Vol. 01 | Issue 02 | MAY 2010
VIEWPOINT EDITORIAL Executive Editor Archana Tiwari-Nayudu Assistant Editor Esther Bardhan
Attaining Air ‘Power’
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s it a bird, a Superman…no it’s a plane…a cargo plane! Well, unleashing a child in oneself is not such a bad idea if you get the childlike enthusiasm and inquisitiveness in the bargain. Air Cargo industry needs attention…just like a growing child. As the boundaryless marketplace opens innumerable business opportunities, the air cargo industry is all set to attain its power and potential, thanks to speed, security and reliability quotient. According to industry forecasts, the cargo segment of the airline business will more than triple by 2025. But before industry players begin celebrating, they should consider that the boom in air freight would not deliver an automatic “bump up” in growth across the board. The rising fuel prices, volatile crude oil market, fluctuating inflation rates and the global economic downturn were some of the challenges faced by the industry last year and going forward, some of these problems will still mar the growth of this industry. The prospects of the express industry are primarily dependent on the growth in GDP and world trade. According to Boeing’s World Air Cargo Forecast, the segment will expand at a 5.8 per cent annual rate over the next two decades, with worldwide air freight traffic tripling through 2027. That’s quite a distant dream! But talking about near future, the growth rate of the aviation sector in the next
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10 years is expected to be not less than 25 per cent. According to the Planning Commission, India’s air cargo movements would grow at over a CAGR of 11.5 per cent from 2007-08 to 2011-12. However, as the time-sensitive materials got ready to be delivered more frequently by air, capacity constraint was regarded as the key obstacle that would hinder the industry from enhancing export and foreign currency exchange earnings. Nevertheless, experts believe that capacity is not so much a problem as the sheer infancy of the Indian air cargo industry, which needs three to four years to mature.
As the boundaryless marketplace opens innumerable business opportunities, the air cargo industry is all set to attain its power and potential, thanks to speed, security and reliability quotient. Talking about deliverables, as the wheels of globalisation are being greased by the ability to transport cargo by air for just-in-time production or consumption, the industry itself is in pursuit to deliver ‘peace of mind’ rather than packages.
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MAY 2010 • SMART LOGISTICS • 5
CONTENTS INSIGHTS & OUTLOOK
VOL. 01, NO. 02
AIR CARGO: REACHING THE PINNACLE OF GROWTH
With the liberalisation of the Indian aviation sector, air cargo segment in the country has undergone a rapid transformation. However, it needs to tackle the present challenges to ﬂy high and reach the pinnacle of growth in the logistics industry. Here lies tremendous opportunities for the segment to capitalise on its inherent advantages–speed and efﬁciency to grab major marketshare.
Investments In Air Cargo Sky Is The Limit Air Cargo: Technology Trends Taking The Industry On A High Plane Modern Air Cargo Equipment The Way Forward To Optimise Gains
22 26 32 IT IN LOGISTICS
Blue Dart On An Express Route To Success
RFID Rendering Tangible Beneﬁts
SUPPLY CHAIN BEST PRACTICES SL EXCLUSIVE Private Equity Firms Replenishing Funds For Logistics Growth
Industrial Machinery Transportation Exploring Viable Routes For Safe & Timely Delivery
IT Trends In Logistics
DOW India Creating A Perfect Supply Chain Chemistry
WAREHOUSING & DC TECH TRACK
Outsourcing SCM Addressing 10 Critical Data Issues To Develop Robust Supply Chain
LEADERSHIP SERIES SECTOR ANALYSIS
Automation Adoption Empowering Warehouses... Driving Efﬁciencies
ALSO IN THIS ISSUE
VIEW FROM THE TOP ‘Supply Chain Has Become A Vital Component In Retail For Customer Retention’ Samson Charuvil Samuel, CIO & head–SCM, Future Supply Chain Solutions (FSCS)
6 • SMART LOGISTICS • MAY 2010
VIEWPOINT NATIONAL NEWS REPORT: Rural Penetration & Distribution Summit 2010 PRICE TRENDS PROJECT UPDATE NEWS ANALYSIS WORLD NEWS PRODUCT & ADVERTISERS’ INDEX PRODUCT & ADVERTISERS’ INQUIRY FORM
5 8 10
11 12 14
16 66 67
NATIO AL EWS
EXPORTS SURGE BY 35% IN FEBRUARY 2010
Exports have maintained the growth momentum for the fourth consecutive month with February shipments yielding $16.09 billion, a growth of 34.7 per cent when compared to the same month of 2009. Exports grew at 11.5 per cent on a year-on-year basis in January 2010. In November & December 2009, the growth was 18.2 per cent and 9.3 per cent, respectively. The Director-General of Foreign Trade (DGFT), RS Gujral, said that despite this healthy trend in the last four months, for the April-February 2009-10 period, exports yielded $153 billion, which was 11 per cent lower than in the corresponding period of 2008-09. Buoyed by the recent performances, the Commerce Ministry has fixed its sights on achieving exports of $168-169 billion in 2009-10, compared with $185 billion recorded in 2008-09. Imports maintained a good performance by posting a 66 per cent growth to touch $25 billion. In the AprilFebruary 2009-10 period, imports dropped by 13.5 per cent to $248 billion. Exports had recorded a decline for 13 months beginning October 2008 as a result of shrinking demand due to the global economic slowdown.
RAILWAYS’ FREIGHT REVENUE RISES 8.39%
The Indian Railways has mopped up Rs 57,594.61 crore of revenue in 2009-10 from freight traffic, which shows an 8.39 per cent growth over the corresponding figure of 2008-09, but is lower than the budgeted target of Rs 58,716 crore by 1.9 per cent. The railways carried 887.99 million tonne (mt) of freight traffic during 2009-10, registering an increase of 6.56 per cent over the corresponding period in 2008-09, as stated by the Railway Ministry. The Net Tonne Kilometres (NTKM) – a parameter that measures throughput – went up by 8.65 per cent to 5,84,760 million during 2009-10 against 5,38,226 million in 2008-09. This indicates that the average distance for which Railways moved cargo was higher in 2009-10 against 2008-09. The railways continued their dependence on coal transportation for earning maximum share of revenues – Rs 22,366.69 crore (almost 39 per cent of freight revenue) came from transportation of coal. This was followed by Rs 8,350.77 crore (14.4 per cent) coming from iron ore movement and Rs 5,282.55 crore (9.1 per cent) from cement transportation. By moving foodgrains, the railways earned Rs 3,972.39 crore, which is about 6.8 per cent of the total freight revenue. About 5.7 per cent of revenues (Rs 3,319.63 crore) were accounted for by petroleum oil & lubricant (POL) movement and 5.8 per cent (Rs 3,336.19 crore) by pig iron and finished steel from steel plants and other points. Fertiliser transportation helped Railways mop up Rs 3,174.51 crore (5.5 per cent) of revenue while container transportation accounted for Rs 2,772.43 crore (4.7 per cent) of freight revenue.
8 • SMART LOGISTICS • MAY 2010
INDIAN EXPORTS TO CHINA UP 75% IN Q1 THIS YEAR
Indian exports to China surged by 75 per cent in the first quarter this year, with a big increase in textiles and stones & precious metals shipments bringing down the trade deficit. Overall trade with China grew by about 66 per cent during the period, raising hopes of achieving the trade target of $60 billion this year, according to data released by the Chinese Government. The trade figures released by the Chinese Customs brought positive signals to the camp of Indian diplomats and trade officials as Indian exports, which declined radically last year and resulted in a $16 billion dollar trade deficit, have shown significant improvement. According to the trade data, Indian exports to China touched $5.81 billion in the period between January & March this year as against $3.31 billion last year when overall trade volumes declined to about $44 billion due to the global economic downturn. However, compared to 2008, during which the trade volumes touched a record $52 billion, this year’s quarterly exports from India still fell short by $53 million. The overall trade between the two countries this quarter touched $14.14 billion against $13.24 billion in 2008 and $9.3 billion in 2009. The new trade figures brought cheer to China too, as its exports to India went up by 38 per cent compared to 2009. Chinese exports in Q1 were also higher than the $6.9 billion figure for exports to India during the same period in 2008. The trade deficit for India was $2.5 billion for the first quarter, slightly lower than the $2.7 billion figure in the first quarter of 2008. The two countries had set $60 billion as the trade target this year and the first quarterly figures showed that they are on their way to reaching it, according to sources. According to the new figures, cotton, yarn and fabric exports from India have gone up from $495 million in 2008 to $729 million in the first quarter. The exports in this sector fell to $81 million around the same period in 2009. Similarly, Indian exports of copper have gone up from $124 million in 2008 ($425 million in 2009) to $264 million. Exports of precious stones and metals have gone up from $90 million in 2008 ($64 million in 2009) to $164 million. In plastics too, Indian exports have done well, going up from $59 million in 2008 ($28 million in 2009) to $109 million in this year’s first quarter.
RISE IN SPOT FREIGHT RATES TO LIFT MARCH NUMBERS
The latest data on spot tanker freight rates, a key segment for Indian shipping players, show signs of a recovery in global demand during the March 2010 quarter. A significant sequential rise in these rates also signals a rebound in the quarterly financial performance of shipping companies, which had suffered a setback in the previous three quarters. According to industry data, for tanker segments such as
very large crude carriers (VLCC), mainly used to transport petroleum from the Gulf to global markets, the average spot freight was $34,836 in the March 2010 quarter, nearly double compared with the previous quarter. In other tanker segments like Suezmax, the average spot freight rate showed a sequential jump of nearly 57 per cent in the fourth quarter. For the dry bulk segment of the shipping industry, the Baltic Dry Index averaged 3018 in the March ’10 quarter, a yearon-year jump of 93.6 per cent. According to a recent report, the current revival in the tanker segment is due to increased crude demand from countries in the East. The demand is expected to remain firm in the remaining period of the calendar year 2010 as well. The International Energy Association (IEA) has recently upgraded its world crude consumption forecast for the year. It expects consumption to grow 1.6 per cent, fuelled mainly by increased demand from emerging markets such as China. The current situation in the tanker market is in contrast with the nine-month period ended December 2009, when the spot freight rates had sharply plummeted due to a sluggish global demand for crude oil. The freight rates in the tanker segment had touched a low of $3,212 per day in the VLCC segment in September 2009.
9 MAJOR PORTS REPORT POSITIVE GROWTH AS 2009-10 DRAWS TO CLOSE
Major ports registered a 5.68 per cent increase in cargo throughput in 2009-10 over 2008-09. The 12 major ports handled 560.68 million tonne in 2009-10, as against 530.53 million tonne a year earlier. As many as nine major ports Cargo traffic handled at major ports (During April 2009 to March 2010* vis-a-vis April 2008 to March 2009) (*) Tentative (In ‘ 000 Tonne) April To March Traffic % Variation Ports Against Prev. 2010* 2009 Year’s Traffic Kolkata Dock System 13045 12428 4.96 Haldia Dock Complex 33250 41791 –20.44 Total: Kolkata 46295 54219 –14.61 Paradip 57011 46412 22.84 Visakhapatnam 65501 63908 2.49 Ennore 10703 11500 –6.93 Chennai 61057 57491 6.20 Tuticorin 23787 22011 8.07 Cochin 17149 15228 12.61 New Mangalore 35528 36691 –3.17 Mormugao 48847 41681 17.19 Mumbai 54543 51876 5.14 JNPT 60746 57291 6.03 Kandla 79521 72225 10.10 Total: 560688 530533 5.68 Source: IPA
showed positive growth during the fiscal year 2009-10. Containerised cargo handling that showed a negative growth of 6.32 per cent during the first half of 2009-10, ended the fiscal with a positive growth of 4.32 per cent. As many as 68.72 lakh TEUs were handled, as against 65.88 lakh TEUs in 2008-09. A similar turnaround was seen in the handling of coking coal and raw fertiliser. Handling of coking coal showed a deficit of 23.49 per cent in the first half, but ended fiscal 2009-10 with 1.60 per cent increase to 27.53 million tonne (27.09 million tonne). Handling of raw fertilisers was down by nearly 10 per cent in the first half, but closed the fiscal on a positive note with 11 per cent increase to 6.73 million tonne (6.07 million tonne), according to data released by the Indian Ports Association (IPA). Kandla Port remained the number one port, with Visakhapatnam coming second and Chennai third.
KOCHI PORT TRUST, IWAI COMMISSION RO-RO TERMINALS
In order to improve the barge connectivity to the new International Transhipment Terminal coming up at Vallarpadam, the Kochi Port Trust and the Inland Water Authority of India is commissioning Ro-Ro (roll on/roll off) terminal jetties at Willinghdon Island and Bolghatty. This is expected to facilitate connectivity for containerised cargo across the extensive waterways of Kerala, both towards North and South. National Waterways 3 currently provides inland water connectivity from Kollam to Kottapuram through the West Coast canal together with the Champakkara and Udyogmandal branch canals aggregating a length of 205 km. The present traffic in the waterway includes movement of fertiliser raw materials, bulk commodities, drinking water, POL, and passengers. The waterway is maintained at a draft of 2.5 to 3 metre. The new jetty infrastructure, which is capable of unloading containers from barges, would help to establish a linkage between inland terminals in the NW3 from Kollam to Kottapuram and assist in the logistics chain of Cochin Port. Built at a cost of Rs 16 crore, the new infrastructure has been designed to meet the heaviest container load that may be imported or exported. The land has been provided by the port, which also undertook the design and construction. The IWAI provided the funds for the project. The commissioning of the new jetties is expected to reduce the road congestion and pollution throughout the South Kerala roads by offering a cost-effective transit for containers from the cashew export belt of Kollam and coir export belt of Alappuzha using container barges. The new facility will also enable movement of containers from land-locked areas partly through inland waterways, reducing road congestion, especially in the very congested 35 km of Kochi road to Vallarpadam. The traffic in the waterway is estimated to increase from the present level of 0.7 million tonne to 2.6 million tonne this year itself.
MAY 2010 • SMART LOGISTICS • 9
RURAL PENETRATION & DISTRIBUTION SUMMIT 2010
UNFOLDING IMMENSE GROWTH OPPORTUNITIES With the major corporate houses tapping the promising rural market, the message is loud and clear that the next phase of growth is going to be in rural India. With the vision to provide a much-awaited platform to the supply chain professionals, Supply Chain Leadership Council with Smart Logistics as media partner organised the Rural Penetration & Distribution Summit 2010 in Mumbai recently. Presenting critical insights, the event provided the key to unlock this potential marketplace… IN the fast-paced dynamic marketplace where every company is trying to grab a major marketshare, no company can afford to ignore two-thirds of the consumer segment that make up for a vast rural population. No wonder, the growing power of the rural consumer is forcing Indian blue chips and MNCs to flock to rural markets. Not only FMCG, but even banks, auto, telecom and retail companies are finding it difficult to keep themselves away from the ‘rural lure’. Truly conveying the notion that the next phase of growth exists in rural India, the Rural Penetration & Distribution Summit 2010, more than lived up to its expectations. Held on April 23, 2010, in Mumbai, the event was successful in providing a perfect platform for profit to the participants. The conference had around 75 delegates, mainly functional heads of FMCG, durables, pharmaceuticals, electronics, telecom, auto and retail companies as well as 3PL companies. During the meet, it emerged that an average Indian village today represents a promising and powerful consumer community. Rising crop prices, sale of land to developers, crop rotations, export orientation, home-coming of the rural youth, government initiatives like NREGA and better wages for farm labour are creating disposable surpluses in the hands of rural and small town Indians. According to a recently released ASSOCHAM report, combined rural incomes will total Rs 13,00,000 crore in 2011, up from Rs 8,00,000 crore a decade ago.
ADDRESSING CHALLENGES Besides providing promising opportunities in the rural markets, the conference threw open enormous challenges that the companies face while satisfying the needs of the rural population. Some of these include dispersed population that is further regionalised on economic and socioeconomic parameters, seasonal demand,
10 • SMART LOGISTICS • MAY 2010
into the ‘Spoken Web’, a revolutionary technology designed to revolve around the low penetration of the Internet in rural India by making the web available to rural Indians via a phone interface.
Panel discussion by eminent speakers during the summit
inadequate product display, comparison and reference options, challenging after-sales service models, poor road infrastructure & fragmented transportation service, too many distribution layers, high wastages & breakages, lack of intermodal integration and organised 3PL focus. Giving insights on the same, R Venkatesan, senior advisor, National Council of Applied Economic Research, commented that often absence of quality data results in lesser than desired clarity on the size of the rural opportunity to marketers.
EYING THE LUCRATIVE MARKET The conference focussed on innovative strategies to tap the potential in rural market. To this end, Anuj Pasrija, country head – Arogya Parivar, a rural-focussed socio-commercial initiative from Novartis India, explained that industry players must work together on opening up the rural markets as once the potential is unlocked, there will be enough for everybody. Sanjay Kumar, head – marketing, Mirc Electronics, deliberated upon the IGO story, Onida’s sister brand, meant exclusively for the rural markets, to explain the significance of innovation in product development and distribution strategy to excel in the Indian rural. Clifford Patrao, VP, IBM India, spoke of the role that technology can play in bridging the rural-urban divide. He presented the gathering with a sneak peek
Supply Chain Leadership Council, the organiser of the conference, is dedicated to developing the largest and the most active community of supply chain professionals in India. It is focussed on delivering forums with bold and welltimed themes, dedicated to the Indian logistics and supply chain sector.
TREASURE TROVE OF INFORMATION The conference was able to pull in corporate big-wigs from across all spectrum of industries. Dignitaries included Shailesh Naik, GM & Head, ITC E Choupal; Vishal Sehgal, director – logistics & supply chain, Whirlpool; Rahul Sharma, head – centre for rural information & insights, Mahindra & Mahindra, to name a few. It also highlighted that the new commerce burgeoning in rural India represents an opportunity for domestic 3PL players to develop their infrastructure.
PROMISING OUTLOOK In her concluding remarks, Gautami Seksaria, founder & partner, Supply Chain Leadership Council, highlighted, “Rural India may be a fruit hung high but serving villages and small town population represents a significant opportunity as well as a responsibility for the Indian industry.” The event was successful in conveying the message that though the complexities of Indian supply chain may appear overwhelming at first; understanding and mastering them is a critical success factor for an organisation attempting to serve customers in India. An efficient supply chain will help better position companies in what is becoming an increasingly competitive marketplace.
PRICE TRENDS Road Freight Index Chart for April 2010 The RFI stood at 173.27 Points for the month of April 2010, registering an increase of 1.98 Point over April 2009.
IRFI TREND FOR APRIL 2010
TRENDS APRIL 2010
For Metros Ex – Chennai rates registered highest increase by 7.77% and Ex - Mumbai rates registered highest decrease by 3.62%.
AUTOMOBILES The cumulative production data for April-March 2010 shows production growth of 25.76% over same period last year. Passenger vehicles production crossed 2 million and two wheelers production crossed 10 million.
DOMESTIC SALES Passenger vehicles segment during April-March 2010 grew at 25.57% over same period last year. Passenger cars grew by 25.10%, utility vehicles grew by 20.88% and multi-purpose vehicles grew by 40.94% in this period.
TRENDS FOR MAY 2010
COMMERCIAL VEHICLES The overall commercial vehicles segment registered positive growth at 38.31% during AprilMarch 2010 as compared to the same period last year. Medium & heavy commercial vehicles (M&HCVs) registered growth at 33.55%; light commercial vehicles grew at 42.67%. However, medium & heavy commercial vehicle sales during the period is still lower than 2006-07.
FORECAST FOR MAY 2010 The RFI for the month of May 2009 stood at 171 thereby registering an increase by 0.30% over May 2008 and 0.28% increase over April 2008. The RFI for the month of May 2010 can be expected to increase marginally.
Indian Road Freight Index (IRFI), a service introduced by Transport Corporation of India (TCI), is an index of weighted average lorry freight rates across various routes, calculated based on the route density and the dynamic freight rates of routes across the country. Knowledge Partner: Transport Corporation of India (TCI); website: www.tcil.com; e-mail: firstname.lastname@example.org
MAY 2010 • SMART LOGISTICS • 11
PROJECT UPDATE FIVE NATIONAL HIGHWAY PROJECTS WORTH RS
NFR AND IRCON LAUNCH SIKKIM RAIL LINE
The Cabinet Committee on Infrastructure (CCI) recently approved the implementation of five National Highway Development Projects (NHDP) at an estimated cost of about Rs 4,355 crore on a design-build-finance-operate-transfer (DBFOT) basis. The projects include four-laning of Beawar-Pali section and Pali-Pindwara section of national highway (NH) 14 in Rajasthan at an estimated cost of Rs 1,102 crore and Rs 1,326.54 crore, respectively. The concession period, for which the developer will own and operate the road, will be 21 years for the first project and 19 years for the second one, revealed the Information and Broadcasting Minister, Ambika Soni. Also approved is the Rs 658.64-crore project for fourlaning of Deoli-Kota section of NH 12 in Rajasthan and Rs 605.82 crore project for four-laning of Patna-Bakhtiyarpur stretch of NH 30 in Bihar. Other projects approved are Rs 662-crore improvement of Yamunanagar-Saha-BarwalaPanchkula stretch of NH 73 in Haryana and construction of 28 roads in the North-east region at a total estimated cost of Rs 6,866 crore. Meanwhile, the Union Minister of State for Road Transport & Highways, Mahadev Singh Khandela, Government of Rajasthan, has revealed that eight new proposals have been received for development of national highways. The proposals include highways of Phalodi-Nagaur, Jobner-Jaipur, BharatpurAlwar and Sikar-Salasar.
