Crude at sub-80 - Golden Days for Logistics ahead ??

In 2008 and 2013 I wrote how how fuel prices will help to consolidate logistics sector. (Read http://visiblesupplychains.blogspot.com/2013/04/fuel-price-rise-is-good-for-logistics.html ).

Here we are at end of 2014 and Crude is at SIX YEAR LOW !! How luckier can Narendra Modi get !!

But what bout logistics industry? Will it be Golden Days ahead? I think yes and this is why:

- Due to the most severe contraction (with a small uptick in 2012) over last six years combined with very high fuel prices, Transporters have mastered the art of saving fuel 

- The fleets have been renewed with main focus on fuel efficiency- most sale of CVs are to replace vehicles rather than add capacity

- The fleets are now bigger in tonnage capacity- same number of vehicles and drivers carrying more tonnage- average long haul truck is now 22 ton and 32-40 ton are common

- Lastly- customers never increased prices much, driving many transporters to bankruptcy or contraction of business.

So- in 2015- when the business cycle actually picks up steam, you will see Transporters commanding better price- marginally- but making very good profits. 

2015 to 2020 will be Golden Years for Indian Logistics. Watch this space !!

SWOT Analysis for Rail Logistics

The domestic cargo container movement is still at a very initial stage in India. The road transport is mainly in the hand of highly unorganized players. Further rising fuel prices and axel load reduction are making road transport uneconomical over a long haul. There is a movement of 30 percent of Exim containers by rail, and the remaining is transported by road. Till 2005 CONCOR was a sole service provider for rail transportation of containers.

Container Rail Logistics – SWOT

Strengths

Indian Railway is the world’s third largest railway network under a single management and covers about 64,015 route kilometers.
The country’s expansive railway network traverses throughout the nation’s frontiers and is the primary mode of transport for passengers, freight, cargo and natural resources such as coal.

A total of 1.7 MTEUs were rail borne, out of which the North contributed 0.71 MTEUs and the West 0.23 MTEUS.

Weakness

This is a highly capital intensive business and the cost of rolling stock is around Rs.13 corers/rail. The cost of operating an inland container depot is around Rs. 100 cores. The entire infrastructure such as yard/containers/ signals is still provided by one service provider namely Indian Railways.

There is a long gestation period and the project may take sometimes up to 10 years to achieve break even. There is high concentration of traffic at selected port/hinterland.

78 % of the total container cargo is handled by west coast ports. 70 % of total traffic at the west coast is handled by a single port, i.e. Jawaharlal Nehru Port Trust (JNPT). 60 % of the traffic of the west coast moves to the northern hinterland, which leads to a heavy congestion along the routes.

Opportunities

With the growth of containerization due to growing GDP, there exists huge potential in the form of a largely virgin market. With the congestion at the existing road linkage ICDs and limited scope for excavation, there is an opportunity for development of competing facilities. There is a potential for running double stacked trains with the lower haulage charges and better utilization of rolling stock and track capacity.

Threats

This industry is highly dependent on external agencies such as Indian Railways, port terminal operators and shipping lines. There are still several unresolved issues on operational matters, such as stability of rakes, service guarantee and dedicated freight corridors. With regards to double stacked operations due to the lack of a developed infrastructure, this may take time to take off in a larger way. There exists fragmentation on volumes due to multiple operations and there is no control on haulage cost.

 

 

Business Intelligence for Competitive Advantage

Using BI tools to view dashboards and KPIs can save valuable time and will also take less time in decision making. It will also reduce the human intervention and dependency. As there is progress in the activity, it will be visible by click of a button.

 

What is BI?

•       Business intelligence (BI) refers to skills, knowledge, technologies, applications and practices used to help a business to acquire a better understanding of the market behavior and business context.

•       Business Intelligence includes both data access and reporting & analytics

•       The purpose of business intelligence is to support better business decision making as it not only does the statistical analysis but also does forecasting, predictive analysis and helps in optimization.

 

What are Analytics?

•       Analytics means extensive use of data, statistical and quantitative analysis, explanatory and predictive models and fact-based management to drive decisions and actions

•       Analytics are subset of Business Intelligence

 

What are the Benefits of BI?

•       It cuts through the clutter of multiple data reports and presents actionable information on one dashboard.

