NDIA'S MOST VALUED LOGISTICS MAGAZINE
INTERVIEW MILIND SHAHANE
REPORT LPG SUPPLY CHAIN
EVENTS ACCD ANNUAL BALL
` 50 Logistics Times
Tablets & Smart Phones
A PICTORIAL TRIBUTE TO INDIAN TRUCKING INDUSTRY
Rising Pharma Exports: A Windfall Opportunity for Air Cargo?
All about Transportation, Distribution & Infrastructure
Volume 4: Issue No.11 * March 2014 Raj Misra
Editor in Chief
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Circulation & Distribution
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26 COVER FEATURE
Rising Pharma Exports: A Windfall Opportunity for Air Cargo? Edit Note
INTERVIEW Milind Shahane
LPG Supply Chain
SPECIAL FEATURE Horn Please
EVENT ACCD ANNUAL BALL
Good to Great?
The cover feature presented in this edition reminds me that popular book penned by Jim Collins – Good to Great. The book which was released in 2001 became an instant hit and is in the list of all time favourite of hundreds of crorporate leaders and executives across the globe. You might just call it sheer co-incidence, around the same time when this book was released, the ‘BRICS’ theory was propounded with India finding a berth in this prestigious list of countries which are projected to determine the fate of the global economy in this century. A much specific micro analysis had pegged pharma in the list of sunrise sectors for India. 14 years later the big moment for India pharma industry seems to have clearly arrived. The country is believed to have developed unmatched expertise particularly in generic drugs and thanks to its low cost manufacturing and also R&D base, global pharma majors as well as their Indian counterparts have been busy in expanding their footprints, slowdown blips notwithstanding. According to a latest report released by India Ratings & Research (Ind-Ra), 2015 could well see the addition of a major twist in this story earmarking rising global might of Indian pharma sector with exports exceeding the domestic demand. It would probably be the first mainline sector in the country where the larger chunk of the production would be directed to foreign shores. What does it entail for the Indian air cargo industry? Due to their time sensitive nature, air freight is the preferred mode of transportation of a substantial chunk of pharma products globally. And the good news is: in the past couple of years, pharma has already emerged as the star component of Indian air cargo export basket. According to industry estimates, pharma already comprises 18-20 percent of air cargo export shipments from the country. But are they well positioned to reap the windfall which a sudden projected spurt may trigger ? More specifically, is Indian air cargo industry ready to put their recently evolved pharma alignment story on the ‘good to great’ trajectory? The cover feature tends to bring a holistic picture by presenting the excerpts from the Ind-Ra report and then response of some senior industry representatives. And as majority of the responses underline, there are some serious issues in hand while pursuing this possible ‘good to great’ objective. There is lack of alignment between the stakeholders (“everybody is working in their own silo,” a respondent said), temperature excursion is blatant, some of the key gateway airports still do not have sound pharma specific facility, plant to gateway point is full of troubles, etc. Quite clearly, basics are still not in the fine fettle and this is something which would need quite a lot from all stakeholders. Waiting for your response Ritwik Sinha email@example.com
LOGISTICS TIMES August 2011
Downturn in industrial growth continues The CII ASCON survey conducted for the period of Oct-Dec 2013 is reflective of a low growth indicating an ongoing slowdown in the industrial performance. The industrial activity in the October-December 2013 quarter remained subdued and grim, treading along the July-September 2013 growth path. According to the CII ASCON Survey, there is a significant rise in the sectors displaying negative growth this year; 31 sectors out of total 110 sectors (28.18%) were negative compared to 21 sectors out of total 101 sectors (20.8%) in 2012. The Survey also shows a contraction in the number of sectors recording low growth at 52.72% (58 sectors out of 110 sectors) as compared to 56.4% (57 sectors out of 101 sectors) in the same quarter previous year. The percentage of sectors reporting excellent and high growth in current quarter is at 19% (21 sectors out of 110 sectors) as compared to 16.8 % (17 sectors out of 101 sectors) in the same quarter previous year. But at the same time, high growth sectors have shrunk to 10.90% (12 sectors out of 110 sectors) in OctDec 2013 from 18.8% (19 sectors out of 101 sectors) in Oct – Dec 2012. This continuous trend of slow and deteriorating industrial growth outlines the weakened economic health of the country. “It is of utmost concern that the majority of segments in basic, intermediate, and capital goods sectors continue to fall in ‘low’ growth bracket during October-December 2013, as revealed by disaggregated analysis of the CII ASCON Survey. The consumer durable segment has also reported similar growth patterns with most of the segments recording low and negative growth reflecting a disturbing trend. ” said Chandrajit Banerjee, Director General, CII. In this quarter, high- tech electronics such as LED/ LCDS, computer tablets are amongst the segments that have recorded excellent growth. Alongwith, the scooter LOGISTICS TIMES March 2014
and scooterettes segment has recorded excellent growth. This growth can be largely attributed to the growing demand and preference of these products especially in the Tier 3 and Tier 4 cities and young population. Tractors has also recorded ‘excellent growth’ for OctDec 2013 reflecting an improved performance of the farm sector. But at the same time, the continuing low/negative growth experienced in the capital goods reinforces the view that new investments are impacted. Sectors such as earth moving & construction equipment, machine tools, telecom equipment, industrial gases, distribution transformers, textile machinery, motors, relay control
panels, power transformers, pumps, have registered low or negative growth. The core sectors viz steel, cement, petroleum, crude oil have also recorded low growth. In the consumer durables segment, items like two wheelers, utility vehicles, M&HCVs, microwave ovens, DVD players, audio home theater, TV, Tyres are among the prominent sectors reporting ‘low’ to ‘negative’ performance for the Oct-Dec 2013 quarter. Amongst the consumer durable segments such as washing machines, small appliances, air conditioners which had performed well in the previous quarter of July-September 2013, have now shifted to the low growth category.
LOGISTICS TIMES March 2014
Stable Outlook for Logistics Sector India Ratings & Research (Ind-Ra) has assigned a stable outlook to the logistics sector for FY15. This is based on the strong likelihood of the sector continuing to display overall moderate growth rate despite a continued economic slowdown. Most segments of the industry have low leverage, except the container freight station/ inland container depot (CFS/ICD) segment, giving industry players a degree of financial flexibility to weather the slowdown. In addition, the value-added offerings of large players help support margins, thereby cushioning their credit profiles. Most of the Ind-Ra rated logistics companies are also on a Stable rating Outlook. The agency believes that revenue for companies offering value-added road freight services would grow at a higher rate of 12%-15% in FY15 than those offering basic road freight services (8%-10%). Companies in the CFS / ICD segments could display a high single-digit growth rate on the back of a revival in international
funded infrastructure investments made. Moreover, inadequate cash flows may force few companies to opt for corporate debt restructuring. Ind-Ra believes that 3PL providers, particularly those that employ asset-light business models, will fare better than small companies as well as those that are asset heavy. This is because small companies offer a limited range of services or have invested heavily in infrastructure but are unable to generate the freight volumes necessary to make their operations viable. A wide range of service offerings not only makes clients more dependent on service providers but also increases the negotiating power as well as profitability of service providers. Specialty segments, where service offerings are linked to non-discretionary spending by corporates and driven by favourable legislation, would continue to display strong revenue growth and stable margins, for example ATM replenishment and cash management services.
trade volumes. Third-party logistics (3PL) providers could also grow at a low double-digit rate in FY15, given increasing private port operations and integrated logistics offerings. Ind-Ra expects that large companies in the road transportation segment to continue to be resilient to the slowdown, given their high operating efficiency and presence in profitable sub-segments such as timedefinite delivery services and specialised offerings. Conversely, small companies would continue to be adversely impacted due to low demand for road freight during the slowdown. This is because they contribute over 90% to truck ownership in the country and are unable to revise freight rates in tandem with hikes in diesel prices. On the basis of Ind-Raâ€™s study, CFS/ICD operators could be most impacted from the slowdown in Indiaâ€™s international trade volumes, considering the large debt-
Alternately, services such as air charters could see a decline in demand due to the curtailment of expenses by corporates. Attractive business opportunities are arising from increasing demand for specialised logistics services related to the recent explosion in the online retailing business. However, certain key regulations that were likely to provide a fillip to the industry have not been implemented. The implementation of the Goods and Service Tax seems unlikely before 2016 with the dissolution of the Lok Sabha in 2014, due to the upcoming elections. Additionally, the implementation of foreign direct investment (FDI) in the Indian retail sector has failed to be extremely positive for the organised 3PL segment. This has been due to lack of political consensus and complex government requirements involving restructuring of businesses by corporates before receiving investments.
LOGISTICS TIMES March 2014
DMIC launched in UP The Union Minister of Commerce and Industry, Anand Sharma and Chief Minister of Uttar Pradesh, Akhilesh Yadav launched Delhi Mumbai Corridor project in Uttar Pradesh, early this month in Lucknow. â€œUttar Pradesh will be the main beneficiary of the Industrial Corridor strategy being pursued by Government of India as it is the meeting point of the Eastern and the Western Corridors. The entire agriculture produce of UP can be linked to cold chains and put on Western Corridor at Dadri. This will enable all agricultural products to reach the ports in record time. The overall impact of the Western and Eastern Corridors and the new Industrial Cities being developed in the Delhi-Mumbai Industrial Corridor project have the potential to create over 30 lakh jobs in UP and enhance the Stateâ€™s Industrial Output by Rs. 24 lakh crores,â€? Sharma said on the occasion. DMICDC in UP would primarily comprise DadriNoida-Ghaziabad Industrial City. The vision of this 217 km. Investment Region is to develop an infrastructure led integrated industrial city which is smart, sustainable, well connected and having state of art support industrial and social infrastructure. The master plan has adopted the following principles: Developing industrial city of future endowed with all the requisite physical & social infrastructure like Water, Power, housing, health, education etc. Transit Oriented Development: The region to be supported by efficient mass transport system. High intensity mixed land use is proposed to be developed along major transit nodes. Improved connectivity with development of intra
and inter regional connectivity has been provided as part of the overall planning process. Considering that development of investment region will augment creation of employment opportunity in the region, there would be significant requirements for improving the connectivity. Focus on Recycling of water and waste and integration of smart technologies. Industries in sectors viz. Food, Auto, Electrical & Electronics, IT/ITeS, Aerospace, Biotech and Hi tech are proposed in the investment region.
