing, we would certainly need more logistics parks in the country. The upcoming industrial hubs would have to be connected with railways sidings and we would need more terminals. The dry ports’ role, where India is a pioneer, would also need to be given a push. Improvement in railways’ freight carriage to support manufacturing upswing would also be beneficial in terms of pragamtic usage of our energy resources. Railways’ put together consume Rs 20,000 crore of fuel annually.

As against this, the total fuel bill of road transportation sector is a staggering Rs 2,50,000-3,00,000 crore. States would also have to chip in facilitating more efficient movement on roads. The integrated check posts which some of the states have adopted, will be very important.

Plus, a lot of toll stretches have come up in the country. If you have something like RFID based toll cards, then it would ensure faster movement. A pilot project is already underway.

LOGISTICS TIMES April 2012

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- Tilt of platform in all position.

- Self-lubricating bushings and chromeplated pins.

Hydraulic Characteristics - Compact and soundproof hydraulic group, with closing seal.

- 2 single-acting lifting cylinders with lubrication.

- 2 single-acting tilting cylinders with

lubrication.

1 double cylinder for tail lift deployment and stowage under chassis.

- Bellows for cylinder protection.

- Built-in-safety solenoid valves on every cylinder.

- Tank with air filter.

- Chrome-plated steel cylinder rods with high yield.

- Tank with air filter.

- Chrome-plated steel cylinder rods with high-yield.

- Flow adjusters compensated on all downward movements.

Controls - External control box fixed to the body.

- Control with no electronic components, lit for night use.

- Battery disconnect device with key.

- Two hand use for operatorÊs safety.

- Motor with thermal safety device.

- Motor relay with 350 A silver pin(peak current) - Proximity switches for automatic positioning of tail lift.

Assembly - Bolted assembly plates.

- For trucks and trailers on demand, tail lifts with pre-assembled platform, controls and guides.

Product Finishing - Material conforms to EC standards.

- Chrome- plated steel pins.

- Self-lubricating bushings and chromeplated pins.

- Delivered fully assembled and tested, tail-lift mounted to the chassis by bolting, thus eliminating the need for welding and re-painting the semitrailer.

-

For further details, Contact: Gandhi Automations Pvt Ltd, 2nd Floor, Chawda Commercial Centre, Link Road, Malad(W) Mumbai 400064, Off : 022- 66720200/66720300(200 lines), Fax : 022-66720201, Email :- sales@geapl.co.in, Website : www.geapl.co.in LOGISTICS TIMES April 2012

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CURTAIN RAISER

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India Warehousing Show India Warehousing Show, India’s largest show on warehousing and logistics sector, is around the corner.

The India Warehousing Show scheduled from 26-28 April 2012 at India Expo Centre, Greater Noida, Delhi NCR will bring together the Warehousing, Materials Handling, Cold Storage, Logistics and Supply Chain together onto one platform. This edition of IWS comes as a ‘Complete Package’ and is offering end to end solutions for Warehousing, Materials Handling, Logistics and Cold Chain Industry.

With an application on wide range of Industries, the trade fair is particularly beneficial for professionals from agro & food, pharmaceutical, heavy engineering, automotive, automobile, electronics and electrical, glass & paper, paint, petrochemical, cement & fertilizer, steel and many other sectors which are regular users of warehousing, materials handling, logistics and cold chain technologies.

Source best of equipments, see live demos, look out for new technologies and solutions this year at IWS 2012.

LOGISTICS TIMES April 2012

Realising the widespread reach of the Show, several leading companies from India and abroad platform to showcase new innovations, latest technologies and solutions. Also all major associations are supporting the event.

The exhibition has over 300 exhibiting brands, divided in four exhibit zones namely WAREHOUSING ZONE, MATERIAL HANDLING ZONE, SUPPLY CHAIN ZONE AND COLD CHAIN ZONE, The event showcases everything required to build a modern warehouse, from PEB Solutions, Flooring Solutions, fork lift trucks, storage solutions, WMS systems, AIDC & Automation solutions, complete material handling solutions to movement and transportation of goods. You will also find solution providers for all your logistics and warehousing needs. If you are user of warehousing, logistics and supply chain technology and solutions then, IWS 2012 is a must-see event for you!

Indospace Logistics Parks, one of the leading players from the warehousing & logistics industry, is the ‘Foundation

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Partner’ at the India Warehousing Show.

The company has chosen the platform to present its industrial and logistics parks. Indo Arya has which is expanding its operations in logistics sector after pioneering transportation will be one of the major sponsors at the event. After successful launch of its warehousing facility in Indore last year, Safexpress India plans to open 32 logistics parks all over India. The company is participating as official supply chain partner at the show.

