osi - logistics

7/31/2019 OSI - Logistics

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Submitted ByShantanu Torvi (PRN 079)Rohit Pal (PRN 072)Siddarth Khanna (PRN 085)Dwaipayan Seal (PRN

101)

Ashish Bilolikar (PRN 102)

Sectorial Report on Logistics


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ContentsExecutive Summary.............................................................................................................................. 3

Global Logistics Industry ..................................................................................................................... 5

Size of the global logistics industry................................................................................................ 5

Largest LSP (Logistics Service Providers) by 2011 Gross Revenues and Freight Forwarding

Volumes.............................................................................................................................................. 6

DHL Supply Chain & Global Forwarding: Rank 1 ..................................................................... 6

Kuehne + Nagel: Rank 2 ............................................................................................................. 7

DB Schenker Logistics: Rank 3 ................................................................................................... 8

Current Status and Dynamics of the Logistics Industry.................................................................. 9

Indian Logistics Industry ................................................................................................................... 10

Infrastructure at a glance: ............................................................................................................ 10

Logistics Infrastructure in India.................................................................................................... 10

Seven corridors connect 15 high-growth clusters ..................................................................... 11

Size of the Indian logistics industry ............................................................................................. 11

Competitive dynamics and other issues in Indian Logistics Industry ..................................... 12

Third Party Logistics (3PL) ............................................................................................................ 14

National logistics cost vis--vis the share of 3PL in the logistics market ............................... 15

Savings estimated with a reduction in logistics cost ................................................................. 15

Regulatory overview: Taxes and duties pertaining to the logistics industry ......................... 16

FDI in Logistics: .............................................................................................................................. 16

Legal enactments of transportation ............................................................................................. 16

Some Innovative Experiences of Indian Logistics: The DABBAWALLAHs of MUMBAI......... 16

Indian Logistics Industry: Market Players ................................................................................... 18

DHL Express India .......................................................................................................................... 18

About DHL.................................................................................................................................... 18

FedEx in India ................................................................................................................................. 21

Federal Express India: At A Glance.............................................................................................. 21

Services Offered in India ............................................................................................................... 22

FedEx International Next Flight ............................................................................................ 22

1 - 3 business days : FedEx International Priority................................................................. 22

1 - 4 business days :FedEx International Priority Direct Distribution ................................. 222 - 5 business days FedEx International Economy................................................................ 22


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1 - 4 business days FedEx International Priority Freight ...................................................... 22

Within 5 business days FedEx International Economy Freight............................................ 22

FedEx 10kg Box and FedEx 25kg Box.............................................................................. 22

Dangerous Goods services ........................................................................................................ 22

Future Plans................................................................................................................................. 22

SAFEXPRESS ....................................................................................................................................... 23

Growth Drivers .................................................................................................................................... 25

Role of government........................................................................................................................ 25

IT penetration ................................................................................................................................. 25

Impact of 3PLs ................................................................................................................................ 25

Challenges and Issues ....................................................................................................................... 26

Best Practice in Logistics ................................................................................................................... 28

Quality Measurements ....................................................................................................................... 31

1.Quality of logistics facilities........................................................................................................ 32

2.Quality Indicators Of Logistics Process(Es) ............................................................................. 33

3. Quality of Service ....................................................................................................................... 34

Government Policies (Drivers & Retarders) .................................................................................... 35

Road Transport ............................................................................................................................... 36

Rail Transport.................................................................................................................................. 36

Air Transport ................................................................................................................................... 37

Sea Transport.................................................................................................................................. 39

Comparison of Major Factors: India v Global ............................................................................. 40

Consequence of FY 12 Budget on Logistics Sector ................................................................... 40

Government Policies: Strategy to Implementation........................................................................ 41

National Integrated Logistics Policya new vision for Indias logistics infrastructure........ 41

New Container Train Policy ........................................................................................................... 43

Governance Changes Needed At The Highest Levels To Develop The Policy And Ensure

Implementation................................................................................................................................... 44

Future Outlook of Logistics: .............................................................................................................. 48

Future Prospects ............................................................................................................................. 48

Managerial Implications................................................................................................................. 49

Looking Forward ................................................................................................................................. 51


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Executive SummaryInfrastructure development is a critical enabler to economic growth. Logistics infrastructure,

covering the road, rail, waterways and air network of a country, is the backbone on which

the nation marches ahead. Although the urgency to develop Indias logistics infrastructurehas been realised in the past decade, the task at hand is daunting. Indias logistics

infrastructure is insufficient, ill-equipped and ill-designed to support the expected growth

rates of 7 to 8 per cent over the next decade. This expected 2.5-fold growth in freight traffic

will further increase the pressure on Indias infrastructure. India has the opportunity to

address this issue. Over two-thirds of the infrastructure network capacity of the future has

not yet been built. Learning from the past and adopting global best practices, India should

pursue a logistics infrastructure strategy that minimises investment, maximises cost

efficiency, reduces losses for users and is energy efficient.This will need India to build its

freight infrastructure in a manner that creates an integrated network across modes and

prioritises high-return programmes.

This sectorial report provides a perspective on how Indias logistics network should evolve to

meet future freight needs in 2020 and beyond. It discusses how Indias current logistics

infrastructure is inadequate to meet its growth aspirations and estimates the current and

future concentration of freight traffic flows in the country in order to define logistics

requirements and financial implications. It proposes a balanced modal strategy as the best

way forward and lays out the elements of a National Integrated Logistics Policy to move

from strategy to implementation. It argues that the time is right for all stakeholderspolicy

makers, regulators, public and private providers, resource holders, equipment providers,

financiers and end usersto act in concert to build the countrys future.

Logistics infrastructure is a critical enabler of Indias economic development. Recognising

this pivotal role, logistics infrastructure spend has been tripled from around USD 10 billion in

2003 to a planned amount of around USD 30 billion in 2010. Despite this increase, the

countrys network of roads, rail and waterways will be insufficient as freight movement

increases about 3 fold in the coming decade. This shortfall in logistics infrastructure will put

Indias growth at risk.

Since a large part of Indias future logistics network is still to be built, the country has a

chance to build infrastructure optimally, to meet the growing demand. Doing so requires an

integrated and coordinated approach in which the development of each moderailways,

waterways and roadsis matched to the needs and existing assets are better utilised. In

particular, India needs to increase its use of rail, and realise the potential of its waterways.

For example, in the normal course, Indias rail share in freight would decline to 25 per cent

from the current 36 per cent. This is relative to almost 50 per cent rail share in China and

the US, similar continental sized nations. The concerted approach suggested in this report

can increase Indias rail share to 46 per cent.

If India fails to achieve this, waste caused by poor logistics infrastructure will increase from

the current USD 45 billion1 equivalent to 4.3 per cent of todays GDP, to USD 140 billion or

more than 5 per cent of the GDP in 2020. If tackled in an integrated and coordinated


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manner, this can be reduced by half and Indias transport fuel requirement reduced by 15 to

20 per cent.

Achieving this will require four major shifts:

Building the right network and ensuring flows on the right mode, comprising an integrated

mesh of seven high-density long-distance corridors (rail and coastal waterways), 150

medium-distance rail and road connectors and about 700 last mile links

Creating enablers to maximise the efficient use of the network, which includes developing

15 to 20 logistics parks, providing standards for containers and pallets and upgrading the

skilled workforce

Extracting more from existing assets, for example, by increasing the share of toll plazas with

electronic tolling, using stainless steel wagons with higher load carrying capacity, and

increasing spend on maintenance of roads

Allocating more investment to rail and reallocating within roads and rail, Based on current

trends, USD 500 billion is estimated to be spent on logistics infrastructure in the next

decade, with roads accounting for more than 50 per cent of the spend and rail for 40 per

cent. However, this investment will need to be re-apportioned to support the changes

required. The allocation to railways, for instance, needs to increase to more than 50 per

cent with large sums spent on building high-density traffic corridors, connectors and last

mile links

If these shifts are implemented, Indias waste in logistics in 2020 at about USD 100 billionwould be almost one-third lower. This amount can be reduced further to about USD 70

billion (3 per cent of expected GDP) if the investment can be increased to about USD 700

billion. Further Indias commercial energy consumption would reduce by ~1%. To

implement these four major shifts, India will require a National Integrated Logistics Policy

(NILP). Such a policy should target a greater share of rail, reduce economic waste and

improve energy efficiency. The policy will need to establish and implement 10 targeted

national programmes including for dedicated rail freight corridors, coastal freight corridors,

national expressways, last-mile roads, last-mile rail, multi-modal logistics parks, road

maintenance, technology adoption, skills development and equipment and service

standards.

