The sixth annual Automotive Logistics conference in India held in Pune (December 5-7, 2012) saw the participation of over 300 delegates. These included representatives from automotive majors, logistics service providers (LSPs) and other parties with similar interests.
The conference not only discussed the existing bunch of concerns (weak central government, delay in GST implementation, local corruption, poor infrastructure, over-reliance on underdeveloped road network, capacity constraints at ports, unwilling railways, skepticism to collaborate, inadequate multi-modal logistics, truck driver shortage) but also jointly voiced out the approach of engaging together to solve them.
To deliver more under the increasing pressures to perform within the existing resources is the lesson to be learnt by everybody. Furthermore, some key global logistics players are keen on implementing the takeaways from India into their global operations for increased efficiencies and growth.
At the heart of all woes
Giving a bird’s-eye view of the expanding yet uncertain market, Rajiv Bajaj, principal, Roland Berger Strategy Consultants, explained that against the backdrop of the explosive growth rates (in annual passenger car sales) of 29 and 25 percent YoY in 2011 and 2010 respectively, 2012 has witnessed a growth of below five percent (total sales of cars expected to be around 2.6 million in 2012 as against 2.52 million in 2011). While on the other hand, performing strongly, LCV sales in 2012 are expected to be around 460,000 units, marking a growth of 27 percent over the previous year. M&HCVs are expected to close the year at around 350,000 units, which would stand at a 50 percent YoY growth.
Meanwhile, India’s two-wheeler market (the world’s second largest) has witnessed a cumulative annual growth of 17 percent since 2008 and is expected to reach 13.4 million sales by end-2012. The continued growth in this segment is also underlined by the firm’s forecast of 25 million units per year by 2017, nearly doubling the market size.
With economic growth this year being pegged at five percent and owing to the uncertain picture of the national GDP, Bajaj presented a wide range of growth forecasts till 2020 for the car market. According to him, the growth story would lie in the range of a pessimistic eight percent (translating into 3.6 million units by 2015 and 4.9 million units by 2020) to as much as 17 percent compounded annual growth rate (translating into 5.3 million units by 2015 and 9 million units in 2020).
This wide range of anticipated growth forms the heart of all the issues for the Indian automotive market. The possibilities of the continued slowdown and low growth rates are looming large on the carmakers and the LSPs, who are sceptical about the apt returns on the required investments over equipment and assets.
“Even SIAM has changed its forecast many times within just one year. But we have to keep looking at the big picture, because if logistics and its capacity do not grow, we will not be able to grow,” mentioned Anand Venkateswaran, general manager of sales logistics, Hyundai India. In line with that thought, Prem Verma, CEO (distribution) at Tata Motors, believes that it is crucial for OEMs and LSPs to work together particularly in the times of uncertainty. He said, “The LSPs need to invest even if we cannot forecast accurately. Our providers need to be able to plan.”
An optimistic approach to the given scenario makes us focus more on the fact that India is going to, more or less, achieve five million annual car sales in the coming years which stands as a big opportunity for all the players in the market. At 2.6 million units sold during 2012, India is currently the third largest car market in the world only after China and USA. Nevertheless, the demand from Tier 2 and Tier 3 towns and the interiors in India is increasingly giving way to a fresh challenge of deeper networking by the OEMs and the LSPs.
For example, Bajaj clarified that Maruti Suzuki is now selling nearly 25 percent of its volume in rural areas (which is five times more than five years ago) and is impacting the finished vehicle logistics and spare parts business.
Furthermore, Tata Motors and Ashok Leyland are committing for deeper penetration; Ashok Leyland plans to set up 20,000 service points while Tata Motors plans to set up a service point at every 25km.
OEMs are stepping up, finally
To fight tough times, some OEMs which are located near each other are now evaluating the possibility of joining hands. Being neighbours in Gujarat, Amlan Bose, vice-president, logistics, Ford Asia Pacific, along with Verma of Tata Motors, revealed that they are mulling over the potential of working on logistics together. “We’re waiting for a third OEM to take place next door to us that was going to be preoccupied by Peugeot,” said Bose.
Battling the issue of the severe shortage of truck drivers (10 percent of trucks in India stand empty), Maruti Suzuki is developing a network of driver training schools to boost the number of CV drivers. With 225 such schools in place already, Maruti is training around 100,000 drivers every year (80 percent of whom are novices).
According to Mahesh Rajoria, general manager, driver training and loyalty programme, Maruti Suzuki, the Indian truck driver pool currently stands at about three million while the demand for them is set to increase to five million by 2015.
Are policymakers watching?
Acknowledging the near-absence of an integrated regulatory regime (to take control of unfavourable tariff structures, anti-competitive practices and other issues), Vinita Kumar, senior advisor, Planning Commission of India, outlined that the latest five-year plan includes a range of upgrades to the rail infrastructure, roads and ports. She anticipates a substantial growth in the share of investments to come from the private sector for these upgrades from the current levels of around 25 percent.