•       It helps to combine various sources of data into one single repository to offer ONE VERSION OF TRUTH

•       It improves productivity of analytics team by cutting down time to gather, clean and process data. With BI, the team can spend maximum time on analysis and arrive at better business decisions

•       BI helps to correlate various business dimensions as compared to linear single dimension MIS reports

•       Graphical and intuitive presentation of facts helps to focus minds on a problem rather than getting lost in mountains of boring numbers



 

Logistics Cost - Concern for Automobile Industry

 

Indian Automobile industry is rapidly growing and is expected to grow by 8% by 2020. There are various factors that affect the growth rate which should be controlled in order to accelerate it.

But in current situation, not only the rising fuel prices have made it difficult to control the logistic cost, but there are various other reasons which contribute to high expenditures on logistics.

One of the major hurdles in curbing this expense is India’s poor infrastructure, which is a known fact to all of us.

Every manufacturing industry faces a challenge in keeping prices low because of huge logistics cost, which is a prime parameter for distribution of their product.

 Below are some of the major challenges faced in logistics by automobile Industry: 

1.      Delay In Delivery- due to slow movement and stoppage at multiple checkpoints

2.      Tedious Documentation Process- due to different rules and permissions required in different states

3.      High Expenditure On Tyre Prices, Toll Taxes And Insurance Cost - due to high inflation rate

4.      Cost Of Security And Tracking Equipment - required for avoiding any damage & loss of high value Automobiles

5.      No Alternate Mode Of Transportation - inland waterways and railways,  lack of proper connectivity from plants to ports

6.      Long Idle Time Of Vehicle – due to the reason that vehicles are not allowed in city area during daytime

Despite of all the challenges faced and limitations encountered in Indian automobile industry, many steps are taken in favour of this industry.

With the introduction of GST, there is hope that most of the problems will addressed.

Completion of road projects like Delhi –Mumbai corridor may give some relief to logistics cost.
 In addition to this, completion of Rail projects like dedicated rail network and 6-corridors for high speed rail transit system is also expected to reduce the burden on roads. The new rail network would link industrial clusters with transportation hubs and logistics centres to reduce costs and ensure the hassle-free transportation of goods. 

With the implementation of above mentioned plans we can expect logistics cost to reduce considerably and accelerate the growth of automobile industry.

Reducing Empty Miles- best way to reduce Carbon Footprint

Here is a very interesting presentation by David Leifsson on how Coca Cola reduced carbon footprint in Iceland.

 

Who should pay for visibility in supply chain?

Everyone agrees that visibility in supply chain helps to reduce overall costs and make supply chains more reliable.

But who will foot the bill?

An auto manufacturer mandates that all vehicles should be fitted with GPS. But who will pay for installation and maintenance of the same? Typically a transport partner is expected to do the job.

But who benefits MOST from this visibility- Transporter, Supplier or Auto Manufacturer? the answer is fairly obvious-- Auto Manufacturer is the biggest beneficiary.

Thus, the principle should be that one who benefits most pays most. In fact, the HUB who attracts goods to itself or distributes from its locations has a much larger stake in visibility.

A dealer is interested in delivery of say 20 cars at a time- but Auto maker needs to track 1000s of cars for delivery. The benefits from knowledge of any delay or issues or actual delivery are much more to Auto Maker than anyone else.

 

Visibility in Supply Chain

In supply Chain “Visibility” means to have knowledge of where is your inventory or assets (Fleet) at any given time.

Providing end-end visibility or real time information to all the stakeholder is one of the most important metric or Key Performance Indicator (KPI) in defining the service level of a logistics provider.

But most of the logistics and SCM player concentrate on capitalizing more on their core competencies of managing end to end to supply chain activities and ignore information flow across the value chain.

The only way to drive better visibility is to invest in technology infrastructure. Logistics and SCM players thus, need to tie up with technology partners who can help them to store, manage, communicate and analyze necessary information.

These technology partners can thus provide 24/7/365 days real time information to all stake holders. Some of the best tools of managing information flow are as follows:

• Online portals to track consignments: This provides  partners to be aware about the status of their shipment and plan their further actions in a better way.
• Auto emails and SMS: Alerts are sent via emails and SMS to inform interested partners about various events .
• Two way SMS: User can send consignment note number and SMS comes with consignment status, it shows GPS location on Google Maps if the vehicle is GPS enabled.
• Send and receive PODs (Proof of Delivery): Sending and receiving PODs is just a matter of second and thus the entire billing process can be carried out in much lesser time as compared to physical transfer of POD.
• GPS Systems: GPS devices help to track current location of the consignment and also predicts its dynamic ETA (Expected Time of Arrival) which again helps stakeholders in better planning
• Android Devices: Android applications to track status of consignments and check location of vehicles on maps will now become the most used tool  to provide supply chain visibility as android devices have now become a part and parcel of almost every individuals life
• CRM Tool: To enhance customer relationship in the best possible way

It’s the era of real-time and accurate information that drives the logistics organizations and is thus a challenge for all stakeholders to exploit the benefit of the information provided by technology partners and augment their bottom lines. Technology partners like WebXpress will thus, make your journey easy.