Philips Lighting India, one of the leading manufacturers for specialised lighting solutions is all set to present its new and cost- effective range of products at the exhibition.

Mettler-Toledo and FBA Automation has emerged as a leading inventor, innovator and implementer of leadingedge technology enabled solutions operating in the core business segments of industry, they are Gold Sponsors at the show. Other valued sponsors include companies such as Gandhi Automations, SAP, Manhattan Associates, Coign Consulting and Redington Group.

All major associations of the industry are supporting the event including

Warehousing Development & Regulatory Authority, SIMHEM, Federation of Freight Forwarders of India, Indian Private Ports and Terminals Associations, SCLG, The Charted Institute of Logistics and Transportation India and AMTOI. Adding value to the main exhibition will be the India Warehousing Conference on 26-27 April 2012 at India Expo Centre, Greater Noida. With its theme ‘Developing Effective Strategies to Meet the Emerging Supply Chain Demand’ the seminar will provide a 360 degree knowledge sharing platform spanning across modern warehousing technology.

“Divided into 4 zones: WAREHOUSING, MATERIALS HANDLING, COLD CHAIN and SUPPLY CHAIN the show will all have exhibits segregated as per the zones” said Anuj Mathur, Director – Exhibitions at Manch Communications (P) Ltd., organisers of India Warehousing Show.

“With more than 300 representative brands driving latest innovations from the industry and the visitors arriving from all over the world to gain from this trade platform, the show is all set to provide a complete logistics experience,” added Mathur.

Views of India Warehousing Show 2011which was held in April at Greater Noida Expo

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Logistics Talent Hunt Unique Initiative

It was a glittering cermony on 7th April at New Delhi’s Crown Plaza Hotel. The gathering comprised host of senior industry leaders, aspirants from several institutes (who would soon be joining the operational rank) and logistics industry observer and amidst several rounds of cultural performances, an unique initiative unfolded which earmarked spotting future talent as well as recognising the contribution of industry veterans who have brought logistics sector to the present stage through decades of arduous efforts.

Equally impressive was recognising the contribution of drivers’ fraternity – something which largely goes ignored.

The inaugural edition of Logistics Talent Hunt organised

by Delhi-based T2P Consultants in association with Indian chapter of Chartered Institute of Logistics and Transport saw prize distribution across 35 categories. The evening, in fact, marked the culmination of four months of extensive exercise to spot future talents as well as star perofmers within the ranks of different companies who often stay backstage.

The evening saw felicitation of eminent dignitaries like ‘Metro Man’ E Sreedharan, M S Gujral and G Raghuram with a lifetime achievement award. “Metro Man’ E Sreedharan, ex-managing director, Delhi Metro Rail Corporation was honoured for his pioneering efforts in “Passenger transport”, M S Gujral, former chairman Railway Board was awarded for “Freight transport” and G Raghuram, IIM Ahmedabad was awarded as “Logistic Academician of the Year”. The Logistics Doyen Award was bestowed on Safexpress chairman Pawan Jain. Furthermore, Harminder Pal Singh, VP DRS Group was awarded as “Transport Manager of the Year”; Selvan Dasraj of Mahindra Logistics was awarded for “Most Upcoming Transport Manager of the Year”; Zubin Poonawala, Director Poonawala Consultants was awarded

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for “Warehouse Manager of the Year”; Apurva Mankad, CEO ECFY Consulting got the award for “IT Manager of the Year”; Sunil Jain MD, NECC was awarded for “Logistics Ambassador of the Year”. A host of senior professionals were awarded under the “Logistics Achiever Award” category. Among them were: Sumant Jha, Sr. VP First Flight; Deepak Katiyar, Head HR, CELBI; and Amrendra P Singh, DGM Logistics, Cadila Pharmaceuticals and others.

To recognise the upcoming talent, the distinguished jury panel for the event had earlier evaluated 250 entries, 15 teams and individual projects from all over India. Awards to promising students were given by the chief guest Anil Gupta, Managing Director of CONCOR India.

“This is the first event of its kind in the country which has been organised to foster and capture knowledge with contributions made by intellectuals and simultaneously recognize and reward those individuals who were instrumental in organizing and shaping Indian logistic sector in verticals like air, surface and shipping etc and also industry like e-commerce, automobile, retail, pharmacy etc. whose functioning is largely dependent on logistics and supply chain function,” explained Prem Prakash, Director of T2P Consultants Limited.

The jury panel included eminent industry experts and professionals namely: Lt. Gen (Retd) D V Kalra, PVSM, AVSM (Vice Chairman CILT), Dr. P K Goel (CCM Northern Railways, Ex MD IRCTC), Prof. Veni Mathur ( Prof. IIT Delhi), Abhishek Chakraborty (Exe. Director DTDC), Rajeev Bharadwaj ( Group GM CONCOR), Vishal Khanna (Vertical Head Logistics & SCM Cognigent Inc.), Syed K. Husain (Group Director – Corporate Affairs of House of Patels), among others.