Implementing a new logistics infrastructure strategy is a complex task given the multiple

stakeholders within the central and the state governments. An empowered cross ministerial

group will be needed to drive this effort, define programmes, allocate budgets, monitor

implementation, and ensure continual coordination across ministries. The high level National

Transport Policy Development Committee recently set up by the government to develop

policy recommendations is the first step in this direction.


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Global Logistics IndustryThe global logistics industry is estimated to be worth USD 300 billion. Though most of thelarge service providers are headquartered in Europe, the biggest market is the US, whichcaptures about one-third of the world market. The global logistics industry is characterizedby high costs of operations, low margins, shortage of talent, infrastructural bottlenecks,demand from clients for investing in technology and providing one-stop solutions to all theirneeds, and consolidation through acquisitions, mergers and alliances.

This section gives an overview of the size of the global logistics industry and its currentstatus and prevailing dynamics. The global logistics industry was valued at US$3.5 trillion in2005, whereas US logistics industry size was around US$900 billion, 25% of the globallogistics industry. Logistics cost in India is estimated to be around 13% of the GDP, which isUS$94 billion in 2005-06.Indias spending on logistics industry is much higher than thedeveloped economies like the US (9.5%) and Japan (10.5%).

Size of the global logistics industryCurrently the annual logistics cost of the world is about USD 3.5 trillion. For any country, theannual logistics cost varies between 9% and 20% of the GDP, the figure for the US beingabout 9%. US-based Armstrong & Associates, Inc. tracks the issues and trends in the worldlogistics market and in the US logistics market, in particular, in their annual surveys of top25 global LSPs. According to the firm, the global logistics market sizes in 1992, 1996 and2000 were USD 10 billion, USD 25 billion and USD 56 billion, respectively. In 2003 and 2004,the corresponding figures were USD270 billion and USD 333 billion, registering high growthrates. Though most of the large LSPs are headquartered in Europe, the US logistics marketis the largest in the world capturing one-third of the world logistics market. In 2003, it was

about USD 80 billion. In 2004, it grew to USD 89 billion, and in 2005, it registered animpressive growth rate of 16% to cross the USD 100 billion mark for the first time and reachUSD 103.7 billion (Foster and Armstrong, 2004, 2005, 2006). However, considering the factthat the logistics market in the US is about 10% of its annual logistics cost (Foster andArmstrong, 2006), there is still immense potential for growth of 3PL in the US in particular,and in the world in general.


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Largest LSP (Logistics Service Providers) by 2011 Gross Revenues

and Freight Forwarding Volumes

DHL Supply Chain & Global Forwarding: Rank 1

Net Revenue($Millions)

19,816

Gross Revenue($Millions)

30,486

Ocean TEUs 2,772,000

Airfreight Metric Tons 2,458,000Comments

DHL Supply Chain (DSC) is by far the world's largest 3PL and contract logistician. Contractlogistics revenues were 53% of its gross logistics revenues for 2010. The revenues for Exel(DHL Supply Chain - Americas) contract logistics are $4 billion with 491 warehouses and 95million square feet of space. Exel/DSC has operations of virtually every kind on everycontinent. Current major initiatives involve expansion in pharmaceuticals and sustainability.DHL Global Forwarding (DGF) grew through the acquisition of highly respected companieslike Danzas. DHL and Danzas are strong branches in Europe and Asia. DGF currently has 31global carrier partners with 81 contracts on a multitude of trade lanes and more than 330

gateway facilities. Its annual volume is 2,772,000 TEUs and its LCL is 2,000,000 cubicmeters. There are more than 45,000 weekly point pairs for LCL globally. DGF handles2,200,000 shipments annually. DHL's scope allows its customers to more easily adjustvendor supply chains.


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Kuehne + Nagel: Rank 2


5,727


19,476

Ocean TEUs 2,945,000Airfreight Metric Tons 948,000

Comments

Kuehne + Nagel is the largest ocean freight forwarding operation handling over 2.9 millioncontainers per year. It is also the fifth largest airfreight forwarder. With the addition of the

ACR group, contract logistics operations more than doubled in 2006 and are now 52% of netrevenues. The industry breakdown for its contract logistics operations is: Retail 35%,Healthcare 22%, Technological/Telecom 18%, Chemicals 7%, Automotive 6%, Fulfillment5%, Misc. 5% and Services 2%. Kuehne + Nagels North American logistics network totals12 million square feet of space across 50 DCs. There are 11 DCs in Canada (located inToronto, Montreal, Calgary, and Edmonton), 30 single- and multi-client DCs in the U.S., sixfacilities in Mexico, and four Mexican border locations for transborder/customs services.Americas business for Kuehne + Nagel is 14% of net revenues. Net revenue was $826million in 2010 for the Americas with over 50% from freight forwarding. Kuehne + Nagelhas developed its own land transport management and trucking network for Europe.


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DB Schenker Logistics: Rank 3


9,120


18,999

Ocean TEUs 1,647,000Airfreight Metric Tons 1,225,000Comments

DB Schenker made significant purchases from 2006 to 2008 to double the size of itsoperations. The purchases include BAX in 2006, Spain-Tir in 2007 and Romtrans in 2008.Romtrans was the largest forwarding company in Romania with $140 million in revenue and1,500 employees. Operations go as far east as Georgia. Spain-Tir had over 700 trucks and16 million square feet of warehousing space covering the Iberian Peninsula. BAX addedsignificant North America and Asia capacity. The gross revenues are each over $2.5 billionthe Americas (6.5% of total revenue) and Asia (5.2% of total revenue). German operations,including Europes largest rail freight and trucking operations, are 70% of total revenues. DBSchenkers European trucking by land transport has 23,000 employees/owner-operators andhandled 81 million shipments in 2010. Russian and Eastern European operations aresubstantial. DB Schenker is significantly expanding its contract logistics operations. DaveBouchard was added to lead the Americas effort. Detlef Trefzger leads global contractlogistics and is spearheading expansion efforts. North American contract logistics operationsare 42% Consumer Goods, 30% High-Tech, 16% Industrial and 12% Automotive. DBSchenker is now second among world air freight forwarders (1.2 million metric tons), third inocean freight (1.6 million TEUs) and fifth in contract logistics.


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Current Status and Dynamics of the Logistics IndustryThe extant literature on the logistics industry points to a number of issues that serviceproviders have to address, such as pricing pressures, high costs of operations and lowreturns on investments, hiring and retaining talent, pressure from clients to broaden therange of service offerings and internationalize operations, demand for customized solutionsand more value-added services, besides infrastructural bottlenecks and governmentregulations. Service providers complain that clients expect them to have the latest software,databases and ERP (Enterprise Resource Planning) packages, and invest in new technologiessuch as RFID and satellite-based real-time tracking systems. Clients perceive that theseinvestments are part of the basic service package, and often do not want to match the samewith increased payments for these additional services. Pressure from clients to broaden therange of service offerings and internationalize operations, has forced service providers tolook for suitable alliances, mergers and acquisitions that help fill the gaps in serviceofferings, and industry verticals and geographic areas served, achieve economies of scaleand enhance service providers capability to support international operations.

Currently, the world logistics market is going through a consolidation phase. Tibbett &Britten Group of North America was acquired by Exel Logistics in August, 2004, andDeutsche Post World Net, parent company of DHL, took over Exel in December, 2005. BaxGlobal was taken over by Deutsche Bahn, parent company of Schenker, in November, 2005while A. P. Mller acquired P&O Nedlloyd in February, 2006, and TNT Logistics was sold toApollo Management L. P. in November, 2006. However, mergers and acquisitions have theirown set of problems in terms of integration of two diverse business units. Carbone andStone (2005) tracked the evolution of 20 leading European LSPs between 1998 and 2004 interms of their approach to mergers, acquisitions and alliances, and found that althoughgrowth led to more coverage, integration of two different cultures was one of the mostdifficult challenges faced by these firms in the consolidation process. Recent trends in the

logistics industry indicate that to be successful, service providers have to differentiatethemselves from their competitors in terms of offering value-added services, focus on keycustomer accounts that have the potential to generate high profitability for a long term,enter into suitable alliances to complement the range of services offered and geographicareas served, and sell logistics services to clients suppliers and customers, thus leading tocomplete supply chain integration.