Aviation Ombudsman Ministry of Civil Aviation (MOCA) has decided to consult stakeholders regarding setting up of an Ombudsman for Civil Aviation Sector in India as an alternative dispute settlement machinery. The stakeholders have been asked to submit their suggestions on the subject by 15th April, 2014. The working group constituted by MoCA earlier in this regard has in their report recommended setting up of an Aviation Ombudsman. India is one of the fastest growing civil aviation markets in the world. According to a government release, in sectors where market forces play a lead role in providing services, such as the aviation sector in India, it becomes necessary to provide a window for grievance redressal of passengers and also an effective mechanism for dispute resolution. Considering the potential for future growth, and going by the experience of the service sectors and looking at international best practices, it appears logical to
explore the possibility of creating an alternative dispute settlement mechanism for the sector in India. Sectors like banking, insurance, and electricity have already established an ombudsman for dispute settlement in service provision. LOGISTICS TIMES March 2014
Car Production begins at Tapukara plant Honda Cars India Limited (HCIL) started the production of cars from its Tapukara Plant in Distt. Alwar, Rajasthan last month. The unveiling ceremony of the new plant was attended by Vasundhara Raje, Rajasthan Chief Minister and Yasuhisa Kawamura, Minister & Deputy Chief of Mission, Embassy of Japan in India. HCIL plant in Tapukara is the first car manufacturing plant in the state of Rajasthan. Spread over an area of 450 acres, the facility is an integrated manufacturing unit including all functions of Forging, Press Shop, Powertrain shop, Weld shop, Paint shop, Plastic Moulding, Engine assembly, Frame assembly and Engine Testing facility. This plant is the culmination of the best manufacturing know-how and practices gathered from Honda’s global operations. It employs optimum automation, latest equipment and best layout for achieving high quality, best ergonomics, improved operational efficiency and safety. The plant is highly focused on conservation of the environment and
efficient use of energy & other natural resources. With a cumulative investment of Rs 3526 crores, Tapukara plant currently employs about more than 3200 associates. It has an installed production capacity of 1,20,000 units annually. With the start of production of cars at this plant, HCIL’s total installed production capacity has been increased to 240,000 units/ annum in India.
Innovative logistics solutions for automotive sector DHL, the worlds leading logistics company, and Blue Dart, South Asia’s premier courier and integrated express package distribution company, recently announced an innovative logistics solution to support Original Equipment Manufacturers (OEMs) during the launch of new vehicle models in India and abroad. While most logistics companies focus on inbound to manufacturing and after sales logistics, DHLs product comprises the entire go-to-market process. DHLs four business units in India, DHL Express, DHL Global Forwarding, DHL Supply Chain and Blue Dart have together developed different logistics modules, which customers can combine or implement individually. According to a company release, with new product launches in the automotive sector becoming increasingly complex and cost-intensive, DHL - Blue Darts focused automotive solution will benefit companies from minimized supply chain risks, lower third party costs, higher efficiency and visibility. “The average time from the first sketch of a car to market entry is 2 to 3 years and requires precise synchronization amongst several involved parties, more often, not located even in the same continent. We can reduce to minimum, the supply chain incidents which may occur during this challenging LOGISTICS TIMES March 2014
process which cause cost increases and final delays in development,” said Fathi Tlatli, President Global Sector Automotive, DHL Global Customer Solutions & Innovation. DHL - Blue Dart are in access of 200 automotive facilities worldwide with a special focus on USA, Europe and China which are the biggest markets. With India expected to emerge as the destination of choice in the world, for design and manufacture of automobiles and auto components, DHL - Blue Dart are well positioned to provide cost-effective customized solutions to ensure improved efficiencies, reduce risk disruptions and allow manufacturers to go to market earlier.
Maersk’s new Far-East alliance Maersk (India & Sri Lanka cluster), the core liner shipping company of the Maersk Group, recently announced the commencement of operations of its new Far-East Alliance linking Far-East region to Indian subcontinent. On the 14th of January 2014, Maersk had announced a new cooperation with three existing Far-East to Indian subcontinent services, starting February 2014. Franck Dedenis, Managing Director for Maersk (India and Sri Lanka), said, “India is an important market for us and our aim is to grow profitably. With the Far-East alliance, we are making sure that Maersk’s service network and capacity is optimized. This multi carrier co-operation will provide more frequent sailing between Asia’s major trading hubs thus bringing tremendous value to our customers.” In a slot sharing agreement, 18 vessels with a total capacity of about 17,500 twenty-foot equivalent
(TEU) will be deployed on the three Far-East Indian subcontinent services. The multi-carrier cooperation will provide more frequent sailings between Asia’s major trading hubs and, at the same time, eliminate unnecessary service duplications between the carriers. The enhanced network will enable the carriers to offer three weekly sailings covering China, Korea, Malaysia, Singapore, India, Pakistan and Sri Lanka compared with one weekly sailing currently offered independently by each liner.
Gujarat Pipavav Port Q4 profit at Rs 771 mn
AP Moller-Maersk group company Gujarat Pipavav Port (APM Terminals Pipavav), one of Western India’s fastest growing gateway ports, reported its Q4 and annual results last month. Net Sales for the fourth quarter ended 31st December 2013
stood at Rs 1452 million as against Rs 1188 million for the corresponding quarter last year; up 22%. EBIDTA for the quarter was up 47% at Rs 835 million and EBIDTA margin stood at 57% as against 48% reported in Q4CY12. Net Sales for the full year stood at Rs 5179 million as against Rs. 4160 million in the last year, an increase of 24%. For the full year, EBITDA was up 41% at Rs. 2568 million, while EBITDA margin was 50% compared with 44% of CY12. Commenting on the results APM Terminals Pipavav Managing Director, Prakash Tulsiani said, “Q4 2013 and calendar year 2013 have been a record breaking year for APM Terminals Pipavav in terms of volumes, revenues, operating margins and efficiencies on the back of a superior rail product that added RMGC and Double Stack capabilities. LOGISTICS TIMES March 2014
Trucker Comfort Facilities
APM Terminals Inland Services South Asia continued its commitment of helping local communities and especially the trucking community by installing 13 eco-
friendly comfort stations across its facilities in Nhava Sheva and Panvel locations in Mumbai. “We are committed to helping the trucking community and the markets we serve and this is just another step of how we are improving people’s daily lives – especially the truckers who work long hours and help make India’s business run better”, said Subhasis Ghosh, Managing Director, APM Terminals India Pvt Ltd. and Director - APM Terminals Inland Services, South Asia. In 2013, APM Terminals Inland Services South Asia had established similar comfort stations in six villages in flood hit Uttarakhand in North India. This initiative enabled more than 400 villagers to get access to safe, hygienic sanitation infrastructure during a time of a crisis.
FedEx at 8th rank in FORTUNE list FedEx Corp. (NYSE: FDX) is once again among the most admired companies in the world, according to a survey published in FORTUNE magazine. The annual “World’s Most Admired Companies” report released today lists FedEx as the #8 ranked company. The survey measures nine attributes related to financial performance and corporate reputation. “We are honoured to be included on the FORTUNE World’s Most Admired Companies List,” said Frederick W. Smith, chairman, president and chief executive officer, FedEx Corp. “This recognition is possible because of our 300,000 team members who strive to make every FedEx experience outstanding.” David Binks, regional president, FedEx Express, Europe, Middle East, Indian Subcontinent and Africa (EMEA), added, “We have focused our efforts on growing our business and delivering outstanding customer service. LOGISTICS TIMES March 2014
To be acknowledged as one of the most admired companies in the world is testament to the dedication of more than 20,000 team members across our region.” Since 2001, FedEx has ranked among the top 20 in the FORTUNE Most Admired Companies list.
Present slowdown offers valuable lessons With manufacturing slowdown showing no signs of reversal, there seems to be no respite for the logistics players in the country. But doesn’t this adverse spell propel the LSPs to think in terms of adopting a broader services portfolio as an effective counter measure to the slowdown blues? Milind Shahane, CEO, DIESL responds to this critical issue in an exclusive conversation with Ritwik Sinha. Edited excerpts… LOGISTICS TIMES March 2014
a difficult time in achieving the business growth. Whatever has been forthcoming is basically because of the fact that companies are shifting their contracts from one LSP to another. And this churning is primarily happening because of the cost factor… One is the cost factor and secondly they are also looking at other alternatives. In the current scenario, companies are not adding new capacity in terms of new warehousing space or additional distribution channels or new lanes for transportation.