LOGISTICS TIMES April 2012

India Aviation 2012

‘India Aviation-2012’, the 3rd edition of the India’s leading international exhibition and conference on civil aviation was inaugurated by the Shri Ajit Singh, Hon’ble Minister for Civil Aviation at Hyderabad. Aiming to showcase and share with the stakeholders growth opportunities in Indian aviation sector, the five day event brought together senior Government officials, aviation business leaders, airlines, airport operators and regulators, air navigation service providers, aircraft component manufacturers and technology providers. The country pavilions from UK, France, USA, Russia, Belgium, New Zealand, Canada etc. and leading business and commercial aircraft manufacturers were displayed. The event witnessed over 25 aircrafts for static and flying display at the show.

Shri Ajit Singh, Hon’ble Minister for Civil Aviation, Government of India; Shri Jaipal Reddy, Hon’ble Minister for Petroleum and Natural Gas, Government of India; Shri Kiran Kumar Reddy, Ho’ble Chief Minister of Andhra Pradesh, Dr Nasim Zaidi, Secretary, Ministry of Civil Aviation, Shri Kamaleshwar Prasad, Member, Postal Services Board, Shri R V Kanoria, President, FICCI and Dr Dinesh A Keskar, Chairman, FICCI Civil Aviation Committee addressed the inaugural session of the mega event. Ms Elisabeth Dallo, Head of International Cooperation, DGAC, France, Mr Peter Burleigh, Charged’ Affaires, US Mission in India were also present to reinforce the cooperation of their respective countries.

Reiterating the Government’s commitment towards the development of the aviation sector despite the challenges faced due to rising fuel costs, fierce competition, infrastructure bottlenecks, Shri Ajit Singh said that several initiatives have been taken in setting up new regulatory framework. The Minister said that the Government is planning to bring in Indian Navigation System Master Plan which includes significant investment in modernization of Communication Navigation Surveillance (CNS), Air Traffic Managements and Meteorological Equipment, Enhancing Manpower and Training Infrastructure

and harmonization with global initiatives and regional air navigation plans. India’s GPS aided Geo augmented Navigation system known as GAGAN Developed by AAI with the support of ISRO is also likely to be rolled out by 2013, he added.

The Minister said that the prospects of India as potential global hub for manufacturing and MRO business are very bright due to its strong engineering workforce, R&D expertise and its strategic location. He informed that an MRO facility in partnership with Malaysian Aerospace Engineering, a subsidiary of Malaysian Airlines System, has been set up at the Rajiv Gandhi International Airport at Hyderabad. Air India is also building an MRO facility with Boeing in Nagpur. Air India will also set up an MRO subsidiary soon. Airbus is also expected to make investment in MRO. Addressing the conference, Mr Tony Tyler, Director General and CEO, IATA emphasized on restoring Indian Aviation competitiveness and suggested that airlines purchases should be aligned with international principles. He recommended infrastructure expansion, rationalization of airport charges, investment policies which enable 49% direct investment by foreign carriers.

Dr Nasim Zaidi, Secretary, Ministry of Civil Aviation released two Knowledge Reports on Indian Civil Aviation Industry at the conference titled ‘India: The Emerging Aviation Hub’ and ‘Economic Benefits from Air Transport in India’ at the conference. Dr Rafael Echevarne, Director, Economics and Programme Development, Airports Council International (ACI) highlighted the growth trajectory of aviation in India during the last five years in which the country improved its rank from 101st in 2007 to 12th in 2010 in terms of airport maintenance, traffic handling and passenger facilities. The conference was also addressed by eminent aviation experts like Mr Yap Ong Heng, Director General, Civil Aviation Authority of Singapore, Mr Umesh Kumar Baveja, Chairman, Regional Airport holdings International Ltd, Mr Ilya Gutlin, Vice President, SITA, etc.

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State-of-the-art Hub in Pune

Blue Dart recently inaugurated two facilities in Pune - a state-of-the-art hub at Hinjewadi measuring over 82,000 sq.ft. and a Service Centre & Retail Store at Baner. All the facilities were inaugurated by some esteemed customers of the company in Pune from key sectors along with Anil Khanna, Managing Director, Blue Dart Express Ltd.

Emirates SkyCargo Awards ‘Top Agents’ Emirates SkyCargo hosted a special evening in Delhi early this month to felicitate their top agents for their efforts and achievements that contributed to the growth of the airline’s business during the year. The evening was held at New Delhi’s Le Meridien Hotel.