Northern Frontier Railway and Ircon International recently carried out the groundbreaking ceremony of a 44.4-km long railway line connecting the northern part of West Bengal with Sikkim. The project, estimated to cost Rs 3,300 crore, will be completed in five years. The railway line will pass through the foothills of the Himalayas and Teesta river valley with 70 per cent of the alignment connecting Rangpo in Sikkim with Sevok near Silguri, through tunnels. The work also involves spanning deep gorges and valleys with bridge piers taller than the Qutab Minar. Rail connectivity to Sikkim is considered important as the Indian Army has a deployment along the border with China in the state. The railway line is expected to improve movement of troops & goods and will not have to rely on NH-31A, the state’s sole road link, with the rest of the country.
4,355 CRORE GET CABINET NOD
FIFTH POL BERTH AT NEW MANGALORE
PORT GETS MoS APPROVAL
The New Mangalore Port Trust (NMPT) has received the Ministry of Shipping’s (MoS) go ahead to beef up the capacity of its crude/POL (petroleum, oil and lubricant) product handling facility by constructing another POL berth at an estimated cost of Rs 79 crore. This berth No. 13, which will be the fifth for handling such cargoes, will have a handling capacity of 7.8 million tonne per annum (mtpa). Disclosing this, P Tamilvanan,
GLOBAL LOGISTICS PARK TO BE DEVELOPED
The Mumbai-based Valuable Group reportedly proposes to develop a global logistics park in Raigad, encompassing an area of 115 hectare. The group proposes to draw funds for this purpose from the Bahrain-based Khaleeji Commercial Bank, a subsidiary of Gulf Finance House. Maharashtra’s Urban Development Department had recently issued a notice to the effect that the park will be set up to generate employment with the help of foreign direct investment. For this, it said, it was imperative to convert land from green zone 2 (G2) to urbanisable zone 1 (U1). The entire 115 hectare comes under G2. The area covers the villages of Jite, Kharpada and Dushmi in Pen tehsil. The state government has also decided to convert 74 hectare of land falling in the agricultural zone in Kharoshi village into a residential area for the park’s inhabitants. While part of the land will be used for a residential township, most of it will be for warehouse facilities and cargo transshipment. Incidentally, the Jawaharlal Nehru Port (JNP) is nearby, and so is Panvel junction. The proposed Navi Mumbai airport is just about 15 km away. With the logistics park just outside Mumbai, the transport of cargo will not attract octroi, and this will reduce operational costs.
12 • SMART LOGISTICS • MAY 2010
New Mangalore Port
chairman, NMPT, said that the MoS approval had the sanction of even the Finance Ministry but NMPT would finance the berth from its internal resources. SV Madabhavi, deputy chief engineer, NMPT, said that tenders would be invited shortly for development of the berth. The berth would be completed in two years, he added, that is by June 2012. It would have a draught of 15.1 metre and a length of 300 metre. Vessels of 85,000 DWT would be able to call at the berth. NMPT has four berths to handle liquid cargoes. While berth No. 9 handles LPG, berth Nos. 10, 11 and 12 handle crude and POL products. Recently, the port allowed POL vessels to call at berth No. 12, Madabhavi said. All four berths
have a capacity to handle 22 mtpa. The fifth berth would augment the Port’s POL handling capacity to 30 mtpa.
WESTERN DFC TO GET 10 LOGISTICS PARKS At least 10 logistics parks, promoted by the private sector, are expected to spring up along the western Dedicated Freight Corridor (DFC), said PN Shukla, director - operations & business development, Dedicated Freight Corridor Corporation of India (DFCCIL), recently. One or two of these may come up in Gujarat, four to five in the NCR region and two in Maharashtra, he revealed. Besides, six logistics parks would be developed through public-private partnership (PPP) in the NCR region (Rewari), Ahmedabad, Vapi, Navi Mumbai on the western corridor and Kanpur, Ludhiana and Durgapur on the eastern corridor. DFCCIL is in the final stage of awarding a logistics park to Ahmedabad and plans to develop a few more in Jaipur, Palanpur, Vadodara and Dadri, he disclosed. The project cost for setting up a logistics park has been estimated at Rs 1,480 crore, of which land cost alone will be Rs 147 crore and the construction cost Rs 704 crore. “The land for logistics parks will be acquired by DFCCIL independently or in joint ventures with state governments,” he elaborated. These logistics parks will have facilities such as a freight consolidation centre, auto park-cum-loading facility and an industrial centre.
PARADIP PORT TO EXPAND CAPACITY The Paradip Port Trust (PPT) has drawn up the rough outlines of a plan to construct an island breakwater—on the lines of Visakhapatnam Port—that involves an investment of Rs 1,300 crore. According to K Raghuramaiah, PPT Chairman, “After the Western Dock System, there is no scope for capacity addition. So, we will go for an outer harbour with construction of an island breakwater with berth facilities on the leeside of the breakwater.” In this respect, PPT would soon appoint a consultant to prepare the detailed project report (DPR), he added. Berths on the outer harbour would enable the handling of bigger vessels. At the same time, PPT had initiated the construction of the Western Dock System and awarded the job to an Australian consultancy firm. The DPR, environment impact assessment (EIA) study and detailed engineering works of the Rs 2,000-crore project was under way, Raghuramaiah revealed. This became necessary because the present system had been crowded with 14 berths with a total capacity of 76 million tonne. In the present dock system, construction of four more berths was under way, he added. PPT is expected to complete its Rs 253.36-crore project to deepen the channels by June. The new deep draught iron ore berth, awarded to Blue Water Iron Ore Terminal under BOT basis, would also be opened for traffic then. Work on the new deep draught coal berth, awarded to Essar Paradip Terminal under BOT basis, was also set to begin from June, Raghuramaiah explained.
JAPAN DOCKS AT ALANG WITH RS 100
Japan is all set to drop anchor at Alang-Sosiya, the world’s largest ship recycling yard in Gujarat, after lining up investments in the state for the Delhi-Mumbai Industrial Corridor (DMIC). It has signed a memorandum of understanding (MoU) for Rs 100 crore to upgrade the yard to international requirements by way of technology transfer and financial assistance under PPP. The modernised Alang yard will be ready by 2012-13. “Japan and the Gujarat Maritime Board (GMB) have signed an MoU to upgrade the recycling yards, construct and operate a common hazardous waste removal pre-treatment facility, develop ways to add value to steel products with electric furnace and cultivate human resource capacity,” said an official of GMB, the regulator for non-major ports in Gujarat. A consortium of the Japan Government, the Japan External Trade Organization and the Japan Development Institute will do a feasibility study of the existing set-up and suggest upgradation. Alang dismantles about 250 ships every year and after upgradation this will go up to 350. Currently, the yard produces 3.5-4 million tonne of iron annually from ship dismantling activities. Its turnover is an estimated Rs 5,000 crore. “If all goes well, Japan will send most of its ships at the Indian yard for dismantling,” said sources. According to Pankaj Kumar, vice chairman & chief executive, GMB, it is a win-win situation for the stakeholders, including the governments of Gujarat and Japan, and agencies of ship recycling industries. “According to Japanese representatives, the working conditions at Alang are good. They will suggest enhancements of the procedures at the yard, as well intensify eco-friendly conditions in line with the IMO convention,” said Atul Sharma, technical environment engineer, GMB.
ESPLL TO INVEST RS 500-CR IN CARGO
BERTH AT PARADIP PORT
Essar Group company, Essar Shipping Ports and Logistics (ESPLL), has recently signed a license agreement with the Paradip Port Trust to invest Rs 500-crore in a dry bulk cargo berth. Essar Shipping has signed the agreement for a 16-million-tonne-per-annum dry-bulk cargo berth on India’s eastern coast, taking its total port project investments at Paradip to over Rs 1,000-crore. “In this project, we would provide equipment ensuring smooth functioning of the terminal. This also showcases our capabilities to execute and handle large-size projects,” Rajiv Agarwal, executive director, ESPLL said. After completion of the project by April 2011, its total terminal capacity will be 30-million tonne per annum (MTPA). The license, for a period of 10-years, can be extended by another five years with mutual consent. “Paradip Port is strategically located to fulfill the rapidly growing dry bulk cargo requirements of the steel and power industries in the region,” KK Sinha, director, Essar Group said.
MAY 2010 • SMART LOGISTICS • 13
SHELVED TO OFFER A BREATHER TO RAIL FREIGHT With the inflation rate already touching 9.89 per cent, the government is taking all possible measures to keep the situation under tab. Deferral of the service tax on rail freight until July 1, 2010, is one such measure. However, with experts predicting a cascading effect on the overall price hike, wherein the customer will have to shoulder the cost burden, it remains to be seen how the move would affect the market scenario. SUMEDHA MAHOREY IN the Union Budget 2010-11, Finance Minister Pranab Mukherjee had proposed a 10 per cent Service Tax (ST) on goods carried by the railways. This was to be levied from April 1, 2010, to provide a level-playing field for the road transportation sector. However, on March 31, buckling under the pressure from the railways and the inflationary trends, the Government of India announced to defer ST on rail freight till July 1, 2010. In addition, the Ministry of Finance
14 â€˘ SMART LOGISTICS â€˘ MAY 2010
has deferred the implementation of ST exemption on pulses, food grains, petroleum products for public distribution system (PDS), organic and chemical manure and motor vehicles that are transported by the railways. The exemption will now come into effect from July 1, along with the 70 per cent abatement. Moreover, the Ministry of Finance has waived ST for transportation of defence equipment, railway equipment, postal mail bags, luggage of train passengers, relief materials, food grains, petroleum products,
and specified essential commodities via the railways.
THE IMPACT The move provides a major respite to freight forwarders, core companies and the railways that were reeling under the cost pressures amidst the rising inflation, which touched a 15-month high at 9.89 per cent for the month ended February 2010. Though the deferral is short-term in nature, it comes in the wake of the wholesale price index-based inflation
surpassing the 8.5 per cent service tax consultant, Dama Duration Material Units transportedin Freight earnings projection by the Reserve Associates. million tonne in crore Bank of India. Moreover, the Dama adds, “With the April 09-Feb 10 Coal 357.86 20,194.33 annual rate of inflation in India implementation of Goods and April 09-Feb 10 Cement 83.75 4,722.61 escalated to 9.89 per cent in Service Tax, it is advisable to April 09-Feb 10 Pig iron & steel 27.73 3,003.78 February from 8.56 per cent tweak the working and pricing in January. methodology in tune with The projected annual freight earnings of the Railways for 2010-11 is Rs 62,489 crore. According to the Ministry benefits that shall be accrued of Railways, despite the abatement, a in bulk. Moreover, with profit margins from new tax regimes.” hike in freight rates by up to 5 per cent declining amid cut-throat competition, the Though the industry experts are can be expected once the ST is levied, end customers will have to bear the cost hailing the move as an initiative focussing prompting the Ministry to transfer the tax after the implementation of the ST on on controlling the exponentially rising burden to the consumer. This would have rail freight.” inflation rate, many believe that it is more in the interest of the railways rather than the industry. Maximum freight is transported via the rail route.
With the deferral, the government has provided a breather to the freight forwarding companies, which are already experiencing low margins due to global recession. ASHISH SEHGAL, DIRECTOR, GLOBAL PACKERS & MOVERS a cascading effect on major transporters like coal, steel and cement companies. The hike would also influence freight traffic, which is recovering from the low demand witnessed last year. While the government stands to gain Rs 1,000 crore from ST on transportation of goods by railways, freight movement on the rail network may become unattractive if the tax burden is passed on to transporters. PK Agrawal, chief general manager, Container Corporation of India, observes, “The choice of mode of transportation depends on the cost factor. If transportation of goods by rail becomes expensive, transporters as well as freight forwarders will shift towards road transportation. But this is not possible for cement, coal and steel manufacturers as they transport materials
ITH PROFIT MARGINS DECLINING AMID CUT-THROAT COMPETITION, THE END CUSTOMERS WILL HAVE TO BEAR THE COST AFTER THE IMPLEMENTATION OF THE ST ON RAIL FREIGHT.
A WELCOME MOVE Welcoming the deferral, Ashish Sehgal, director, Global Packers & Movers, states, “Maximum freight is transported via the rail route. With the deferral, the government has provided a breather to the freight forwarding companies, which
INDUSTRY FOCUS “The transport cost component in the shelf price of goods varies according to the product, but it is marginal, i.e. 1-2 per cent of the total cost of the commodities. A 10 per cent ST levied on this percentage comes to a negligible figure. The move would not have a major impact on the commodities market,” says Kishore Narne, head-research, Commodities Market, Anand Rathi Financial Services. The railways is already burdened with a concession of Rs 100 per wagon for transportation of food grains and
With the implementation of Goods and Service Tax, it is advisable to tweak the working and pricing methodology in tune with benefits that shall be accrued from new tax regimes. MANISH DAMA, SERVICE TAX CONSULTANT, DAMA ASSOCIATES are already experiencing low margins due to global recession. But the move will not have a major effect on the freight forwarding industry.” In addition, the 70 per cent abatement translates to a tax on only 30 per cent of the value of the transported goods. “Railways is the logistics backbone for essential supplies across industries. Wholesale price index-based food inflation is already hovering around 16 per cent but is expected to moderate by June because of the base effect. The inflation graph of food products had crossed 10 per cent in June and then gone up rapidly to 20 per cent by December 2009. With the same trend being observed in 2010, various industries may absorb a considerable part of the impact, as they have already dealt with draconian sweeps in core input and raw material costs,” avers Manish Dama,
kerosene, as announced in the Railway Budget. Considering freight earnings of Rs 62,489 crore as projected in the Railway Budget 2010-11, the ST payable to the Centre by the railways works out to be Rs 1,000 crore. The imposition of the ST would directly affect reduction in the excess earnings of Rs 3,173 crore by nearly 30 per cent in the coming financial year. With the move, the government is focussing on bringing the rate of inflation to as low as possible. However, both freight forwarders and the railways have already given indications of an imminent increase in freight prices, which will have to be borne by the customers. And, with the rate soaring every month, it remains to be seen how the government manages the domino effect of passing on the 10 per cent ST to the customers after July 1.
MAY 2010 • SMART LOGISTICS • 15
■ CHINA TO INVEST $8.7 BILLION IN PORT,
■ ASIA-EUROPE BOX VOLUME SURGES
China will provide Bangladesh $8.7 billion to set up a deepsea port in Chittagong as well as establish rail and road links between the two nations. Beijing is particularly interested in the projects because the Chittagong port will help provide an outlet for the landlocked province of Yunnan, located in south China. The Bangladesh Prime Minister, Sheikh Hasina, meanwhile, said that India, Nepal and Bhutan would be allowed to use the port. This may help Bangladesh secure further funding for the costly projects. The new port, which is to be completed in three phases by 2055, will be built to handle three million TEUs and up to 100 million tonne of bulk cargo every year. Chittagong port at present has the handling capacity for just 1.1 million tonne in container traffic and 30.5 million tonne of bulk cargo.
Container traffic from Asia to Europe surged by 56 per cent in February 2010 from a year ago and was close to prerecession levels, according to the latest figures from ocean carriers. Westbound dry and reefer shipments to Europe rose to 960,800 twenty-foot equivalent units (TEUs) from 6,17,920 TEUs in February 2009, the European Liner Affairs Association (ELAA) said. But “we should be cautious because February 2009 was the low point in the recession in the Europe-Asia trade,” the Brussels-based carrier group added. “When we compare the 2010 figures for January and February with those for 2008, they are virtually the same,” the ELAA observed. Eastbound volume from Europe to Asia climbed just over 26 per cent year over year in February to 4,52,600 TEUs from 3,58,820 TEUs. Eastbound traffic out of Europe also returned to 2008 levels in January & February and the Indian sub-continent & Middle East trades “show exactly the same pattern,” the ELAA revealed. “It is only the North Atlantic, which is still languishing with volumes significantly below 2008,” the group said. Westbound traffic from Europe rose 13.5 per cent in February from a year ago to 2,42,400 TEUs from 2,13,561 TEUs while eastbound shipments from North America climbed nearly 16 per cent to 2,23,400 TEUs from 1,92,879 TEUs. The price index for Asia-Europe shipments rose to 114 in February from 103 in January and 48 in March 2009. The eastbound index stood at 98.
RAIL & ROAD PROJECTS IN BANGLADESH
■ US EXPORTS TO CHINA REMAIN STRONG Nineteen US states had more than $1 billion in export sales to China in the year 2009, according to the US-China Business Council (USCBC). “In the midst of a global recession, China continued to prove itself as an important export market for the US manufacturers and farmers,” said John Frisbie, president, USCBC. California remains the nation’s export leader to China with $9.7 billion in exports for 2009, followed by Washington ($9.1 billion) and Texas ($8.9 billion). Top exports in value were computers and electronics, agricultural products, chemicals and transportation equipment. China is the third-largest US exports market, after Canada and Mexico. The $69.6 billion in the US sales to China during 2009 was down 0.2 per cent while the US exports to other countries fell nearly 20 per cent. “China outperformed as an export market for the US goods, despite the recession. In fact, as the year came to a close, the US exports to China set monthly records in November & December and continued strong growth in the first two months of 2010,” Frisbie noted.
■ CHINA BOX TRAFFIC HITS ALL TIME HIGH Container traffic at Chinese ports reached an all time high in the first quarter of the year 2010, driven by a strong rebound in the nation’s foreign trade. Total throughput surged 22.1 per cent to 31.87 million twenty-foot equivalent units (TEUs) from 25.48 million TEUs in the first three months of 2009, according to Paris-based analyst Alphaliner. Traffic is also significantly higher than the 29.02 million TEUs handled in the first quarter of 2008, the year when container volume peaked. All major ports increased their first quarter container traffic, driven by a strong recovery in March, Alphaliner revealed. The largest gains were in the southern ports of Shenzhen, Guangzhou and Xiamen where volumes are back to 2008 levels after declining through 2009. The smaller ports of Lianyungang and Yingkou in northern China also handled record volumes in the first quarter.
16 • SMART LOGISTICS • MAY 2010
56 PER CENT
■ SRI LANKA EXPORTERS FACE HIGHER
AIR FREIGHT COSTS
Sri Lankan exporters face higher transport costs with the flight disruptions caused by volcanic ash over Europe sending air freight rates shooting up and causing a space crunch, officials said. Tony de Livera, chairman, Sri Lanka Freight Forwarders Association, said the flight disruptions have affected local businesses relying on air freight, caused uncertainties and sent costs up. “The flight disruption affected us in a big way,” he said. “We can’t ship to Europe any more and rates have gone up tremendously.” Most European airlines are not accepting cargo locally for carriage anywhere in Europe or even onward after many flights over Europe were grounded because of the dangers posed by an ash cloud sent up by a volcanic eruption in Iceland. “There’s no movement over the Atlantic, although there is movement to the US going over the Pacific Ocean,” de Livera
said. For express delivery services, where high rates are paid for on-time guaranteed delivery, although the same higher rates are charged, delivery on time is no longer guaranteed because of the huge backlog of cargo that is causing delays. Transit time can be anywhere between 4-6 days, de Livera said. “It is clearing up now but there is such a backlog in the hub points that it will take at least another three weeks to be on the way to recovery.” Most affected are businesses depending on time-sensitive air freight such as spare parts, pharmaceuticals, garment samples and accessories as well as sea food and fresh flower exports. “Airlines are accepting bookings only if there is an onward connection,” said de Livera. “If not, they don’t lift cargo.” All air freight moving to Europe or via the Atlantic Ocean has been affected while the shift of cargo over the Pacific has sent rates shooting up on that sector, leading to charges of profiteering by carriers. Reports said that air freight and charter rates between Asia and Europe are already showing signs of a prolonged spike as the opening of Europe’s airspace prompt a scramble for capacity among shippers, airlines and forwarders.
■ US RAIL FREIGHT TRAFFIC CONTINUES TO
The Association of American Railroads (AAR) said that signs of recovery in US rail freight traffic continue to gain momentum, with carload volume recently reaching its highest level since the week ended December 6, 2008. The US railroads originated 2,96,599 carloads during the week ended April 17, 2010, up 16.1 per cent from the comparable week in 2009. However, volume was still down 11.6 per cent from the same week in 2008. In order to offer a complete picture of the progress in rail traffic, AAR now reports 2010 weekly rail traffic with comparison weeks in both 2009 and 2008. Intermodal traffic totalled 2,09,903 trailers and containers, up 14.6 per cent from last year, but down 6.3 per cent compared with 2008. Compared with the same week in 2009, container volume increased 16.7 per cent while trailer volume gained 4 per cent. Compared with the same week in 2008, container volume was up 1.6 per cent while trailer volume fell 35.3 per cent. Eighteen of 19 carload commodity groups were up from last year, led by a 177.5 per cent jump in loadings of metallic ores. Other notable increases included 68.8 per cent for metals, 49 per cent for motor vehicles and equipment, 46.4 per cent for non-metallic minerals and 34.5 per cent for primary forest products. Grain was up 12.2 per cent, and coal gained 9.6 per cent. The only commodity registering a decline was pulp, paper and allied products, off 6.7 per cent.”
■ HONG KONG AIR CARGO THROUGHPUT
REACHES RECORD LEVELS
Hong Kong Air Cargo Terminals (HACTL) has announced its tonnage throughput for March and the first quarter of 2010. A total of 2,44,087 tonne were handled in March,
representing a year-on-year growth of 30.8 per cent. Tonnage throughput in the last week of March hit an all-time high. Cumulative tonnage for the first quarter is 6,36,743 tonne, up 37.5 per cent year-on-year. Export volume showed a year-onyear growth of 36.1 per cent and 42.9 per cent respectively in March and in the first quarter, with volumes reaching 1,31,349 tonne and 3,38,446 tonne respectively. A total of 63,740 tonne of import cargo were handled in March, representing an increase of 33.5 per cent year-on-year, while cumulative import tonnage for the first quarter was 1,74,569 tonne, up 42 per cent against the same period last year. Transshipment volume for March increased 15.7 per cent year-on-year to 48,998 tonne. Total transshipment volume from January to March was 1,23,728 tonne, representing an increase of 19.8 per cent year-on-year. Lilian Chan, GM–marketing & customer service, said, “We are thrilled to have achieved record high weekly tonnage results. While we believe that the strong volumes reflect the consistent recovery of world economy as a result of resuming stocking needs and consumer sentiments, we will not underestimate the potential challenges ahead. Long-term prospects would depend on the overall global economic climate.”