To begin with, is it turning out to be too difficult a phase for the LSPs? The dip in manufacturing must have become a serious impediment in pursuing the broader growth objectives. Yes, definitely. The entire slowdown in the economy and particularly the manufacturing sector has adversely impacted the logistics companies in a major way. As you are aware the latest figure which has come out on manufacturing growth underlines a
de-growth scenario, -1.6 percent in the nine months (April-December) period of the current fiscal. Plus, growth in exim trade has also not been significant in the recent months. Not much action is visible in the business of moving goods within the domestic economy or for exports and imports. It has impacted the growth of logistics industry as a whole as well as individual player like DIESL. So there is no denying the fact that we are facing
That brings me to this critical issue. This slowdown phase seems to have continued far longer than anybody would have imagined. My question is: do you find any headspace to resort to any alternative formula so that the negative impact of the low businesses of mainline sectors can be compensated? Yes, definitely. Within the present scenario too there are distinctive growth areas. It would be erroneous to say that all sectors are doing badly. FMCG, for instance, is one such sector. Though the volume growth has reduced vis-à-vis 2010-11 when their growth rate was in double digit, they are still showing a jump in the 5-6 percent trajectory. Similarly, if you particularly look at consumer electronics sector – mobile phones, tablets, IT products for consumers – it is still growing quite modestly. Pharma and healthcare are two areas where growth continues to be in the positive territory. So these are the opportunities where LSPs can look as alternatives as you pointed out. The core manufacturing businesses like automobiles, engineering, chemicals and even to some extent broader consumer durables have been impacted by the slowdown. LOGISTICS TIMES March 2014
And also the traditional sectors like mining, metals and agriculture are showing slow growth pattern. Another sector which can be aggressively looked as an alternative in this spell of adversity is retail. Forget about how the FDI provision plays out, even Indian companies are trying to grow their presence in the sector. If you look at the plans of Future, Reliance or even our own group Tata’s Star Bazaar they are all panning out. Interestingly, within retail, a segment which is growing fast is e-commerce. This also offers a huge opportunity to LSPs. So yes,
that they try to become a sector focused player. So there are firms which specialize in automobiles or there are 3PL players which try to align more with the pharma industry requirements. But if you are involved in sector or sectors which have been impacted by the slowdown in a major way, then you definitely need to widen your service offerings, improve your capabilities so that you can cater to other sectors as well. Even we at Drive India have begun to look at other sectors. Engineering was a sector in which we did not have
you had come at the helm and you had specifically pointed out that your primary agenda is to reorganize the company. May I ask you, is that process over? Yes, that process is by and large over. The company has been reorganized with the primary consideration to make it more customer centric. We have reorganized our operation teams at various locations. We had also identified this task of consolidating our warehousing units which earlier was not spread out in a very structured manner. We also had plans to improve
It would be erroneous to say that all sectors are doing badly. FMCG, for instance, is one such sector. Though the volume growth has reduced vis-à-vis 2010-11 when their growth rate was in double digit, they are still showing a jump in the 5-6 percent trajectory.
we have to look at alternatives. So has this slowdown spell which has continued far too long in a way taught the LSPs that they need to widen their portfolio? Absolutely. If you look at typical 3PLs, there are two ways they approach their business. One is LOGISTICS TIMES March 2014
much of a presence. Retail and consumer goods were other sectors which were not our strongholds. But we have decided to expand our portfolio to be able to have a wide sectoral offering which can help us in good and bad times both. I had interviewed you early last year, a few months after
our operational efficiency across all verticals– in distribution, warehouses and other value added services and for that processes have been streamlined. That entire restructuring process has been carried out well and we are clearly noticing an improvement in efficiency and our approach is more customer focused than what it used to be. The focus now is more on consolidation
in trying to ensure sustainability of whatever we have done so far. Last time you had also mentioned contract logistics and in-plant logistics as those critical domains wherein you would like to pick up some substantial strength going ahead. I would like to get a sense from you, has anything concrete happened in terms of making headways in these areas? Yes, we have begun making headways in these two areas. We have got some contracts in both
to serve clients outside the group and we will make moves in that direction. Similarly, for the other domain which is in-plant logistics, we have begun working with automobile customers like Hyundai Motors and also our own group company Tata motors. We are also working with engineering firm Tata Hitachi Construction Machinery. Today I can say that we have got some valuable experience in this domain too and we hope to build further on it. So a beginning has certainly been made in the new domains where we would like to
consolidation of our warehousing units was a critical component. We have achieved consolidation in many locations. But there has been some constraint in certain contracts which we have with our clients for 3PL services since the customers prefer to operate independent warehouse. Or in certain cases, we are operating within the customersâ€™ premises. So there are areas where we canâ€™t consolidate. Having said that, we have actually increased the number of warehouses because we noticed growth in certain locations where we did not have presence
We at Drive India have begun to look at other sectors... we have decided to expand our portfolio to be able to have a wide sectoral offering which can help us in good and bad times both.
these domains and are working with new customers for both these services. Contract logistics projects have mainly been with our own group companies like Tata Projects and Tata Power Solar Systems wherein we have been involved in on-site management. Based on this, we now feel we have got the experience and acquired capabilities
have a larger presence. Warehousing consolidation was a major target for you. Around the beginning of 2013, you had as many as 180 units and many of them were pretty small in size. How have you pursued that goal? As I said, in our restructuring plan, the
earlier. Today, we have close to 200 warehousing units - not necessarily our own but some of them are owned by the customers as well. So despite consolidation, we have added independent locations over and above the existing base. (The video format of this interview can be accessed at www.lttv.in) LOGISTICS TIMES March 2014
Rising Pharma Exports: A Windfall Opportunity for Air Cargo?
The story of rising global might of the Indian pharma industry may witness addition of an interesting twist next year. According to a recently released report by India Ratings & Research (Ind-Ra), pharma exports from the country would overtake domestic demand soon. And while the US will continue to remain the major magnet for Indian pharma exports, a bunch of new destinations termed as â€˜pharmerging marketsâ€™ have arrived on the scene. Here are the excerpts from the report: LOGISTICS TIMES March 2014
Outlook Report Sector Outlook Revised Upwards: India Ratings & Research (Ind-Ra) has revised its outlook on the pharmaceuticals sector for FY15 to positive from stable on the back of increased exports to the US and ‘pharmerging’ markets. Also, the domestic pharmaceutical market is likely to see high single-digit revenue growth. Profit margins are likely to improve on improved utilisation of manufacturing facilities. Rating Outlook Stable: The outlook for most Ind-Ra rated pharmaceutical companies is stable as almost all of the positive factors have already been factored into the existing ratings. Ind-Ra expects the credit profiles of these companies to continue to strengthen in FY15 on the back of increasing revenue and improving margins on increased exports. Exports to Overtake Domestic Demand: IndRa believes the strong export growth recorded over FY08FY13 (CAGR of 22%) will continue in the medium term. This growth will be backed by USD 92 bn of drugs going off patent in the next three years, increasing traction for generic drugs globally and new generic drug approvals for Indian pharmaceutical companies in different jurisdictions. However, the domestic market revenue growth (CAGR of 10.4% over FY08-FY13) will continue to be moderate. Strong Approval Numbers to Leverage Solid Manufacturing Base: Exports to the US will continue to grow in the medium term backed by the largest number of United States Food & Drug Administration (USFDA) approved facilities outside the US as well as the largest share of drug approvals over the last few years. Approvals from the World Health Organisation and European regulators are also strong providing added visibility for exports. Although 2013 saw high regulatory actions against Indian pharmaceutical manufacturers, Ind-Ra believes they do not weaken the industry’s prospects. Limited Capacity Expansion: The agency expects capacity expansion to be low in the medium term with the focus being on improving utilisations of the existing capacities. 9MFY14 saw the lowest value of new capital expenditure project announcements (INR 26 bn) and completions (INR 12 bn) in the last eight years. Ind-Ra expects this trend to continue in FY15. Operating Leverage Drives Profitability: Ind-Ra
believes the pharmaceutical industry’s profitability will continue to improve in FY15 as capacity utilisation improves with more products from the approved products basket being commercialised. Asset efficiency of pharmaceutical companies has been increasing since FY09 and is likely to continue to improve in the medium term. Liquidity a Concern for Smaller Units: The agency expects the credit profiles of large pharmaceutical manufacturers to remain strong in FY15 on the back of increased revenue and margins. However, smaller drug manufacturing units, with a turnover of up to INR 1 bn, will continue to face liquidity and competitive pressures. Such companies are usually active pharmaceutical ingredients (API) and intermediates manufacturers and do not have much bargaining power
with their counterparties. Liquidity pressures on smaller units will facilitate acquisitions in the industry. India’s top pharmaceutical manufacturers (Ind-Ra’s sample size of 43) command around 83% of the total market while the rest is shared by over 8,000 smaller players. Industry in Acquisition Mode: Indian as well as foreign pharmaceutical companies with strong revenue growth continue to acquire manufacturing facilities with approvals from regulated markets/institutional buyers. Such acquisitions enabling the acquirer to supply to the strong growth markets of the US and the global antiretroviral market are likely to continue as green-field facilities take two to three years to become operational. The sector saw foreign direct investments (FDI) worth over USD 12 bn in various deals since 2006. What Could Change the Outlook Regulatory Actions: Widespread regulatory actions can lead to erosion of confidence in the pharmaceutical industry and affect exports. Marketing Exclusivities: Success in acquiring marketing exclusivities (Para IV or first to file (FTF) opportunities in the US) in the regulated markets and/or LOGISTICS TIMES March 2014