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Indian Logistics IndustryThis section gives an overview of the size of the Indian logistics industry, its competitivedynamics and future prospects.

Infrastructure at a glance:

Roadways are the most preferred mode of freight transport due to their cost efficiency andassurance of door to door service. 70% of the total freight in India is carried by roadways.

Logistics Infrastructure in India Logistics involves global movement of materials, information and funds from country

to country Requires excellent state of the art country infrastructure airports, sea ports, Internet

and other related facilities Indian Infrastructure is poor as compared to developed and developing countries andis rated 54th among the 59 countries Road : 56/59, Rail: 25/59, Seaport: 51/59, Airport: 40/59

The underlying institutional problems Fragmentation and overlapping of responsibilities among various government

agencies Complexity of international trade documentation process and lack of IT infrastructure Complex tax laws Lack of professionally competent logisticians Industry readiness: weak asset or system management skills


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Seven corridors connect 15 high-growth clusters

Seven corridors connect these major clusters (above Exhibit) and accounted for around 50 per cent

of the total freight traffic in 2011 in ton-km.18 Looking ahead, they are likely to account for 60 per

cent of the growth.19 Within this geographic concentration:

National highways (NH) along the selected routes account for less than 25 per cent of thetotal NH length (i.e., less than 0.5 per cent of the Indian road network) but handle over 40

per cent of road freight traffic

Rail links comprise 27 per cent of the Indian rail network but handle over 50 per cent of railfreight traffic in the country

Two corridors along the East and West coasts have a significant share of coastal traffic,which can be increased even further.

Size of the Indian logistics industryThe annual logistics cost in India is estimated to be 14% of the GDP, which translates intoUSD 140 billion assuming the GDP of India to be slightly over USD 1 trillion. Out of this USD140 billion logistics cost, almost 99% is accounted for by the unorganized sector (such as

owners of less than 5 trucks, affiliated to a broker or a transport company, small warehouseoperators, customs brokers, freight forwarders, etc.), and slightly more than 1%, i.e.approximately USD 1.5 billion, is contributed by the organized sector. So, one can see thatthe logistics industry in India is in a nascent stage.However, the industry is growing at a fast pace and if India can bring down its logistics costfrom 14% to 9% of the GDP (level in the US), savings to the tune of USD 50 billion will berealized at the current GDP level, making Indian goods more competitive in the globalmarket. Moreover, growth in the logistics sector would imply improved service delivery andcustomer satisfaction leading to growth of export of Indian goods and potential for creationof job opportunities.


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Competitive dynamics and other issues in Indian Logistics Industry

The following problems existing in the Indian logistics industry make it unattractive forinvestments and also create entry barriers.

Logistics is a high-cost, low-margin business. The problem of organized players iscompounded by unfair competition with unorganized players, who can get awaywithout paying taxes and following operating norms stipulated in the Motor Vehicles

Act such as quality of drivers and vehicles, volume and weight restrictions, etc. Economies of scale are absent in the Indian logistics industry. Even the organized

sector that contributes slightly more than 1% of the logistics cost, is highlyfragmented. Existence of the differential sales tax structure also brought indiseconomies of scale. Though VAT (Value Added Tax) has been implemented sinceApril 1, 2005, failure in implementation of a uniform VAT structure across differentstates has let the problem persist even today.

Apart from the non-uniform tax structure, Indian LSPs have to pay numerous othertaxes, octrois, and face multiple check posts and police harassment. High costs ofoperation and delays involved in compliance with varying documentationrequirements of different states make the business unattractive. On an average, a

vehicle on Indian roads loses 24-48 hours in complying with paperwork andformalities at different check posts en route to a destination. Fuel worth USD 2.5billion is spent on waiting at check posts annually. A vehicle that costs USD 30,000pays USD 7,500 per annum in the form of various taxes, which include the exciseduty on fuel. This is why freight cost is a major component of the cost of a productin India.

There is lack of trust and awareness among Indian shippers with regard tooutsourcing logistics. The volume of outsourcing by Indian shippers is presently verylow (~ 10%) compared to the same for the developed countries (> 50%, sometimesas high as 80%). The unwillingness to outsource logistics on part of Indian shippersmay be attributed to skepticism about the possible benefits, perceived risk, and

losing control, of sensitive organizational information, and vested interests in keepinglogistics activities in-house. Indian shippers expect LSPs to own quality assets, provide more value-added

services and act as an integrated service provider, and institute world-classinformation systems for more visibility and real-time tracking of shipments. However,they are unwilling to match the same with increased billings; even pay little attentionto timely payments that leave LSPs short of adequate working capital.

Indian freight forwarders face stiff competition from multi-national freight forwardersfor international freight movement. MNCs, because of their size and operations inmany countries, are able to offer low freight rates and extend credit for long periods.Indian freight forwarders, on the other hand, because of their smaller size and lack

of access to cheap capital, are not able to match the same. Moreover, clients ofMNCs often want to deal with a single service provider and especially for FOB (Free


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on Board) shipments specify the freight forwarders, which most of the time happento be the multi-national freight forwarders. This is sort of a non-tariff barrier imposedon Indian freight forwarders.

Poor physical and communications infrastructure is another deterrent to attractinginvestments in the logistics sector. Road transportation accounts for more than 60%of inland transportation of goods, and highways that constitute 1.4% of the totalroad network, carry 40% of the freight movement by roadways. Slow movement ofcargo due to bad road conditions, multiple check posts and documentationrequirements, congestion at seaports due to inadequate infrastructure, bureaucracy,red-tapeism and delay in government clearances, coupled with unreliable powersupply and slow banking transactions, make it difficult for exporters to meet thedeadlines for theirinternational customers. To expedite shipments, they have to bookas airfreight, rather than seafreight, which adds to the costs of shipments makingthem uncompetitive in international markets. Moreover, many large shipping linersavoid Indian ports for long turnaround times due to delays in loading/unloading and

hence Indian exporters have to resort to transshipments at ports such as Singapore,Dubai and Colombo, which adds to the costs of shipments and also delays delivery. Low penetration of IT and lack of proper communications infrastructure also result in

delays, and lack of visibility and real-time tracking ability. Unavailability and absenceof a seamless flow of information among the constituents of LSPs creates a lot ofuncertainty, unnecessary paperwork and delays, and lack of transparency in terms ofcost structures and service delivery.

Since most of the LSPs are of relatively small size, they cannot provide the entirerange of services. However, shippers would like service providers to offer morevalue-added services and a single-stop solution to all their logistical problems. Theinability of service providers to go beyond basic services and provide value-added

services such as small repair work, kitting/dekitting, packaging/labeling, orderprocessing, distribution, customer support, etc. has not been able to motivateshippers to go for outsourcing in a big way.

Service tax levied on logistics service fees (currently 12.36% with educational cess)may make outsourcing costly and outweigh the possible benefits.

There is lack of skilled and knowledgeable manpower in the logistics sector.Management graduates do not consider logistics as a prime job. To improve thestatus of the industry, service providers have to move beyond the level of brokersand truckers to attract and retain talent.

Air transport sector contributes over 0.2% to the countrys GDP at constant prices(1999-2000 prices). Transport sectors contribution to the GDP has been growingrapidly, mostly because of the high on export of gems and jewellery, specialchemicals and high-value pharmaceuticals.

Domestic air cargo traffic has been growing at CAGR of 12.80% from 2001-02 to2006-07, whereas international air cargo traffic has been moving at CAGR of 13%during the same period. During 2006-07, total air cargo traffic is estimated to beover 1.56m tonnes against 1.4m tonnes during 2005-06, registering a growth rate of14.65%.According to the Planning Commission, Indias air cargo movements wouldgrow at over CAGR of 11.5% from 2007-08 to 2011-12.