■ JAPANESE TRADE FELL 21% IN 2009 Japanese international trade fell 21 per cent in fiscal 2009, returning the country to a trade surplus as imports slumped more rapidly than exports, according to preliminary figures released by the Finance Ministry recently. A 23 per cent drop in the US trade allowed China to overtake the US as Japan’s largest export market for the first time since the end of World War I. China had already been Japan’s largest import source since fiscal 2002 and largest trading partner since fiscal 2006. Japan posted a trade surplus of about $56.3 billion with the rest of the world in fiscal 2009, after incurring a trade deficit of about $8.2 billion in fiscal 2008 – the first deficit in 28 years – amid the deep global economic downturn. In fiscal 2009, Japan’s overall exports declined 17.1 per cent to about $634.6 billion while its overall imports decreased at a faster pace of 25.2 per cent to about $578.3 billion. Automobiles, steel and mineral fuels led the fall in exports. Crude oil, liquefied natural gas and coal led the decline in imports. Japan’s exports to the US tumbled 22.7 per cent in fiscal 2009 to about $100.5 billion, led by falling exports of automobiles. Imports from the US plunged 24.3 per cent to about $60.1 billion, led by falling imports of grains. Japan’s exports to China fell 3.8 per cent in fiscal 2009 to about $121.6 billion while its imports from China dropped 15.5 per cent to about $126.8 billion. Japan’s exports to the US grew for the third month in a row in March, surging 29.5 per cent from a year earlier to about $9.3 billion, while its imports from the US also grew for the third consecutive month in March, rising 2.6 per cent to about $5.7 billion.
MAY 2010 • SMART LOGISTICS • 17
INSIGHTS & OUTLOOK
With the liberalisation of the Indian aviation sector, air cargo segment in the country has undergone a rapid transformation. However, it needs to tackle the present challenges to fly high and reach the pinnacle of growth in the logistics industry. Here lies tremendous opportunities for the segment to capitalise on its inherent advantages–speed and efficiency to grab major marketshare. KTP RADHIKA JINOY THE emergence of global supply chains and increasing international trade has made the air freight industry an important segment of the global economy. Despite the setbacks encountered by the air transportation sector on account of the global recession and other factors, the air cargo segment has grown tremendously over the last decade. Air cargo is playing a vital role in the value chain of global transportation and logistics industry. Consequently, there have been considerable changes in the industry as it continues to evolve. In India, the air freight industry has developed significantly in the recent years due to increased liberalisation and enhanced competitiveness in many sectors. The steady growth in the economy, over the years, has resulted in the escalation of both exports and imports. In this scenario, the air cargo industry is expected to play an active role in India’s exports and imports.
18 • SMART LOGISTICS • MAY 2010
“The prospects for the express industry are primarily dependent on the growth in GDP and world trade. The industry was on a slow track in the backdrop of the global economic downturn. However, it has bounced back and is recovering fast in line with the
downturn has got the global trade flowing once again, leading to cargo growth. The air freight markets are recovering strongly and the upcoming prospects are concentrated in the emerging markets. In 2010, the industry is projecting a 12 per cent increase in
Factors fostering growth of India’s domestic air cargo: • Vast geographic expanse • Large population • Potential for consolidation in its current fragmented transport sector. sentiments of the domestic industries,” says Ketan Kulkarni, VP & head–marketing, corporate communications & sustainability, Blue Dart Express. Adding to this, Shabana Khan, director-air freight, DHL Global Forwarding, India, observes, “The economic rebound after last year’s
the emerging markets and 3 per cent in other markets.”
OPPORTUNITIES GALORE The progress of the express industry is highly dependent on the GDP growth, domestic consumption trends, and
amount of global trade. Kulkarni opines, “The growth in our economy is fuelled primarily by domestic consumption and not just by foreign trade as is the case with many other economies like China. According to a study conducted by ICRIER and IIM (Kolkata), despite the global slowdown, the industry will manage
exports, and is focussed on tapping new markets like China and Japan. This has created many opportunities for the air cargo sector. Adding to this, Khan says, “Meanwhile, the ocean freight industry is facing challenges in terms of capacity and general rate increase by the ocean liners. This has resulted for a part of cargo to move from ocean to air freight.”
MODERNISATION-THE NEED to grow between 10 and 15 per cent in the next two years.” As India is becoming an outsourcing destination, manufacturing sectors like textiles, automobiles and pharmaceuticals have started to witness increased activities in the
As India is poised to become an international hub for air cargo operations in South Asia, the government is planning to issue more licences to encourage the sector. The government is playing a critical role in augmenting the facilities
transport, it has hugely benefited from these modernisation programmes,” notes Kulkarni. The air cargo market is now poised to transport more customised, vertical-specific products as against generic products of the past. The increased competition has given rise to a greater sense of urgency among companies, to be the first to market one’s product while sustaining cost-competitiveness. Thus, the manufacturing sector is critically evaluating its supply chain model, and eyeing it as a point of differentiation and advantage. And in this scenario, the air freight industry stands to gain. However, to meet the
emerging demands, the industry needs to overcome several challenges.
CHALLENGES TO BE TACKLED
medium to long-term. In order to maintain competitiveness, companies operating in these industries are outsourcing their logistics requirements to third party logistics (3PL) service providers and are concentrating on their core competency of manufacturing and marketing. This is creating a great demand for the air cargo industry looking at the promising prospects it holds. Further, the opening up of banking, insurance, telecom, and retail sectors is also boosting the demand for value-added air cargo services in the country. “With global products & services available locally, the transcontinental demand for goods & services is driving the economy. In this situation, the demand for air cargo would continue to grow. Along with this, sectors like pharmaceuticals, telecom and retail are demanding quick delivery and airlines are expected to match the expectations that include multi-modal transportation, transit facilities and expedited delivery,” says Mukesh Mudholkar, head–cargo practice, Kale Consultants. Moreover, now the Indian Government has provided incentives to more than 2000 items of
for the sector and is taking a number of measures to improve the airport infrastructure in the country. It has drawn up a plan to modernise 37 non-metro airports. Even if the government is making all efforts to boost the performance of the industy, Indian air cargo segment is highly fragmented, say experts. However
The air cargo industry is facing many challenges that need to be resolved. With a CAGR of about 8-9 per cent in the air cargo industry, India is positioned to be the fastest growing country in Asia in air cargo segment. This growth is resulting in huge air cargo traffic. Kulkarni avers, “Air cargo traffic has increased manifold
The economic rebound after last year’s downturn has got the global trade flowing once again, leading to cargo growth. The air freight markets are recovering strongly and the upcoming prospects are concentrated in the emerging markets. In 2010, the industry is projecting a 12 per cent increase in the emerging markets and 3 per cent in other markets. SHABANA KHAN, DIRECTOR-AIR FREIGHT, DHL GLOBAL FORWARDING, INDIA to boost this sector, airlines need to stay on top and gain a competitive edge in the logistics industry. “Several measures have been taken to lure private investments in airports, especially in major airports such as Delhi, Mumbai, Bengaluru, Hyderabad and Cochin. The government has also allowed 100 per cent foreign direct investment (FDI) in Greenfield airports, maintenance, repair, and overhaul (MRO) organisations, pilot training and technical institutes, etc. As the express delivery industry is largely dependent on air
and the government’s open sky policy and liberal air service agreements have led to the presence of a large number of foreign players, which has resulted in traffic congestion and delays at a majority of the airports.” In the next few years, it is anticipated that the major infrastructural projects will be executed, thus providing the right impetus for growth. This will also result in rising fuel costs. Growing air cargo traffic leads to more fuel consumption, and thereby, fuel prices account for a significant part of the operating expenses.
MAY 2010 • SMART LOGISTICS • 19
Air cargo industry, continued
UICK TAKE • The international air cargo terminal at Kolkata Airport was the first air cargo terminal in the country, which was commissioned on October 5, 1975. • Air India was the first Asian airline to operate freighters. Set up in 1954, Air India Cargo started its freighter operations with a Douglas DC-3 Dakota aircraft. The rising fuel prices, volatile crude oil market, fluctuating inflation rates, and the global economic downturn were some of the challenges faced by the industry in 2008 and 2009. Mudholkar states, “Yields have dropped, excessive capacity is available, driven largely by passenger demand, and integrators are expanding their footprint. The air cargo industry has witnessed and borne the brunt of this situation, however, the ability to counter this problem is limited to a few carriers. In addition, political and social implications force airlines to deploy higher capacity routes that are not profitable. Unless this trend is reversed, airlines will continue to bleed and the target of accelerated growth would be a mirage.” Although airport modernisation has facilitated the air cargo industry to gain an edge in the logistics industry, there are still some areas of concern. Kulkarni elaborates, “One problem area has been the adequacy & cost of space, and allied facilities made available to the express delivery services industry. There is no uniformity in the usage charges of equipment in privatised airports. In addition, gateways do not often get prime locations. Warehousing facilities are small & congested and there are hardly any cold chain facilities, which are necessary to reduce wastage. The domestic terminal does not have covered space for storage of cargo. Besides, in the rainy season and extremely hot conditions, consignments get damaged.” These are genuine concerns, which should be taken into account in the airport privatisation master plan. The master plan should estimate the expected growth in cargo traffic
20 • SMART LOGISTICS • MAY 2010
volume and allocate space accordingly. Since the high cost of infrastructure will add to the already high logistics costs in India, cargo facilities and space should be provided at concessional rates. The government should also ensure that private developers bring down the charges for using equipment as this affects the global competitiveness of the industry. A holistic view of the logistics landscape in India has to be taken to initiate
growth,” observes Kulkarni. Adding to this Mudholkar states, “Once the industry reaches the doubledigit growth, which will be achieved soon, the growth of the industry would be at a much faster pace. However, unless the costs are controlled, there would be little to cheer about. Manual and redundant processes need to be realigned using technology as a catalyst to fuel revenue generation. Several stakeholders in the
Several measures have been taken to lure private investments in airports, especially in major airports such as Delhi, Mumbai, Bengaluru, Hyderabad and Cochin. The government has also allowed 100 per cent FDI in Greenfield airports, and maintenance, repair & overhaul activities. As the express delivery industry is largely dependent on air transport, it has hugely benefited from these modernisation programmes. KETAN KULKARNI, VP & HEAD–MARKETING, CORPORATE COMMUNICATIONS & SUSTAINABILITY, BLUE DART EXPRESS
some drastic reforms in this sector, point out experts.
FLYING HIGH With the Goods & Services Tax (GST) soon to be introduced in India, the 3PL market is poised to reinvent itself and companies that quickly adapt to the changing scenario will not only be able to differentiate themselves, but will also be successful in capturing this major growth opportunity. This will create great demand for air cargo services,
supply chain need to move out of their confined geographies to effectively use their capabilities for attaining resounding success. Also, the airlines must outsource the non-core activities and free-up the key resources to focus on yields and customer satisfaction.” Air cargo growth in India as against the comparative data of world airports is significant and the current trend continues to be more growth-oriented. The economic development coupled with higher foreign exchange reserves,
With global products & services available locally, the transcontinental demand for goods & services is driving the economy. In this situation, the demand for air cargo would continue to grow. MUKESH MUDHOLKAR, HEAD–CARGO PRACTICE, KALE CONSULTANTS which is rising every year. “This coupled with the advancements in technology & infrastructure, and commitment of private players in this sector to offer quality services to customers, the express industry is all set to reach new heights. The opening up of the Indian economy to foreign investments is expected to attract more companies into the country, thereby adding momentum to market
high inflow of foreign capital, and increase in the country’s percentage of world trade, contribute to the overall growth of the industry. It seems that the sky has definitely opened up for air cargo. By tackling the present constraints and capitalising on the emerging opportunities, the air cargo industry can reach the pinnacle to be one of the big businesses of the future in India.
INSIGHTS & OUTLOOK
INVESTMENTS IN AIR CARGO
SKY IS THE
LIMIT In India, inadequate infrastructure and supply chain links for air cargo have been major roadblocks for encashing on the emerging opportunities in air freight. However, with the world eyeing the growth in cargo traffic across Asia-Pacific region, a new wave of investments from government and private players is all set to decongest the sector in the coming years. As several air cargo modernisation and upgradation projects take off, sky is the limit for the betterment of air cargo segment. RACHITA JHA
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AS trade picks up across the Asia-Pacific region, the air cargo traffic is on the rise. With India emerging as a manufacturing hub–a wide range of cargo items is being transported by air to ensure safe and ontime delivery. The Planning Commission in its working committee report has already given an indication of the growth prospects–it predicts that the international and domestic cargo traffic is expected to grow at the rate of 12.1 per cent and 10.1 per cent respectively over the next six years. In such a scenario, Indian airports are expected to handle about 2 times and 1.78 times respectively of the existing international and domestic cargo traffic by 2011-12. Thus, this is prompting the government to address the growing challenges of air freight in India, and plan for new investments to strengthen the infrastructure and smoothen operations.
AIR CARGO POTENTIAL According to the 11th Working Group Committee report on civil aviation by the Planning Commission, Government of India, additional capacities for cargo terminals are needed to handle close to 8,00,000 MT of international cargo traffic and about 3,00,000 MT of domestic cargo traffic per annum by the year 2011-12. To address this need, the government has estimated a target budget of nearly
Ways to enhance air freight industry • • • • • • • • • • •
Gateway status at all international airports Cargo village concept at all major airports Forwarders-bonded terminals at every gateway airport Multi-modal connectivity effectively serving the hinterland Enhanced technology, handling equipment and information systems Encouraging use of electronic data interchange (EDI) in air cargo, thereby integrating players e-freight facility Simplifying customs process and documentation Open cargo ground-handling contracts to avoid monopoly Specialised cold chain infrastructure and services for perishables, processed foods, pharmaceuticals Specialised facilities for valuable cargo, including diamonds and jewellery, bullion, currency, etc. Source: Planning Commission, Government of India
completed and have started operations, and the rest are likely to be completed by 2010-11. In addition, the Committee of Infrastructure (CoI) has identified 24 of the 35 non-metro airports for cityside development through public-private partnership (PPP). These projects hold immense potential to augment the air freight volumes in India, if completed on time. “Air cargo growth is driven by the industrial activity. With India emerging as a manufacturing hub of quality products,
Air cargo services should be available where there are manufacturing hubs. Instead of focussing on airports only in major cities, a planned approach is necessary to develop and upgrade airports in smaller cities. Such measures can change the air cargo dynamics in India, especially if the government builds cargo hubs with all the required facilities, equipment and technology for domestic and export markets. MUKUT PATHAK, CMD, ARYAN CARGO EXPRESS Rs 40,000 crore for airport development that encompasses modernisation and upgradation of existing airports. It also includes setting up of new Greenfield airports at many tier-II cities including North-east regions. Providing a glimpse of the overall improvements expected in the aviation sector, Economic Survey 2009-10 states that the Airport Authority of India (AAI) has taken up the development of 35 nonmetro airports at an estimated cost of Rs 4,662 crore. Of these, 9 have been
many developments are taking place in the small and medium enterprises that are driving cargo volumes. We see huge growth potential for air cargo, both imports and exports, from Europe and the US in particular,” observes Mukut Pathak, CMD, Aryan Cargo Express.
AIRPORT INFRASTRUCTURE The airport physical infrastructure remains the backbone of the air freight industry. Moreover, with recent modernisation and upgradation plans across major
airports in India, the movement of cargo through air is poised to get faster, safer and more efficient. The Economic Survey 2009-10 states that AAI plans to begin with city-side development of 10 selected airports, namely, Ahmedabad, Kolkata, Jaipur, Lucknow, Amritsar, Indore, Vishakapatnam, Hyderabad, Guwahati and Bhubaneswar. This would be followed by the construction of Greenfield airports in the North-east region, for instance the Pekyong Airport in Sikkim, estimated at a cost of Rs 309.46 crore to be completed by January 2012. Concurrently, approvals are being obtained for construction of Greenfield airports at Cheitu, Nagaland; and Itanagar, Arunachal Pradesh, which would open up new avenues for cargo handling and trade in these regions. Until now infrastructure facilities have existed in isolation for movement of cargo through air. The need of the hour is to build them in conjunction with each other and improve connectivity. With a string of new projects and cargo hubs planned at many existing airports and Greenfield projects, it is a mammoth task for the government to execute these projects. The government has thus envisaged a dynamic PPP model for increased private partnerships for execution of these programmes. Elaborating on the increasing role of partnership model, PK Kaul, executive director-business development, Container Corporation of India, says, “PPP can play a major role towards building infrastructure efficiencies for air cargo movement in India. The collaborative
MAY 2010 • SMART LOGISTICS • 23
Investments in air cargo, continued
The airport physical infrastructure remains the backbone of the air freight industry.
PPP can play a major role towards building infrastructure efficiencies for air cargo movement in India. The collaborative effort will facilitate faster completion of these projects. PK KAUL, EXECUTIVE DIRECTOR-BUSINESS DEVELOPMENT, CONTAINER CORPORATION OF INDIA
effort will facilitate faster completion of these projects.” On an all-India basis, the sectors that gained maximum benefits through investments in air cargo include pharmaceutical, automobile and auto components, electronic goods; apparels and aviation. With this growing attention and participation from the government and private players, their coercive efforts are poised to make a significant headway for air cargo growth story in India.
CARGO HUBS Considering the infrastructural roadblocks that usually impede the movement of air cargo at airports, the major lacuna in the supply chain has been the absence of dedicated cargo space for their storage and movement at airports. Until recent years, a majority of infrastructure and airlines was catering to passenger traffic alone, whereas air cargo lacked the desired investments and policy framework to support its growth in India. However, the importance of cargo hubs as a concept
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potential for investments to set up cargo hubs in leading manufacturing centres for industrial and agro products to support the export-import movement of goods through air. Reflecting on this upcoming trend, Pathak suggests, “Air cargo services should be available where there are manufacturing hubs. Instead of focussing on airports only in major cities, a planned approach is necessary to develop and upgrade airports in smaller cities, for instance, the airports such as Jaipur, Sholapur and Coimbatore. Such measures can change the air cargo dynamics in India, especially if the government builds cargo hubs with all the required facilities, equipment and technology for domestic and export markets.” Overall, the government’s PPP policy is a laudable step, as it has given cargo industry the right kind of boost by way of building state-of-the-art-cargo handling facilities that have been lacking all these years.
IT AND AUTOMATION Considering the overall logistics industry, air cargo industry is one of the most automated industries in the world from aircraft to the tracking of cargo movement– all aspects of air freight have been touched upon by technology. Currently, in India, there have been significant investments made for automation in warehouses and cargo handling facilities at airports. Apart from these, electronic mode of customs clearance has been adopted across all airports for enabling speedy documentation and approvals. Elaborating on the significant role of technology for this sector, Reji George, head-TTHL Global Delivery, Hexaware Technologies, avers, “India’s current logistics cost is 13
has grown significantly across all the major airports. “The future strategies and investments of AAI are focussed on creating cargo hubs and cargo villages. This reflects the change in the thinking of the government towards the air freight segment in India. PPP has also been initiated for cargo services, which will add to the benefits of automation and mechanisation,” informs VK Monga, executive Investment opportunities at airports director-operations, Airports Authority of • Project management India. Now, as the country • Airport operations generates most of its • Engineering solutions cargo in the dispersed • Foreign investment in airports manufacturing hubs located across various • Education and training institutes states of the country, • Cargo facilities and warehouses the limited availability of • Maintenance of hangers world-class facilities only in Mumbai, Delhi, Chennai • Technology aids/software for cargo handling and Kolkata has also been • Ground-handling equipment a barrier to accommodate • Cold chain facilities. rising cargo traffic. Thus, Source: Planning Commission, Government of India there remains a huge
The future strategies and investments of AAI are focussed on creating cargo hubs and cargo villages. This reflects the change in the thinking of the government towards the air freight segment in India. PPP has also been initiated for cargo services, which will add to the benefits of automation and mechanisation. VK MONGA, EXECUTIVE DIRECTOR-OPERATIONS, AIRPORTS AUTHORITY OF INDIA per cent of the GDP whereas it comes to around 8 per cent in US. Therefore, there is a significant scope for curbing logistics cost, and this need to be addressed as we scale up cargo operations. While we address the investments in this sector, there has to be a major focus on reduction of logistics cost. And technology can play an important role in this.” The latest automation trend in this sector has been the introduction of ‘e-freight initiative’ announced by International Air Transport Association (IATA). It provides a clear indication of a significant shift of the global air cargo industry towards electronic documentation to become paperless in its operations. However, this scheme is yet to gain pace in India, as currently most of the technology used for air cargo today exists in isolation. “As major investments have come in for only the leading 3-4 trade airports for adoption of technology and automation, the new funds should be used for upgrading alternative airports such as Pune that have the potential to support significant air cargo traffic,” says Pathak. With the active participation of technology providers including global players for upgrading automation benchmarks in air freight, it is due for potential gains from the new wave of investments in the air cargo segment in India.