successfully commercialising bio-generic molecules can provide an upward thrust to the sector’s earnings and could benefit individual companies. Highly leveraged acquisitions at very optimistic valuations could be negative for ratings. Exports to Drive Growth Ind-Ra believes the sector is set to witness a 15%-16% yoy growth in FY15 to INR 2.0 trn-INR 2.1 trn on the back of over 20% yoy growth in exports. The agency believes manufacturers will end FY14 too with around 20% yoy growth in exports, on the back of increased exports to the US, despite the subdued 1HFY14 growth of 9.6% yoy. The Americas will continue to be the largest as well as the fastest growing geographical market for Indian pharmaceutical exports in FY15. While Europe will continue to be the second largest destination, the second fastest growth would come from Africa. An increase in the number of product registrations, in developed as well as emerging markets, would be an important growth driver. Ind-Ra expects pharmaceutical exports revenue to be 75% to 100% larger than that of the domestic pharmaceutical market by FY20. US to Continue to be the Largest Target Market Around 25.5% of Indian pharmaceutical exports were to the US in FY13 making it the single largest destination, a position Ind-Ra expects will continue. Indian exports to the US have also grown at the highest CAGR of 30% over FY09-FY13 (Source: Centre for Monitoring Indian Economy (CMIE). Exports to Africa have increased at a CAGR of 21% during the same period, contributed mainly by export of anti-malarial and antiretroviral drugs. With a more secular growth rate of 12%, European countries’ share in Indian pharmaceutical exports has constantly declined. Ind-Ra expects these trends to continue in FY15. The Patient Protection and Affordable Care Act (commonly called Obamacare) implemented in January 2014, aims to reduce cost of healthcare delivery in the US and boost the usage of generics. It also paves way for introduction of more bio-similars. The implementation of this act is likely to benefit the Indian pharmaceutical sector as India is the largest supplier of generic drugs to the US and has a 40% market share in terms of volume. India, with over 550 USFDA-approved drug manufacturing facilities, has among the highest of such facilities outside the US. Indian companies accounted for 43% of the total abbreviated new drug application (ANDA) approvals in 1H13 (2012: 37%) by the USFDA and over half of total ANDA filings during the same period. LOGISTICS TIMES March 2014
The US generics market (USD95bn), 29% of US total pharmaceutical market in 2012, grew 14.4% yoy in the same year. Indian pharmaceutical majors Ranbaxy Laboratories Limited (3.3% of US generics market in 2012) and Sun Pharmaceutical Industries Limited (3.0%) were the sixth and seventh largest generics players in the US in terms of revenue improving their respective revenues by 188% and 35% yoy (Source: IMS Health). Ind-Ra believes Indian manufacturers’ market share in the US will continue to grow in the medium term backed by the largest number of USFDA approved facilities outside the US and the largest share of approvals. Exports to Pharmerging Markets to Grow Faster India’s exports to pharmerging markets (China, Brazil, India, Russia, Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan and Vietnam – Source IMS) will see higher growth on the back of increased affordability and deepened penetration by not-for-profit organisations. In FY13, India’s exports to pharmerging markets were around 20% of its total exports. The high growth rate of 29.1% yoy in FY13 of exports to pharmerging markets is likely to continue. The share of pharmemerging markets is likely to go up to 25% of total exports from India by FY17. Africa is another market with a substantial share (18.4%) of Indian drug exports which Ind-Ra expects to continue to grow primarily driven by antiretrovirals and anti-malaria formulations sales. Over April 2013-July 2013, exports witnessed singledigit yoy growth. However, post that, recovery in shipments led by the US and Africa revived the sector. Exports growth in October 2013 (around 32%) was strong, led by exports to the US. Large Pharmaceutical Companies to Corner Most of the Growth Most of the export growth in FY15 is likely to be captured by the larger Indian pharmaceutical companies as they account for most approvals and product registrations by regulators in the developed markets. In FY13, the top 20 pharmaceutical companies in India accounted for 80% of all ANDA approvals in the US. Ind-Ra estimates that the recent Drug Price Control Order (DPCO, notified in May 2013) which brings the 348 drugs notified in the national list of essential medicines (NLEM) and their variants under price control will have a marginal impact as the domestic market is likely to shrink by less than 5%. Research & Development (R&D) Essential for Continued Growth
Ind-Ra believes R&D expenses of Indian companies will keep pace with the top-line growth and much of this will continue to be towards generic products. To maintain the current levels of growth, the pharmaceutical industry will have to constantly identify products with attractive markets and obtain registration for these in the regulated markets. Indian companies accounted for 43% of total ANDAs approved by the USFDA during 1H13, up from 33% in 2009 and 37% in 2012. Over FY09-FY13, R&D expenses for Ind-Ra’s sampled companies increased at a CAGR of 87.5% to INR48bn. Revenue during the same period increased at a CAGR of 75%. Capacity Utilization to Improve Over the last decade, Indian pharmaceutical manufacturers have invested substantially in building manufacturing capacities and obtaining facility approvals from regulators across the globe. Projects worth INR331bn have been completed over this period and a further INR172bn worth of projects were under implementation at FYE13 (Source: CMIE). The industry’s capacity expansion, measured in terms of the completed projects and those under implementation, has been reducing over the last two years. Moreover, new capacity expansion projects (capex) announced during 1HFY14 were the lowest in the last eight years. Ind-Ra believes the industry will leverage its existing capacities to increase scale in the medium term leading to higher profitability. Profitability to Improve with Growth Pharmaceutical companies have managed to continuously improve profitability with increased revenue over the last decade. In 1HFY14, the profitability of India pharmaceutical companies increased marginally to 22.9% (FY13: 22.5%). Commercialisation of new products and forthcoming patent expiries are likely to support growth in the ensuing quarters. Ind-Ra expects margin improvements to be small but continuous over the next three years.
Uncertain Future of Clinical Research The genetic diversity of India provides a unique advantage for all human related research. Yet, despite the potential on account of wide demographic diversity, clinical research in India has not flourished due to an ambiguous policy structure and loose implementation of laws. After the Supreme Court’s order on 21 October 2013 stopping trials for 157 drugs, the clinical research activity in India has come to a halt and many of the on-going clinical trials have been moved to other locations. Ind-Ra believes in the absence of a clear and industry-friendly regulatory structure capable of stopping unscrupulous elements from exploiting the poor and the destitute, clinical research activity will continue to shift overseas to similar locations such as Malaysia in the immediate future. 2013 Sector Update Pharmaceutical exports increased 25% yoy in 2013 (2012: 30% yoy) to INR 794 bn. Domestic growth rate revived to 10% yoy in FY13 (6.3% yoy) despite the enhanced NLEM (348 drugs from 147 earlier) and the consequential increased purview of price control. The industry saw increased regulatory action as the Supreme Court took cognisance of the deaths of subjects and ordered closure of 157 on-going clinical trials. USFDA issued several import alerts to Indian manufacturers including Wockhardt and Ranbaxy during 2013 along with 10 warning letters to other Indian companies including Agila Specialties (acquired by Mylan Inc. in February 2013). The year also saw considerable action on the M&A front with Mylan Inc., Otsuka Pharmaceutical Co., Ltd, Torrent Pharmaceuticals Ltd. and Aurobindo Pharma Ltd. making acquisitions. Courtesy: India Ratings & Research (Ind-Ra) LOGISTICS TIMES March 2014
It is no secret to anybody that pharma has emerged as the star component of Indian air cargo export basket amounting somewhere close to 18-20 percent of total air exports from the country. Does it entail that air cargo industry is well poised to reap rich benefits emerging out of scenario wherein pharma exports would be more than domestic demand? Or are there serious hurdles in the possible ‘good to great’ journey? Senior industry representatives respond: Due to India’s consistent economic strength and supporting government policies, the pharma industry in India with its knowhow and expertise has witnessed tremendous growth in the last few years based primarily on increased demand from the International markets. The major catalyst of this growth Sanjay Reddy and demand is centered MD, BIAL on a high degree of cost efficiency, strong economic drivers, a diversified portfolio and a reasonably flexible government and regulatory framework. Pharmaceutical products being highly sensitive cargo, demands caution and care in end to end handling- from the manufacturing plants all the way to the consumer. Supply chain partners which include the manufacturer, logistics companies, airlines, airports and transporters among others are key stakeholders and form part of the value chain connecting the two ends. With the ever increasing complexities centered on the pharma business and increasing demand placed on on-time deliveries, a swift supply chain is required to meet demands. Air Cargo forms the key link reducing the handling period required for the entire supply chain. Bangalore International Airport Limited (BIAL) has been in the forefront in meeting the demands as identified above and in supporting the economic growth with better infrastructure, ease of business execution, facilitating strategic connectivity and direct trade involvement. The advancement in the infrastructural facilities for the Air Freight supply chain in India has given a tremendous boost to the industry. Privatized airports and cargo infrastructure, connectivity to industrial LOGISTICS TIMES March 2014
It appears that each stakeholder is trying to work in their own silo. Everyone is trying to do their best but we need synergy, the systems need to work and we need to integrate processes. Someone needs to act as a facilitator. areas from the gateway airports, frequency of transport, newer entrants and customs support-all play a key role in working toward a collaborative and consultative approach to growth. Indian road transport is believed to be the most dominant amongst all other forms of transportation. This sector, therefore, will require additional investment toward road infrastructure connecting all interior points with the key gateway airports. Specialized cold chain road transport network for seamless pharma transportation is one of the growing requirements of the business. The major opportunities for India’s Pharmaceutical industry are in the areas of Generic, Biotechnology and Outsourcing. Foreign investments is an opportunity that must be explored carefully and diligently. According to CII Pharma Summit 2013; the Indian pharmaceutical industry is witnessing regulatory challenges like delays in clinical trial approvals, uncertainties over FDI policy, the new pharma pricing policy, etc, which need to be addressed urgently. Quality and regulatory concerns could lead to greater ‘U.S. Food and Drug