GST: If versus when
The mood among the delegates about the sensitive topic of GST (Goods & Service Tax) which would remove the tariffs, controls and corruption at the state borders in India is the single biggest roadblock affecting the auto logistics saw a shift from ‘if’ to ‘when’.
In Prem Verma’s words “the GST is coming, like a wolf in a fairy tale. The wolf in these stories always comes eventually.”
Bajaj, on the other hand, summed up mentioning that “a critical success factor for logistics in India is to accept the fact that unpredictable regulation changes are a norm here.”
Call on the railways
Kumar pointed out that the rail freight traffic has been one major roadblock for the logistics industry in the past decade. She informed that for the Planning Commission, rail is at the centre of several projects which also include the development of high-density rail networks along the Golden Quadrilateral routes.
“Indian Railways has developed a concept plan for a dedicated freight corridor within which the Delhi-Mumbai (stretching 3,000km and operational by 2017) and Delhi-Kolkata routes are sanctioned. These corridors can explore new areas of traffic like automobiles,” she added.
On the other hand, addressing another challenge of the poor design and standards for rail wagons, Singapore-based logistics provider APL plans to build an India-specific prototype rail wagon which would be a double-decker and will have a capacity of around 320 cars, at least a third more than any wagon today. The planned prototype would be designed to be able to move cars, two-wheelers as well as the LCVs.
The two-day conference also debated on areas such as green logistics, power efficiency and ways to contain the related (rising) expenses, zero-fault mindset, JIT and outsourcing of logistics. Bajaj’s comment, “India is a disturbed surface on a calm sea,” can ably conclude the analysis of the current scenario.
INTERVIEW WITH Geodis Wilson's Mathieu Renard Biron & Geodis Overseas India's Rene Bach Larsen
On the sidelines of the 6th Automotive Logistics conference in India, held in Pune, we caught up with Mathieu Renard Biron, regional vice-president – Asia Pacific, Geodis Wilson and Rene Bach Larsen, managing director, Geodis Overseas India.
Geodis Wilson is one of the world’s largest freight management companies and is a part of the French railway corporation, SNCF. With a presence in over 50 countries, the company has been operating in the Asia Pacific region for 30 years and since 1998 in India. It has a footprint of 17 locations across India and has recently relocated its national head office to Gurgaon (Delhi NCR). Excerpts from the interview:
What is the share of automotive logistics business in the overall logistics and freight management operations in India? What is your assessment of the current situation in this space?
RBL: The automotive logistics is the second or third largest vertical for Geodis in India and it contributes a substantial share to our annual revenues.
We are engaged in this business by way of moving automotive components and besides safety, we ensure customised and integrated services along with the just-in-time (JIT) deliveries suiting the needs of our auto clients.
Though since 2009, our annual revenue in India has more than doubled, the outlook in the automotive logistics business is undergoing a slight stagnation for now. I believe that this is a temporary phase as we continue to move towards adapting to bigger roles and responsibilities.
What is the market size of automotive logistics business in India?
MRB: We have not found any reliable estimates of the market size of this vertical in India so far. We are still studying it and trying to figure how big is the space. But I am sure that here lies a big opportunity and the more we penetrate, the bigger it gets.
What are the key takeaways for you from this year’s conference?
MRB: What I have observed out there in the conference during these two days is that all the OEMs here are demanding increased quality of logistics services but nobody wants to commit further investments for it. So nobody goes by the price-quality ratio standards. However, there is a positive aspect to this. I see willingness among the OEMs and LSPs to work together as partners and not in a JV (joint venture) setup. In a partnership, the stakes of both the parties are relatively higher and hence both are committed more into the business. The OEMs should sub-contract the entire supply chain management to the service providers while they should focus on their core areas.
Though the advantages of partnership model (between the OEMs and the LSPs) and the need for long-term commitments are being accepted, the process is very slow. I believe it will eventually fall in the right place.
I must say that the market in India is very competitive and the takeaways from this place are unique.
How much has the company invested in its Indian arm? Which Indian state are you most bullish on in terms of the growing infrastructure?
MRB: We have invested around 200–300 million Euros (Rs 1,4151-2,177 crore) in our overall Indian business since 1998.
RBL: I believe that the state of Gujarat is the most progressive in terms of growing its infrastructure and it also has the advantage of world-class ports.
What kind of growth do you expect for the current year? What would be the priorities for the near future?
RBL: We have been growing at 24 percent since the last couple of years but for this year, I estimate that due to the slowed-down prospects, we would register a growth of nearly 15 percent. We have recently relocated our national headquarters to Gurgaon, which is a sign that we are keen on growing and expanding in India.
Our sister company, STVA Group, which is into moving finished vehicles across nine European countries, is studying the opportunities in India and verifying the cost competitiveness for operations.
MRB: Geodis in India will work towards forming long-term partnerships with auto clients and we are serious about penetrating into the smaller towns from where the actual demand is flowing.
AMIT PANDAY