PPP FOR PROGRESS There have been progressive improvements in the air cargo industry over the years, and with the government adopting a pro-active approach towards inclusion of private players in aviation development, PPP models have been the way forward for ensuring success and timely completion of projects. However, the regulatory authorities such as Customs have changed their approach to suit the needs of the industry and help them compete with the global counterparts. “As far as cargo is concerned, it is an open sky policy for operating cargo freighters. But, when it comes to investment in airlines, whether
and benefits such as faster and hassle-free movement of cargo, air freight segment is poised to fly high. There is a direct co-relation between air cargo traffic and the economic growth rate for any country-including India. Comments Pathak, “India’s GDP growth and the way the manufacturing sector has performed in the recent months have resulted in a parallel rise in the air cargo traffic. However, the overall air cargo growth could have been spectacular, if the infrastructure at the airports was up-to-date and better in its overall service delivery.” There has been a growing recognition of the potential losses incurred due to gaps in the overall air cargo ecosystem in India and investments to enhance efficiencies have already begun. “The sector now needs collaborations with ground-handling service providers
cargo or passenger airline, FDI through another airline-related entity is restricted to less than 40 per cent. For cargo, I feel the government should remove the FDI cap and allow free investment. Similarly in cargo handling also, there is an FDI cap of 74 per cent,” says Radharamanan Panicker, CEO, Cargo Service Centre. With the high cost of air transport, the delay costs of idling and congestion at the airport cause heavy losses for the companies. Government policies: A trigger for civil Many-a-time, the major aviation sector reasons for delay include lack of landing space for • Open sky policy and the policy of license to the carrier, technology new scheduled operators glitches, or inadequate • Liberal bilateral relations and bilateral cargo handling equipment agreements available at the airports. • Liberal permission for acquisition of new The government has aircraft thus included the critical cargo services for • Domestic carriers, including private operators private participation to are permitted to operate in international bring in efficiencies in sectors including UK and the US overall cargo-handling • Private investment is encouraged in both airline at the airports. “New and airport infrastructure development. warehouse infrastructure Source: Planning Commission, Government of India with better process and handling systems are must and freight forwarders to benefit the endat most Indian airports such as Mumbai users in the overall operations framework and Delhi, which handle approximately 60 of the logistics industry,” suggests Monga. per cent of the total India cargo. Already These investments come at an apt time Delhi airport has appointed two freight when the air cargo traffic is gaining handlers, who will together spend more volumes across the Asia-Pacific region. than Rs 500 crore in new infrastructure “Our main focus should be the overall development. Similar investment is also reduction of logistics cost to make India likely to happen in Mumbai airport for competitive in the global market. This is cargo warehouse development,” informs more important as global manufacturing Panicker. With many global players and retail companies are eyeing India entering Indian air cargo operations under as a potential market and the new the revised FDI norms, the government modernisation initiatives indicate that we now needs to address the missing links are moving in the right direction,” avers in the air freight ecosystem across various George. Faster delivery, better security, airports in India. and lesser packaging time remain some PROFIT OUTLOOK of the leading drivers for the air cargo Air remains the preferred mode of sector in the logistics industry. The new transport for high-value and temperaturegovernment and private ventures in this sensitive goods. With huge infrastructure sector surely indicate that ‘sky is the limit’ investments & active private participation, for future growth prospects in India.
MAY 2010 • SMART LOGISTICS • 25
INSIGHTS & OUTLOOK
AIR CARGO: TECHNOLOGY TRENDS
TAKING THE INDUSTRY ON A
HIGH PLANE With the Indian air cargo segment targeting for new heights, it is time for the industry players to look at achieving better performances. Though this is not an easy task, with technological advancements in the areas of air freight handling, tracking, and communication systems, there is ample scope for upgrading technical infrastructure to be at par with international standards. Accelerated implementation of such technologies will go a long way in improving the air cargo infrastructure, thereby reducing costs and enhancing market competitiveness of the segment.
SUMEDHA MAHOREY IMAGINE yourself 25 years ago, standing at the door of your office, waiting desperately for a positive confirmation of the delivery of your machinery. What would you have done? Sent your office boy to check whether the truck that you had dispatched a week ago reached its destination or made a trunk call to a relative asking for a personal favour.
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In the meantime, during that week, with uncertainty looming large, you would have been clueless about the condition of the machinery in transit. Back to 2010: • You log on to the Internet from any part of the world, check your email for automatically generated mails confirming the uplift or delivery of
your cargo. • You log on to the airline website, enter the airline code and airway bill number and get an automated message stating the position of your cargo (radio frequency identificationbased tracking) • You send an SMS to the airline, which in turn sends you the position, time of
delivery and the condition of the cargo in real time. Advantages: • The above processes take not more than 30 seconds as compared to the ‘n’ man-hours lost 25 years back • Fool-proof and safe delivery system • Reliable business process • Point-to-point update on the cargo status • Reduced manpower requirement • Adherence to Service Level Agreements.
THE TRIGGER The upheaval in manufacturing activities post-globalisation triggered an exponential increase in the demand for raw materials and machineries for various industries. This scenario heightened the need for a
“Traditionally, logistics industry had been averse to investments in R&D and technology. But now, the companies are realising the importance of technology
An area in which new technology has been developed is in measurement of weight and volume. Earlier, physical measurement of the cargo dimensions had to be taken. Now it can be done automatically and the measurement taken can be uploaded in the IT system for direct update of the Air Way Bill (AWB) data, reducing process time drastically. RADHARAMANAN PANICKER, CEO, CARGO SERVICE CENTRE transportation system that could deliver cargo at a faster pace. Air transportation being the fastest mode of delivery, it gained popularity worldwide. However, excessive cargo capacity not only burdened the air freight carriers, but complex documentation attached to air cargo led to an increase in error rate. This scenario required the intervention of technology for streamlining air cargo operations and reducing ambiguities in the documentation process related to the transportation of goods via air.
ADOPTION OF TECHNOLOGY In 1999, the first Electronic Data Interchange (EDI) system was installed in Kolkata. Then came the software solution for air freight tracking, which started the technological era in the air cargo industry. Today, with the implementation of multiple technologies for transit, documentation and security of air cargo, the process complexities have been reduced and the industry has realised the importance of investing in technology for enhancing profitability.
in driving down the transaction costs and enhancing profitability,” avers Amit Maheshwari, CEO and founder, Softlink Logistic Systems. Despite the inherent benefits of technology adoption, India has been slow to catch up with the rest of the world. A technology survey by Kale Consultants indicates that on an average the spend on technology by logistics and air cargo companies is a dismal 0.3 per cent as opposed to the global standards of 3-4 per cent. The investments in technology will, however, double in the next 3-4 years and will primarily be driven by demands of the customers.
Key benefits of technology implementation Increasing profitability • Decreases costs through efficiencies of latest IT systems • Enterprise wide IT applications ensure that the data entered in the system is not duplicated and is used across the shipment lifecycle. • The manpower costs involved in storage, retrieval and printing of documents is retrieved significantly • Usage of new generation IT systems reduces communication costs related to phone calls for follow-up, faxes, telexes and EDI • Increasing profitability through enhanced customer satisfaction • Airlines and forwarders can provide instant access to shipment information, which is critical for customers in planning their supply chain operations • IT helps the air cargo companies in keeping up with promised service levels, resulting in better customer satisfaction • IT systems provide key inputs to the company for developing right loyalty schemes, which improves customer retention and attracts higher revenue from the customer • Improving profitability through better management information systems (MIS) • Helps companies understand their most satisfied and demanding customers, best and worst products, areas of improvement through business intelligence tools that help in facilitating business decisions • Improving profitability through better stakeholder connectivity with seamless EDI. Inputs by Amar More, VP-logistics practice, Kale Consultants
MAY 2010 • SMART LOGISTICS • 29
Air cargo: technology trends, continued
TECHNOLOGICAL ADVANCEMENTS Some of the latest technologies that have changed the pace of the Indian Air Cargo industry are: • Asset tracking utilises mobile communications and radio frequency identification (RFID) to monitor the
technologies to monitor congestion, weather conditions and incidents. The above technologies are now available in most of the countries. Apart from these, some of the upcoming technologies that would further simplify and create a uniform platform for
With inadequate quality of warehousing and outdated handling system, there is an immediate need for investments in both the infrastructural as well as the technological platform. The EDI system needs to be upgraded as per the global standards so that it is compatible to foreign processes. KESHAV TANNA, DIRECTOR, LINKS FORWARDERS
location and status of containers and cargo. It has access to electrical power and can process information onboard. On-board status monitoring uses sensors to monitor vehicle operating parameters, cargo condition and attempts to tamper with the load. Gateway facilitation uses RFID, smart cards, weigh-in-motion and nonintrusive inspection technologies to simplify and speed up operations at terminal gates, highway inspection stations and border crossings. They weave together threads of security validation, regulatory compliance and operating efficiency. Freight status information uses webbased technologies and standards to facilitate the exchange of information related to freight flows. Network status information uses services to integrate data from cameras and road sensors and uses display
cargo transportation via air have been elaborated below: Cargo 2000 Descartes Cargo 2000 allows users to monitor shipments at a master airway bill level from airport to airport, assisting users in complying with Cargo 2000 certification. Information provided by the system includes quality report compilation, shipment status, exception alerts, route map creation and departure time reporting. This enables better decision-making for fulfilling customer expectations and ensures standardised
The air cargo industry in India needs a good multimodal cargo community system, where all the cargo stakeholders–right from shipper to forwarders, airlines to airport operators, and the customs–come on a single platform to communicate with each other electronically. AMAR MORE, VP-LOGISTICS PRACTICE, KALE CONSULTANTS
Potential Benefits of Intelligent Freight Technologies Direct Benefits to Private Firms
Increased efficiency and productivity, often thought of as cost reduction benefits Improved reliability and service quality, usually thought of as tools to retain good customers and grow market share and revenue Improved shipment integrity, built around a core of security issues
Direct Public Sector Benefits
• • • • •
More efficient and effective government operations Greater national security Improved safety Reduced environmental effects of freight transport Reduced congestion and expanded capacity for transportation infrastructure
Indirect Freight Network Benefits
• • •
Economies of scale and decreasing unit costs of network expansion Exponential increase in total benefits as costs drop and usage grows Derivative productivity benefits in industries that depend on freight transportation
Source: US Department of Transportation
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processes for improved service levels. Messages exchanged between the Cargo 2000 participants are collected, classified and stored on a Cargo Data Management Platform (CDMP). All messages and a route map are stored for the generation of reports and statistics. Paperless technology International Air Transport Association’s (IATA) e-freight initiative is taking paper out of the air cargo logistics and replacing it with cheaper, more accurate and reliable electronic messaging. According to IATA data, as of January 2010, 24 locations that account for 64 per cent of international air cargo volumes are e-freight capable. By the end of 2010, 44 locations and 76 major airports will be e-freight live, representing over 80 per cent of air cargo volumes. The data further estimates US$4.9 billion in annual savings for the industry as a result of moving to electronic messages, coming from reduced shipment times and more accurate data due to the electronic exchange of information. E-freight is an industry-wide initiative involving carriers, freight forwarders, ground handlers, shippers and customs authorities. Each air cargo shipment carries with it as many as 30 paper documents – enough to fill 80 Boeing 747 freighters every year. IATA e-freight has replaced 13 of these
documents with electronic messages. The figure increased to 16 in 2009 and a target of increasing the number to 20 documents has been set for the year 2010. Cargo handling technologies In the next few years, technology for cargo handling will witness increased use of Automated Storage and Retrieval System (ASRS), which is used for storing and retrieving products in warehouses without manual labour. Adding to this, Radharamanan Panicker, CEO, Cargo Service Centre, states, “Another area in which new technology has been developed is in measurement of weight and volume. Earlier, physical measurement
of the cargo dimensions had to be taken. Now it can be done automatically and the measurement taken can be uploaded in the IT system for direct update of the Air Way Bill (AWB) data, reducing process time drastically.” Technologies for air cargo security Various technologies have been developed for air cargo security. These include electronic seals or e-seals that test the integrity of their closure for tampering, and report the results to a reader, usually
Elaborating about the success of some initiatives, Amar More, VP-logistics practice, Kale Consultants, avers, “The customs gateway system–Indian Customs and Central Excise Electronic Commerce/ Electronic Data Interchange (EC/EDI) Gateway (ICEGATE)–is also a phenomenal success, which has increased the levels of automation, compliance and has helped enormously in trade facilitation. ICEGATE is a portal that provides e-filing services to cargo carriers and other clients.”
Emerging wireless technologies like global positioning system (GPS), RFID and fast Internet access via 3G and WiMAX help in gathering information in real-time. These integrate the corelated activities of the supply chains between sea, air, road freight, which bring about greater transparency, speed and security to ensure the availability of goods around the world. AMIT MAHESHWARI, CEO AND FOUNDER, SOFTLINK LOGISTIC SYSTEMS via RFID. Electronic seals are usually used on high-value loads, agricultural products and other shipments requiring enhanced security. Technologies that are being proposed for improving air cargo security also include explosive detection systems and other cargo-screening devices, tamper-resistant and tamper-evident packaging and containers, blast-resistant cargo containers and biometric systems for worker identification and access control to air cargo facilities. Novel technologies Few technologies that await implementation in developing countries include anti-terror-oriented cargo and freight condition sensors. As stated by Maheshwari, “Emerging wireless technologies like global positioning system (GPS), RFID and fast Internet access via 3G and WiMAX help in gathering information in real-time. These integrate the corelated activities of the supply chains between sea, air, road freight, which bring about greater transparency, speed and security to ensure the availability of goods around the world.”
GOVERNMENT INITIATIVES The initiatives include an e-trade platform initiated by Ministry of Commerce for better transport facilitation, installation of ASRS at Kolkata and the Centralised Air Cargo Maintenance System (CAMS) by the Airports Authority of India.
Another tech-tool is the Remote EDI System (RES), which is a software package designed and developed by the National Informatics Centre. The software facilitates the customs house agents, importers and exporters in preparation of Shipping Bill and Bill of Entry declarations in the format acceptable to Indian Customs EDI System (ICES), for submission at Customs House through ICEGATE. Similarly, the recent introduction of Risk Management System (RMS) has further improved the clearance of shipments.
NEED OF THE HOUR According to Panicker, in terms of creating infrastructure and better standards in cargo handling and processing, the government has introduced a competitive landscape through its ground handling policy. But, there is no clear policy initiative by the government for the air cargo industry. The civil aviation policy, under which the air cargo policy was to be introduced, has not seen the light of the day, though it has been in the pipeline for a long time now. Policy initiatives, which create uniform standards, regularise tariffs across the country as well as lay down guidelines for all the participants in the air cargo segment, need to be implemented by the government. On infrastructural needs, Keshav Tanna, director, Links Forwarders, avers, “With inadequate quality of warehousing and
outdated handling system, there is an immediate need for investments in both the infrastructural as well as the technological platform. The EDI system needs to be upgraded as per the global standards so that it is compatible to foreign processes.”
SCOPE FOR TECHNOLOGICAL ADVANCEMENTS In India, investment in technology has not reached global standards, creating a wide gap between the functioning of the Indian logistics companies and the foreign ones. This has also led to higher costs due to frequent duplication of work and time lags on various procedures. But, the scene will change in the future, with the industry realising the importance of incorporation of latest technologies. Agreeing to this Maheshwari quotes, “India is in the higher bracket in terms of logistics costs. One of the major reasons for this is attributed to the low adoption of technology. Hence there is ample scope, not only for new technology, but also for technology adoption in general.”
FUTURE TRENDS There is an immense potential for proliferation of mobility solutions along with economical EDI, using XML standards. This coupled with enterprise wide applications on Software-As-A-Service (SaaS) model, would help in developing solutions, which are customer-specific and industry-centric. Apart from this, a common platform for all the players in the industry is the need of the hour. On this note, More says, “The air cargo industry in India needs a good multi-modal cargo community system, where all the cargo stakeholders–right from shipper to forwarders, airlines to airport operators, and the customs–come on a single platform to communicate with each other electronically. This will lead to unforeseen efficiencies in cargo and information movement, and help India comply with global initiatives such as efreight.” Accelerated implementation of such strategic initiatives will go a long way in expanding technological options for improving the air cargo infrastructure in India. Besides, the adoption of advanced technologies will enable the players in the air cargo industry to improve operational efficiencies, increase market competitiveness and reduce costs.
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INSIGHTS & OUTLOOK
MODERN AIR CARGO EQUIPMENT
THE WAY FORWARD TO
Air cargo business is gaining a stronghold in the transportation segment and is becoming a lucrative investment proposition today. However, the growth potential of this segment can only be realised if it is successful in delivering what it promises–efficiency and speed. To achieve these parameters and optimise gains, adoption of latest technology, smart innovations, and efficient cargo-handling equipment and solutions is the way forward. VIJAY MAHA THE air cargo segment in India has been steadily growing at a compounded annual growth rate (CAGR) of almost 10 per cent, over the past few years. The primary reason behind this is that customers have recognised the value proposition it brings to the transport operations. India’s focus on industrialisation has been driving the growth of air cargo industry. The need for movement of valuable goods, perishable items and specialised cargo such as sensitive electronic products or delicate goods calls for a mode of transport that is fast, safe and reliable. Air cargo acts as the biggest facilitator in this context. With the entry of private airlines, postair transport liberalisation, air cargo
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business became more competitive. Thus, improvisation, innovation and technology adoption for refining the service quality, and supplementing it with the most modern equipment to handle any type of cargo is of immense importance for the air cargo industry to improve the operational efficiency.
EQUIPPING THE FUTURE As mentioned earlier, improvisation of services through the adoption of the latest equipment to facilitate and enable faster transit time and customised end-to-end solutions is the only way forward for the air cargo companies. Adesh Shah, director, Trantsec Overseas, classifies the air cargo
operations into the following segments: air cargo complex solutions, loaders, green technology-based equipment, tractors & baggage carriers, and general equipment. Each of these five segments can be improved upon to increase the business efficiency and profits. While referring to equipment used for air cargo handling, it needs to be noted that there are standard as well as specialised cargo handling equipment, IT equipment, among others.
STANDARD CARGO HANDLING EQUIPMENT The major share of cargo transported through the air is palletised. Thus,
ground support equipment and the unit load devices (ULD) are the widely used equipment at air cargo terminals. The availability of equipment such as baggage/freight carts, mail carts, pallet dollies, container dollies, aircraft towbars, crewstairs, static racks, cargo handling systems, mobile scissor lifts, etc. at the cargo terminals is an added advantage and contributes to speedier loading of the cargo in the cargo carriers. ULDs are used extensively for cargo handling. According to an industry estimate, cargo carriers spend almost $140 million on the maintenance of the ULDs per year. Innovations in the design as well as management aspect of the ULDs can improve the handling time at the cargo terminals. Asserting this point of view, Thijs van Riemsdijk, on behalf of VRR–aviation sales, states, “Embracing the latest technology can provide a competitive edge. For long-haul flights, it is vital to reduce the weight of all equipment as much as possible. This can enable a large aircraft to land and take off at short runways. The business plan of the operator is a major deciding factor for optimal use of equipment, however in general; newer the equipment, the higher the reliability figure, which is of course appreciated by customers.” ULDs provide ample scope for innovation. And more equipped the cargo providers, better is the range of solutions they offer and more is their marketshare. The variety, multiple-combination and strategic systems of ULD provides a major edge to an air cargo solutions provider. Some of the variants of the ULDs include: transfer and elevating transfer vehicles (TV/ETV), ULD monorail stacker cranes, cargo hoists, roller decks, friction-driven
HE MAJOR SHARE OF CARGO TRANSPORTED THROUGH THE AIR IS PALLETISED. THUS, GROUND SUPPORT EQUIPMENT AND THE UNIT LOAD DEVICES (ULD) ARE THE WIDELY USED EQUIPMENT AT AIR CARGO TERMINALS.
or motor-driven storage decks & storage systems, workstations–fixed, lowerable, or traversable, right-angle decks turntables, truck-docks, fixed or movable, ball mats, castor mats, free-driven transfer decks, etc.
SPECIALISED CARGO HANDLING EQUIPMENT Transportation of cargo always involves packaging, palletising, stacking, etc. However, for equipment that cannot be accommodated in pallets and is uneven in size, shape, and form, there is a need for customised solutions. To load such cargo and further hold this cargo in the cargo carrier, a variety of equipment such as stacker cranes, straps, chains, slings, etc are needed. Availability of such equipment with an air cargo company is an added advantage. The usage of specialised equipment enables a company to provide end-to-end solutions and reap greater profits. Giving his opinion on the equipment needed for specialised cargo, Riemsdijk says, “Specialised cargo requires dedicated solutions. For instance, odd-sized cargo requires large and the strongest pallets available to prevent damage to the aircraft loading system.” Thus, a cargo carrier that can provide customised solutions for all the goods to be delivered are better placed to attract business. Bharat Thakkar, MD, Zeus Freight Forwarder, and VP, Air Cargo Agents Association of India, avers, “Specialised cargo needs customised solutions. It is not always that a cargo carrier can provide solution for the transportation of a cargo. Especially, the cargo carriers that carry cargo in the belly of the aircraft have many limitations when it comes to the transportation of specialised cargo. Manya-time, the cargo’s centre of gravity is not at the apparent centre of the cargo, and hence, the mass is excessively shifted to one of the either side of the cargo. Such cargos cannot be transported by the belly cargo carriers and require dedicated freight carriers to suffice the purpose.” Most often, several difficulties can be simplified by the usage of IT solutions.
IT EQUIPMENT Information technology and software solutions play a vital role in every industry today. Cargo operations and equipment are no exceptions to this. Effective management of ULDs and other ground support equipment is extremely important to reduce the stress, wear & tear and
expenditure on the equipment. RFID tagging for parcels, simulation techniques for pallet stacking and cargo planning are the areas that can significantly increase or reduce the profits. Inventory management in the warehouses is also one such factor that can be efficiently managed using inventory management software. Thus, IT equipment is key to the progress of air cargo industry.