Visibility in logistics will see more involvement of IT in coming years; no customer wants its consignment to be out of sight at any point of time.

E-POD can save transporter Rs. 1 crore every year !!

E-POD is Electronically Scanned copy of Proof of Delivery (POD). In India, POD is a physical paper where customer stamps his acknowledgement of receipts of goods. In case of any problem- same is mentioned on the paper as well.

Billing department of customer requires a copy or original of POD to be attached to each invoice. They use the same to audit the transaction and approve invoice.

Many transporter are trying to introduce a concept of e-POD where a scanned copy of POD is made available to a shipper online. This requires that POD can be scanned at delivery location. With advent of mobile devices, it is also now possible to take a photo of POD and send over network.

Many people see e-POD as a tool to help customers. But as we will see below- it has much more benefits to transporter than customers.

Here is how-

In absence of e-POD, a trucker is dependent on driver/ broker/ delivery branch to get the POD physical copy. What does he use POD for? He checks the details of delivery and ensures there are no adverse comments.

He then clears such a booking as CLEAN and bills the customer. But he can not bill customer every day so he waits till billing cycle arrives and then generates a bill.

Now the paper system has a problem that PODs do not arrive in time or get missed or need to be manually searched and checked and mapped to correct customer etc.

Once you have e-POD, it can be audited easily online without paper to arrive. Also, approved transactions can be parked separately awaiting billing. Problem transactions can be identified and interaction with delivery branch/ broker/ customer can start to get full facts.

This way, we are ready for billing much before bill cycle date. We then just press a button and bill is ready!! Chances of rejection go down as proper audit was done for all transactions.

This seemingly simple concept can cut down 15 to 30 days from working capital cycle.

For a company with 100 Cr turnover that is savings of almost 10 L per month or Rs. 1 cr a year on working capital interest cost alone !!

Good link to monitor Fuel Prices

Here is a good link to Monitor Fuel prices

http://www.mypetrolprice.com/diesel-price-chart.aspx

In Nominal terms- price of fuel has jumped almost 300%.
Of course, in real terms (that is adjusted for infaltion), the rise is much more modest

Fuel Price Rise is GOOD for Logistics Industry- Version 2

 

Consider this-

2008: Crude- USD 148, Diesel at Delhi- Rs. 35

2013: Crude- USD 99, Diesel at Delhi- Rs. 52

 

Imagine the reduced burden of subsidy on Indian Government. This also means that irrespective of how low the crude price goes- high Diesel prices are here to stay.

 

Back in 2008- I argued that this is in a way for good. This makes people think more about cost of logistics and thus helps to drive efficiency. In many ways this has happened- average size of truck capacity has gone up from standard 9 ton to 16 ton and we often see 40 ton plus vehicles.

 

This automatically means more consolidation of cargo is required to fill a truck.

 

Also, the paucity of long haul drivers will mean that it is better to pay him more, give him better comfort and thus make him driver longer. This will of course mean that he should drive larger vehicle- even a 50 tonner !!

 

These dynamics will play out over next 5 years and we will see a great impact on the way supply chains are organized.

 

 

Organized Vs. Unorganized

Indian Logistics sector is supposed to be highly unorganized and entry of MNCs and Corporate houses was supposed to change that.

What happened? A leading corporate is closing down its logistics venture, a leading retailer is rethinking its plan for asset based logistics service, a leading auto group's logistics company yet to decide on a proper software to run its operations !!

On the contrary, the "sethji" driven logistics firms are holding on their own- even expanding in some cases.

The reason to me is that "white collar" businesses found logistics too difficult a terrain. They found that there is no premium in the market for brand name, state of the art technology and most importantly "white collar" manpower.

Logistics is a fierce industry- run largely by hardened people at bottom of the corporate pyramid. It does not offer returns as say real estate does (+ve or -ve: you can't beat realty). It requires dealing with not so nice communities such as drivers, RTO, brokers.