Lack of sound temperature controlled systems all across the value chain including the gateway points is clearly a critical impediment. Temperature excursions happen quite blatantly. Administration’ scrutiny in future. It would be required for companies to adhere quality compliances in line with global guidelines. Advancement in technology will also play a key role in the growth of the overall industry. As a key objective towards building BIAL as the ‘Gateway to South India’, the pharmaceutical business plays an important role. BIAL is currently evaluating a number of business scenario that will be required to support and enhance the pharma business from South India, one of which is a dedicated Perishable Handling Center. To a large extent, the Air Freight industry both within India and on a global platform are all positioned effectively to handle the growing and upcoming pharma exports business. The pharma industry in India is the world’s third largest in terms of manufacturing volume, with almost 20% of ANDA (abbreviated new drug applications) to US FDA filed are from India-based company development centres. Close Ryan Viegas to 10,000 Life science (API VP (Supply Chain), + FDF) manufacturing Watson Pharma plants in India employing over 350,000 people and around 35% of formulations and 75% of bulk drugs manufactured in India are exported. It is a fact that one in three of the vaccinated children in the world are given an Indian made vaccine. India has grown worldwide with around 55% of its pharma export to regulated markets of US and Europe. The pharma export business is growing at approximately 20% per annum. India has the largest number of US FDA approved
manufacturing facilities outside the US. With FDA regulation becoming more vigilant in the last few years, spot opportunities to capture business are evident. This is an even more opportunity for increased airfreight as speed becomes critical. Generics from India are booming – increased logistics impact through increase in export and import shipments. Security and integrity of product is becoming even more important. The need for information sharing in order to manage pharma and life science shipments throughout the supply chain and the need for greater transparency and monitoring during transportation must be permitted to become a catalyst in increasing opportunities for air cargo business of pharma products. Among the many challenges in moving temperature sensitive products by airfreight, the danger of temperature excursions rendering medicines ineffective poses the greatest risk. In addition, the need to secure supply chains from counterfeit products and the limited transparency in monitoring shipments across varying and sometimes extreme difference between climates at origin, transshipment and destination also puts products and patients at risk. The airlines themselves face challenges in selecting handling partners with the resources and correct procedures to handle temperature controlled shipments. There cannot be a single solution. While the forwarders, shippers, airlines and handlers design their own processes which could be conflicting, the way out of this impasse is for everyone to cooperate and seek a workable solution in procedures that are uniform across the supply chain. Shippers need to take ownership of the integrity of the pharmaceutical supply chain and must take more responsibilities to maintain the products in the right conditions and stop cutting necessary costs. It appears that each stakeholder is trying to work in their own silo. Everyone is trying to do their best but we need synergy, the systems need to work and we need to integrate processes. Someone needs to act as a facilitator. The airports are a convenient point in the chain at which the different elements and organization can come together and be a facilitator as a port of entry or departure. The message from all parts of the chain is clear. We need to provide a platform that allows sharing of information to protect the integrity of each shipment. It will not be easy to achieve the solution, but there is no point in continuing to identify the problems if we are not prepared to address and solve them. Pharma traffic is a huge opportunity for airfreight, but we must get it right. India is a country well served by aviation links to many LOGISTICS TIMES March 2014
major airports and is shipping its drugs to the 182 countries. However, aviation is not always the Indian Pharma industryâ€™s first choice as a model for cost benefit analysis is followed as we look at sea shipment and air shipment and the value of products and there is a trade off between the two. I agree with the viewpoint that pharmaceutical vertical has emerged as a major sectoral stronghold of Indian exports. And this is something which the entire world is acknowledging today. Globally, India is recognized as one of the primary source markets for generic drugs and US, Europe Sameer Khatri and the Middle East are the MD (India), UTi regions where the demand for these products is quite high. And going by the market projections, this story may well be integral to our growth of exports for at least in the near to medium future Rising pharma exports from India has benefited in the growth of global logistics entities like us. UTi has quite a global reputation in terms of handling pharma and lifecare products and that is finding reflection in our Indian operations too. Every month, we are handling 500-600 tonnes of air pharma exports from the country and this is not a small number. I have no doubt in my mind that this trend can become more robust going ahead. As far as air cargo export business is concerned, pharma along with automotive could well be the stories of the decade. The moot question here is: are we ready for it in terms of infrastructural and procedural support system? I notice a mixed picture here. To begin with, capacity today is not an issue. There is ample capacity available and facilities at our gateway airports too have improved quite significantly in last few years. But if we specifically look at the existing base from pharma export standpoint and consider the possible spurt in volumes going ahead, then there are clearly some serious issues which we need to combat expeditiously. Lack of sound temperature controlled systems all across the value chain including the gateway points is clearly a critical impediment. Temperature excursion happen quite blatantly and there hardly seems to be any process alignment between all stakeholders â€“ manufacturers, freight forwarders, ground handlers and even airlines. On the positive side though, ADC approval has become much easier than what it used to be in the past. In terms of destination stronghold, the US will continue LOGISTICS TIMES March 2014
Having proved to the world that India is good and reliable in the manufacturing of pharmaceutical products, there is now a need to demonstrate that we can similarly process and deliver these products to the end customers safely. to remain the major market for Indian pharma exports. But the stakeholders in the industry including the logistics players will have to find ways and means to cater to the new emerging markets like Latin America, African countries and South-East Asian markets. The challenges in these markets are unique and would need to be tackled differently to what one may face in the more developed markets The air cargo industry in India is currently witnessing a dynamic phase of development and has the potential to become an international air freight hub in the future given Indiaâ€™s domestic market size and geographic location. Volumes in the air cargo industry have seen stable Willy Ko and consistent growth and CEO, AISATS although efforts have been initiated to upgrade cargo handling facilities, more needs to be done for supporting infrastructure to match. With India working earnestly to gradually become the global pharmaceutical manufacturing and processing hub, it is imperative for the relevant infrastructure and logistics for pharmaceutical handling to improve in tandem and support this ambition. While infrastructure for airfreight terminals at key airports are already in place and others are being built, there is still some way to go before the industry is able to meet with the exacting demands of pharmaceutical product handling and to manage the growth we are expecting to see in the coming years. Cool-chain facilities at airports, that are essential for shipping pharmaceutical goods, require appropriate infrastructure and regulatory policies to ensure that such products are handled expediently
India is the largest exporter of generic drugs to the US by volume. The market, particularly in generics, is strong and growing â€“ but only 11% is shipped by air. Many companies find sending by ocean more secure. and safely. Moreover, it is important to ensure the fast movement of these goods in the cargo terminals and timely regulatory clearance for delivery of the products. There is also an increasing need for more warehouses equipped with temperature controlled systems and transportation processes to enhance the freight services provided both to pharmaceutical companies and their customers. The entire cool chain, right from the gates of manufacturing plants to the air freight cargo terminals to the distribution/ processing centres and to the shelves at the stores/ shops, need to be supported and managed properly. A break in the chain would pose risk to the quality and reliability of the pharmaceutical products. Having proven to the world that India is good and reliable in the manufacturing of pharmaceutical products, there is now a need to demonstrate that we can similarly process and deliver these products to the end customers safely and in accordance with the delivery demands of the customers. These are some areas which need more nurturing and appropriate policies to support and encourage world-class handling. AISATS operates a 210,000-tonne capacity air freight terminal in Bangalore that caters to general, perishable, transshipment, express courier and special cargo handling. We endeavor to continually enhance our infrastructure by making further investments in cool chain facilities to safeguard product quality and optimize shelf-life. At AISATS Bangalore, we have cold room facilities with different temperature variations to cater to different products as well as a Refrigerated Q-Lane (RQL) i.e. dedicated cold room to store built-up Unit Load Devices (ULDs). We are gearing up to meet growth opportunities and are currently working with the government authorities to further improve our facilities for pharmaceutical cargo. Stakeholders in the Indian air freight industry should look to capitalize on the expected surge in the growth in pharmaceutical exports by collectively