Emirates’ awarded the performances of Agility Logistics Pvt. Ltd., Amrit Seair Express Pvt. Ltd., Freight Wings & Travels Pvt. Ltd., GAC Logistics Pvt. Ltd., Indair Carriers Pvt. Ltd., Jenita Cargo Services Pvt. Ltd., MGH Logistics Pvt. Ltd., S.A. Consultants & Forwarders, Schenker India Pvt. Ltd., Scorpio Freight Pvt. Ltd. LOGISTICS LOGIST STICS TIMES April 2012

SITL launch edition The ďŹ rst edition of the event SITL India 2012 was held from 23-25 February, at Bombay Exhibition Centre, Mumbai. The three day event witnessed over 75 exhibitors and 1,366 visitors covering the entire value chain of the transport and logistics industry.

The event was inaugurated by Rajiv Gupta, Chairman, Mumbai Port Trust. SITL India brought together domestic and global companies to showcase the best transport and logistics services, technology and infrastructure. The launch edition featured companies like Flanders Investment & Trade, North Adriatic Ports Association, Freezone Sohar, Ligurian ports system, Indospace logistics, R.E. Rogers, Siddhivinayak Logistics Pvt. Ltd., Forbes & company, KSH Distriparks, P.S. Bedi & Co., Karaikal Port Pvt. Ltd., Jaigad Ports infrastructure pvt. ltd., Logistics India Real Estate, Arham Logiparc, Group A Logistics India Pvt. Ltd., ilnterchange Systems Pvt. Ltd., Trimble Mobility Solutions, V-Trans (India) Ltd., Tata Teleservices, Shalimar Warehousing Corporation, Ports of The Netherlands, ARKNAV International Inc., Technoforte Software Pvt. Ltd., Weavings Manpower Solutions, Logistics in Wallonia, Aargus Global Logistics Pvt. Ltd., Redirack Ltd., POTI Free Zone and a host of other global players.

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Revisit your Supply Chain Cost It is not surprising when manufacturing organizations especially the huge ones give the last priority to the logistics cost. This is not true in all cases but especially in situations where there are multiple products being manufactured simultaneously with high complexities. The main aim is to maximize shareholder’s Pavan V wealth by various operational Implementation Analyst somersaults.

GT Nexus The above cliché is explained with an example for a manufacturing organization with huge distribution network. Let us consider that an automotive spare parts company has won a contract to supply to one of the largest OE customers through direct deliveries to its plant. The auto space parts company would have bid considering all the costs involved in manufacturing and distribution of the product.

The supplies go on for couple of years and as per the agreement the spare parts supplier has to reduce the product cost by ‘x’ percentage in order to be competitive and by that time the company would have reached the economies of scale. Due to customer fluctuations and other factors, there is a necessity for the customer to maintain inventory of the spare parts in order to avoid “lost sales” and hence requests the spare parts supplier to help him in this situation and there is a joint decision that small warehouse has to be established that can hold about three days of inventory that will come in handy for the customer during exigencies.

Now the supplier of spare parts will have to establish a warehouse as per the customer’s request, manage the inventory and supply it

to the customer based on his request on a Just In Time basis. As a new warehouse / depot attracts additional investment such as manpower, basic infrastructure and additional transportation cost for deliveries to the customer. Typically in large organizations, the management approves the additional requirement from the customer and there are negotiations with the 3PL to establish the warehouse and so on.

However there are chances that complex, profitable and large organizations managing various product portfolios do miss out on calculating the product cost after the introduction of an additional component-warehouse in the entire supply chain.

Why is this important and how will it affect the bottom line?

Consider the below table for a better understanding: Please note that we have assumed that the margins is decreasing every year as the customer has requested for a decrease in the product cost year on year. Assuming that a standalone warehouse has been established during year four of operations, which the company fails to recalculate the total cost and propose to the customer, the profits slowly starts to declining touching “0” during year five and then starts to decline further. In the total profit / annum graph, we observe that the profits starts to increase (negative axis) due to the decrease in the quantity manufactured, however it will still remain negative. The company starts wondering why the profits are declining and initiates various cost reduction projects such as re-design the packaging, bundling and consolidation of the goods through transporters which results in delivery of damaged goods to the customers and various other issues affecting the overall performance.

Thus it is very important for any company to revisit the supply chain cost which is affecting the product profitability. The above example is one such effect of declining profits. There are various such hidden killers whom we need to identify and keep an eye before it eats us away.

Note: The above example and calculation is imaginary and doesn’t represent real data.

Used only for the purpose of understanding.

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RNI No. DELENG/2011/39329

Regd No.: DL(E)-20/5380/2011-13