Marine transport sector contributes over 0.2% to the countrys GDP at constantprices (1999-2000 prices). Transport sectors contribution to the GDP has beenincreasing because of the growing economic activities in the country. Shippingindustry plays a significant role in the Indian economy. India has 12 major and 187

minor/intermediate ports along its coastline of around 7,517km. The fleet strength at


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the end of December 2006 was 774 vessels with 8.42m Gross Registered Tonnage(GRT).

Ports serve as the gateways to the international trade in India. Major ports in Indiatogether have handled 463.84m tones of cargo in 2006-07, a growth of 9.51%

against the same period of the previous year. The petroleum-oil-lubricants (POL)accounted for 33.38% of the total traffic at major ports during April-March 2007,while iron ore constituted 17.37%, coal 2.98%, container traffic 15.84%, fertiliser3.04%, and others 17.49%.

According to the Planning Commission, Indias shipping fleet strength will beincreased up to15m GRT by the end of 2011-12,with an estimated investment ofUS$17.7 billion. The port throughput will increase up to 1,008m tonnes, growing at aCAGR of 10.96% from 2007-08 to 2011-12.

Third Party Logistics (3PL)

Outsourcing is everywhere. Logistics industry is no exception. Logistics services liketransportation, warehousing, cross docking, Inventory management, packaging and freightforwarding all are part of third party logistic services. Companies in India currently outsourcean estimated of 52% of logistics. And 3PL industry is estimated to be US$ 1.5bn in FY11.3PL represents only 1% of logistics cost emphasis its significance in the industry. Future isno doubt lying in outsourcing. As the growth in the 3PL market is expected to be in therange of 25-30% CAGR over FY11-13E. As of now, the 3PL activity is limited to only fewindustries like automotive, IT hardware, telecom and infrastructure equipment.The organised 3PL market in India can be categorised into three major segments public

sector, private sector and foreign entrants. Some of the major players in each category are:

TVS logistics, DIESL (TATA), Panalpina, TCI, Gati, Allcargo, V Trans, Total, VRL and Relianceetc.

Third Party logistics players in India: Market is highly fragmented with large number of small players Rail is state run while truckers are often family-run Complex business environment, eg. tax rates differ between provinces, cultural

differences Poor warehousing and transportation infrastructure Foreign logistics competitors are Exel, Danzas, Bax Global, TNT, Panalpina main

revenue from freight forwarding

Logistics market is expected to grow by more than 20% over the next 3 years as against thepresent rate of 12-15%.


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National logistics cost vis--vis the share of 3PL in the logistics market

The table reflects that there is an inverse relationship between logistics cost of a nation andthe share of 3PLs in national logistics market . The greater the share of 3PLs the lesser isthe national logistics cost thus highlighting the importance of 3PLs in logistics.

Savings estimated with a reduction in logistics cost

Source: Credit Analysis and Research Ltd (2007)


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Regulatory overview: Taxes and duties pertaining to the logistics

industryImportant components of logistics cost include tariff such as central sales tax, local sales

tax, entry tax, octroi, turnover tax, etc. Many of these taxes are state subjects. Traditionally,there have been no mutual consultations or agreement among the states on making taxesuniform. The local sales tax rates vary significantly between states. The states have alsobeen competing with one another in offering sales tax concessions to attract investmentproposals, making decisions such asthe location of manufacturing facilities, warehouses, etc, dependent on these taxes.However, the situation is likely to undergo a paradigm shift soon.

FDI in Logistics: In general 100% FDI under the automatic route is permitted for all logistic services FDI up to 100% subject to FIPB approval is permitted for courier services. FDI up to 49% under the automatic route is permitted for air transport services,

including air cargo services. 100% FDI is permitted in Ports and Harbours under automatic route 100% FDI is permitted under the automatic route for storage and warehousing

including warehousing of agricultural products with cold storage. 100% FDI is permitted in transport and transport support services through automatic

route

Legal enactments of transportationThe following are the acts/enactments that specify the laws relating to the logistics industry

The Carriers Act, 1865 The Carriage of goods by Sea Act, 1925 Sale of Goods Act, 1930 The Merchant Shipping Act, 1958 Custom Act, 1962 The Marine Insurance Act, 1963 Major Port Trust Act, 1963 Carriage by Air Act, 1972 The Railways Act, 1989 The Multimodal Transportation of Goods Act, 1993 Central Road Fund Act, 2000 Carriage by Road Act, 2007

Some Innovative Experiences of Indian Logistics: The

DABBAWALLAHs of MUMBAIThe dabbawallahs or the lunch box delivery people of Mumbai pickup and deliver lunchboxes from homes or restaurants and deliver it to the customers office all within aspecified time frame and then deliver the empty box back to the place of pickup. It is anexample of how processes can play an important role in coordinating logistics of animportant service industry in India. The Nutan Mumbai Tiffin Box Charity Trust of Mumbaiwas established in 1891 to provide pick-up and delivery of lunch for Britishers working inMumbai. Since then it has become the leading lunch delivery cooperative in the city. Itpicks-up and delivers 200,000 lunch boxes in a standard container every day and returns the


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same to the place of pickup. The firm has an annual turnover of about $12 mn and employs5000 people for pickup and delivery almost all of them are uneducated. However, thereare less than 10 boxes mis-delivered or un-picked in a month! We discuss, briefly, theprocesses that help make this logistics network error-proof and deliver such an astonishing

performance. The operations of the group has attracted global attention and won themmany awards. They represent a growing group of service providers that exist as an elementof the logistics network, provide niche service and generate value in return for the customer.The Trust which is organized as a cooperative is operationally organized in hierarchicalteams pick-up teams, consolidation teams, delivery teams (and then the reverse logisticsfor empty boxes with reversing of the functions for the teams). Typically, each dabba or thelunch box passes through more than four pair of hands and may be transported up to 60 kmeach way. Pickup is done between 7.30am-9.00am, delivery between 12.00 and 1.00pm andreturn between 2.00-5.00pm. These represent tight time-windows where a team of 20-25members (and supervised by a team leader who also fills in as a pickup person in case ofany absence) pick-up lunch boxes from homes about 30 per pick-ups person. The boxes

are carried in a specialized fixture on a bicycle to the nearest train station where the boxesare consolidated by destination. A consolidation team performs this task and carries theboxes (which may have been picked by members of different teams but need to travel tothe same destination geography) into the train. Often tiffin or lunch boxes are un-loaded atintermediate train stations re-consolidated with boxes coming from other locations (i.e,cross-docked) and carried on a third train to its destination station. At the destinationstation, the lunch boxes coming from various origins/cross-docking destinations are onceagain segregated by the building where the delivery is made. Finally, a delivery team picksup their boxes, i.e., boxes that they will deliver to specific owners in specific buildings, carrythem on their bicycles and deliver them in the office of the owner of the box. Later in theafternoon, the same person picks-up the empty box and pursues the reverse logistics and

the box is ultimately delivered at its point of origin either a home or a restaurant. With thisas the complexity, what may be plausible reasons for such low errors?Contextually, the group members see their role as very important - they are responsible fordelivering food to their customers socially, it enhances their commitment to their task andestablishes a critical customer-service provider link. Operationally, the handoff is donesuccessfully through simplification or breaking down of tasks, codification and repetition.The designed process is simple and easy to understand for each operator. More important,each operator has a limited yet definite role. This role is one of pickup, consolidation &transfer and delivery (and the similarly for reverse logistics). Each pickup operator does notpickup more than 25-30 boxes as that is the number of addresses etc. that he canremember accurately which helps in avoiding mistakes. The lunch box is enclosed in astandard container which carries a unique code for the destination station, the buildingwhere the box is to be delivered and the floor number in that building where the office ofthe customer is located. Each operator recognizes a limited set of codes that are relevant tohim (and does not have to learn the entire coding scheme). And finally, repetition of thetask (i.e., same pickup location, same place for cross docking, same delivery location etc.)helps in making the task fool proof. Of course, what helps is the linear geography ofMumbai, the punctuality of trains, relatively stable demand and strong inter-dependencebetween operators. It is an example of how manual logistics systems can be organized toeffectively deliver value to the customer.


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Indian Logistics Industry: Market Players

DHL Express India

Parent company is currently owned by Deutsche Post World Net Investments in India include:- DHL Express (100 per cent)- Exel Logistics (100 per cent)- Blue Dart Express (81 per cent)- DHL Danzas Lemuir (49 per cent) For DHL, India is one of the fastest growing markets in Asia Pacific Factors for success: Partnering with local Indian players, Selecting critical Indian markets,Investments in technology,Visionary owners with deep pockets, Innovative services.