Thus, it is now back to traditional companies- till the next wave lifts all boats up !!

Future of "Logistics"

Logistics industry world wide is relieved that oil is back to $45 (In fact, now we are speculating when it will touch $30!!). I argued some time back that oil at $147 is in a way good for the industry as it will make it more efficient and less wasteful.

So what now? Unfortunately for the industry, oil is where it is because nobody needs to fill their trucks as there is NOTHING TO MOVE !! Even in India, there has been a marked slowdown in trucking activity due to industrial slowdown.

In spite of recent reduction in diesel prices, the short term future of modern logistics is uncertain. There has been a rethink on plans to expand "modern" logistics services. The trend towards transporters becoming logistics service providers has come to a halt. The reason is auto and organized retail- the two drivers of modern logistics are in bad shape.

Both these industries require large scale movement across India and require consolidation/ consolidation services in a timely manner- the very reason for logistics service providers.

Thus, it remains to be seen how the industry responds to the downturn- whether oil is $35 or $147.

The New Gen takes over Indian Logistics

What is your image of a "Traditional Indian Transporter"? Beaten down office with a BMW parked outside, unorganized, unprofessional, cutting corners, happy to corrupt officialdom, pays pittance of a salary and disdain for technology. This image has endured for decades and even today a visit to Masjid Bunder or Bara Bazaar or Roshanara Road will confirm the same.

But a revolution is unfolding in many of these "family driven" companies. Aware of their image, educational limitations and background, the transporter community sent their children to best of business schools- typically in the US and UK (You can not pay your way into IIMs!!).

Now, this generation is ready to take over the reins of their family empire. Almost magically, every major traditional transort company is headed by someone who is 26-38 years old. They are wanting deperately to get out of the old mould and get into LOGISTICS. They are aready to spend- on good offices, on IT, on professional staff and branding. And they have the money and land- accumulated over years by very cash rich parent companies.

As this generation slowly unshackles the past- they will drive Indian logistics into modernity. The so called "unorganized' sector is getting organized- and fast. MNCs and corporate logistics players need to watch out !!

Supply Chain Visibility for Mumbai Locals

Ever seen a Mumbai railway station when a train is late? A sea of humans stretching, anxious and looking for that faint sign of yellow that may be their train. Also wondering how crowded it will be. Should they wait for next one or will that be late too and thus even more crowded?How they wish they had REAL TIME VISIBILITY into movement of all trains with crowd density numbers populated every 30 s on their mobile phones. They can then focus on reading that book or listen to that song carefree !!Supply chain visibility means- for people and industry- a life more certain, less anxious and free to do things that really matter.

WMS Vs. Warehouses

Experts and IT vendor decry lack of use of modern WMS in India. An advanced WMS can improve location management, reduce pick time and pick failure and provide "visibility" within warehouse.

Sounds great but why WMS is not a standard feature in modern India? The reason is that India does not have WAREHOUSES it has only GODOWNS.

A modern WMS requires modern warehousing practices on ground and also assumes certain scale of warehouses. Most warehouses in India are in 3000-10000 SQFT range with some exceeding 25000 SQFT. In such a place, it is not very difficult to find products manually. Also, being less productive in warehouse means adding a couple of more workers, not a terribly high barrier.

The need of the hour is VISIBILITY ACROSS WAREHOUSES. A company can not own ALL warehouses or put up their own ERP at all locations.

How to fill the gap?
The warehouse service providers can use basic but web-based WMS across warehouses. This way, all stock across locations can be captured and viewed online.This will allow decision makers to manage their supply chain better as now they know what is lying where.

For coming few years, the focus will be on visibility. As GST kicks in and local laws as well as real estate prices make it difficult to have warehouses within metros, larger warehouses will be built. These will then house multiple customers and feed into retail within a large city. Modern WMS will find utility in warehouses greater than 50,000 SQFT and more than 1000 SKUs.

Till that time, WMS vendors should focus on value adds such as WSP billing, expense control, inventory visibility and order management rather than automated, PDT driven WMS.

Fuel Price Rise is GOOD for Logistics Industry

Over 90% of goods movement in India is carried out by the unorganized sector-the much awaited shakeout and consolidation have never materialized. But the latest fuel price raise ( and many more to come with oil likely to remain in $130-160 band) can actually be the proverbial "tipping point".