supporting it with the requisite infrastructure and strong policies. This will enable the industry to seize the growth opportunities and reap maximum benefits when it comes. Meanwhile, by doing so, we will also ensure that India establishes itself not just as a global air cargo hub but also a global pharmaceutical processing/handling hub with extensive network connectivity. Indiaâ€™s pharmaceutical sector is gradually gaining its position as a global leader. The pharmaceutical market in India is expected to touch US$ 74 billion in sales by 2020 according to a PricewaterhouseCoopers (PwC) report. Rajesh Goel The demand for CEO, Celebi Delhi pharmaceutical products Cargo Terminal in India is significant and is driven by many factors like low drug penetration in the past, rising middle-class and disposable income, increased government and private spending on healthcare infrastructure, increasing medical insurance penetration, changing demographic pattern and rise in chronic lifestylerelated diseases; adoption of product patents, surge in exports and aggressive market penetration in India and abroad driven by the relatively smaller companies. The most critical factor for handling pharmaceutical products from airports is the availability of temperature controlled zones for storage and processing of pharmaceutical products which remains a challenge. Further, pharmaceutical products, being time sensitive cargo, availability of proper and integrated supply chain arrangement is of utmost importance. This will include transfer of pharma products from the production centres to the consumption centres, thereby reducing physical waste and loss of value of pharma commodities by maintaining the cool chain. Role of all the industry stakeholders is also very important in the above aspect. In fact, one of the main aim of the creation of National Centre for Cold Chain Development (NCCD) is to establish effective coordination among all stakeholders of pharma industry. Growing global consumer demand for pharmaceutical, food, and medical goods in emerging and developing markets has never been this higher, making cold-chain management one LOGISTICS TIMES March 2014
of coolest growth niches for third party logistics providers (3PL) that are able to specialize in temperature controlled shipping. The professional expertise provided by 3PL companies in supply chain can provide a much needed edge to handling temperature sensitive products. The US is the largest market for Indian pharmaceutical firms. In the last fiscal, Indiaâ€™s pharma exports increased 10% to $14.6 billion, with exports to the US accounting for about 26% of total pharma exports. India is the largest exporter of generic drugs to the US by volume. The market, particularly in generics, is strong and growing â€“ but only 11% is shipped by air. Many companies find sending by ocean more secure in terms of temperature control and being cost effective. The perception is that there is an amount of risk involved in air transport because of the number of times the cargo is handled. It is important for all the stakeholders to change this rising perception and to provide an integrated cool chain supply chain arrangement to the pharma companies so that more and more pharma shipments is shipped by air since it provides the much needed time advantage for the products which are temperature sensitive in nature. In recent years we have seen the growth of pharmaceutical air exports from India to various parts of the world. The pharma vertical is gaining importance resulting from the patent expiry of various pharmaceuticals Keki Patel and the manufacture of Cargo Manager these medicines is taking (India & Nepal), place in India due to some Emirates of the advantages the Indian Pharmaceutical manufacturers have capitalized . The manufacturers here in India have heavily invested in their own R & D, adopted good international manufacturing practices, developed their own trained, skilled and specialized work force and finally found buyers overseas for their supplies. The vertical is vast as it has not only prescribed medicines, but extends to vaccines, serums, lifesaving drugs, wellness and even herbal care products. Major markets for Indian exports are US, Latin America, Africa, Europe, Asia you name it and Indian manufactured pharmaceuticals are exported regularly direct to the destinations or to distribution LOGISTICS TIMES March 2014
Even as improvements are visible in the cargo facilities at Bangalore, Delhi and Hyderabad airports, growth in Chennai and Mumbai has expectedly put pressure on existing infrastructure. centres for supplies to be made thereafter to the end-customer. Emirates was one of the first airlines to offer special cool chain solutions in India which is designed for the movement of temperature sensitive commodities such as pharmaceuticals, vaccines and perishable goods. The seamless movement of important temperature-sensitive healthcare from one point to another is one of the key strengths of Emirates SkyCargo. We offer three Cool Chain solutions, namely Cool Chain Basic, Cool Chain Advanced and Cool Chain Premium, each of which is designed to meet the requirements and specific needs of customers for the shipment of temperature sensitive products. Customer can choose from a range of solutions to prolong the active pharmaceutical ingredients in the products, including various levels of protection and monitoring of the shipment during air transportation, complimenting the packaging used by the Shipper. We additionally have White Covers, Cool Dollies, Coated Containers at our Dubai hub and state of the art handling facilities. In 2013, SkyCargo carried more than 4000 tonnes of temperature-sensitive pharmaceutical and healthcare products through its Cool Chain Premium Service. We are constantly working with our partner agents and closely with our global key shippers to meet their additional export and import requirements. These additional requirements are facilitated through Emirates SkyCargo full and part charter operations to meet specific customer needs. We have successfully carried pharmaceutical product launch shipments in various markets, project cargo, relief aid charter flights etc on various freighter charters from and into India. We would like to see the Mumbai temperature controlled perishable centre handling
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‘Pharma’ has the largest differential between actual and chargeable weight: 18% vs 9% for other cargo, and its USD-yield was on an average 49% higher than the general cargo. pharmaceuticals to be operational on a 24 x 7 with full clearance facility and not be restricted to daytime operations only. Further we would like to have the facility of stuffing the cool-chain loads at the manufacturers end and brought to the gateway airports under custom bond with security x-ray passing in temperature controlled environment at the air cargo complexes. Large sized x-ray machine windows for screening of full units and the screening machines be placed inside temperature controlled facility. To go with all this, is the need of e-FREIGHT environment that streamlines the customer’s business through an economical process by eliminating paper printing, handling and processing expenses, e-freight reduces customer’s time by decreasing the waiting period when processing freight. Further increases data accuracy and transparency during the shipment life-cycle reduces acceptance and delivery process times. Most importantly enabling customs and other stake holders to work with advanced information to facilitate expedient export and import clearance and control. The pharmaceuticals market has been one of the major success stories over the past few years and we at IAG Cargo, continue to deliver tailor made solutions aimed at this sensitive product. Constant Climate is our Pravin Singh bespoke product designed Area Commercial for the transportation of Manager (South Asia), temperature-sensitive IAG Cargo pharmaceutical shipments. Our Constant Climate Active solution, using sophisticated active heating and cooling containers, maintains a stable internal temperature regardless LOGISTICS TIMES March 2014
of changes in the ambient conditions. This solution supports temperatures from -20°C to +25°C. Our passive solution is designed for the transportation of pre-packaged shipments in order to maintain the desired product temperatures. We are excited by the future growth opportunities and the vertical team behind Constant Climate continues to grow, bringing together a blend of Pharmaceutical and Cargo specialists behind the product to ensure we enhance our capability by combining the best experience. As India continues to grow the pharmaceutical exports, the air cargo industry will need to respond with infrastructure investments. Even as improvements are visible in the cargo facilities at Bangalore, Delhi and Hyderabad airports, growth in Chennai and Mumbai has expectedly put pressure on existing infrastructure. The India growth story would gain significantly from improved infrastructure, especially at Mumbai and Chennai, which are the major markets for pharmaceutical freight. The 24 x 7 customs coverage announced at a few airports is a step in the right direction. We would welcome implementation of this in other major airports such as Chennai and Mumbai. This product will need a stable operating platform at every step in the pharmaceutical shipments’ supply chain. It is very important to note that the need for investment in infrastructure is not isolated to within India’s boarders. A large part of India’s Pharmaceutical sector growth can be attributed to the global appetite for the generic drug. These companies require supply chains that are built around the needs of the pharmaceutical industry. IAG Cargo has invested in new facilities in Madrid and London as well as opening over 100 stations which meet the industry requirements. Drug companies need supply chains to prove that they can protect their products, and that is something IAG Cargo is taking very seriously. IAG Cargo is committed to the Indian market and we will continue to make investments in capacity and frequency – as required – to help support businesses in the country. We continue to grow frequency with the newest aircrafts in our fleet which have enhanced temperature management capability. Bharat Thakkar Former President ACAAI
In 2013, pharma topped the list and was commodity of the year. Pharmaceuticals now
generate five times more volume than valuables, whilst they also lost less in yield than any other air cargo category. ‘Pharma’ has the largest differential between actual and chargeable weight: 18% vs 9% for other cargo, and its USD-yield was on an average 49% higher than the general cargo yield in the relevant markets. It was air cargo’s undisputed favorite in 2013. But despite pharma emerging as a star component of air cargo export basket, there are some serious challenges on the ground. India’s biggest problem is road connectivity (motor ways) from production centres to airports and ports, with multiple check points and delays resulting in cargo spending more time on trucks which ultimately means higher transaction costs. Precious time is also lost while unloading and the pre- inspection stage. Lack of technological alignment is another serious issue. Today every stake holder is having their EDI platform but they operate in isolation which results in increased dwell time. DGFT’s E-Trade programme would hopefully change this. The good news is: all major metro airport terminals are now equipped with temperature control facility. It would not be out of place to mention that even Cochin Airport has a temp control zone catering to pharma and other perishable. I believe that Mumbai airport is also gearing up to provide additional facility ,after completing a huge section for imports. Going ahead, creating ample capacity for new markets would also be a challenge. For instance, special emphasis should be given by carriers on African route by providing more dynamic connectivity as well as capacity. The opportunity in particular for the Air Cargo Business is indeed very significant given the leadership role that India has in the pharma business at a global level. But we certainly need to improve the infrastructural base to harness this opportunity. In Abhik Mitra my view, improvements are MD, SPOTON specially required in the following areas: Cargo handling facilities at airports including capacity expansion. Temperature controlled movements, storage and processes for time sensitive material. Pre-clearance at origin airports to improve transit