EQUIPMENT PLANNING Although hi-tech equipment can help to boost the air cargo business, an in-depth analysis of topography, business potential, economy and scope must be done before equipping the cargo terminal. According to Ratan Shrivastava, director, Aerospace & Defence Practice, South Asia & Middle East, Frost & Sullivan, “A country’s freight is directly linked to its GDP and its volume grows with an increase in GDP and vice-versa. It is thus a direct portrayal of the business generation and market outlook. If the outlook is positive, people opt for value-added services and the best service providers who can deliver goods safely and on-time. They are also ready to spend extra for this.” Highlighting on the need for technology adoption to reduce costs, he says, “Various new technologies can be used to reduce and share costs, and one way of doing this is technology sharing. Cargo carriers can use software solutions such as cloud computing for cargo tracking. A significant reduction in costs can be achieved through this methodology as it would be a shared program that can be used by a group of cargo carriers, whereby they can access the information by logging onto the system from their individual domains.”
IMPERATIVES FOR GROWTH Identifying the scope for business and integrating various business models to gain a vantage over the other competitors, and then equipping the cargo terminals with the correct equipment remain the key to flourishing in the air cargo industry. This can be warranted by understanding the customer needs, identifying the business scope, forging partnerships & collaborations, and mitigating the challenges in advance. By adopting these measures, and focussing on the equipment and technology aspects required for efficient handling of goods, air cargo industry can reach for the sky and reap the best benefits.
MAY 2010 • SMART LOGISTICS • 33
VIEW FROM THE TOP
RETAIL SUPPLY CHAIN
SUPPLY CHAIN HAS BECOME A VITAL COMPONENT IN RETAIL FOR CUSTOMER RETENTION “Efficient supply chain management reduces markdowns and ensures higher realisations for one’s products; thereby increasing margins,” avers Samson Charuvil Samuel, CIO & head–SCM, Future Supply Chain Solutions (FSCS), in an e-interview with Prasenjit Chakraborty.
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IMPORTANCE OF EFFICIENT SUPPLY CHAIN MANAGEMENT IN ORGANISED RETAILING The core of retail is getting the right product at the right place and at the right time. What enables it is an efficient supply chain. Therefore, a retailer’s entire topline as well as bottomline is dependent on the availability of required products at the shelf. Essentially, supply chain has become a differentiator in retail and a vital component for customer retention. For instance, a customer will not be keen to visit a supermarket again if a product as basic as sugar had been out of stock when the customer had been there some time ago. Further, supply chain becomes especially critical for an industry like fashion, where trends change frequently, and inventory-carrying costs are high. Efficient supply chain management reduces markdowns and ensures higher realisations for one’s products; thereby increasing margins. In other words, the supply chain team ensures proper flow of information and material, and thereby has a critical role in the smooth functioning of retail organisations. Over the last couple of years, we have been working closely with Future Retail to increase efficiencies in our supply chain by maximising our throughput and productivity from the existing infrastructure. We have consolidated warehouses, which has helped in reduction of inventory-carrying cost and has enabled better economies of scale. Warehouse consolidation has also resulted in load consolidation for transportation, which in turn has reduced transportation costs. We also provide value-added services like automatic replenishment system (ARS), stock aging analysis, use of crossdocking and packaging standardisations. All these initiatives have significantly improved inventory turnover; reduced markdowns and stock-outs.
EMERGING TRENDS IN RETAIL SUPPLY CHAIN MANAGEMENT IN INDIA Implementation of Goods & Services Tax (GST) will facilitate investment decisions being made purely on the basis of economic concerns, independent of tax considerations. It will result in consolidation of warehouses, leading to economies of scale. Elimination of Central Sales Tax (CST) will eradicate artificial supply chains
created by stock transfers, and will also help in reducing total warehouse space by 20-50 per cent. Besides this, it will facilitate in reducing distribution cost due to reduction in inventory holding cost. Reduction in number of warehouses would bring down both IT costs and operation expenditure (opex), which will result in increased scope for pan-India 3PL players. The 3PL players will be able to maintain a better cost structure visà-vis traditional clearing and forwarding agencies (CFAs).
RETAIL LOGISTICS SCENARIO IN INDIA VIS-À-VIS OTHER COUNTRIES The supply chain is unique, especially in the context of India, as the country is multicultural/heterogeneous, where the consumer tastes change every few kilometre. This means a retailer’s offering to customers is region-specific, leading to
so forth. Supply chain companies will now have to customise their service offerings and offer end-to-end solutions, if they wish to service these sectors directly. They will also have to develop new competencies and skills to manage these service offerings. Hence, the industry, as a whole, is getting more organised to offer services to the organised retail sector.
FUTURE PLANS We are currently focussing on modernising our infrastructure and bringing it on par with the developed countries. We are bringing in the latest technology solutions as well to support the physical infrastructure. Currently, over 50 warehouses of FSCS cover about 3.5 million sq ft, which is likely to grow to 9 million sq ft by 2012. This includes consumer logistics warehouses, vanilla warehousing, inland container depots
Implementation of Goods & Services Tax (GST) will facilitate investment decisions being made purely on the basis of economic concerns, independent of tax considerations. It will result in consolidation of warehouses, leading to economies of scale. multiple stock keeping units (SKUs). The high real estate rentals for retail leave no scope for the retail stores to have any back-end store stocking of inventory. The combination of these factors leads to a unique Indian consumption supply chain– one that includes handling large number of SKUs in pieces as opposed to fewer SKUs handled in the form of pallets by most of the large retailers globally. Over the years, we have learnt the art of managing these complexities, and have designed & executed supply chain solutions that are uniquely Indian.
RETAIL LOGISTICS IN A TRANSFORMATIONAL PHASE The growth of organised retail sector has been a major factor in the development of logistics industry in India. Across the world, it has fuelled the growth in the organised 3PL industry. This is particularly so because the organised retail industry requires the set of services that 3PL offers. And, India is no different. Organised retail in India has reached the maturity level where it now requires a strong backend service support–be it supply chain management, IT management, so on and
(ICDs), container freight stations (CFS) and cold storages. We pack and send up to 2 million pieces everyday to our stores presently, and by 2011, we will be handling up to 20 million pieces everyday. All this requires infrastructure build-up to ensure smooth operations with the everincreasing volume that we handle. Our transportation vertical currently operates a fleet of over 500 vehicles, which will increase to over 1,500 vehicles by 2010-11. We are also one of the largest home delivery companies, with over thousand home deliveries daily, which include items like food, furniture, consumer durables, and electronics. We are also investing heavily in technology and implementing warehouse management systems (WMS), transportation management systems (TMS) and enterprise resource planning (ERP) systems to ensure high visibility and control over the complete supply chain. Our warehouses are wi-fi enabled and hand-held devices are extensively used in operations. Our vehicles are tracked using global positioning system (GPS), which enables accurate visibility at all times and helps in route optimisations as well.
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With a penchant for speed and reliability in the delivery of services, Blue Dart exhibits an unrivalled performance in the Indian express industry. By adopting latest technology and equipment to provide its customers with the best in class services, the company is on an express route to success. Here’s a trailblazer journey of Blue Dart unfolding the factors that make it customers’ ‘First Choice’… PRERNA SHARMA IN the Indian economy, which is growing at nautical mile speed, express logistics plays a vital role in the entire business set-up. The express industry wields a powerful sway of such intensity that if it gets affected, then the entire business cycle stands a chance to get derailed. In such an industry where precision comes first, Blue Dart stands as the unrivalled leader in the domestic express industry. Of the share garnered by the organised air express sector, Blue Dart commands an enviable 43 per cent marketshare.
THE KICKSTART In November 1983, three young entrepreneurs, Clyde Cooper, Tushar Jani and Kushroo Dubash pooled in Rs 30,000 to kickstart an idea of delivering small packages and samples to support India’s burgeoning exports. Starting humble, Blue Dart was born in a space of 200 sq ft. Grit, determination and hard work propelled the fledgling company from sorting and delivering a few dozen packages outside Mumbai airport on its first night, to handling nearly 2,00,000 shipments each day, the company and an idea has come a long way.
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Over the years, Blue Dart has made huge investments in building an infrastructure that is unmatched in the entire South Asia region. It boasts of over 25,390 locations, 53 domestic warehouses, a fleet of four B757 and three B737 freighter aircraft, a flotilla of over 5,320 vehicles, more than 350 business associates, over one million square feet of warehousing space, and 6,970 committed and trained employees driven by the sole passion of delivering service excellence and value. Since its inception, Blue Dart has taken the leadership stance to differentiate itself from the competitors. Elaborating on the strategies adopted by the company for achieving this, Anil Khanna, MD, Blue Dart, avows, “We took bold futuristic steps to surpass customers’ expectations and gain a leading edge. Our value proposition is our unmatched service performance within a predetermined short timeframe, door-to-door services, across India’s expansive geography. This value is delivered via our integrated air and ground infrastructure, advanced technology and a professional, committed workforce.”
He further adds, “We constantly strive to develop, reward and recognise our people who, through high quality and professional service, and use of sophisticated technology, make efforts to meet and exceed customer and stakeholder expectations profitably.”
THE SUCCESS FACTORS In the express logistics business, service quality, consistency, responsiveness, reliability, backed by strong infrastructure and technology are the key factors for ensuring success, because these dimensions directly affect the customer’s business outcome. These attributes build a trusted brand that ensures a loyal following. Blue Dart has done things differently to embed that trust in its brand and deliver on promises. Since inception, the focus has been the delivery of service excellence. Attaining success is never too easy. Along the way, Blue Dart endured formidable challenges and took bold steps to protect its hard-fought territorial gains. When others in the domain were still trying to find their bearings, Blue Dart had already envisioned itself as a ‘warehouse in
SUCCESS the sky.’ It created a palpable differential for itself by venturing into a niche and a hard-to-emulate segment in supply chain management that demanded critical deliveries, low inventories, and reliable & timely distribution. Khanna elucidates, “Being a customercentric organisation, Blue Dart keeps a close track of customer requirements. All our investments, whether in infrastructure, technology or new products, are completely aligned to satiate these needs. We have been constantly upgrading our
expectations of its stakeholders.” Keeping the focus intact, Blue Dart has identified numerous new opportunities in the market through research, customer feedback and constant monitoring and analysis, which are customer-oriented. This will also help them gear up for the future, further giving them the muchneeded edge to provide customised end-to-end solutions. Product Initiatives The new product initiatives by Blue Dart revolve around upgrading its product
Businesses rely on us for providing them the competitive edge in terms of express distribution and logistics. We take this as a big responsibility and constantly endeavour to add value to our customers’ business. We know that their success will ensure ours, hence we leave no stone unturned to hold onto our promise of delivering not just packages but ‘peace of mind’ to our customers. ANIL KHANNA, MD, BLUE DART EXPRESS products to provide customised and value-added services to our customers. This in the long-run will be an added advantage in terms of providing the entire gamut of solutions possible to our customers, who stand to benefit immensely. Moreover, these customers would bring in sustained and increased revenues for the organisation. Blue Dart is focussed on continuous innovation and is all set to continue delivering beyond the
range and improving service quality, thereby offering customers state-of-theart air and ground express solutions across the country. Some of these products are designed specifically for industries with time-specific requirements, and there are others, which cater to vertical specific requirements. Such customised services allow flexibility to the shipper as well as the consignee, and improve customer satisfaction.
Service Quality Initiatives One major success factor stems from understanding that service is all about expectations. A client has a specific set of expectations, which are based on their perceptions that he has about the company. Today, Blue Dart is known for performing above customer expectations. The company regularly undertakes market research to gauge customer satisfaction. The gaps encountered are worked upon persistently till they are completely addressed. In fact, this is the basis of the Net Promoter Approach (NPA) Program, which aims at further improving their best-in-class services. Blue Dart monitors complaints and goes the extra mile to sort them. Customer touch points are monitored for feedback from an external agency. Through another ‘quality’ initiative, the First Choice Program, Blue Dart strives to become the customers’ ‘First Choice’. It is a customer-centric program that initiates all possible measures to ensure full satisfaction of customers, both internal and external. It is a systematic and sustainable approach to increase customer satisfaction, and continually improve service quality to its customers. All this results in creation of infrastructure and processes that best serve the customers to offer them the ultimate benefit of peace of mind. The Quality Control Centre at Blue Dart has a 24x7 national tracking system that enables real-time visibility of their fleet. It also provides regular updates on political disturbances/disasters/other critical situations prevailing in various parts of the country that allows them
MAY 2010 • SMART LOGISTICS • 37
to plan their routes in advance, take preventive measures and deploy resources accordingly. Some home-grown innovations in this regard are: COSMAT II
Blue Dart’s ERP system
For monitoring shipment status on the Internet
Tracking shipments over e-mail
InternetDart Memory bank for shipments Mobile Dart For tracking shipments on the mobile phone PackTrack
Tracking software for medium and large customers
Tracking and CRM tool for ebusiness portals
For online download of delivery challans/documents Speeding up customer billing process, waybill issuance capability Customer directory, data upload & download of tracking information.
TECHNOLOGY- A VITAL ADVANTAGE In logistics, information technology has long been recognised as being critical to the survival of the industry. A strong IT support system is integral, as it helps attain the competitive advantage amidst everincreasing competition among logistics players. The use of IT is prevalent across functions in Blue Dart. Through powerful web-based tools and high-end tracking systems, Blue Dart provides updated information to its offices around the country as well as to its customers.
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Blue Dart believes in optimising technology as key to access information real-time and provide upscale interface for both the business and customers. Blue Dart’s in-house systems team has been developing IT solutions over the years, and it was the first domestic company to introduce an online track and trace system for international shipments, as early as 1988. Blue Dart’s innovations in technology have played a key role in its premium positioning and in bringing global standards to the Indian customers’ doorstep. Testifying this very notion, Khanna avers, “We are aware of the evolving needs of businesses, and recognise the fact that a customer needs to have a ready flow of information at all times. At Blue Dart, we have initiated the use of global positioning system (GPS) extensively in our vehicles as we acknowledge the fact that synchronisation of all activities ensures an efficient supply chain. GPS makes the job of synchronising the supply chain easy and reliable, thereby enabling fleet and resource optimisation.” Speed and reliability remain the key value drivers at Blue Dart. To ensure these, the company uses state-of-the-art technology at all stages of the distribution chain from collection to delivery. Timeconsuming paperwork is minimised and consignments can be tracked and delivery can be confirmed. Blue Dart has also developed software for its internal customers. The Space Management, Allocation, Reservations and Tracking (SMART) application is a
centralised application that allows realtime space and revenue management of the seven aircraft in the Blue Dart Aviation network. It ensures that the aircraft space is optimised and that all customers with space confirmed have the assurance that their packages would travel. Web-based systems allow for every shipment in the network to be tracked, even from remote locations, based on shipper information, locations and dates, and exceptions are immediately brought to light and addressed. Through such systems, Blue Dart constantly monitors its service levels, which are evaluated on an all-company/regional level. All of this and more ensure a net service level of 99.96 per cent for Blue Dart’s customers.
FINAL WORD Blue Dart has been built on a culture of responsibility, ownership and integrity, as it firmly believes that a culture of control only stifles creativity. The workforce acts as one team that works with a singleminded customer-centric focus in the pursuit of endless excellence. In its quest for excellence, Khanna affirms, “The onus is on us to continuously break new ground, innovate ahead of the curve while retaining the fundamental values of assuring customer trust, and pride in our service.” Truly living their tag line…It takes a leader to deliver, Blue Dart has set a world-class benchmark in the express industry for others to follow.
PRIVATE EQUITY FIRMS SL EXCLUSIVE
REPLENISHING FUNDS FOR
The dearth of investments in the logistics sector will soon be a thing of past, with several private equity firms entering into this domain. Experts believe that as PE firms are considering this sector as the best bet for investing capital, the funding will help to build and improve its facilities, especially infrastructure, and trigger the overall growth of the sector. KTP RADHIKA JINOY
MAY 2010 • SMART LOGISTICS • 39
Private equity firms, continued
BEING the prime destination for
Major deals in logistics sector in the year 2009 • Blackstone’s investment in Gateway Rail Freight in November 2009 stood out in terms of substantial investment amount in the sector. • Other key deals in the sector last year included Toll Asia’s investment in BIC Logistics, and Louis Dreyfus’ investment in ABG LDA Bulk Handling. • Bulk of the deals in the sector were on account of global logistics providers showing an interest in setting up base in India and the larger players trying to increase their network and scale of operations.
logistics service providers all over the world, the demand for logistics services is largely growing in India. Moreover, as several companies, especially in the automotive, pharmaceutical, manufacturing and fast moving consumer goods (FMCG) sectors, are increasingly opting for outsourcing their logistics requirements, the Indian logistics sector is poised for a significant expansion in the coming years. This increasing demand calls for more infrastructural and operational efficiency in the Indian logistics sector. To address this issue, the logistics sector needs organised investments. However, until recently, there was a dearth of such investments in the sector. Yet, on a positive note, things are changing now. Private equity (PE) investors have started realising the growth potential of the sector, and thereby making huge investments in this domain.
Even during the slowdown, it was holding on since domestic trade was strong in India. As a result, PE firms hope that their investments can actually reap benefits, on the back of this huge demand.” The logistics sector has been a relatively favourable investment destination for private equity players because logistics companies stand to benefit from the enhanced spending on infrastructure, both by the government and the private sector.
SCOPE FOR INVESTMENT
One of the main reasons that attract PEs to the logistics sector is the emerging growth opportunities in this area. Elaborating on the same, AK Agarwal, director, DRS Group, avers, “With GDP slated to grow at a significant rate, the Indian logistics sector is on the verge of witnessing tremendous growth in the short to medium term. Considering this value proposition, PE funds are finding this industry as a viable option to invest their money. Moreover, the increased focus on logistics by the concerned authorities presents a plethora of opportunities for private equity firms to invest capital in the sector and bring in value-additions to a great extent.” Adding to this Manish Saigal, executive director and head-transportation & logistics, KPMG, says, “Compared to many other sectors, the logistics sector has recorded higher rate of growth. In such a scenario, India’s logistics sector is all set to record high growth in the next four years. Moreover, there is a link between the growth of other sectors and logistics. The growth in any other sector will lead to an increase in trade, and hence, there will be a surge in transportation of goods. So for the logistics sector, the growth prospects are high in the coming years, and this is attracting private equity investments.” Another reason for the lucrativeness of logistics is that it is extremely safe to invest in this area, say experts. Saigal explains, “For PE investors, the logistics sector seems to be a more risk-free avenue for investment.
Broadly, the investments in logistics can be divided into two categories: investment in infrastructure upgradation and service logistics. Infrastructure facilities in India are inadequate, and this makes the logistics activities expensive in the country. However, India’s towns and small cities are set to grow significantly in the coming years, resulting in an increase in the movement of goods, which in turn, would boost the logistics business, most of which will be
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service side, the private equity services are limited.” Talking about the government initiatives for infrastructure development, Sanjeev Krishan, executive director – transactions group, PricewaterhouseCooper, states, “To support infrastructural development, the government is contributing by way of increased budget allocation for augmenting infrastructure facilities, and laying greater thrust on development of SEZs, free trade and warehousing zones (FTWZ), logistics parks, dedicated freight corridors, investment-linked tax benefits, etc. As a result, there is a need for significant growth capital in the logistics industry, and private equity investors are finding the opportunity interesting.” Adding to this, KC Mehra, chairman, Assocham Committee on Shipping & Logistics, avers, “The government is promoting infrastructure development by building roads and other facilities that will give a boost to the logistics sector. The Road Transport Ministry has
With GDP slated to grow at a significant rate, the Indian logistics sector will witness tremendous growth in the short to medium term. Considering this value proposition, PE funds are finding this industry as a viable option for investment. AK AGARWAL, DIRECTOR, DRS GROUP driven by infrastructure upgradations. India needs extensive infrastructure development on roads, bridges, ports, warehousing, etc, in the next five to ten years. These developments require enormous investments. Saigal notes, “Considering the situation over the last two or three years, the PE investors are more keen on the infrastructure segment. The funds are targeted at improving infrastructure facilities like building warehouses, logistics parks, besides focussing on rail logistics and multi-modal operations. Surely, we can see that there is an increase in infrastructure funding. However, unfortunately on the
now targeted to build 20-km of road per day, which will benefit the sector a lot. In addition, other infrastructure activities are also coming up, which require enormous funding. All these factors indicate a great potential for investment in this sector for private equity firms.”
REAPING BENEFITS The logistics sector in India is growthoriented and constantly on the lookout for capital for development activities. There is a great need for adequate financial support. Mehra says, “The PE investment will actually boost the sector’s
Considering the situation over the last two or three years, the PE investors are more keen on the infrastructure segment. The funds are targeted at improving infrastructure facilities like building warehouses, logistics parks, besides focussing on rail logistics and multi-modal operations. MANISH SAIGAL, EXECUTIVE DIRECTOR & HEAD–TRANSPORTATION & LOGISTICS, KPMG
growth, as these firms will be in a position to understand the industry perspective and take initiatives accordingly.” Mainly the logistics companies use these funds for expansion of their fleet or venture into new areas of business. Agarwal notes, “DRS has used PE funds to add new vehicles to the existing fleet. We have also collaborated with PE firms to set-up stateof-the-art warehouses in North India. In order to emerge as an end-to-end logistics service provider, it is imperative for any company to expand its business to new verticals. After establishing warehouses in North India, we are scouting for additional funds to expand our warehouse business in southern part of the country as well.” The Indian logistics industry (especially,
trucking, cold storage & warehousing sectors) is highly fragmented, with most of the companies being small, and many are having a regional operating focus. “PE funds not only provide them with capital, but also assist them in raising their market profile and equip them with the best-in-class operating methodologies, either through their network of operating partners, or companies in similar industries around the globe,” observes Krishan.