Transport rates are already up 15% plus and by end of 2008 will end up 25% above December 2007 levels. It is but natural that industry will lean hard on transporters to suppress prices as much as it can.

But that may work only in short term. The need of the hour is to have larger transport companies with all India fleet, modern management, superior use of technology and collaborative approach.

But this means heavy capital infusion into vehicles, talent and technology. This is beyond transporters with less than 20 vehicles, let alone single truck operators.

The higher fuel price will lay a premium on services such as load planning, reverse load management, route optimization, variable capacity in line with demand etc.

As regular transporters will fail to offer above, they will be able to compete only by reducing margins. This will lead to many downing shutters or merging to become larger entities.

Thus, fuel price can actually do some good by placing a premium on value added services that can save even a small percentage of fuel bill.

Get ready for the shakeout- no other way at $140 crude.

How deep is Internet uasge in India?

Internet is believed to be used by "English speaking urban middle class". That well may be but ground realities are changing fast and how.


During my recent client visit, I was checking with an operator how he is using our online software and what problems he faces. For those of you not so familiar with manpower quality in logistics industry- a data entry operator will be 12th pass, will have a basic knowledge of computers and knows just enough English to use the keyboard.

At this point his superior walked in and we got into a discussion. Using this break, the operator switched to an ICICI site. I noticed that he was actually using Net banking site. After checking his account, he proceeded to make an online payment to LIC !!

I got curious and tried to find more. He said he uses Net banking often and he has no time to visit the bank as he works for 12 hours a day. Thus, he also pays his bills and insurance payments online !!

This person was about 21-22 years old and his spoken English was atrocious. He is from a small town in UP and works in Delhi. He represents 300-400 mn Indians who form the layer below "English speaking elites".

Internet and its usage- even online payments- is growing fast in young India and it is evident that we have a work force ready for the future.

Ignore it at your own peril !!

When will be the "NSE moment" for Indian Logistics Industry?

In early 1990s, National Stock Exchange introduced ONLINE stock trading in India. This was where trading occurred by "Dhotiwallas" on the floor of Bombay Stock Exchange. NSE was dismissed as "not for India" given its infrastructure, lack of industry support, "first world" technology etc.


Today, ours is one of the most automated stock trading systems in the world with trading spread all across Indian towns and stock culture so deep that it dominates headlines of even vernacular TV channels.


Indian logistics industry today is where Indian stock exchanges were in early 1990s. Paper driven, highly labor intensive, no data connectivity between users and providers and a general lack of modern IT usage.


So what will jolt Indian logistics out of its slumber ? What will be logistics industry's NSE moment? And most importantly- WHEN??


We think entry of International Retail Chains will be the "inflection point". Just as FIIs changed the game, MNC retail chains will bring its own set of "ways of doing business" to a whole lot of suppliers.


Even today, if you want to be a supplier to a Wal-mart from India, you have to send documents electronically. And obviously so !! Think of each vendor of Wal-mart sending a paper invoice or a docket or dispatch advice. Wal mart will have a mountain as large as one of its super stores DAILY !!


Then why Indian retailers are happy with paper? For same reason has Kotak, DSP and KR Chokseys of India were happy with paper before NSE came in.


Once Wal-Mart or a Tesco are given a go ahead, the first thing they will insist upon will be Electronic Data Interchange with all partners- vendors, warehouses, transporters.


This will require all players in supply chain to adopt IT- especially transporters and that too the ONLINE variety. No XLS, no e-mail- Digitally Signed Automated Electronic Messages will be the norm.


When will this happen? Well, may be in 2009 after the General Elections. Thus, we are fast approaching the NSE moment for Logistics - be prepared !!

Better infrastructure=better supply chains (Have you been to Gurgaon of late?)

The common belief is that better infrastructure will result in better supply chains. Better infrastructure in India is defined by better roads, bigger airports, shiny bridges.

Really? If you have been to Gurgaon of late there is a classic case study on of infrastructure gone wrong, where toll collector actually lets traffic flow for free to ensure smaller queues !!

Similar case can be seen at new Shamshabad airport at Hyderabad or to be opened airport at Bangalore. You will never be able to have same day meeting at Hyderabad and Bangalore anymore as time to reach airports is 90-120 minutes one way !!

Thus, we are spending a lot of money shiny infrastructure to solve only part of the problem. This will only increase capital intensity of growth as it has happened in China without proportionate benefits to the economy.

More on this argument in future posts...