Indian sales have hit a snag, but many in the industry see growth resuming quickly, with demand for logistics also rising amid growing investment and supply chain complexity. Ramesh Kumar reports from India. Additional reporting by Malcolm Wheatley.
It’s a quarter past two on an early spring morning, four hours before the sun will rise from the Bay of Bengal, hardly a few hundred metres away from the port of Chennai, where stevedores are busy loading containers onto the berthed vessels.
Glovis India’s senior manager, Sajith Sivam is looking at the convoy of 80-odd carriers that have arrived inside the port, each with at least six of his parent company Hyundai Motor India’s vehicles in its belly to be delivered for export by ro-ro vessels. “Hurry, man. Unload fast and go back for another load,” cajoles the logistics senior executive to no one in particular. He has his own monthly quota to fulfil and so far everything is moving with clock-like precision. He’s happy.
Meanwhile, almost 2,000km away, a 20-something-year-old driver, Ashok Yadav, is equally glad that he will be unloading eight Maruti Suzuki vehicles in the next hour at two different dealer showrooms in the north Indian city of Kanpur (400km from New Delhi, which he left three days ago). He’s thinking about enjoying a beer after finishing his work, but a phone call arrives asking to him to proceed to Lucknow (125km from Kanpur) to pick up a fresh Tata Motors load for delivery elsewhere. The beer will have to wait.
Another driver, Mahesh, moving eight Maruti Suzuki cars, sits with two fellow hauliers over a steamy tea in Rajasthan at four in the morning. They talk about how two motorcyclists “looted” them of Rs.500 ($9) each at the Atibelle checkpost on the Karnataka-Tamilnadu interstate border. Getting robbed on the highways is part of their daily life.
Later that morning, at Fiat’s powertrain facility in Ranjangaon, a supply chain manager for powertrain describes to visiting colleagues the progress that he and his team have achieved under the Italian OEM’s World Class Manufacturing programme. The visitors are part of a team assigned to work at the upcoming Fiat plant in China. The manager is proud because Fiat’s petrol and diesel engines are procured by India’s largest OEM, Maruti Suzuki. It’s a fast moving product for a fast moving sector.
This tableau of activity offers just a glimpse of the Indian automotive supply chain of today. These successes and travails are somewhat lost in the headline figures, which have showed a recent slow down in car sales—particularly petrol models— while the fiscal year 2011-12 ended with a lacklustre sales growth of just 2.9%, hampered in part by protracted work stoppages at Maruti Suzuki. But sales crossed 2m vehicles for the first time and India’s Society of Indian Automobile Manufacturers (SIAM) now predicts a 10-12% growth in the current fiscal year.
Export performance in 2011-12 was better, rising to 2.9m from 2.3m in the previous year, including two- and threewheeler exports. Passenger car exports crossed 500,000 units for the first time, growing around 14%. With Nissan Motor India’s Micra model shipped out of Chennai to more than 100 countries, including Europe, Nissan is chasing export volume from India on a scale similar to Hyundai and Suzuki. Besides finished vehicles, it also dispatches CKD kits to Egypt. Nissan plans to roll out its low cost Datsun model from the Chennai plant by 2014. Nissan, with alliance partner Renault, plans to ramp up production from 200,000 to 300,000 this year.
Despite the recent setbacks, investment in India remains vibrant, with more than 50 new models anticipated over the next 12-18 months across OEMs, prompting increased demand among tier suppliers, inbound and outbound logistics providers.
The developments are countless, from growth at Mahindra & Mahindra to on-going investment from Ford and General Motors. Interestingly, even Premier Automobiles, which dominated India’s automotive market prior to market liberalisation, is staging a comeback with a compact SUV on the market.
But there has been some pullback from expansion as well. GM’s new alliance partner, PSA Peugeot Citroën, for example, has decided to share the assembly lines at GM’s plant in Gujarat rather than build a greenfield plant.
Closer to the logistics market, Maruti Suzuki is on the cusp of opening a new yard in Nagpur in central India with capacity for 90,000 vehicles. Four shortlisted service providers are reportedly in the process of bidding for the business. Maruti Suzuki already has a transport yard in Bangalore, operated by TCI Supply Chain Solutions, from which it services the southern market. Speculation is rife that Hyundai Motors is examining an internal proposal to commission a yard in Assam to service the north-east of the country
With these and many other developments, India’s automotive logistics players tend to have a more positive outlook than the recent sales figures would suggest. “The downturn which we noticed last year is no more,” says R. Ramamoorthy, business development manager (Auto) at Chep India, which manages pallet and packaging loops.
Australia-based Toll Global Logistics has begun to refocus on the Indian automotive segment. While inbound business has started briskly, a move into finished vehicle logistics is currently being studied. “More developments are on the anvil,” says Ajit Jangle, managing director, Toll India Logistics.