About DHL

DHL is the global market leader in international express, overland transport and air freightand it is also the worlds number one in ocean freight and contract logistics. DHL wasfounded in 1969 and is currently owned by Deutsche Post World Net (DPWN).The companyhas an internationalnetwork that links more than 220 countries and territories worldwide. It employs 285,000peopleproviding services to customers at around 120,000 destinations across the world.DHL offers a full range of customised solutions, from express document shipping to supply

chain management, i.e. from a 50 gm letter to a 40-footlong container. It offers a widerange of


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standardised services as well as tailor-made industry solutions, provided by DHL Express,DHL Freight, DHL Exel Supply Chain, and DHL Global Forwarding.

DHL is the largest air express service provider in IndiaDHL Express is the No.1 international air express services provider in India, a position it hasheld since it began its India operations in 1979. DHL Express offers its customers the entirespectrum of express services from international air express to high-end logistics solutions,including repair and return, strategic inventory management and direct express inventorydistribution. DHL Express India has over 30,000 customers serviced through DHLs nationalnetwork with its 1100 strong ground staff, fleet of over 250 vehicles and dedicated servicecentres in Ahmedabad, Bangalore, Chennai, Cochin, Coimbatore, Jaipur, Hyderabad,Kolkata, Mumbai, New Delhi, Pune and Tirupur.DHL Express India has many firsts to its credit, including Indias first and only 24 -hour

customer service call centre in the express industry, being the first to introduce customisedsolutions such as Jumbo Box, Junior Jumbo, Import Express and Fashion First for customersin the air express industry, as well as the first to provide track-and trace services in India viaemail, SMS or the Internet and WAP phones.

Indian operations witnessing rapid growth, exceeding global rateDHL sees a lot of growth opportunity in the Indian market.The total size of Indias airexpress market is estimated to be US$ 450 million. Currently DHL Express India is growingat a rate of 20-25 per cent per year when the average industry growth worldwide is around16 per cent. Delhi, Mumbai and Chennai are the three largest markets.The company has been investing significantly in its Indian operations, to leverage the

marketpotential. It has already set up 20 service centres in India, amounting to 11,000 squaremetres in operations space. Since 2002, DHL has invested US$ 250 million in its Indiaoperations.

Investments in TechnologyDHL launched the new generation scanners for its on-the-go customer service agents in2004. India was one of the first countries in the DHL International Network to adopt thisnew technology, which was being rolled out at an investment of US$ 620,000.Thesewireless, handheld scanners equip the DHL field force with the most up-to-the-minuteshipment tracking information.


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Partnering with Local Indian PlayersA wide distribution network and knowledge about the local market are the keys to success inthe courier business and these are the greatest challenges for any new player entering themarket. DHL India entered into a sales alliance with Indian express courier company, Blue

Dart, in 2002.This helped DHL to increase its penetration in the Indian market as Blue Dart already had anextensive distribution network in place. DHL now owns 81 per cent of Blue Dart.

Innovative ServicesDHL has launched several services specially designed to cater to niche needs. For example,in 2004 it launched Mango Express to enable its customers in India to airfreight theseasons Alphonso mangoes abroad.The one-stop service took care of everything fromselecting the best mangoes to packing them, shipping them and managing all relevantdocumentation. To ensure that its customers get the best mangoes, DHL tied up with Indias

largest mango exporters to offer the highest quality of mangoes. These could be shippedthrough DHL Mango Express to many major countries like the UK, Canada, Germany,Switzerland, Singapore, Hong Kong etc.

Future PlansBased on its strong performance in India in air express services, and in view of the potentialit sees in the market, DHL plans to gradually boost the activities of the other DHL businessesin the Indian market, with the aim of being number 1 in the express and logistics industry inIndia and to provide customers with the best possible service and products.


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FedEx in India

Federal Express India: At A Glance Federal Express: Worlds largest transportation company. 215 countries. 365 airports. 136,000 employees. 645 aircraft Federal Express India: 10 flights. Partnering Indian firms for operations and customsbroker capabilities. 8 centres. Customs clearance capabilities at 8 gateways Continually expanding range of services. Has grown 500 per cent since commencement ofIndian operations Factors for success: Global reach. Leveraging technology. Commitment to manpowerdevelopment For FedEx, India is: Software development source Future plans, India: Expand network

Federal Express (FedEx) is the worlds largest express transportation company, with a

presence in nearly 215 countries and covering 365 airports. It employs over 136,000employees and operates more than 645 aircraft. FedEx was established in 1973 and isheadquartered at Memphis, USA. The company differentiates itself through highly reliable,value-added services like guaranteed customs-cleared, 48-hour delivery for internationalconsignments. Federal Express started operations in India in 1997, and currently operatesten flights a week from Mumbai to Europe and Asia. FedEx has an operations agreementwith Prakash Airfreight Pvt. Ltd., which provides all pick-up, and delivery services withinIndia. It also has an agreement with Jeena & Co. for providing nationwide customs brokercapability.FedEx now services from eight centrers as against four centres earlier and has branchoffices in Kolkata, Ahmedabad, Hyderabad and Coimbatore, in addition to the current

operating locations in Delhi, Mumbai, Bangalore and Chennai.FedEx has also increased customs clearance capabilities from one gateway (inbound) toeight gateways (inbound as well as outbound). Also, FedEx clearance for high value goods isavailable from Mumbai, Delhi, Chennai, Bangalore, Coimbatore, Cochin and Kolkata.FedEx first began operations in India in 1984. During the past two decades, we havecontinued to improve and increase our services to, from and within India. We were the firstcarrier to launch an all-cargo flight from India, and today we offer more flights to and fromIndia than any other cargo company. We have also established the industrys most extensiveair-to-ground network in India, delivering to more than 4,000 Indian towns and cities usingFedEx couriers and technology. U.S.-based companies ship to India with FedEx because ofour superior products and services and unparalleled expertise in the region.

FedEx is set apart by: The most diversified portfolio of India-specific products and services. A significant and growingsales presence in 35 ofIndias key cities. The industrys greatest number of all-cargo flights from the U.S. to India, and from

India to the U.S., Europe and Asia. Pioneered the first all-cargo flight connecting India and China. 16 clearance locations in India, which enable us to move shipments more quickly and

efficiently than any other carrier. Customs clearance in Indian international airports in 18 different languages. A dedicated surface network that connects 12 key cities in northern, western and

southern India, reducing reliance on commercial, in-country line haul.


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Services Offered in India

FedEx International Next Flight

Delivery within hours between major cities, based on flight availability. Available 24 hours a

day, 7 days a week, 365 days a year. Door-to-door customs clearance.

1 - 3 business days :FedEx International Priority

Time-definite delivery. Monday-Friday service for shipments 150 lbs. or less. Saturdayservice available to select destinations. Door-to-door customs clearance.

1 - 4 business days :FedEx International Priority Direct Distribution

Monday-Friday service for consolidated shipments. Door-to-door customs clearance.

2 - 5 business days FedEx International Economy

Monday-Friday service for shipments 150 lbs. or less. Door-to-door customs clearance. Aneconomy, time-definite, customers-cleared, door-to-door service for all your worldwideshipments up to 68 kgs per package.

1 - 4 business days FedEx International Priority Freight

Monday-Friday service for palletized freight more than 150 lbs. Door-to-door customsclearance. Advance confirmation required.

Within 5 business days FedEx International EconomyFreight

Monday-Friday service for palletized freight more than 150 lbs. An economical, time-definite,customs-cleared, air freight service for all your less urgent heavyweight shipments above 68kgs up to 1,000 kgs per package. You can benefit from pickup and for delivery options:door-to-door, door-to-airport, airport-to-airport and airport-to-door. Door-to-door customsclearance. Advance confirmation required.

FedEx 10kg Box and FedEx 25kg Box

Easy to assemble, convenient boxes offering optimum protection during transportation.

A flat-rate pricing option that uses FedEx International Priorityservice.

Dangerous Goods services

FedEx offers a specialized Dangerous Goods service that includes fast transit times, door-to-door delivery, customs clearance, complete consignment tracking and proof of delivery.