times of temperature controlled and other critical drug movements. Since significant amount of pharma production happens in upcountry areas, from where road transportation is required to connect these shipments to the big international airports, there is a need to eliminate delays at check points enroute from these upcountry locations. Africa and South America are two markets where significant improvements in connectivity are required. As evident from the emerging trend, the worldwide pharmaceutical and life science shipments from India have been on a consistent growth trajectory, with the cumulative export revenue of the Indian Pharmaceutical industry projected to exceed USD 30 billion in 2014. Sunil Kohli Since the export facilities MD, Rahat Cargo for pharma from India still require several corrective actions therefore to achieve the desired growth, every effort would have to be made. In my view following requirements need to be duly met to facilitate a smooth handling of this product. It will have to be monitored by all the stakeholders that the operating agencies involved in handling of such shipments are duly competent and authorized by the regulatory agencies. The area/zones need to be identified from where such shipments emanate in order to provide the essential infrastructural support by the agencies concerned. Adequate warehousing facilities need to be established at the airports concerned towards a state-of-the-art temperature-sensitive cooling centres. For a smooth, flawless and temp-controlled carriage, it is imperative that the airlines get themselves equipped with the requisite containers to avoid any temp-loss or damage to the product. To accelerate the clearance process, the customs & the custodian of the airports should preferably constitute a special dedicated cell to expedite examination and documentation, etc. The government should also consider various means to encourage the shippers by providing with faster single-window clearances + faster 24x7 services from ADC. LOGISTICS TIMES March 2014
LPG Supply Chain In India
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The LPG cylinder delivery to millions of homes in India is clearly one of the largest supply chain operations in the world. This technical paper* (submitted to BIMTECH for a recently held i n t e r n a t i o n a l conference) traces the origin of LPG supply chain in India and its evolution over the decades. Here is the concluding part of the edited report: LOGISTICS TIMES March 2014
Supply chain is critical to a firms’ operation and its success is dependent on how well a company manages and mitigates its risks and supply bottlenecks. The necessity to align internal organisational strategies with knowledge available from the supply network is essential to gain superior innovation performance. Further, supply chain partner innovativeness enhances a firm’s product innovation strategy, which in turn is enhanced by having strategic relationships with key supply chain partners. This case study shows the strategic partnerships that MoPNG has built with the OMCs, distributors, the banks, and other stakeholders which resulted in a winwin proposition for all stakeholders as a result of its unique IT enabled capabilities and innovativeness. Next, we elaborate on the various enablers and capabilities organization change that required attention. Transformation was required from various perspectives, which included roll-out of a service offering which ensured customer needs were met, adherence to market requirements and dealing with diversity of consumers while redressing the grievances of the consumers organizational change required leadership and government commitment for rolling out the new policy initiatives. The LPG SC case study also highlights how the theorization of SC concepts and frameworks has been operationalized in a practical sense and hence the gap that existed between practice and the current state of academic research which focuses on the convergence of business model innovation and supply chain aspects has been reduced. Understanding customer needs and customer diversity between rural and urban markets
Integrating customers as co-creators of innovation is fundamental in today’s networked service-led business environment. This encourages organizations to collaborate with customers as a means of understanding customer needs and leveraging external resources in the innovation process. It is in this context that the LPG SC is customer-centric, promotes collaboration with its customers, as well as ensures prompt and quality service delivery to its masses, including both rural and urban populations. Although the rationality of removing/reducing subsidy is well understood by all stakeholders, yet the timing to implement many recommendations/decisions has remained a challenge in view of continued volatility in prices of petroleum in international markets. Until recently, LPG remained predominantly an urban fuel. Over a period of time, MoPNG with the help of OMCs undertook various initiatives through policy changes/revisions to popularize and encourage LPG use in the rural markets by introducing low turnover rural distributors. LOGISTICS TIMES March 2014
With the advent and application of modern marketing systems, understanding the customer diversity whilst addressing the discriminating expectations of customers from both rural and urban citizen communities, and translating it into an effective segmentation supply chain strategies, forced OMCs focus attention on their SC to meet-out customers’ expectation whilst tackling the problems of leakage of subsidy due to subsidized pricing. Project Lakshya used the focus group discussions extensively to decide the features desired by its consumers on the transparency portal. Process reengineering and deployment of ICT systems Business process re-engineering implies radical design of its business operational processes. Several of the existing LPG SC processes were re-engineered which involved both ICT implementations related processes, as well as non-ICT business processes, some of which are discussed next. Know Your Customer (KYC) Process
The major change introduced was to detect/prove multiple/ineligible connections through implementation of a KYC (Know Your Customer) process. As part of KYC process and to link with Aadhaar, every LPG consumer had now to provide their Proof of Identity (POI) and Proof of Address (POA), and some basic information such as their full name, date of birth, name of Father, Mother and Spouse, Address, Telephone Number and e-mail id in a standard format. The databases of all the three OMCs were changed to accommodate new KYC fields. Transparency Portal – An ICT web portal that made the SCtransparent and visible
Cao & Zhang defined the term “supply chain collaboration “as a partnership process where two or more autonomous firms work closely to plan and execute supply chain operations toward common goals and mutual benefits.” This definition refers to the amalgamation of supply chain operations in decisionmaking with close information exchange to ensure the achievement of common goals and mutual benefits. Therefore, the collaborative coordination structure defined by Subramani & Agarwal suggests that “all supply chain members share all the information and knowledge available to them to jointly make supply chain decisions”. As such access to real-time information across a supply chain is paramount, and institutionalisation of data update on a real-time basis was a major challenge in the implementation and roll-out of this portal for the DBTL SC. The former was easily addressed through populating the data from the transaction data, thereby eliminating the need to update data specifically for the
transparency portal. But the challenge of resistance from vested interests and due to new learning involved due to change in the software interface was far more serious. Education/training and hand holding in the new practices helped in bringing stakeholders on board. Another challenge was bringing about the nearly â€œsameâ€? functional interface across the three Oil Marketing Companies, while each one was having a different background business process/database. This was ensured through coordination by MoPNG and resulted in deployment of a transparency webbased portal resulting in value creation for all stakeholders.
Vertical and Horizontal collaboration between stakeholders
The key benefits that accrued to the consumer/ citizens via this transparency portal are:
Enabling visibility of booking/ deliveries of LPG cylinders, subsidy availed, showing LPG usage, comparing it with peers, and helping ensure First Come First Served release of refills and new connections, Enhancing Consumer Service based on perceived service levels, delivery performance and by providing an online grievance filing/redressal, The delivery efficiency of each distributor was captured and published on the portal through a 5 star rating program. Consumers were allowed to surrender connections on-line and its completion was tracked by the OMCs. Portability across the OMCs to bring in competition across retailers Endowing Civil Society Partners to Audit Subsidy disbursed, detecting high consumption LPG consumers, and auditing suspect multiple connections, and Improving subsidy administration for the Government of India through a more agile and transparent DBTL supply chain.
Multiple LPG Connection Detection
The sheer scale and size of the database and legacy nature of the records was a daunting challenge. Sheer volume of data prevented visual inspection or door to door inspections, while legacy data prevented easy software detection, on account of poor data quality. A software exercise to detect duplicate connections was thus prone to errors. However, due to the extreme sensitivity of LPG as a cooking medium, one could possibly live with leaving out actual duplicate connections but false positives needed a process to ensure that genuine Consumers are not blocked. Given that a KYC was put in place already the de-duplication strategy adopted was: De-duplication based on name/address pair to generate a list of suspects; Updating existing database of the OMCs of suspect consumers before regularizing them; and All new LPG consumers to fill up KYC and are to be de-duplicated prior to connection release. Any de-duplication exercise attempted through software algorithmic exercise in presence of incomplete/ incorrect data was bound to throw up false positive and leave out true positives. To minimize false positive/ genuine connections in the suspect list, the algorithm was improved in successive iterations based on the characteristics of the false positives detected. Around 22.5 million customers that were identified as suspect, 6.7 million consumers were blocked on non-provision LOGISTICS TIMES March 2014
of KYC data. Change Management and Capability Building across various LPG stakeholders
Integrating customers as co-creators of innovation is fundamental in today’s networked service-led business environment. This encourages organizations to collaborate with customers as a means of understanding customer needs and leveraging external resources in the innovation process.