Hindustan Automobile Logistics, which partners with France’s Groupe Cat, has seen growth in the car carrier trade, but is focusing mainly on yard management, according to Sethu Raman, general manager of finance.
The lower price of diesel compared to petrol—now almost Rs.30 ($0.50) cheaper per litre thanks to a government subsidy—has been the driving force between a fast uptake of diesel-powered engines in India.
Last year, sales of diesel vehicles shot up by 37% compared to a 14% drop in petrol-fuelled cars, and outsold petrol cars for the first time as well. Even huge discounts for petrol cars did not yield big results, compelling carmakers to shift their focus to the hitherto neglected diesel variant of their models. After 87 months as the top-selling car in India, for example, Maruti Suzuki’s petrol-only Alto was surpassed by its diesel sibling, the Swift.
What is the likelihood of the government tinkering with diesel pricing? Chep India’s national business development manager DK Rai, doesn’t think the chances are high given that the agricultural sector is greatly reliant on diesel-based tractors and irrigation equipment, making the issue politically sensitive. And indeed, the government’s budget for 2012-2013 offered no changes. Nonetheless, officials are keen to deregulate fuel prices sooner than later as India is a net importer of crude oil and the difference in price to the global cost per barrel cannot be brushed aside forever. Having said that, OEMs are hoping that diesel will continue to be cheaper than petrol even after deregulation.
That, at least, is the indication of recent supply decisions. Maruti Suzuki recently signed an agreement to source 100,000 engines per year of Fiat India’s 1.3 multi-jet diesel engines for its Ritz and Swift models. Tata Motors, which has been Fiat’s joint venture partner in India, buys the same engines for use in its Indica Vista. Fiat also uses these engines for its own Palio and Grande Punto. Recently, it signed up an agreement to supply diesel engines to Premier Auto, its former Indian joint venture partner. Gurpratap Boparai, head of powertrain at Fiat India, says: “Watch out for more action on the diesel front.”
Perhaps he knows something that others don’t.
A move towards efficiency and consolidation
The sales drop in the market may have led to some changes across the automotive logistics industry, both in terms of efficiency as well as financial consolidation. Chief operating officer Sanjiv Tripathi of Mercurio Pallia Logistics, part of the Gefco Group, admits that the downturn led to some necessary cost-saving projects. While profit margins are thinner, there has been a focus on improving operational efficiency.
With a view towards expansion in the vehicle logistics market, TVS Logistics has been on an acquisition path, including the purchase of the Chennai-headquartered RHL Logistics last year. RHL’s managing director, Ashwini Kaushik, confesses that he, like other providers, was cash-strapped and needed TVS’s financial strength. “It was a nightmare for me until TVS came to my rescue. Today, I manage the operations while [TVS] provides the strategic and financial muscle to the operations,” he says.
TVS Logistics could also be eyeing other vehicle carrier companies. Thangaraj Chinnadurai, director of Asia Pacific, believes the company has the right strategic focus to succeed in the automotive market. “Nobody understands the automotive business like us and above all, our vision is global,” he says. “Whenever or wherever we see scope for adding capacity that will boost our strength, we go that route unhesitatingly.”
Some carmakers have expressed a desire to see even more consolidation among car carrier operations. Takehiro Nagaosa, deputy general manager, vehicle logistics, production control and SCM at Renault Nissan Automotive India, claims that the fragmentation of the business is the challenge, citing that in India it takes considerably more carriers to do the same work as it would in Japan, the US or even China.
On the inbound side, there are some who also believe that India will move more towards operators who own and control a larger share of their transport assets. Arun Modgil, chairman of Ckdpack, specialising in the CKD transport of automotive and aeronautical vehicles, believes that a consolidation of assets in this way would benefit Indian logistics. “The ‘light asset’ or ‘no asset’ formula may seem good on paper, but in reality, I would prefer to have my own vehicles. That way, I will have total end-to-end control,” he says.
The ability for a stronger company like TVS to invest in struggling car carriers is partly down to freight rates that have not kept up with operating costs. For instance, according to a Kanpur-based vehicle carrier fleet owner, who requested anonymity, toll rates have shot up 400% during the past three years, while tyre and tube prices have risen 40% and administrative expenses by 20%. “Our business is becoming untenable. At this rate, we’ll have to shut shop,” he says.
But the cost pressure has led to some smart, collaborative decisions as well. Glovis India, for example, has entered into an agreement with Mahindra Logistics, the 3PL for Mahindra & Mahindra, to give priority loading to each company’s respective vehicles to help facilitate backhaul flows between their OEM parents’ respective factories. Mahindra Logistics’ fleet skips the queue at Hyundai’s vehicle dispatch yard when its trucks arrive from western cities like Mumbai, Pune and Nashik with vehicles bound for the south. Similarly, when Glovis-carried vehicles reach Mahindra plants in western India, they also get priority loading. “This way, both of us achieve a quicker turnaround time,” explains Glovis’s Sivam.