Future Plans

The company is planning to expand its network in India as it is reaching capacity. It is also heavily focusing on outbound cargo, as sea exports from India are growing at the

rate of 22percent.


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SAFEXPRESS

Safexpress began its journey in 1997 with just 9 offices and 12 vehicles, with a focus on

ensuring safety of cargo, achieving the fastest transit time by surface across India and

building the largest network.

Today, Safexpress is a nationwide Supply Chain & Logistics company, with over 3600

vehicles, over 567 destinations and over 7 million square feet of warehousing space.

Its network caters to every corner of India, and with 48 Hubs and Mega Hubs, over 1000

routes and vehicles covering over 600,000 kms every day, Safexpress delivers over 80

million packages every year.

Safexpress has launched the largest warehousing cum learning centre facility of centralIndia atIndoreon November 19, 2011. This ultra-modern Logistics Park is spread across

more than a million square feet and is expected to trigger an economic revolution in the

region.

Most importantly, Safexpress has launched a world-class Learning Centre in the same

premises with hi-tech training rooms, residential and mess facilities and huge well-equipped

library to nurture competent workforce and develop a talent pool of proficient supply chain

and logistics professionals

Milestones Year

Safe Air Service Launched 1998

Fleet Strength crosses 1000 vehicles 1999

Offices in 100 cities 2000

Turnover crosses 100 crore 2001

Safextension launched 2002

Warehousing space crosses 1 million sq. ft. 2003

Offices in 500 cities 2004

Warehousing space crosses 2 million sq. ft. 2005

Fleet Strength crosses 3000 vehicles 2006

Campus2Service service lanuched 2007

Turnover crosses 500 crore 2008

Stock2Shelf service launched 2009

Warehousing space crosses 6 million sq.ft. 2010

Warehousing space crosses 7 million sq.ft. 2011

SafeAir: Safexpress partner with Air Cargo Agents who collaborate with Jet Airways, Air

India, Kingfisher, Indigo and Spice Jet to ensure speedy delivery. Air Cargo Management

requires a special expertise in handling and document management - this is one of our corecompetencies.


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'Stock2Shelf' service is a first of its kind it comprises of determining the need at a retail

store, assessing the stock available at the feeder warehouse, delivering the stock as

required within the given time lines. The service has been especially successful in retail

outlets operating out of mega malls where customer foot-falls are high.

The outlets benefit in not having to store high inventories in their back rooms, the

distribution company does not have to manage and own warehouses near the point of

consumption, and the customers always have their favourite brands on the shelf. This win-

win-win service entails precise last-mile delivery expertise that we have acquired over the

years serving various retail outlet formats.

Stock2Shelf provides comprehensive mall supply chain services, inclusive of movement of

retail and lifestyle goods, inspection and estimation, professional packaging, securityclearance, storage and destination delivery, unpacking and reassembling/setting of retail

goods, and finally reverse logistics. It ensures 'time-definite' delivery through professionally

trained crew that manages stocks along with the necessary paperwork required to enter the

malls due to the increased security checks

'Campus2home' is a unique service to make student's baggage handling smooth during their

transition from student life to professional life. This service is offered to the college students

for delivering their belongings to their homes, safely and swiftly. It is a highly customized

solution for students to manage all hassles related to students' luggage movement.

To support students in packing their baggage, we provide special 20 kg boxes that are

exclusively designed keeping in mind the need of the students. These boxes are available on

request with no cost attached to it. This initiative is taken by the company to ensure smooth

movement of the students' personal belongings.

'Campus2Home' was launched to address the problems that students usually come across in

shipping their luggage back to their homes at the time of passing out. This initiative on our

part goes a long way in ensuring that these students can enjoy the rest of their time at the

campus without any worry of their possessions not reaching home safely.


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Growth DriversThe industry has grown rapidly since the past 10 years and various drivers have contributedto the rapid growth of the sector. Major drivers of this robust growth are initiativesundertaken by the government, increased usage of IT, improved service offerings andorganised nature of retail and manufacturing sectors, among others.

Role of government

The Government of India (GoI) has played a significant role in providing the right impetus tothis sector by implementing various laws and taxes. Some of the measures undertaken bythe government include:

Increase in private participation of rail freight Setting up of special economic zones (SEZs) resulting in increased trade Privatisation of inland container depot (ICD) for sea freight Airport expansion with dedicated cargo terminals Improved road infrastructure with better connectivity Foreign direct investments (FDI) in the commercial vehicle segment leading to usage

of better quality vehicles Revision of import duty for fast moving consumer goods (FMCG) Bilateral agreements to promote export-import (EXIM) tradeIT penetration

IT is the other major growth driver of this sector. Currently, IT solutions are being used forall supply chain management functions. Most of the ports use electronic data interchange

(EDI) facility for electronic transmission of data. This has lead to reduced emphasis onmanpower, thereby further optimising operational costs. Innovative logistics solutions haveenabled conventional forwarders to use newer and improved methods of transportation fortheir services resulting in customer retention as well as customer acquisition.The growth of IT hardware, FMCG and automotive sectors has a direct relationship with thesuccess of the logistics business. These sectors constitute the major market for logisticsservice providers generating business opportunities worldwide.

Impact of 3PLs

Third party logistics (3PL) providers constitute a major chunk of the countrys logistics sector

and play an important role in spurring the growth of the sector. They offer tailor-made andinnovative services for specific product categories as per customer requirements. Sincetimely delivery of goods is very vital in the logistics business, service providers make use ofhighly modernised technologies. Consolidation of the fragmented services is another area inwhich 3PL providers have excelled, thereby adding value to customer solutions. 3PLproviders have been able to tackle challenges and overcome the same by catering tocustomer demands, by delivering right products at the right time to the right place at theright cost.All the aforementioned factors have in one way or the other contributed to the rising growthof the countrys logistics sector, which is set to scale greater highs in the near future as theindustry still has immense potential that is lying untapped.


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Challenges and Issues

Logistics is still a nascent and fragmented industry in India. It is estimated that whileoutsourced logistics accounts for 54% of total logistics spending in India, organized playershave only 10% of the pie. In road transportation, which accounts for the biggest portion(36%) of logistics spending, 74% of operators are small time players owning a singlevehicle. In outsourced warehousing, 92% of players are from the unorganized sector. Evenamong the organized logistics players, few have offerings across multiple modes (air, water,rail and road) and service (transportation, warehousing and value-added services such aspackaging, cold chain and customs clearance).

A lack of adequate infrastructure and complex taxation and regulations are big hurdles.For example, most domestic airports don't have adequate cargo terminal facilities. Studieson logistics indicate that in this highly competitive and high-cost, low-margin business,logistics managers have to not only focus on differentiating the services rendered by their

companies, but market the differentiating factors of their services appropriately to theclients. They also need to make their cost structures transparent, and convince clients tofoot the bill towards investments in quality assets and new technologies such as RFID andGPS (Global Positioning System) leading to improved, and differentiated, delivery of service.Since clients usually prefer a single-point solution to all their logistical problems, managersneed to broaden the range of their service offerings, internationalize operations and coveras many industry verticals as possible. They may focus on key customer accounts graduallymoving away from accounts generating low, even negative, profitability. However, small-to-medium-sized companies that seem to have high growth potential should not be ignored inthe process. In order to become a single point of contact for clients, logistics companies maypursue acquisitions or alliances, which, however, pose the challenge of integration of diverse

cultures.

As far as the Indian logistics industry is concerned, logistics managers of user firms need torealize that, with supply chains getting more and more complex, outsourcing part or all oftheir logistical activities to experienced LSPs will help reduce their overheads, streamlinesupply chains, reduce costs and improve service delivery. The organizational interests shouldbe put above vested interests, if any. They need to realize that organized LSPs areprofessionals, who will maintain confidentiality of sensitive client information.The Indian government should also focus on developing infrastructure and encouragepublic-private partnerships in investments in infrastructure. Highway projects such as goldenquadrilateral and east-west, north-south corridors connecting all four metros are already

underway. Private investments in inland containerized transportation by railroad, which wasa monopoly of Container Corporation of India Limited (CONCOR), a subsidiary of IndianRailways, until recently, have been allowed. 100% FDI is also allowed in Free Trade andWarehousing Zones (FTWZ) to create necessary trade-related infrastructure to facilitateimport and export of goods and services. The government may create logistics SEZs (SpecialEconomic Zones) or logistics hubs with concessions in land and tax rates. Incentive schemesmay also be extended for construction of modern automated warehouses and cold chains.Access to cheap capital should be made available to LSPs for investments in infrastructure,enabling them to extend longer credit periods to their clients and supplementing theirworking capital. The government may create a uniform tax structure and do away withmultiple check points and documentation requirements, which would lead to speedier

delivery of cargo. To generate awareness, the government may organize seminars,workshops, exhibitions and meetings to bring in representatives of logistics users, service


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providers and government under one roof, and also sponsor courses in leading Indianinstitutes to attract talent. Growth of the logistics industry in India will not only contribute tothe GDP, but also generate employment.