TRIGGERING LOGISTICS GROWTH As per industry experts, since the last two or three years, almost all active PE firms are into vigorous logistics funding. Saigal says, “To be specific, I can actually point out 30 to 40 top investors who
are focussing on this sector. If you look at the deals in number, around five to six major deals are happening in a year. However, the deal size is actually huge. Moreover, other than the private equity firms, several foreign logistics players are also coming to India and making investments. If you look at the large domestic players, most of them had been funded by PEs in the recent past, and this trend is going to continue in the coming years too.” Logistics is a key sector and critical for the growth of industry at large, retail and consumer businesses in specific. Often, the growth in logistics is linked to the expansion in infrastructure, and considering the focus on infrastructure, it is anticipated that logistics would become a key sector in the times to come. PE investors are expected to aid its progress, as indicated by the recent investment trends. Experts predict that in 2010-11, the PE investors will continue to replenish the logistics sector with funds. This will help the sector to build and improve their facilities and trigger its growth, thereby providing a boost to the overall GDP of the country.
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MAY 2010 • SMART LOGISTICS • 41
INDUSTRIAL MACHINERY TRANSPORTATION
EXPLORING VIABLE ROUTES FOR SAFE & TIMELY DELIVERY
The burgeoning growth of manufacturing sector in India necessitates sophisticated logistics service for transportation of industrial machinery. However, in India, logistics facilities for dealing with such machinery are still at an embryonic stage; and road remains the most preferred mode of transportation. Yet, poor infrastructure and other hassles make the whole process arduous. This underlines the need for augmenting the logistics infrastructure facilities to execute such a Herculean task and ensure safe and timely delivery. PRASENJIT CHAKRABORTY THERE are definite norms that need to be adhered to during transportation of every product. So is the case with industrial machinery. Since the industrial machinery is sophisticated and large, special care needs to be taken while transporting such goods in terms of type of vehicle, packaging, trained manpower, etc. Hence, it is pivotal that machine
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manufacturers select the appropriate mode of transportation. As of now, machine manufacturers do not prefer sea route, as inland water transport system in India is far from satisfactory. Against this backdrop, machine manufacturers are left with two alternatives, by and large– road and rail to transport their goods. It has been observed that manufacturers
avoid rail due to the inflexible nature of railways. Hence, road has become the viable option for them.
WHY ROAD? As mentioned earlier, road is the most preferred mode of transportation for industrial machinery. This is because inadequate infrastructure facilities pose
observes, “As far as industrial machinery packaging is concerned, there is no uniformity in size of the machines, and this makes transportation difficult. If the dimensions of the machines are odd and disproportionate to the railway wagon, then it becomes difficult to use railways as a means of transportation.” The size of the industrial machine is not the only constraint while contemplating its transportation through rail. Though India has a vast railway network, its terminals are located far from manufacturing facilities. Even if any company wants to dispatch goods by rail, it has to depend on road first and then rail. It means doublehandling of cargo, which is detrimental to the industrial machinery. “This multi-modal handling increases the risk and cost of transportation. Thus, manufacturers prefer road transport to avoid such hassles and reduce the risk of damage of industrial machinery. However, rail transport is preferred for longer distances and heavy industrial machinery,” opines Mohta. Echoing a similar sentiment, Chandrakant P Sanghvi, CMD, Sanghvi Movers, says, “The reason behind the preference for road is the extensive road network connecting different places in India.” Despite all the advantages of road for transportation of industrial machinery, it is also fraught with a plethora of problems.
and other such elements. When it comes to loading & unloading, experienced professionals who understand loading points and weight distribution should handle the operations. It is also difficult for logistics people to dismantle and assemble the machine, as they are not trained for carrying out the task. At present in India, often it becomes difficult to get the right kind of vehicles needed for the transportation of machinery. “Logistics companies at times subcontract transportation of machinery, and there is no guarantee that these subcontractors will use the right kind of vehicles. Such an arrangement also makes it necessary to unload and load the machine a number of times and the equipment used for such handling may not always be the right ones that should be ideally used,” observes Badhya. Availability of low-bed trailers for moving heavy machinery is scanty, which translates into higher cost for machine manufacturers. “When it comes to transportation, it is very difficult to find and retain transporters who understand that they are carrying sophisticated and high value goods, and thereby act accordingly,” states Hiren Jadeja, executive director, Jyoti CNC Automation. Some of the other problems are related to documentation and octroi issues.
OCTROI AND OTHER ISSUES CHALLENGES INVOLVED
problems when it comes to railways or inland water systems. Asserting this fact, Amitabh Varma, head-marketing survey, BFW, categorically states, “We prefer road transport to railways or waterways. This is because India does not have a proper channel of waterways for inland transport. If BFW has to dispatch a machine from Bengaluru to Gurgaon, it would not be feasible to adopt roadways for carrying goods to the nearest port and then offload the cargo into a ship, and later take it to the port nearest to Gurgaon, and finally depend on road again for delivering it to the final destination. Water route is definitely out of question as far as BFW’s inland transportations are concerned.” On similar lines while elaborating on the limitations of railways, Manoj Mohta, head, CRISIL Research,
There are several challenges right from packaging to loading, unloading to ontime delivery while transporting machinery via road. Besides this, infrastructural bottlenecks as well as inefficient processes of logistics companies add to the woes of the industry. However, one of the major issues being faced is pertaining to packaging as industrial machines are not mass produced but are commissioned for meeting the specific requirements of customers, thereby making it difficult to standardise the packaging solutions for heavy machinery. As a solution, Raghav Badhya, director & GM–PM Business Unit, Makino India, points out, “High tensile strength seasoned wood should always be used as packaging material for heavy equipment. Some of the most important factors are the dimensions and weight of the machinery, and also its location and destination as it determines the time a machine will be in transit.” The final packaging should be able to completely protect the machinery from dirt, rainwater,
The time taken for documentation and octroi clearance not only results in delays but also leads to escalation of costs. According to Sunil Raibagi, MD, Gudel India, octroi adds to unnecessary time and cost during transportation. He further adds, “Octroi could have been coupled with local sales tax or with any other mode of tax collection system to avoid the difficulties we are facing now. Besides this, interstate movement is hindered on account of issues like road permit, octroi, etc. These bottlenecks are throttling business opportunities. Toll centres add to traffic congestion and the worst part is that they run beyond the recovery date fixed by the local government.” The problem does not end here. For example, industrial machinery is designed to suit the specific requirements of industry and not in line with the prevalent statutory norms for transporting the same. “Large turbine generators are required at power plants and their dimensions are often more than the adopted norms for transportation of the machinery,” says Sanghvi. In India,
MAY 2010 • SMART LOGISTICS • 43
Industrial machinery transportation, continued
the prevalent statutory requirements relating to transport vehicles prescribe that the permissible height of the goods to be carried should not be more than 4 metre. Moreover, the width should be within 2.6 metre, length should not exceed more than 12 metre, and weight should not exceed 22 MT. “Any machinery exceeding these limits is treated as over-dimensional cargo (ODC). If the machinery under transportation is exceeding the prescribed norms, the transporter has to obtain permission from the state and central governments, which is an arduous process. This is because awarding such a permission is an exclusive prerogative of the Ministry of Road Transport,” explains Sanghvi. Even if such permission is granted, it is again subject to obtaining permission of Public Works Department of concerned states before transportation. “In such cases, permission is given specifically for one single route by publishing in the GAZETTE of India,” laments Sanghvi.
RESOLVING PROBLEMS Logistics services are extremely critical for the industrial machinery sector. Logistics companies need to invest in improving geographical network and asset base to address the demands for special requirements such as customised size of trucks & trailers, containers & other packaging solutions. “Efficiency and ontime performance should be the guiding
considered while transporting machines for which alignment, balance and accuracy are of utmost significance,” points out Badhya. Advance planning and collaboration between a logistics company and the machine manufacturer for transportation of ODC will pave the way for logistics companies to make more effective measures to transport machines safely. “Besides this, leveraging on technologies and tools coupled with the use of analytics and real-time monitoring can bring immediate insights into performance results, helping carriers to target service failures proactively,” opines Badhya. Besides technology, creation of a vivid website providing information on routes could facilitate the entire operation in an efficient way. Says Raibagi, “A website that gives clear indication on the best mode of transport to be adopted is imperative. In addition, the site should provide details such as the best and shortest possible route to reach various destinations.” For example, if there is any weak bridge on the route and does not allow movement of heavy vehicles, then this information has to be circulated through the website. “Such portals providing valuable information to the transporters will always be handy and help in proper planning and scheduling of the shipments,” he points out. As far as cargo clearance is concerned, if the goods under transportation fall under the ODC category, then there should be
Leveraging on technologies and tools coupled with the use of analytics and real-time monitoring can bring immediate insights into performance results, helping carriers to target service failures proactively. RAGHAV BADHYA, DIRECTOR & GM–PM BUSINESS UNIT, MAKINO INDIA
principles for any supply chain & logistics company, and serving customers efficiently should be the focus area,” exhorts Badhya. Quality and on-time performance across geographical networks may also be facilitated using technologies such the real-time location systems (RTLS), and sensor data capture cards. “Dynamic deployment of these new technologies helps to manage challenges like vibrations, shocks, and temperature changes faced while machines are in transit. All these factors are important and need to be
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transparent single-window permission system for obtaining permits for carrying of such goods. “Priority should be given to passage of vehicles containing heavy industrial machinery on roads. RTO and city police often harass and demand bribe while the heavy industrial machinery is being transported. Such wrong practices need to be stopped. Apart from this, the ministry should form a separate central autonomous authority for permitting and regularising ODC consignment movements end-to-end, and there should be uniformity all over India with respect
to the procedure,” exhorts Sanghvi. Another solution that could solve the current problems and reduce the burden on roads lies in the development of inland water system. “One of the suggestions is to improve the inland water transport system in India, as this mode is cheaper as compared to other modes. Transporting cargos through inland water route will prove beneficial in terms of size of the machine as well as tonnage capacity,” points out Mohta.
MOVING TOWARDS ONE-STOP SHOP SOLUTION PROVIDERS Indian logistics companies are gradually moving up the value chain and are adopting best practices. Currently, many existing logistics companies are expanding well beyond simple delivery services and are now managing all aspects of the supply chain. On the other hand, many players in the machine tool industry are looking for a one-stop shop–providers that can deliver a wider range of services such as packaging, insurance, transportation and offer valueadded services such as site pickup and delivery, complete documentation, etc. under one roof. Again, technology alone is not enough; proper infrastructure is equally important. Raibagi strongly feels that India does have the right technologies for transporting the industrial machines. “We lack proper infrastructure to support technology. If we develop proper infrastructure, all the major problems will automatically get addressed,” he adds.
CRITICALITY OF TIME Timely and reliable delivery is important for machine manufacturers as it enables commissioning of machines at customer site on time. This task can prove more challenging when one-stop solution is unavailable and requires co-ordination with two to three or sometimes more agencies. If the factors mentioned above are taken seriously and appropriate measures are taken, it can dramatically change the scenario of industrial logistics machinery segment in India. What is more important is the government’s proactive support to the segment. Once these issues are put into place, more initiatives will follow from both the machine manufacturers as well as logistics companies, which will ultimately ensure safer transportation of industrial machinery.
TECH TRACK IT TRENDS IN LOGISTICS
Indian Logistics Players Bullish On Tech Investments In 2010 INDIAN logistics software provider Softlink Logistic Systems has revealed the survey results on ‘Adoption of Technology in Indian Logistics Sector-2009’, conducted amongst 700 Indian logistics players operating in customs clearing, freight forwarding; non vessel-owning common carriers (NVOCCs); and 3PL players. The survey revealed that larger logistics players are opening up for technology investments in the year 2010. It highlights that the number of larger players, making technology investments up to Rs 10 million, has been doubled to 14 per cent in 2010 compared to last year. In the survey, 89 per cent of the larger logistics players highlighted that Direct Customer Request will remain the key driving factor to invest in technology this year. The other two factors would be improving customer service (88 per cent) and improving data quality (69 per cent). The study also gauged the penetration of technology in key areas of the logistics industry, namely commercial documentations and regulatory compliances. It has been observed that most of the larger players’ existing technology systems are not matching the desired requirements for these areas. The survey highlighted that 98 per cent of the respondents feel commercial documentations and regulatory compliances are important aspects in their businesses, at the same time 14 per cent and 19 per cent respectively said that their existing IT system is not meeting the expected requirements. The report also highlighted that though 96 per cent of the respondents feel that customer service is an important aspect in their businesses, 34 per cent respondents still feel that their existing IT system is not meeting the appropriate requirements of customer service. Amit Maheshwari, founder & CEO, Softlink Logistic Systems, said, “The Indian logistics industry is often accused of being averse to adopting technology but the survey has conclusively dispelled the
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misconception. According to the survey, the logistics player is increasingly aware of benefits of technology adoption and its impact on their business. This emerging trend will help drive down the cost of transactions, which ultimately will help the industry become more competitive.” Some findings of the report are: • 91 per cent of SME logistics players feel that improving customer service will be the key motivating factor to invest in technology, followed by direct customer request (84 per cent) and improving operational efficiency (73 per cent). • Around 30 per cent of the SME players are yet to decide on technology investments in 2010. • 98 per cent of SME logistics players feel that commercial documentation is an important aspect in their businesses. While 28 per cent respondents highlighted that their existing IT system is not matching up the requirements of commercial documentation. • 97 per cent of SME logistics players highlighted that regulatory compliance is an important aspect in their businesses. While 35 per cent respondents highlighted that their existing IT system is not matching up the requirements of regulatory compliance. • 98 per cent of SME logistics players highlighted that financial accounting is important in their businesses, out of which 92 per cent are using technology. Of these 92 per cent, 21 per cent of the respondents feel that their IT system is not matching up the requirements of financial accounting. • Around 97 per cent of SME logistics players highlighted that customer service is important in their businesses. Also, 39 per cent respondents accepted that their existing IT system is not meeting the requirements for customer service. Courtesy: www.biztech2.com
Ramco Systems, ESIS Partner For Supply Chain Integration RAMCO and ESIS have announced a partnership that extends Ramco’s repair, procurement and invoicing functions directly into the supply chain. The partnership leverages all versions of Ramco’s Aviation Software Solutions in M&E, MRO and Enterprise Resource Planning (ERP). The partnership with ESIS’ Harmony Order Management (HOM) network provides seamless, out-of-the-box supply chain integration as a fully hosted Software as a Service (SaaS) solution. “Leveraging Ramco’s Enterprise Systems with ESIS’ existing network of over 25,000 suppliers is a win-win deal for customers and their supply chains,” said Derek Baggerly, CEO, ESIS. “Procurement and e-commerce systems are notoriously complex for both ends of the supply equation; by providing an end-to-end SaaS solution from industry leaders, ESIS and Ramco created two benefits that are typically so hard to bring together–ESIS & Ramco provide real returns on investment (ROI) while actually making the process simpler for all involved,” Baggerly added. “Ramco has simplified these purchasing and procurement processes. The partnership with ESIS removes the barriers typically associated with electronic commerce imposed by current electronic data interchange (EDI), Spec2000 and other standards that made the cost of B2B networks prohibitive for most companies,” said Jim Fitzgerald, president, global aviation solutions & enterprise applications, Americas, Ramco. “We now have an economical solution that connects one’s enterprise with hundreds of suppliers and not just the vital few that are technology-savvy,” he further added. Courtesy: www.biztech2.com
RFID technology enables efficient use of assets in gas cylinder industry UPM Raflatac and Technology Solution Partners LLC have jointly developed a curved UHF RFID tag as part of a gas cylinder tracking and production solution called Trakaid CyTrack. The solution interfaces UPM Raflatac Belt RFID tags equipped with NXP’s U-Code G2XM chips with a four part application comprising tracking, interface, mobile and synchronisation systems. The solution seamlessly integrates the production, warehousing and distribution processes. Each gas cylinder is tagged, and data from the tags is automatically read and entered into the system. This leaves no room for data entry errors due to illegible handwriting, poor readability, transcription or transposition. Trakaid CyTrack was first implemented at Kay Nitro, a manufacturer and supplier of industrial gases including medical oxygen and nitrogen in Maharashtra, India. The company uses the solution to manage cylinder movement during receipt, filling and issue in order to reduce operating costs and improve productivity by automating data entry. This automation
improves overall accuracy, allows efficient use of assets, enables faster turnaround of inventory, increases employee and customer safety, reduces cylinder loss and enhances the customer experience. “The RFID solution helps Kay Nitro improve the visibility of the cylinders’ operational cycle while reducing untraceable assets,” says Yogendra Chaudhary, manager, Kay Nitro. “We use RFID technology to shorten the production and turnaround time for cylinders to remove costs and downtime from our processes. This also results in improved safety, which reflects directly on our bottom line.” Kay Nitro implemented the RFID solution into its normal operating processes without any disruptions. The benefits of an RFID implementation to the gas cylinder industry are measurable. Cylinders represent a highly valuable investment, and productivity is closely tied to how well these assets are managed. Overall, the average increase in productivity from receiving to shipping is 30 per cent.
Air India Signs $190 Mn Deal With SITA AIR India recently announced a $190 million (Rs 855 crore) deal with aviation solutions provider SITA to upgrade its IT infrastructure, which will enable it to join the Star Alliance. “It will enable us to align processes & systems to meet Star Alliance standards. Air India will then be able to leverage the complementary strengths and synergies of the single new carrier to the maximum, resulting
in a more competitive, customer-friendly and world-class airline with significant improvement in our passenger yields,” said Arvind Jadhav, chairman, National Aviation Company India (NACIL), which operates Air India. “The deal is valued at $190 million over ten years,” he said. Jadhav said the technology upgradation would help complete the merger of Indian Airlines with Air India. “SITA’s services will be used to deliver a single airline code to allow the seamless integration of the former domestic carrier Indian Airlines with Air India for the first time since they merged in August 2007,” he added. Courtesy: www.biztech2.com
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HighJump Software Launches WMS in a Cloud Delivery Model HIGHJUMP Software has recently launched its warehouse management system (WMS) in a cloud delivery model. The hosted WMS will have the same features and functionality as the onpremise HighJump WMS, as well as the ability to build unique industry-leading business processes using the HighJump adaptability tools. With Cloud computing, the WMS vendor hosts the software application and hardware infrastructure. The customer accesses the WMS via a Web browser. Cloud-based solutions are becoming a common alternative to on-premise software as businesses seek ways to reduce IT requirements and simplify maintenance and upgrades. Because all system infrastructure is based on an offsite, secure data centre, Cloud solutions also eliminate upfront capital expense and reduce the risk & time required by onpremise implementations. “It allows experts to maintain and upgrade your system; and from a budgeting perspective, having a simplified SaaS payment plan that includes software, the server infrastructure, and maintenance for both, better aligns the costs with a new WMS to the cost reductions it brings. HighJump Software demonstrates a strong vision in this space as the overall trend of SaaS solutions starts to gain wider adoption in supply chain applications,” said Steve Banker, service director – SCM, ARC Advisory Group. “HighJump already offers a Cloud-based option for transportation management and route accounting systems, and we are pleased to add warehouse management to our Cloud suite,” said Russell Fleischer, CEO, HighJump Software. “HighJump WMS in the Cloud will allow companies of all sizes and complexities the option of simplifying maintenance and lightening the IT load while gaining the benefits of a Tier-1 best-of-breed WMS.”
IT IN LOGISTICS
RENDERING TANGIBLE BENEFITS
Radio frequency identification (RFID) technology, if implemented properly, can work wonders for manufacturers, logistics service providers, retailers, among others. It can be employed throughout the production cycle and up to the supply chain. By using the highly accurate, realtime and unattended monitoring capability of RFID to track goods, manage assets, improve visibility into inventory to enable overall inventory levels, logistics service providers can reap tangible benefits, be it reduced costs or increased returns on investment. RFID systems hold enormous benefits for manufacturers, retailers, logistics providers and government agencies. Currently, many sectors are making unprecedented use of RFID technology to track, secure and manage items right from the raw material stage through the entire lifecycle of the product. RFID is commonly used to identify pallets, containers, vehicles, tools and other assets, monitor inventory and route materials through production processes. RFID can provide immediate and tangible benefits throughout the
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production cycle up to supply chain. Organisations that understand the technology’s capabilities and limitations can increase their inventory visibility while streamlining their operations. Further, manufacturers can especially benefit from this technology, as it makes internal processes more efficient and improves supply chain responsiveness.
THE TECHNOLOGY RFID systems are employed to wirelessly exchange information between a tagged
object and a reader/writer. However, the reader/writer is normally interfaced with an automation platform (a programmable logic controller (PLC) or a PC). An RFID system comprises the following components: • Tags (also called transponders) that include a semiconductor chip. The tag always has an integrated antenna as an information receiver/sender. • Read/write devices (also called interrogators, or simply, readers) convert the data electrically sent to it
from an automation solution into RF and transmit it to the tag. The data received from the tag through RF is converted into electrical one and resent to the automation solution. • The RF transmit and receive job is done by an antenna that may be an integral part of the read/write device or can be remote (physically displaced), connected to the read/write device through cable.