Santosh Kanaran, head of automotive at Mahindra Logistics, notes that the arrangement helps reduce operational expenses by 5-6%.
What will the legal length be?
But there are some changes that are beyond the control of car carriers. One worrisome issue is the potential for Indian states to adopt 18 metres as the legal limit for car carriers. The government in Haryana, where Maruti Suzuki produces all of its vehicles, has indicated to car carriers that it would not renew any vehicle exceeding 18 metres registered after July 2008. This puts part of India in a similar situation to China, where the official legal limit is 16.5 metres, but many carriers operate in violation. Haryana has now given the car carrier fraternity, the majority of whom have longer trucks, a year to fall in line or face consequences. “We were subtly encouraged by auto OEMs to go for TR tens [carrying capacity of ten cars] to compensate for the low freight offered. Today, we are at a crossroads [since 18 metres cannot carry ten cars]” says one.
India’s automotive horizon is not just about volume leaders Maruti Suzuki, Hyundai, Tata Motors or Mahindra & Mahindra. Many new players are knocking on the Indian doors or shores, including in the premium car segment.
BMW led the way in the luxury segment in 2011 with around 9,400 units and Mercedes Benz followed with 7,430 units. Audi has also been on the rise, selling 5,511 units.
Taking advantage of the import duty structure, which taxes imported vehicles 110% and CKD kits 30%, Jaguar Land Rover entered India last year with a CKD plant in Pune to assemble the Land Rover Freelander. It is currently contemplating local assemble of the Jaguar XF at Pune.
Porsche is also making headway as Volkswagen Group Sales India became the official importer of all Porsche cars into India, which will include responsibility for procuring logistics. Volvo Auto India has also grown from a small base, starting from 128 units in 2010, growing to more than 300 in 2011, and now with targets for 1,000 unit sales this year.
Aston Martin has entered the market too, opening a showroom in upmarket South Delhi. The facility also incorporates an approved service centre to cater for the needs of Aston Martin owners throughout the area.
Bearing in mind the handcrafted nature of the vehicles, the care taken with logistics processes is just as tailored.
“We ship to Delhi by air, while for Mumbai we use containerised sea freight—not ro-ro, and we always ship on a ‘landed port’ basis,” says an Aston Martin spokesperson. “Once the cars are in port, the dealer clears the cars through customs and road freights them to the showroom in a covered transporter.”
The numbers are small compared to the growth of the luxury market in China, but the long-term prospects remain good, with each of these players hoping to grab a sizeable share of a market that could reach 150,000 units by 2020.
The worry among the sector is whether other states will decide to implement the Haryana model on vehicle dimensions. Providers and trailer manufacturers say that carmakers are ignoring the issue to some degree. According to at least one trailer manufacturer, orders are still brisk for trailers that would be longer than the 18-metre dimensions.
While Maruti Suzuki favours 18-metre long trucks, providers say that it offers loads to those companies with vehicles that are longer, too. According to carriers, other OEMs prefer the dimensions of potential ‘violators’ because of their ability to carry more vehicles. Nobody knows when and if the law will come to a head against current industry operations. Car carriers express hope that carmakers will ultimately step in and influence the government in resolving the issue.
Outbound logistics in India continues to depend on trucks for 95% of distribution. But an ex-member of the Railway Board for the state railways, Ram Chandra Acharya, believes rail is likely to gain traction soon. “Never underestimate the railways,” he says, standing at the railway siding in Gurgaon where Maruti Suzuki ships vehicles by rail. “Their capability is much higher. However, what is missing is the ‘commercial sense’.”
Acharya would like to see rail developed for automotive by using specialised wagons rather than containers, but the current lack of suitable wagon designs tends to favour the use of containers. Kar-Tainer International, for example, which provides racks and container management for moving vehicles, is moving 5,000 Suzuki cars each month, with up to five cars in each container, according to CEO Richard Cox. He sees a big upside for his business in the near future.
The use of rail in other segments of the supply chain, such as inbound to production, may also have potential, but the short-term prospects are currently “bleak”, according to Chep India’s Rai, although he sees packaging standards as a potential route towards making it more viable.
“[Rail will] not be a factor in the near future, but in the midto- long term,” said Rai. “The industry would be bound to go for alternatives. The logistics of parts from suppliers to OEMs would see major changes in my view and packaging would be a driving force.”
India’s automotive rise looks set to continue, in spite of recent declines. But the scenario facing supply chain executives and logistics providers remains a fragmented and challenging one, with cost rising faster than sales growth or efficiency gains. Uncertainty over regulation for truck lengths or rail development would best be dealt with by an industry-wide approach. While we might think back to the admirable work being done by Glovis’s Sivam at the port of Chennai, Fiat’s powertrain plant or among the lonely drivers plying India’s developing and often dangerous highways, much less will be achieved in isolation that can be served by automotive supply chain players acting together.