Some of the major areas to focus for overall development of logistic industry are:1. Quality of Infrastructure2. Quality and Competence of service3. Efficiency of processes

a. Clearance and delivery of exportsb. Clearance and delivery of importsc. Transparency of customs clearanced. Transparency of other border agenciese. Provision of adequate and timely information on regulatory changesf. Expedited customs clearance for traders with high compliance levels

4. Sources of major delaysa. Compulsory warehousing/trans-loadingb. Pre-shipment inspectionc. Maritime trans-shipmentd. Criminal activities (such as stolen cargo)e. Solicitation of informal payments


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Best Practice in Logistics

IT systems are as common as forklifts in modern logistics. Best practice in logistics

describes a report showing that the best logistics services providers and their customers,

going beyond the tracking of shipments by computer, are investing in highly integrated

systems across internal and external supply chains.

In modern logistics, information technology systems are as common as forklifts. But the best

companies have gone beyond putting bar codes on their containers and tracking shipments

by computer. According to a survey of more than 100 logistics services providers (LSPs)

companies that primarily offer shipping and warehousing servicesand of manufacturers

and retailers using their services, the best performers are investing in highly integrated

systems across internal and external supply chains.

This global survey, conducted in 1998-99 by McKinsey and the Department of Planning and

Logistics at the University of Cologne (Professor Werner Delfmann), confirmed that IT

expenditures alone can't create or maintain a top-performing logistics service: once the

fundamentals are in place, IT investment must create greater transparency and integration

in both internal and external applications. The survey also suggested that shippers might

outsource more logistics work to LSPs if their information systems provided higher-quality

data.

Basic operational IT applications are no longer a competitive advantage for LSPs or their

customers. About 75% of all shippers surveyed use planning and scheduling software knownas enterprise resource-planning (ERP) systemsand most have warehouse-management

systems as well. LSPs that operate warehouses almost all use bar codes and warehouse

administration systems. Even among the low-performing logistics providers, 80 percent use

tracking and tracing systems for their transportation networks.

One factor that separates the high- from the low-performing LSPs in warehouse operations

is a greater IT emphasis on vehicle management. Some 80 percent of the top LSP

performers (as opposed to only 30 percent of the laggards) use prescheduled and dynamic

dock schedulingthe real-time routing of trucks and forklifts to different gates of a

warehouse (Exhibit 1). Automatic picking (the programmed retrieval of goods from awarehouse) is also more common among the top performers (80 percent) than the low ones

(20 percent).


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Another factor that sets the top performers apart is their use of order-management IT. The surveyshowed that far more of the efficient shippers (79 percent) used links called electronic data

interchanges (EDIs) to handle orders and to send customers or LSPs relevant information; among the

less efficient shippers, only 47 percent used EDIs. Likewise, more than half of the efficient shippers

have IT links with both their customers and LSPs, compared with 12 percent of the less efficient

shippers.

LSPs benefit from strong links with their clients: the survey shows that 83 percent of the best (and

only 8 percent of the worst) performers offer on-line booking. Furthermore, efficient shippers rate IT

connections with their LSPs far more highly than do their less efficient counterparts.

As for the handling of orders, the stars among the shippers stress integration and transparency in

processes such as automatic capacity checking, the monitoring of orders, and the maintenance of

quality control (Exhibit 2). Internal networking across departments is closely linked to success,

especially in industries whose logistical needs are complex. Of the 11 top-performing shippers, 10

had connected all the relevant departments: sales, logistics, and production. None of the less

efficient shippers had achieved this level of electronic integration.


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Smart IT investment makes a large difference in order planning. Most shippers72 percent of the

high performers and 56 percent of the low onesuse or plan to use sophisticated warehouse

databases to retrieve and aggregate information quickly. Once these planning systems are in place,

the high performers invest in customer analysis and in sales and purchase planning. Meanwhile, the

lower-performing shippers (52 percent of them, as compared with 24 percent of the high

performers) are struggling with IT infrastructure projects, such as efforts to shift from mainframe to

client-server systems.

The survey also found that shippers tend to outsource such tasks as warehousing and transportation

to LSPs because they offer higher operational effectiveness (Exhibit 3), along with labor costs that

are 20 to 30 percent lower. But shippers are reluctant to outsource the operation and, especially,

the management of the integrated parts of the supply chain. All of the retailers interviewed see

logistics as part of their core business, and many doubt that LSPs can provide enough information to

optimize processes beyond company borders. Sophisticated, integrated IT systems can help remove

these doubts and persuade shippers to outsource more of their logistics, including warehousing, to

LSPs.

No matter how tasks are shared along the supply chain, the increasing level of IT integration

especially between high-performing shippers and the LSP starswill probably improve the

performance of both considerably


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Quality Measurements

Quality as a requirement has great importance also in the service industry. If a service

activity is not very sophisticated, the quality terms and requirements applied in industry can

be adopted here. We can see that more and more transport companies let them be qualified

by respective Quality Standards.

Logistics is a complex process, it is divided into activities. The activities themselves carried

out at high quality will not automatically turn a process into a high standard one but they

offer chance.

The logistics system has the following areas with quality concerns:

- logistics facilities,

- logistics process and its subprocesses,

- human factors of service, organisation, management.

Quality will be assessed by the consumers. It is not possible to find just one consumer in the

logistics process to satisfy his requirements (but the final consumer is the real target), on

the joint points of logistics chain there is always a seller-buyer relation. A buyer always has

his quality requirements, the seller has to satisfy them. The final consumer should define

these requirements but it is not easy to focus on his demands at the beginning of the

logistics chain (e.g. mining raw material etc.). This way we will get sub optimums at jointpoints, a comprehensive optimization of the whole logistics process can be attained by a

learning process.

The interests of the whole economy and the interests of a company are not always the same

(e.g. transport on week-end, transport by rail instead of busy road etc.). For the economy

not just the level of performance is important but the selection of transport mode

(environment protection). A service activity is to be organized again and again every time.

Its performance and its quality can be different any time, it shows a distribution. It is

impossible to check its quality by instruments or automatically. Even the customers

assessment can vary.

For this reason, the demand is stronger and stronger to guarantee the same quality level by

standardized processes in compliance with the respective Quality Standards. If we speak

about the quality of logistics beyond the three areas (above), we have to involve the

performance and productivity indicators and the expenses.


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1.Quality of logistics facilitiesThe facilities include:

a)Logistics facilities

- Delivery facilities

- Warehousing facilities

- Packaging facilities

- Material handling facilities

b) Transport ways

a) Quality indicators of logistics facilities:

- load capacity, performance

- Modern design

- Suitability to jobs

- Maintenance background

- Man-facilities relation (ergonomic, environment protection)

- Good-facilities relation (specialities of goods, unit load, packaging, etc.)

- Ways-vehicles relation

- Performance-price relation

- Relation of expected life and price of facilities

- Specific energy and lubricant costs

- Specific performance costs

- Specific maintenance costs

- Reliability

- failurelessness (failure rate, MTBF, F(t), R(t) )

- longevity (general overhaul cycle, life span)

- restorability (av. restoring time, total break-down time)

- storability, transportability

b) Quality indicators of transport ways (rail, road, water, air)


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- Length, capacity, network , way leading (curves, slope etc.)

- Easy to survey, illumination, surface, speed, sensibility to weather, comfort

- Signs, information

- Safety, help (telephone, helicopter etc.)