HOW IT WORKS There are two types of tags, namely, active and passive. Most tags receive energy from the read/write device through another RF frequency channel (passive tags), while some tags (primarily used in locating applications) have a battery within for the energy requirement (active tags). Each tag
Schematic of RFID
the sent data depending on read/write job initiated by the interrogator. The read/write device receives the tag signal with its antenna, decodes it and transfers the data to the host computer system over a suitable communication link. The tag can hold a variety of data about the item, such as its serial number, configuration instructions, what time the item travelled through a certain zone, as well as temperature and other data provided by sensors. The range or read/write distance is very critical; one must always refer to the specifications of the tag to conclude on this issue. Range (read/write distance) A RFID system’s ‘read/write range’ is the distance at which the reader/writer
No single frequency is ideal for all applications, even within a single industry. RFID tags of different frequencies and functionality will be used together within overall production cycle up to supply chain operations. Current logistics and supply chain applications tend to use the UHF band, either between 860 and 930 MHz or 13.56 MHz. For read/write tags, the read range is typically greater than the write range. Active tags are capable of much longer ranges than passive tags. For example, 433 MHz active tags can transmit data to about 300 feet, but passive tags at the same frequency are typically readable from up to 25 feet. Frequency Frequency is one of the leading factors that affect range. Virtually all RFID systems used today fall into one of the four frequency bands. Table 1 illustrates the typical frequencies and range relationship RFID tags can be attached to virtually anything– from a semi-tractor to a pallet, to a case or to an item on a store shelf. If multiple tags are present in the field, more efficient RFID implementations have anti-collision algorithms that determine the order of response, so that each tag is read only once.
TYPES OF TAGS
Various types of tags are required for use requires a specific read/write device. antenna must be from the tag in order In the above set-up, the data to be in different environmental conditions. For to read/write the information properly written into the tag is communicated by example, tags that perform well when on/from a memory chip of the tag. This the host computer or PLC on a suitable attached to cardboard cases are not the range varies from a few centimetres to communication link with the read/write best choice for wooden pallets, metal tens of metres and depends mainly on devices. This data is converted into radio containers, or glass. Tags may be as small the following factors: waves in the read/write device and then as a grain of rice, as large as a brick, or • Frequency used transferred between the read/write device thin and flexible enough to be embedded • Power output and RFID tag (transponder). It is essential within an adhesive label and run through • Whether a tag is active or passive here that the frequency of the tag and a barcode label printer. • The directional sensitivity of the the read/write device is the same. The Tags also vary greatly by their antenna interrogator (read/write device) sends performance, including read/write ability, • The presence of metal and liquids out a signal, which is received by all tags memory, and power requirements. also affects range and read/write tuned to that frequency that are present Depending upon the application and performance, as these materials may in the RF field. This is of course possible if environment, RFID tags have a range cause interference. the read/write device supports of durability. Paper-thin labels, Frequency Band Description Range multi-tagging. often referred to as ‘smart labels’, 125–134 KHz Low frequency To 18 inches Tags receive/send the data are typically used for disposable signals with their antennas. The applications and, as such, are not 13,553–13.567 MHz High frequency 3-10 feet selected tags when in the RF as durable as other tag types. 400–1000 MHz* Ultra-high frequency (UHF) 10-30 feet field produced by the read/write Many tags are used for 2.45 GHz Microwave 10+ feet device respond by transmitting permanent identification Table 1: Frequency & range relationship of RFID tags the data stored or accepting applications and can be encased
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UICK TAKE Early RFID adopters in the consumer goods industry reduced supply chain costs between 3 and 5 per cent and grew revenue between 2 and 7 per cent because of the added visibility RFID provided, according to a study by AMR Research. in materials to withstand extremely high heat, moisture, acids and solvents, paint, oil and other conditions that make text, barcode, or other optical-based identification technologies unusable in the environment. RFID tags can be reusable and suitable for lifetime identification, which can provide a total cost of ownership (TCO) advantage over barcode labels or other identification methods that are disposable, need periodic replacement, and have critical line of sight requirements for reading. Because direct line of sight between the reader and tags is not necessary, there are many placement options for RFID readers than were possible with barcode labels. Readers can be either placed in a fixed position or be portable, just like bar code scanners. Fixed-position readers can be mounted to read items travelling through dock doors, conveyor belts, loading bays, gates, doorways and other areas. Readers may also be attached to lift trucks and other material handling equipment to automatically identify pallets and other items that are being moved. Interrogator capabilities have also been engineered now to fit into smaller mobile devices. Smart labels are special tags that can be sized and printed suitably as per the demand of the user. Typically, ‘smart label’ tags are initially programmed by special printers that have the capability to print barcodes or other visible information on the paper outside of the label, while also writing to the memory located on the RFID chip inside the label.
PERFORMANCE FEATURES AND BENEFIT ANALYSIS Radio frequency is not an optical technology and does not require line of site between the tag and reader, which
is an important distinguishing feature that gives RFID many performance advantages, compared to barcode and other automatic identification technologies. As RFID is a radio-based technology, performance considerations for its implementation are as follows: • RFID can be susceptible to interference from other radio transmissions and metal. • Some materials absorb RF signals more readily than others. • Sensitivity to interference varies by frequency and the usage environment. These factors can impact the tag read/ write range and speed that is seen. • As no line of site is required, RFIDtagged objects can be read in different orientations at very high speeds. • Orientation sensitivity depends on the antenna. • In some environments, tags may be read in any orientation/design and the
RFID is valuable as an authentication technology as well as an identification technology, and some consumer goods manufacturers are embedding it into their products to fight counterfeiting and diversion.
in harsh environments; enables multiple tags to be read simultaneously; and provides a high level of data integrity. • RFID can also provide security and product authentication because tags can be applied discreetly and are extremely difficult to counterfeit.
SECURITY It is extremely difficult to counterfeit radio frequency identification chips. A hacker would need specialised knowledge of wireless engineering, encoding algorithms, and encryption techniques. Different levels of security can be applied to data on the tag, so information could be readable at some points of the supply chain but not others.
STANDARDS Standards initiatives for logistics and itemlevel tracking also specify frequencies. Major retailers are basing RFID supplier tagging requirements on the proposed Electronic Product Code (EPC) specifications that were developed at the MIT Auto-ID Center (and are now managed by EAN International and the Uniform Code Council through EPC Global).
APPLICATIONS amount of interference that is present. This gives product and package designers tremendous flexibility in tag placement options, and eliminates the need for human intervention to scan labels or to ensure that items are placed properly for reading in conveyor belt or retail checkout applications. • RFID is a flexible technology that is convenient, easy to use, and wellsuited for automatic operation. • It combines advantages not available with other identification technologies: RFID can be supplied as read-only or read/write; does not require contact or line-of-sight between the reader and the object to be identified; can function
By using the highly accurate, realtime and unattended monitoring capability of RFID to track raw materials, work-in-process and finished goods inventory, manufacturers can improve visibility and confidence into their inventory to enable overall inventory levels, labour costs, and safety stocks to be reduced.
The different available frequencies, tag and reader designs give users many choices to consider when planning an RFID application. Finding the right combination of features becomes straightforward once users begin planning their applications and develop an understanding of their needs and goals. Given below is an overview of how common RFID applications work, the functionality they require, and the benefits they provide in different fields. Asset management RFID tags can be permanently attached to capital equipment and fixed assets including pallets, remote procedure calls (RPCs), cylinders, lift trucks, tools, vehicles, trailers, and equipment. Fixed position readers placed at strategic points within the facility can automatically track the movement and location of tagged assets with 100 per cent accuracy. This information can be used to quickly locate expensive tools or equipment when workers need them, eliminating labourwasting manual searches. Readers can be set to alert supervisors or sound alarms, if there is an attempt to remove tagged items from an authorised area. By tracking pallets, totes and other
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containers with RFID, and building a record of what is stored in the container as items are loaded, users can have full visibility into inventory levels and locations. With visibility and control, manufacturers can easily locate items necessary to fill orders and fulfill rush orders without incurring undue managerial or labour time. RFID tags or labels on pallets, cylinders, and shipping containers can be automatically read at the dock door as they leave with an outgoing shipment. By matching the reading with specific shipment information in a database, manufacturers could automatically build a record of what specific shipping containers were sent to each customer. This information could be used to document cycle times, improve returns, and recoveries and aid in disputes with customers about lost or damaged assets. Product tracking By applying RFID tags to subassemblies in the production process, rather than to finished goods, manufacturers can gain accurate, real-time visibility into work-inprocess in environments where bar codes are unusable. Industrial control and material handling systems can integrate with RFID readers to identify materials moving down a production line and automatically route the items to the appropriate assembly or testing station. This capability, which requires no human intervention to look up item serial numbers or other identification marks, provides the accuracy and labour savings needed to efficiently execute complex sequencing and make-to-order production. Inventory control The main benefits of using RFID in the supply chain come from improved inventory tracking, especially when the technology’s capabilities are used to collect information and provide visibility in environments, where tracking was not done before. Manufacturers, distributors, logistics providers and retailers can all use RFID for inventory applications, and in carefully planned systems, may share the same tags to reduce implementation costs. As it can be read through packaging, without concern to orientation, without direct line of sight between object and reader and can withstand exposure to dirt, heat, moisture and contaminants that make bar codes unusable, RFID can remove blind spots from inventory and
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The Auto-ID Center study found that manufacturers could reduce their working capital needs between 2 per cent and 8 per cent by taking advantage of RFID to provide greater visibility into workin process tracking and materials inventory. supply chain operations. Readers covering warehouse racks, shelves and other storage locations could automatically record the removal of items and update inventory records. If an item was misplaced or was needed urgently to complete an order, fixed-position readers or a worker with a mobile computer and RFID reader could automatically search for the item by reading for its specific ID number. To secure inventory from theft and diversion, readers could be set to sound alarms or send notification, if items are placed in unauthorised areas of the facility or removed from storage without prior approval. Direct store delivery (DSD) and other remote sales & service personnel could take advantage of RFID readers integrated with mobile computers to quickly and accurately count inventory held in stores or in the vehicle. Shipping & Receiving The same tags used to identify work-inprocess or finished goods inventory could also trigger automated shipment-tracking applications. Items, cases or pallets with RFID tags could be read as they could be assembled into a complete customer order or shipment. The individual readings could be used to automatically produce a shipment manifest, which could be printed in a document, recorded automatically in the shipping system, encoded in an RFID tag, printed in a 2D bar code on the shipping
Areas of applications for RFID • Warehouse/logistics • Distribution channel automation and tracking • Order picking • Industrial production lines • Assembly lines • Transport/traffic management • Transport/shipping logistics • Locating/detecting.
label, or any combination. Manifest information encoded in an RFID tag could be read by the receiving organisation to simplify the receiving process and to satisfy requirements like those for advance shipping notices (ASN).This will ensure that there are no processing delays, if the physical shipment arrived before the electronic data interchange (EDI) transmission with the ASN information. Having complete shipment data available in an RFID tag that can be read instantly without manual intervention is valuable for inter dock and high-volume distribution environments. Incoming
FID IS COMMONLY USED TO IDENTIFY PALLETS, CONTAINERS, VEHICLES, TOOLS AND OTHER ASSETS, MONITOR INVENTORY AND ROUTE MATERIALS THROUGH PRODUCTION PROCESSES.
shipments can be automatically queried for specific containers. If a sought-after item was present, it could be quickly located and selected.
REGULATORY COMPLIANCE Companies that transport or process hazardous materials, food, pharmaceuticals, and other regulated materials could record the time they received and transferred the material on an RFID tag that travels with the material. Updating the tag with real-time handling data creates a chainof-custody record that could be used to satisfy regulatory agencies like Food and Drug Administration (FDA), Occupational Safety and Health Administration (OSHA) and other regulatory reporting requirements. RFID tags are also an effective way to satisfy the tire traceability requirements of the TREAD Act. All in all, the proper implementation of RFID technology would ensure smooth supply chain activities and provide better returns on investment. Milind Kulkarni, head-business development (factory automation) Industrial Automation Division, Siemens
OUTSOURCING SCM SUPPLY CHAIN BEST PRACTICES
10 CRITICAL DATA ISSUES TO DEVELOP ROBUST SUPPLY CHAIN
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SCM best practices, continued
With increasing complexities in managing supply chain data, especially when brand owners outsource SCM activities, it has become imperative for them to create a robust supply chain data model. Such a model will enhance customer service and reduce operating expenses. Moreover, it will provide supply chain visibility and detailed demand-supply data, enabling brand owners to make information-based supply management decisions.
TODAY most manufacturers have built sophisticated, multi-tier and multienterprise supply chains consisting of distribution centres, contract manufacturers (CMs), suppliers and the like. The once simple, linear supply chains of yesterday now consist of a virtual network of interconnected players responsible for different pieces of the supply chain management. While brand owners may be able to outsource some operational responsibilities, they remain accountable for their brand and quality to ensure satisfaction of customers. In addition, with constant customer demand changes, new product introductions and engineering revisions, brand owners must still own key segments of the supply chain. So in an outsourced environment, what is needed is a balance where manufacturing operations are managed by CMs and suppliers, but brand owners actively co-ordinate activities across the virtual enterprise to ensure the desired outcome.
Factors contributing to the increasing complexities of today’s supply chains • Demand volatility has increased radically; supply plans must be frequently reassessed and adjusted • The rate of product introduction has increased, and excess and obsolescent inventory has become a significant risk • Outsourced supply chains may be quite deep, with more than one level of outsourcing • Alternative parts may often be used to satisfy demands; criteria for use of alternatives may be complex • Brand owners may have strategic purchase agreements with component suppliers, which must be respected • Alternative supply sources are often sought to minimise risk; criteria for use of alternative suppliers may be complex • Capacity agreements are often in use with outsourced suppliers, and these must be respected in source selection, supply planning • Yields may vary across suppliers and must be considered in planning processes • Inventory liability agreements are often in place with outsourced suppliers, and inventory rebalancing across international sites is often an expectation as part of the supply plan. • Enable multiple users to work simultaneously from a single real-time ’version of truth’.
What makes an effective supply plan? Clearly, the decision-making process will be unique to an organisation and will usually balance key performance indicators (KPI) relating to customer service, revenue, costs, and potential liabilities. As brand owners turn to outsourced manufacturing, supply planning, monitoring and response becomes more complex. Where talented, trusted planners could once survey the shop floor, assess capacity and material availability, and develop or adjust supply plans, now there are too many factors for an individual to keep track of. Brand owners are quick to discover that the first critical impact of outsourcing is the loss of visibility of detailed demandsupply data that they once held in their own enterprise resource planning (ERP) systems. Without this visibility, they cannot make information-based supply management decisions. While getting
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access to detailed demand-supply data is usually their first focus, it soon becomes apparent that tools that can allow them to view, analyse, and manipulate this data are also a high priority. Achieving this level of supply chain visibility and co-ordination is no easy feat. It requires adopting technologies and tools that can: • Pull diverse sources of supply chain data across multiple systems (internal and external to the organisation) • Provide high computation capabilities that allow rapid and deep data analysis with record-keeping • Integrate transactional systems to facilitate action
MANAGING BY SPREADSHEETS IS NO LONGER ENOUGH Spreadsheets with site-specific data points are the normal starting point for many organisations. While many have come to rely on tools such as Excel as a way to extract, consolidate, and share data, the problem is that Excel was not designed for this particular purpose. It cannot manage the volume of data required; it has limited modelling capabilities and it is difficult, if not impossible, to effectively and simultaneously collaborate with supply chain participants. The solution turns out to be quite time-consuming and cumbersome and rarely yields ideal results, given its propensity to human errors and inconsistent processes. Moreover, to effectively leverage core operational data for global supply chain planning, monitoring and response, it is not enough to model just the data at each supply chain node; visibility of supplier
inter-dependencies and demandsupply flow across the network is required. For global performance management, one needs global visibility. A multi-enterprise, multi-tier view of manufacturing operations is required to have a full outlook of the business and to strategically manage the supply chain as appropriate.
TACKLING THE PROBLEM
1 2 3 4 5 6
There are competing objectives: keep 7 the supply chain data model simple for ease of data management, but 8 still accommodate all of the complex potential inter-relationships–factors 9 that support simulation of demand10 supply alternatives. In addition, once the data is in place, processes are required to: • Identify real or potential supply issues • Simulate various alternative courses of action • Evaluate these alternatives. This must be done in collaboration with suppliers and/or customers in order to determine the most effective actions. The following are ten critical data issues to be considered in structuring the supply chain data model for maximum utility.
FFECTIVE CO-ORDINATION OF THE OUTSOURCED SUPPLY CHAIN THROUGH A ROBUST SUPPLY CHAIN DATA MODEL IMPROVES CUSTOMER SERVICE AND REDUCES OPERATING EXPENSES.
CAPTURE CORE DATA FROM PARTNERS Often, outsourcing agreements include provisions for data sharing, which address both content and frequency of data feeds. Working closely with suppliers to understand the details of this data is a critical component of the collaboration process. Part numbering issues Part numbering schemes usually vary across supply chain nodes. It is imperative to establish common or equivalent part numbers for global planning and netting. Cross-referencing supplier
supplier may commit to producing a fixed quantity per week of a specific part, or grouping of parts, Part numbering issues or he may commit to a fixed Core supply node master data and percentage of available hours on supply-demand details a particular manufacturing line. If Supplier constraints, both capacity and known, these constraints should material based be reflected in sourcing rules and should be adjustable by the planner In-transit quantities, lead times for simulation. Tolerances, demand and supply changes In-transit quantities, lead Inventory rebalancing expectations times Alternative supply plans At any given point in time, a significant portion of the existing Supply sourcing: Strategic end-item inventory may be in transit between selection supply nodes. Clearly, synchronising Supply sourcing: Supplier selection the timing of data collection for all Metrics for supply plan evaluation. nodes, including in-transit quantities is critical, if data collection is not parts to brand owner part numbers is real-time. In practice, getting the in-transit the most common approach. However, it data right is often one of biggest data may also be necessary to consider parts in hurdles and a clear understanding of how groups for netting purposes. For example, in-transit quantities relate to supplier some suppliers may identify parts at the commitments is mandatory. Leadrevision level, while others do not, or time information is normally available planning may be done at a product line from supplier, but, when modelling the level, not the detailed part level. System full supply chain, transit time between support for use of alternative parts and/ partners becomes more important to or aggregation of supply and demand model cumulative lead-time. across multiple parts may be a critical MODEL CONTRACTUAL TERMS requirement. Core supply node master data As demand fluctuates and supply plans and demand-supply details are adjusted, it is important to be able to Parts, bill of materials (BOMs), quickly determine if contractual terms are on-hand inventories, local order policies, being violated. Tolerances, demand and supply priorities, scrap and yield factors are changes usually required for each supply chain Outsourcing agreements often put node, as well as all active demand and limits on demand and supply change within firm supply records. It should be possible specified periods to determine excess to match the local planning behaviour inventory liability. In the supply planning of the outsourced supplier reasonably process, forewarning of potential liabilities closely. This becomes particularly is certainly desirable. By capturing these important when there are multiple levels tolerances, planners can simulate different in the supply chain. Incorrect planning at supply plans, and evaluate demand one level can radically skew requirements & supply changes outside of agreed for downstream suppliers. tolerances to provide some mitigation Semiconductor manufacturing against excess inventory liability. provides one example here, where wafer Inventory rebalancing fabrication, assembly and test may all expectations be handled by separate suppliers with Brand owners often expect potentially different lot sizing, lead times, their contract manufacturers to source and yield factors at each stage. Without component inventory from existing matching each supplier’s planning policies, excess at other nodes before purchasing it would be impossible to accurately plan more. Rules must be understood, so that for product availability. Supplier constraints, both capacity inventory transfers can be simulated. and material-based SIMULATE SUPPLY ALTERNATIVE Suppliers may have shared STRATEGIES constraint information, and sourcing may Perhaps, the biggest benefit of having be constraint-based. For example, a
MAY 2010 • SMART LOGISTICS • 57
SCM best practices, continued
the supply chain data model in place is the ability it provides to brand owners to simulate supply alternatives across the entire supply chain. While contract manufacturers and component suppliers are responsible for managing manufacturing operations, brand owners, with this visibility, can actively collaborate with them and ultimately co-ordinate activities to manage supply and minimise risks for all partners. A successful collaboration process will increase trust levels and ultimately strengthen the relationship between brand owners and suppliers. Alternative supply plans Product availability based on existing supplier commitments compared to product availability based on projected supplier capability using the supply chain model is often the starting point for analysis. It should be possible for the brand owner to simulate potential supply alternatives by: • Changing rules for end item selection • Changing sourcing rules for suppliers • Transferring existing inventories • Simulating other changes in planning policies, such as lead-time. Planners can use those simulation results as the basis for collaboration with suppliers. Supply sourcing: Strategic enditem selection One alternative strategy to improve supply may be to change the mix of equivalent products that are planned. This end-item selection can be complex in many environments. Item selection could be based on purchase agreements for strategic components, customer qualification status for specific end-items, end-of-life plans for products, etc. Selection rules should be made visible in the data (perhaps as part of the bill of material or represented as partto-part transfers), so that planners can review and adjust them for simulation of alternatives. Supply sourcing: Supplier selection Use of alternative suppliers is one of the most common strategies for supply improvement. It is advantageous to be able to identify all potential supplier relationships, not just those currently active, if planners are to be able to simulate and evaluate potential supplier changes. For example, all demand may be sourced to a single supplier, but in the event of a demand increase, the planner may want to simulate splitting supply across two or
58 • SMART LOGISTICS • MAY 2010
more sources, perhaps on a percentage basis, or on absolute quantities, or based on supplier capacity. Rules should be structured in such a way that planners can simulate time-phased rule changes or can simply override supplier information on particular orders. Metrics for supply plan evaluation What makes an effective supply plan? Clearly, the decision-making process will be unique to an organisation and will usually balance key performance indicators (KPI) relating to customer service, revenue, costs, and potential liabilities. Change will be frequent, and it is important for brand owners to be able to respond to change by simulating supply alternatives and measuring the impact on the overall plan. Building a set of metrics for this comparison of alternatives is a key component. Planners should be able to compare several alternative strategies before selecting the optimal one in the
chain–including the ability to respond to demand variability Simultaneously representing demand, supply, product and production capacity at all levels of the extended enterprise Supporting multiple layers of the supply chain simultaneously to understand changing end demand and supply conditions for all supply nodes Facilitating brand owner processes that have become extremely difficult with outsourcing (such as sales and operations planning, inventory management, new product introductions (NPI), endof-life (EOL) optimisation, product profit management) as well as new processes introduced with outsourcing (such as contract and inventory liability management) Enabling reliability and consistency in business processes Ensuring that all supply chain participants are working towards mutually beneficial goals.