As discussed earlier, business operations has witnessed transformations of the business landscape through which the boundaries of firms belonging to supply chains have modified substantially. Many firms partner due to trade-off between specialization and integration and the other set of firms’ partner due to the interaction between the internal capabilities of the firm and the ability to leverage assets, capabilities and competencies from business partners . With this in mind the new DBTL SC has brought together the stakeholders in a vertical partnership involving the Indian government, MoPNG, OMC distributors and retailers, and more effectively and efficiently with the banks as horizontal partners as shown in Figure 6. This unique partnership has managed to sustain the alignment of policies, integration of information and knowledge flows, and collaborative coordination across stakeholders, and is fundamental to the success of the DBTL SC as well as honouring an elevated service offering for the LPG customers – the citizens of India. Clearly, in order to manage the complex value network, change management and leadership of MoPNG were fundamental, along with the dedication and continued efforts of the internal resources of the OMCs. The strategy was crafted by the dedicated Project Management Group which comprised of IT and functional personnel from the three OMCs, personnel from the Ministry, and the banks. These policy initiatives, especially the de-duplication, have been institutionalized by Government policy initiatives and orders. Value Creation as a result of the new LPG DBTL SC
The DBTL SC was a culmination of multi-pronged initiatives which were taken to meet customers’ expectations, increase consumer convenience, improve service levels, and to address the complex subsidy challenges in LPG distribution. DBTL SC has resulted in a more efficient LPG distribution system, thus providing benefits of immediate growth in nondomestic sales (of upto 20%), reduction in consumption of domestic LPG primarily due to blocking of inactive/dormant customers, identification/blocking
of multiple connections, and capping of subsidized cylinder entitlement. The measurement of the delivery performance of the distributors and sharing of the same on the transparency portal led to 20% improvement in the top rated distributors in short period of time. One may have to wait for sustainable trends to make definitive statements about the exact savings, however the DBTL initiatives and its implementation is showing incipient savings in subsidy. Around 0.5% duplicate connections have been freshly detected and are being blocked, beyond the ones detected earlier. The demand for subsidized LPG has declined in the areas where DBTL has been implemented by around 5-15%, which can be attributed partly to reduction in diversion of LPG into commercial markets. This has also led to reduction of foreign exchange requirement for imports of LPG – LPG imports worth $1 billion have been cancelled due to reduction in demand that were scheduled over period of one year. Given a current account deficit of around $70 billion, this reduction in imports would reduce the same by about 1%. The DBTL has also led to self-selection of beneficiaries, a desirable aim for many social sector schemes. It is expected that around 10-20% of LPG consumers may choose to remain outside the scheme or will not be able to join the scheme as they would be fake/duplicate. On an overall basis, subsidy savings of anywhere upto 20% are achievable due to the DBTL implementation in the LPG SC. Given that the overall LPG subsidy has been of the order of $8 billion, which is around 10% of the fiscal deficit, even a 10% savings would shave off 0.1% off the fiscal deficit for the country. Courtesy: BIMTECH
* Co-Authors Dr Neeraj Mittal, Joint Secretary (Marketing) Ministry of Petroleum and Natural Gas (MoPNG) Dr RenuAgarwal, Senior Lecturer in Innovation and Service Operations Management Management Discipline Group, UTS Business School University of Technology, Sydney, Australia LOGISTICS TIMES March 2014
A PICTORIAL TRIBUTE TO INDIAN TRUCKING INDUSTRY
The prestigious World Book Fair, held last month in Delhi, hardly is a stage where you would expect the presence of an LSP. But domestic logistics major Safexpress made the most of the opportunity provided by the epic-scale show this time to send an important message across – that it cares for the unsung warriors (read: drivers' fraternity) of Indian trucking industry. On 15th February, the company launched a unique and first of its kind coffee table book – Horn Please: Trucking in India - which is a tribute to the resilience shown by the drivers’ community in helping the wheels of the economy to move 24x7 despite all odds. This magnificent Coffee Table Book has been put together by Pawan Jain, CMD, Safexpress and Divya Jain, who heads Safeducate. LOGISTICS TIMES March 2014
A voluminous compendium, Horn Please is quite remarkable for its aesthetics as represented by nearly 125 photographs shot at different locations in the country depicting different facets of lives of the drivers. The book is the end result of nearly four years of arduous efforts involving four internationally renowned lensman who crisscrossed the country taking over 7000 snaps â€“ more in the celebratory style pertaining to the endurance and resilience of Indian trucking industry. The company now aims to promote this book both within the country as well as international circuit. In a brief conversation with Logistics Times on the sidelines of the unveiling of Horn Please, Safexpress supremo Pawan Jain provided the details of this unique offering: Every coffee table book usually has a two-pronged approach. While it has to be a visual delight, at the same time it has to subtly underline a message. Tell me what motivated you to plan this coffee table book which you have titled â€“ Horn Please?
As you know, I am in this logistics/ supply chain business for the last 39 years. In our business, trucks play a very important role and so are the people who are entrusted with the responsibility of holding the steering. But unfortunately in our society, truck driving profession has never been accepted and is not looked upon with any kind of respect. Nobody tends to understand that truck drivers play LOGISTICS TIMES March 2014
such a vital role in keeping the wheels of the economy moving. They are the ones who ensure that our goods reach on time but we fail to recognize their importance. Considering the possible growth in the economy in the years ahead, we have a scenario wherein technologically superior trucks will be coming in the market. But if you do not recognize and appreciate the efforts of these drivers, we might face a situation in not so distant future wherein you will not have enough skilled hands to drive these trucks. It has become a profession which somebody opts more because of compulsions. Hence we thought if we could give some upliftment to the community through this coffee table book, this would be an exercise worth doing. This coffee table book will be placed in the drawing rooms of stakeholders â€“ industry, senior bureaucrats and policy makers â€“ and I believe if they glance through it, they would sympathise with the cause of the drivers. This could well create a positive feeling about them. Can you just explain the kind of effort that has gone into producing this coffee table book?
Huge effort has gone into it. We were on this project for last four years. Divya Jain, the co-author of this book, is from my family. We had hired four international photographers (two are from Europe), who came to the country and travelled to various locations. They ultimately delivered about
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7500 photographs of these truck drivers in the real life situation. We deliberately chose to bring in lensmen from abroad rather than domestic circuit because the latter might have been besieged with pre-conceived thoughts about the drivers’ community. And that would have affected the final output. These photographers travelled all over the country – from Kashmir to Kanyakumari. We took care of all their arrangements. They shot at roadside dhabas, truck halting stations, crossing stations, etc. The idea was to cover all the facets of drivers’ life in India. And the end result is there before you. Your book broadly celebrates the resilience of the Indian trucking industry. A critic may well question why you chose to ignore those negative quotients which are believed to be intrinsically linked with the truck driving profession. That could have helped in drawing a holistic canvas.
We have deliberately done that. In the general mindscape, negative theories and perceptions abound pertaining to the lives of the drivers’ community. We wanted to show the other side. To be specific, the positive side – their trying conditions and backbreaking efforts in doing their duty. The broader idea is to make people realize the critical role which the truck drivers’ community is playing in economic terms. We want to convey this critical message that they deserve better treatment from all of us. LOGISTICS TIMES March 2014
FSC WINS CLUTCH OF AWARDS
The year 2014 has begun on an auspicious note for Future Supply Chain Solutions as the company has already won five awards in diverse categories. The Asia Retail Congress was among the first to recognize FSC’s proficiency in retail supply chain and conferred the ‘Effective Retail Through Supply Chain Award’ on the company. Recognizing his leadership talent, CMO Council Asia awarded the ‘Most Talented Retail Professional’ award to Mr. Anshuman Singh, MD & CEO, FSC. Acknowledging the company’s growth in the logistics sector, the Indian Chamber of Commerce also awarded FSC the ‘Emerging Player of the Year’ trophy. Since its inception six years ago, FSC has scorched a path of rapid growth through the logistics sector, in particular, with its establishment of state-of-theart warehousing facilities, Express Logistics hubs & branches and integrated services across India. In appreciation of its effort in this sphere, at the Third Edition of the Asia Manufacturing Supply Chain Summit in Mumbai, FSC won the ‘Operational Excellence in Warehousing’ award. Mr. Anshuman Singh also received the ‘Supply Chain Personality of the Year’ award at the Summit.
LOGISTICS TIMES March 2014
Blue Dart World CSR Day
Blue Dart Express presented the 3rd Blue Dart World CSR Day and Global CSR Excellence & Leadership Awards at a glittering function at the Taj Lands End, Mumbai on February 18, 2014. The awards recognized global corporate social responsibility and sustainability champions across various industries. Sustainability champions were awarded by the Chief Guest, Dr. Bhaskar Chatterjee, Director General & CEO, Indian Institute of Corporate Affairs and Yogesh Dhingra, Finance Director and Chief Operating Officer, Blue Dart Express. The event was well attended by leading organisations like United Nations, Sanofi, KPMG, Hewlett Packard, CRY, Indian Institute of Corporate Affairs and many more comprising of panel discussions about ‘CSR Good to Great The Path Ahead’, ‘Assessing and developing potential for leadership’, ‘Measuring the success of CSR’, ‘The Vision of CSR’ and ‘New Insights into the Correlation Between CSR and Brand Strength’. LOGISTICS TIMES March 2014
INTERNATIONAL CONFERENCE ON MANAGEMENT OF INFRASTRUCTURE
The University of Petroleum & Energy Studies (UPES), Dehradun organized the second edition of International Conference on Management of Infrastructure last month. The conference focused on the theme: Energy, Infrastructure (Green Building, IT & Telecommunications, Water, Environment & Land, Housing and Townships, and Commercial & Industrial Infrastructure) and Transportation ( Aviation, Railways & Roadways, and Ports & Shipping). The Convener Dr. K.K. Pandey along with the Co-Conveners Dr. Tarun Dhingra, Dr. Neeraj Anand & Dr. Avinash K. Tiwari conveyed that a total of 181 papers were presented by various scholars, experts and students from across the globe. Most of these research articles were directly aligned with the theme of conference i.e. Energy, Infrastructure & Transportation (EIT). LOGISTICS TIMES March 2014
ACCD ANNUAL BALL
Air Cargo club of Delhi organised its Annual Ball on 15th February 2014. The event was attended by over 750 members of the air cargo fraternity from across the country. The event had some fantastic performances by two renowned dance troupe from India and abroad. There were over 30 lucky draws sponsored by various airlines and forwarding companies. Air tickets to some spectacular destinations like Sao Paulo, London, Paris, Hongkong etc were the star attractions of the draw and some electronic items ( smart hand phones / LED / home theatre / camera / washing machine ) and even travel vouchers were distributed to the lucky winners. Being held close to the Valentine day, the eventâ€™s theme was Romance and the entire dĂŠcor was built around Red and Black theme. There were various backdrops created for the couple to get themselves clicked and take away lovely memories. The President of the Club, J.P Singh welcomed the gathering and also laid out emphasis again on the key objective of the club which is to bring the fraternity socially together.
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‘Supply Chain Excellence Award’
Central Railside Warehouse Ltd. a Public sector Undertaking under the Ministry of Consumer Affairs, Deptt. Food and Public Distribution, which provides multi-modal logistics services received “The Supply Chain Excellence” in Public sector under “National Quality Excellence Awards” in a ceremony held at Taj lands End, Mumbai recently. Tarun K.. Dey, General Manager (M&O) received the award on behalf of Central Railside Warehouse Company Limited. LOGISTICS TIMES March 2014
RNI No. DELENG/2011/39329
Regd No.: DL(E)-20/5380/2014-16
Published on Mar 12, 2014