2.Quality Indicators Of Logistics Process(Es)Requirements:

- Optimum combination of jobs (tasks) and facilities

- Optimum packaging and load unit

- Optimum logistics chain

- Optimum route and time

- Minimum transfer of goods

- Minimum warehousing event and time

- Organizing and managing logistics activities in environment-friendly way (minimum noise,

outside of housing estates, by-passes, etc.)

Indicators:

- Capacity supply/capacity demand

- Appear time/ordered time

- Damage events/total activities (packaging also)

- Missing volume/total volume (packaging also)

- Error delivery/total delivery commitments

- Physical performance/time, processing time

- Performed commitments/demanded commitments

- Number of customers/year


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3. Quality of ServiceThe structure of organization and the human behaviour (way of thinking, decision etc.) are

very important factors. A customer needs beyond physical performance also soft elements,

such as how to reach the service company by telecommunication, how to get the phonenumber or address, after how many minutes will they pick up the receiver, is the proper

person on the line to give information (price, time) and to make decision. How much time

does a commitment need altogether? It is important to give advice the customer even if the

company is not able to take the job.

Quality indicators:

- Politeness

- Quick information

- Exactness

- Reliability

- Advising

- Quick and optimum decision, flexibility

- Quick response on complaints

- Flexible tariffs

- Price elasticity. rabatt

- Computer, computer network

- Telematics

- Trucking & tracing


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Government Policies (Drivers & Retarders)

India has hardly been able to position itself on the economic market despite its favorable

location between Asia and Europe and a populace of 1.21 billion. The World Bank in its

Global Logistics Report, 2007 has ranked India 39 among 150 countries in terms of logistics

performance with its future potential. India needs an integrated infrastructure and logistics

policy to keep up the growth of its gross domestic product. The major export countries for

Indian products are the United States, the United Arab Emirates, China, Singapore and

Great Britain. The major import trading partners are China, the United States, Switzerland,

the United Arab Emirates and Belgium. In recent years, BRIC countries have become vital

players in the world economy as a result of their high growth rates.

Infrastructure development is essential for the growth of an economy. Logistics

infrastructure covering the road, rail, waterways and air network is the backbone on which

the nation marches ahead. Indias logistics infrastructure was developed in the colonial era

to transport troops and agricultural products. Since then, India has become one of the

fastest growing economies in the world, but its logistics infrastructure remains woefully

inadequate to meet the demands bestowed on it by the countrys newfound status.

Recognizing the importance of logistics infrastructure, the Indian government will have

trebled annual spending from about $10 billion in 2003 to $30 billion in 2010.

Government policies have been another driver of change in the logistics industry. The trend

towards higher road cargo traffic as compared to rail is going to require better logistics

control and coordination. The golden quadrilateral road project and the east & west rail

corridors are expected to change the reactiveness of Indian firms through shorter lead times

as well as lower maintenance costs on the transport equipment. They also have the

potential of reducing the procedural delays on highways by reducing the number of checks

and related stoppages of vehicles. Its impact on perishable goods will be most significant.

Thirteen States and three UTs have already amended the State laws allowing private sector

participation in direct purchases of farm produce from farmers which is making procurement

more efficient and is bringing better technology as well as products in the rural production

and distribution network. Banks have developed venture capital funds for logistics players.

Small Industries Development Bank of India or SIDBI, for instance, has invested $ 2.3 mn in

the Mumbai based firm Direct Logistics. The unbundling of the logistics supply chain (the

physical pickup, storage and movement of goods as well as allied services like invoicing,

order management, freight forwarding, customs clearance, octroi tax management etc.) will

lead to business opportunities and add value to the customers. An interesting example is

that of Reliance Connect Service Centres that have been established on Indian highways by

Reliance industry along with petrol stations. The Connect Centres provide a place for

truckers to relax (sometimes with overnight stay facilities), send information (including data)

to parent firms on their location, completed transactions etc., receive material/instructions

from the firm, remit money to parent firm, etc. It has become a one-stop shop for truckers

and their companies to keep in touch. Similarly, introduction of VAT has simplified theprocess of goods servicing and will lead to rationalizing of many operational decisions.


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Road Transport

Road and highways serve as the arterial network of a nation. For a country as large and

diverse as India, efficient road connectivity is essential for both, national integration as wellsocio-economic development. Roads are the most common mode of transportation in thecountry which reporting for about 86 % of passenger traffic and 73% of freight movement.Road transport comprises a major share of cargo movement as it is a competitive choiceeven at higher prices on account of flexibility, frequency and point-to-point delivery.

Road transport is the largest segment in the logistics sector and it recorded for ~ 73% ofthe freight movement in 2008 2009. The total length of roads in India is at about 3.34 mnkms, comprising of National Highways, Expressways, State Highways, Major District Roads,Other District Roads and Village Roads.

The Road investment charts shows that the contribution of private sectors is in increasingtrend while the State and Centre highlights the constant trend. Recently, the government

has launched a major initiatives to upgrade and strengthen the national highway network

through various phases of the National Highway Development Project (NHDP), the largest

road development programme ever undertaken in India and one of the largest undertaken

by a single agency in whole world. The below table highlight the status of National Highway

Development Project (NHDP) as on September 2011.

Sr.No

.

NHDPComponent

TotalLength

(km)

Completed 4laned (km)

UnderImplementation

(km)

Bal. for Award(km)

1 GQ 5,846 5,829 17 -2 NS- EW 7,300 5,831 891 4203 NHDP Phase -

III12,109 2,617 6,112 3,380

4 NHDP Phase -IV

14,799 - 1,744 13,055

5 NHDP Phase V 6,500 655 2,538 3,3076 NHDP Phase VI 1,000 - - 1,0007 NHDP Phase VII 700 - 41 659

Total 48254 14,932 11,343 21,821

Souce: NHAI

Rail Transport

The Indian Railways is the worlds second largest rail network under a single board. TheRailways in India provide the principal mode of transportation for freight and passengers.The growth of Indian Railways in the 155 years of its existence is phenomenal. It has playeda crucial role in the economic, industrial and social development of the country.

The Railways record for about 2.30% of the GDP and employs approx 1.5 million peopledirectly. Indian Railways run over 63,273 km, of which 28.6% is electrified with a fleet of8,330 locomotive units, 53,555 coaches and 2,04,034 wagons as on March, 2008.


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The freight segment accounts for about 70% of the revenue. The freight capacity hasincreased from 521 mn tons in 2003 to 779 mn tons in 2009.In India, the most significant way of transportation is Road (~62%). This supremacy arises

on account of poor infrastructure growth in other ways of transport such as air (< 1%),

coastal, pipeline etc. India is having world largest rail network, yet Indias contribution of

cargo transported by rail has decelerate from 85 percent in 1950 to ~ 30 percent in 2010.

This is on account of miserable quality of services as well as huge investment in road

highway projects over the past six decades.

Indian Railways has been running at more than 100% utilizationFreight Capacity and Utilization of Indian Railways, March FY ends, 2003-2009

Particulars 2003 2004 2005 2006 2007 2008 2009DemandFreight (mn

tons)

519 557 602 667 726 794 833

SupplyWagon (Nos.) 214,760 227,752 222,379 207,983 207,719 204,034 211,763Avg. wagoncapacity (tons)

46.5 46.8 47.7 47.9 48.4 50.2 52.4

Wagon capacity(mn tons)

10 11 11 10 10 10.2 11.1

Wagonturnaround time(days)

7.0 6.7 6.4 6.1 5.5 5.3 5.2

Freight Capacity

(mn tons)

521 581 605 596 667 705 779

Utilization(%)

100 96 100 112 109 113 107

Source: Ministry of Railways

Air Transport

According to the Planning Commission, Indias air cargo movements would grow at over aCAGR of 11.5% from 2007-08 to 2011-12. Foreign Direct Investment (FDI) limit in cargoairlines having been raised by the Government from 49% to 74% is attracting majoroverseas players to expand their Indian networks and capacity. Air Cargo business hasovertaken the ocean freight & rail freight market by expanding at nearly 19% in the last 3years, as against 10.3% growth registered by ocean freight and 9.2% by railways.Domestic air cargo traffic has been growing at CAGR of 12.80% from 2001-02 to 2006-07,

whereas international air cargo traffic has been moving at CAGR of 13% during the same

period. Riding high on export of gems and jewellery, special chemicals and high-va

osi - logistics

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