Ensuring supply chain excellence The biggest benefit of having the supply chain data model in place is the ability it provides to brand owners to simulate supply alternatives across the entire supply chain. While contract manufacturers and component suppliers are responsible for managing manufacturing operations, brand owners, with this visibility, can actively collaborate with them and ultimately co-ordinate activities to manage supply and minimise risks for all partners. A successful collaboration process will increase trust levels and ultimately strengthen the relationship between brand owners and suppliers. event of supply constraints. The impact of alternative strategies on KPIs should be able to be ranked and compared across scenarios to obtain a balanced scorecard and an objective way of determining the best course of action.
OWNING THE POWERFUL TOOL Increasing supply chain complexity is driving the requirement for more complex data models. For many organisations, current processes are unsustainable and unacceptable. To survive and thrive in this dynamic environment, companies need to adapt to the new situations. In addition, while it is certainly not without its challenges, it is also not without great benefit when done right. Once the supply chain has been effectively modelled, brand owners will have a powerful tool for: • Ensuring adequate, timely material availability throughout the supply
THE STRATEGIC NECESSITY Improving supply chain management through enhanced visibility and coordination can lead to numerous business benefits, including: • Reduction in inventory, increased inventory turns, and reduced carrying costs • Increased factory throughput • Lead-time reduction • Co-ordinated introduction of new products • More reliable delivery • Better forecasts. In the end, more effective co-ordination of the outsourced supply chain through a robust supply chain data model improves customer service and reduces operating expenses. This has become a strategic necessity in today’s unforgiving business environment. Courtesy: Kinaxis Corporation
DOW INDIA LEADERSHIP SERIES
CREATING A PERFECT SUPPLY CHAIN
Why do chemical companies turn to their high-risk supply chains while managing their margins? While lowering costs could be the simplest answer, a detailed analysis of Dow’s supply chain paints a different story. For Dow India, making its supply chain work in a safe, reliable and sustainable manner makes all the difference to its bottomline and topline growth. Constant evaluation of supplier network, integration of supply chain processes, and implementation of tools for planning and forecasting demand & supply comprise the ‘chemicals’ that make Dow India’s ‘supply chain chemistry’ work successfully. ESTHER BARDHAN & PRERNA SHARMA RECALL the last time you saw, experienced or heard about the supply chain operations of a chemical company. ‘Complex’ would probably be the ‘easiest’ word to sum up the ‘complicated’ supply chain operations of a company moving & storing bulky, hazardous and high-value chemicals. Paint an elaborate picture of a chemical supply chain and
you will come across pressure areas like volatility in energy and raw material costs, continued pricing pressure, risk of customer concentration, supply chain security and a complex regulatory environment. Well, the point here is not to scare companies already reeling under the supply chain woes, but to drive home the ‘supply chain chemistry’ of a company
that created wonders in the highly critical chemical industry. With more than 50 years of operations across seven locations in India and sales in excess of $500 million, Dow is one of the leading chemical companies in India with a supply chain that operates and delivers in a safe, reliable and sustainable manner. However, it took Dow a good deal of efforts and
MAY 2010 • SMART LOGISTICS • 59
Leadership series, continued
implementation of right solutions to meet the critical needs of its supply chain.
THE CRITICAL NEEDS Operating in one of the most critical industries, Dow has unique needs, like any other chemical company, when it comes to logistics. These requirements vary from safe and efficient transportation and storage solutions to availability of smaller capacity bulk storage tank, and frequent services of bulk chemical tankers from Europe to India. While talking about specific needs of Dow supply chain, Kurt Zetah, global supply chain expertise centre leader, Dow, points out that the company has unique logistics requirements such as: • Vessel space availability and frequent arrival to support lean operations • Faster implementation of infrastructure projects to remove bottlenecks affecting productivity and assets utilisation • Extending of vessel sailing from USG on west coast of India to east coast of India • Introduction of new bulk chemical vessel owner on USG-India trade lane, and improved on-time arrival of vessel • Warehousing storage spill control mechanisms and necessary safety elements for chemical storage.
the crucial role played by a 3PL company in ensuring supply chain efficiency, Zetah elucidates, “Currently in India, services offered by 3PL companies are predominately in the field of warehousing management, storage tank farm, inbound/ outbound transportation, custom clearing and forwarding. Now the trend is shifting towards value-added services like reverse logistics, fleet management, packaging, inventory management, order processing, documents management, etc.” He further adds, “More specifically, talking about our line of business, 3PL companies are helping the chemical industry to imbibe greater flexibility in the operations and productivity improvement, take advantage of economies of scale and provide services at competitive prices and access to unfamiliar market & technology.” However, mere introduction of a 3PL catalyst was not enough to achieve the desired solution that would buttress Dow’s supply chain lab. On this note, Zetah states, “Although outsourcing of logistics activities to 3PL providers is increasing, there are very few such organised providers in India.” Dow needed the ‘right chemicals’ to circumvent several odds in ensuring efficient supply chain in India.
WHAT WERE THE ODDS? THE 3PL CATALYST Did Dow roll out any specific logistics services for handling such diversified supply chain needs? It brought the wellknown 3PL catalysts that specifically cater to suit the requirements of chemical companies while providing them with value-added services. When asked about
Infrastructure, regulatory framework, skill development were some of the major hurdles that the company faced. Apart from these critical issues, Dow faced major roadblocks in terms of: • Hired warehouses to stock inventory on ground, near to customer, and converted direct indent business model
Supply chain best practices adopted by Dow • Continuous improvement approaches like Six Sigma and lean philosophy • Evaluation of distribution network using Supply Chain Expertise Centre • Implementation of integrated supply chain work processes and management of change • Use of SAP/Business Intelligence Software/GPS for capturing real-time data and analytics • Supply chain decision is based on customer service level • Trade off between transportation cost, duties and tariff cost & fixed facility cost • Adoption of Executive Sales & Operations Planning (ES & OP) process to manage supply & demand • Planning and scheduling for pull replenishment system • Simulation techniques for warehouse and bulk road tanker fleet sizing • Supply chain metrics as control plan.
60 • SMART LOGISTICS • MAY 2010
to sale & stock business model; • Local mindset of the external partner involved in providing the supply chain solution; • Lack of emphasis on safety and security; • Audit of 3PL service provider against Dow’s environmental, health and safety (EH & S) external audit checklist, CDIT checklist and ADR regulation as applicable; • Restriction created in the flow of goods by various regulatory regimes, which are based on the type of commodity, fiscal-related and location-specific; • Various regulations required a number of licenses and permit to be attained from national or state level authorities, prior to doing any commercial activity. Some of these are to be procured by service providers and some by the importer/exporter/trader or manufacturer. The processes of client compliance as allowed by law is outsourced to the 3PL company offering the relevant services and are monitored/controlled by the concerned function, and included in the service agreement contract; • Transporters do not use global positioning system (GPS) as the nature of market is fragmented and most transporters do not own fleet and take it from the market – this situation is true for packed solid/liquid. An interesting question that grabs attention here as to how were they able to create such a strong supply chain chemistry against all odds? The answer lies in adding the ‘right chemicals’ to create an efficient supply chain model.
‘CHEMICALS’ THAT BONDED THE SUPPLY CHAIN Use of supply chain metrics such as warehouse inventory accuracy, plant inventory accuracy, on-time delivery, days’ sale inventory, cost to serve, inventory turn, assets utilisation, logistics cost, truck loadability to ensure supply chain efficiency has enabled Dow to overcome supply chain bottlenecks. To deliver products on-time to the customers, the company has taken unique routes. On-time delivery and time taken to resolve the customer questions are the metrics used by the company for enhancing customer satisfaction. Zetah acknowledges, “We work closely with our customers to meet their expectations to create value.”
Safety being one of the prime concerns of a chemical company, Dow had to make sure that the goods reach to the customers without any damage. In order to ensure safe transportation of chemicals, they implemented stringent standards by adopting ADR road tanker/IMO tank container, which meet the global standards and as Zetah puts, ‘it is better than its local or global competitors’. To improvise service level efficiency from 3PL side, Dow mitigated the hurdle by inclusion of critical requirements such as necessary skill-sets in the service contract and continuous training to meet Dow’s global expectations. Besides improving 3PL performance, the company linked performance management with demand forecasting and planning across the supply chain.
TOOLS TO FORECAST DEMAND & SUPPLY Dow has moved to a demand-driven business operation programme. This programme links high-level strategic plans with day-to-day operations and integrates business financials. The programme starts
Dow’s critical criteria to select a 3PL partner • Responsible care management • Safety & security of cargo during transit • Training on handling of dangerous chemicals • Emergency response programme • Capability • Credibility & trust • Serviceability • Cost to serve • Area of operations. with an Executive Sales & Operations Planning (ES&OP) process, which balances the demand & supply and then moves to a ‘lean’ or ‘pull replenishment’ system to manage the mix. The demand-driven business operation programme has a suite of tools to help ensure success. The tools range from aggregated demand planning, to balance supply & demand workbooks, to replenishment reorder point tools
Dow Formulated Systems manufacturing and blending facility in Kalwa (Mumbai).
that interface with SAP. From a criticality standpoint, it is important to operate under a demand-driven philosophy instead of centering the operations around one tool.
THE INDIAN EXPERIENCE For India, small is beautiful. It was not cost-effective to work with global players here in India, due to the low volume of the region. The next best alternative was to work with a selective local player with agreement to reach expectation levels in definitive time period – this also helped us to raise the expectation of industry and identify players that can meet global standards. This requires continuous training and knowledge sharing of best practices. This training and selective player approach helps to achieve the highest customer service level at the lowest possible cost.
TOWARDS AN IDEAL SUPPLY CHAIN Gearing up to move to the next phase of growth, the company strongly focusses on providing best services to its customers by adopting best-in-class supply chain modules. On one hand, these modules offer safe & secure delivery of products to the endconsumers, while at the same time offer them higher returns on investment on the valueadded services offered by them to the customers. Backing these modules is the strong philosophy of Dow, to create value for the suppliers & customers in its supply chain. Leading with sustainable and profitable supply chain, the company is working towards perfecting its supply chain model by innovating and elevating supply chain practices to accrue maximum efficiency gains from its supply chain and remain immune to the volatile areas that often scorch the profits of chemical majors.
“What the mind of man can conceive and believe, the mind of man can achieve. ” Napoleon Hill
MAY 2010 • SMART LOGISTICS • 61
WAREHOUSING & DC
DRIVING EFFICIENCIES With changing business dynamics, automation has emerged as an important tool to assist warehouses in becoming agile and flexible. Automation thus holds immense potential to empower warehouses to attain efficiencies. However, an appropriate technology adoption plan for automation that functionally fits into the overall business strategy of the warehouse and easily integrates with the existing infrastructure and cost framework is the need of the hour. RACHITA JHA
62 • SMART LOGISTICS • MAY 2010
dictating market dynamics, companies have reengineered their supply chain model to deliver goods at minimum cost to company and in minimum time. This has resulted in the need for deploying technology and automation solutions in the most critical link of supply chain–the warehouse. On this note, Shankar Hegde, senior consultant, Technoforte Software, informs, “Having worked closely with leading customers in the automobile and electronics industries, over a decade, we have observed a definite shift and a growing interest in adoption of automation solutions. Customers, especially small and medium players, are looking at specialised solutions such as warehouse management systems (WMS), which can help them gain efficiencies as their growth scales up.”
NEED FOR AUTOMATION
Today, as we tread slowly towards gaining back the pre-recession trade volumes, warehouse automation is surely offering business advantages for many in the industry. Technology empowers the warehouse service providers to help choose the right product for the right customer at the right time.
SENSIBLE AUTOMATION A warehouse is a dynamic facility that requires constant co-ordination with the manufacturing unit, distribution centre, and, at times, even the end-customer. The absence of real-time data on products, their location, and the fastest and best-suited delivery mode results in delivery delays–adding cost to the company. As Divyakant Gupta, director, IDCube, observes, “Automation needs to be sensible. The relevant reasons to opt for automation technology in India can be either one or more, including efficient handling of valuable products or perishable raw materials. Besides, a large number of look-alike stock-keeping units and frequent entry & exit of products have led to the need for automation.” More so, as India has started early on the path of economic revival with record production and movement of goods, companies are re-looking at warehouse management strategies and adopting best practices. However, one needs to tread carefully while opting for automation, as it involves huge costs and investments. The exorbitant price of technology
If one traverses through the various warehouse facilities in India, one can observe that they are usually designed and built to cater to the basic need of storage of goods. Last year, many changes were witnessed in the supply chain segment, as demand crashed and many goods from varied sectors had to be stored in warehouses without any movement. At the same time, companies were striving to make their warehouse facilities highly efficient and cost-effective. Thus, while technology and automation spending was curbed by several logistics firms, the significant reduction in time and costs for warehouse operations attained by using automation tools helped many others to smoothly Reasons For Automation ride through recession. Elaborating on the need 1 Space constraints for automation in warehouses, 2 Customers need faster delivery of Hegde avers, “The logistics goods sector in India has largely been laggard in the adoption 3 Existing systems are unable to keep of technology. However, pace with rising volumes considering the future 4 Increasing need for cross-docking growth trends as indicated 5 Compliance mandates of customers by a recent industry report, 6 More individual piece-picking India’s logistics industry is estimated to grow by 400 7 Improving accuracy and eliminating per cent from 1996 figures errors to reach $385 billion and 8 Co-ordination across multiple 14,335 MT by 2012. Such warehouses, facilities, zones, and a pace of growth, fuelled by stocking locations technology adoption such as 9 Increasing labour productivity real-time data, end-to-end visibility, and tighter controls, 10 Reducing direct operating costs and is imperative for business increasing overall revenues. survival in any sector.”
IN this era of heightened competitiveness, where companies are on the look-out for unique ways to meet the requirements of their customers in the shortest possible time, the need for efficient warehousing cannot be undermined. Today, warehousing has emerged as a critical link between all stakeholders; right from the shop floor to the endconsumer. With customer satisfaction
MAY 2010 • SMART LOGISTICS • 63
Warehouse automation, continued
Automation links in warehouse management Inbound
• • • • •
• • • • • • • • • •
• • • •
Receiving Quality assurance Customers Return Directed put-away Cross-docking
Inventory control Replenishment Slotting Cross-docking Checking Validation Replenishment Third party billing Custom labelling & documentation Web-based reports
solutions has been a major roadblock for higher penetration of automation in warehouse operations in India. However, an appropriate technology adoption plan for automation that functionally fits into the overall business strategy of the warehouse and easily integrates with the existing infrastructure and cost framework is much desired. Reflecting on the costeffectiveness of automation technology, Hegde says, “It depends on several factors. For example, a good forecasting model can easily bring about significant reduction in inventory-carrying costs, and enable better space utilisation and productivity improvements. We believe that investing in the right solutions can result in savings in the range of 10-20 per cent or even higher in some cases.” A plethora of technological aids ranging from an exhaustive warehouse management solution software to simple bar codes, for small to large business houses, are available for warehouses to equip themselves with the best in order to stay competitive, and offer time & cost advantages.
Wave planning Directed picking Pack and shipping Inventory management • Cycle count
final destination. India has been slow in the adoption of warehouse automation, but the current landscape offers a wide range of automation solutions for the warehouse segment. Warehouse automation is a combination of hardware and software solutions. The value chain enhancement is applicable for the complete lifecycle of the cargo from the time it enters the warehouse until it reaches its destination. A typical warehouse layout may consist of various location types that cater to a defined function such as receiving, quarantine, reserve, picking, work in process and finished goods. Warehouse Management Systems Warehouse management system is a package solution for integrated control and management of warehouse operations. It helps the company to automate and simplify the process of cargo storage and movement within the warehouse on a single interface. Investments in automation are primarily aimed at bringing in efficiencies and cutting costs that have become critical for any business today to remain competitive. However, one needs
TECH TOOLS After having established the need to automate, a wellthought over strategy is the key to optimum utilisation of technology for warehouse operations. Globally, the efficiency optimisation benefits of automation have become the key drivers of performance, especially after the economic slowdown. Technology adoption in warehouses was reincarnated as the smart and innovative tool for trimming operational costs and streamlining cargo movement from manufacturing site to its
64 • SMART LOGISTICS • MAY 2010
IT Tool Box • Warehouse management system • Radio frequency optimisation • Automated storage and retrieval systems • Bar coding • Wireless • Bar-code scanning • Voice-directed picking • Conveyor-based picking • Vertical and horizontal carousels • Parcel sortation • Pick-to-light systems.
to be aware of the overall requirements of the business and warehousing needs to maximise the benefits of automation. One can find the best fit for one’s needs and build on the software as requirements differ with time and changing industry trends. Radio frequency identification (RFID) Wireless has opened new track and trace opportunities for warehousing operations with RFID being the most popular and cost-effective tool. This technology finds its way into receiving, put-away, picking & shipping procedures and enables monitoring of items at almost anywhere in the warehouse. This has resulted in major savings on workforce costs. This is because the pallets are automatically identified, as they are unloaded from the truck using either a fixed-position RFID reader mounted at the dock door, or a mobile reader mounted on a forklift. In the current scenario, forklift-mounted RFID is proving to be among the few cost effective options for automation. Coupled with a software interface, RFID can extend its benefits to entire asset tracking of the warehouse to enable appropriate use of the available resources through improved planning, thereby saving significant costs for the operator. Elaborating on the future benefits of the technology, Hegde says, “While technology challenges and innovation continues, we see a lot of promising opportunities through the use of RFID in warehousing operations. RFID-based solutions can bring in the next level of optimisation in the supply chain processes. However, in India, the warehouse operations are at a nascent stage in terms of exploring and adopting RFID.” Automated Storage and Retrieval Systems (AS/RS) AS/RS has emerged as the latest trend in inventory management for automatic sorting, storing, and retrieving items in a warehouse. These are commonly used for handling large volumes of cargo and high-density storage. On the problems of manual operations, Gupta avers, “The manual pick-up and drop methods in conventional warehouses due to one or more than one of the limitations usually lead to either a faulty production
or loss in production. The automation system enables optimum storage and quick retrieval of products, and its highly customised applications make them versatile for any industrial sector applications such as warehousing facilities for pharmaceuticals, automobiles, engineering, heavy electrical industry, etc. It has proved to be an excellent technology tool for inventory control and tracking, including greater flexibility to accommodate changing business conditions. It is a huge cost saver and guarantees customer satisfaction along with speedy delivery. Mobility solutions As space and time constraints pose a major challenge for manual operating systems in
many low-cost Essential steps before undertaking automation technologies • Conduct a need analysis for a new automation system available in this • Measure current capabilities area, several • Evaluate the current system companies start with these • Need-expectation evaluation from the new function solutions when • Find the best fit implementing • Screen potential solutions automation. • Consider implementation time The mobile • Ensure options for future technology additions solution usually • Evaluate system for security comprises hand-held • Plan and schedule a good roll-out time. devices, vehiclem o u n t e d terminals, PDAs, etc. It also includes are seamlessly integrated with their wireless infrastructure devices such operational systems can be explored,” as access points, wireless switches, suggests Hegde.
Essential features to look for in a WMS • Integration with advanced radio frequency and bar coding technologies • Complete back-office integration with order entry, inventory control, and purchase orders modules • Scalability to accommodate future business growth • Real-time inventory updates • Hand-held interface • Advanced reporting capability • Support for multiple picking methods • Compliance labelling • Automated inventory receipt and assisted put-away. Source: Sage Software
warehouses across India, the new trend is towards the onset of mobility technology solutions in warehouse management. With
application software, etc. “As technology enablers, use of mobility solutions such as scanners and hand-held devices that
Warehouse Management & Distribution Purchase Process
Sales and Distribution
Carton speciﬁcation Routing orders
Catalog logistics and execution
Pick area reﬁll
Pallet build Shipment documents
Weight and volume management
Track and trace
License plate tracking
Sustaining Processes Parallel job processing
Source: Microsoft Dynamics
FUTURE OUTLOOK Defying the cost consideration, today there are multiple options available for any warehouse to implement automation. Due to the complex overlap of functions with production and distribution centres, warehouses have emerged as the nodal point of strategic interventions for inventory management. But there are limitations. “To a large extent, there is a need for a paradigm shift in thinking and adoption of technology solutions. For some, sooner or later it may be question of survival, given the growth trends, increasingly competitive landscape, enhanced statutory norms and business dynamics. These will prompt faster adoption of technology,” avers Hegde. With increase in demand for warehouse management solutions, technology companies are already taking initiatives to develop smarter solutions at low costs. The increase in competition and rising inventory needs for small, medium and large companies point towards making automation a survival tool in the coming years. “Additionally, there are economies of scale that act as a limitation. However, as new age technologies mature and become more price-competitive for easy reach within budgetary constraints, we foresee an accelerated adoption of technology solutions,” Hegde adds. Automation is a definitive tool for driving efficiencies within a warehouse. The success of automation, however, depends on the approach taken by the logistics companies in choosing the right technology for the right warehouse application.
MAY 2010 • SMART LOGISTICS • 65
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