Indian vehicle logistics
Renault Nissan Automotive India, the joint venture division of the Renault Nissan Alliance that oversees production and distribution activities in the country, was established with a number of logistics advantages in mind. Its plant in Oragadam, close to the southern city of Chennai, is a manufacturing hub located within a large sales region. The plant, which builds a range of models and brands across Renault and Nissan, was opened in 2010 with a strategy of shipping exports, as Chennai offers a number of port options for vehicle shipping abroad – or potentially even short-sea coastal distribution within India.
The state of Tamil Nadu, meanwhile, has a reputation for being supportive of manufacturers and foreign investors. Infrastructure, though always a challenge in India, has advantages here. For example, there are rail links to the north of the country, while rail hubs for automotive have recently come into focus for investment in the region. Plans for dedicated freight corridors for road and rail connecting other major Indian regions would also benefit the south.
However, the Alliance operation also faces many obstacles that would be familiar to any manufacturer in India, notably for outbound logistics. The country’s various holiday seasons are known to cause significant peaks and valleys, with Diwali celebrations, for example, having a big impact. Even outside seasonal variations, the last week of the month can account for as much as 50% of the month’s sales. Meanwhile, Chennai has the added complication of heavy flooding and weather disruptions during the monsoon season late in the year, as well as issues over fresh water and energy supply.
Other infrastructure issues can also be acute. A bypass road directly to the plant, for example, took nearly six years to finish, while there are many incomplete parts of local highways. Road links to the port of Ennore, from where the carmaker ships all of its exports, are so congested that it takes 8-9 hours to travel the 80km between the plant and the port. Once there, direct port space and access can be issues. Shipping lines and other manufacturers have also confirmed that ro-ro sailing times, in particular, are relatively infrequent for India; a look at any sailing schedule or shipping route shows that Indian ports are often dependent on transhipment to other foreign hubs, such as the port of Hambantota in Sri Lanka, or Singapore, further increasing sailing times.
It all clearly adds up to a big job for Renault Nissan when it comes to managing vehicle logistics and exports from India. Fortunately, the company can point to a number of significant improvements and developments, according to Colin MacDonald, chief executive and managing director of Renault Nissan Automotive India. An aggressive model launch programme is set to both increase production at the plant and drive up market share in India. Meanwhile, the carmaker has been shifting more vehicles from congested roads and onto rail services for vehicle delivery, with plans to increase rail and multimodal transport in the pipeline.
Changes to Indian regulations, especially the introduction of a centralised value added tax, the Goods and Services Tax (GST), are set to transform many aspects of interstate trade.
“We face a lot of difficulty in terms of infrastructure, especially on road conditions and connectivity, track and trace, tolls and daily fuel costs,” admits MacDonald. “But we are making progress on market share, reducing complexity at the plant, and improving productivity. The next years will be exciting.”
On track for growth
The Oragadam factory, with capacity for 480,000 vehicles per year, is among India’s largest. Currently, the plant is operating two lines across two shifts, with MacDonald expecting 2017 production to finish around 260,000 units – a drop from the record 317,000 in 2016 that is almost entirely the result of the end of vehicle exports of the Nissan Micra to Europe, as the model is now supplied to Europe from a Renault plant in Flins, France.
Partly as a result of this change, but also in line with the local strategy, the company will focus much more on Indian sales, with an objective of approaching 10% market share between its brands. The share of export production, which previously made up close to 40% of output, has already fallen to 26% in 2017. With the recent start of production of the Renault Captur, which is now starting sales distribution in India, and several new Nissan, Renault and Datsun models planned for rollout up to 2022, MacDonald expects the plant to approach capacity within around five years.
The focus on domestic growth and increasing Renault and Nissan market share will require a strong focus on vehicle logistics, an area that currently faces plenty of bottlenecks and capacity issues. The car carrier legislation that recently came into force, which standardised lengths to 18.75 metres, represented a cut in overall capacity, as unregulated lengths had previously been in excess of 22 metres.
“Essentially this put the cost up and cut capacity, as we lost about two cars per truck. We have faced overall cost rises of about 20-25% in vehicle logistics,” says MacDonald.
The plant already sees about 90-100 vehicle trailers leave Oragadam each day, which would nearly double as the plant approaches capacity. While the higher volume would translate into more pricing and service power among carriers, Renault Nissan would be likely to face higher costs because of significant strains on capacity.
The capacity shortage is compounded since carmakers in the south of India, including Renault Nissan, Hyundai, Ford, Toyota and others, struggle with structural imbalances in the Indian market. Car carrier capacity from the south is largely dependent on trucks coming from the north, where Maruti Suzuki, India’s largest carmaker, has its huge production base. “We are not always in control of our own destiny for outbound trucking,” says MacDonald.
Part of the answer to rising costs and limited road capacity for Renault Nissan, as well as other carmakers in the south, has been to turn more towards rail transport. Already, the carmaker has moved to rail for 92% of distribution from Oragadam to the north-east of India, with a share moving to other destinations in the north as well. Renault Nissan currently uses two train services per week, which are shared with Hyundai and Ford, moving around 210 cars per week.
“We face a lot of difficulty in terms of infrastructure… But we are making progress on market share, reducing complexity at the plant, and improving productivity. The next years will be exciting.” – Colin MacDonald, Renault Nissan Automotive India
MacDonald and his team would like to see rail services rise substantially. Historically, rail has been a very minor transport flow from the south, but in recent years, following changes in Indian regulation and new operating licences to private operators, there has been some investment. APL Vascor Automotive, for example, has increased its rail capacity and services in India, with plans to double capacity in 2018; Indian Railways has also recently announced plans to increase the number of rakes it operates for automotive, together with further plans for automotive hubs. One such hub opened in 2016 close to Chennai, yet MacDonald suggests that this might not be enough.
“Rail capacity in India is a challenge,” he states. “It is something that the country desperately needs, including to take traffic off the roads and to reduce emissions and congestion.”
Hub and short-sea potential
In conjunction with rail services, Renault Nissan is exploring new distribution models in India. Rather than moving stock directly from the plant, MacDonald sees benefits in setting up vehicle distribution hubs around the country, especially in the north. In India’s highly competitive sell-from-stock market, time to market can be a key sales factor. “The fact that it takes us two weeks to get from Chennai to the north-east of the country is not ideal. We think there would be a sales and efficiency gain in setting up some hubs in key northern regions,” he says.
Coastal shipping is another potential means to reduce dependency on road and improve the distribution pattern within India. After the government reduced port fees in an effort to encourage domestic shipping, several trials for short-sea shipping were launched. According to MacDonald, the carmaker also “dabbled” in the services along the west coast.
However, coastal shipping struggled in terms of lead time, cost and return freight. Currently, the door-to-door delivery time of using trucks and vessels from the plant to dealers close to Mumbai, for example, is several days longer compared to using only trucks. For shipping companies, there have also been difficulties in finding volume moving from north to south, which has made the service uncompetitive. The government has been unclear over whether its cuts to port fees will remain in place.
MacDonald furthermore points to resistance from trucking companies that are reluctant to serve domestic ro-ro flows out of competitive fears that they will lose long-distance business.
“Currently we don’t have any vendor who is ready for coastal shipments. We will welcome this multimodal approach if it has a benefit and simplified procedures,” he says.
Exporting to multiple baskets
Though set to be fewer than in the past, vehicle exports will remain important to Renault Nissan Automotive India as a means to balance supply and avoid “putting all of our eggs in one basket”, says MacDonald. While not currently targeting higher cost European markets, the carmaker will maintain India as an export base to other emerging markets in Asia, Africa and the Middle East.
The India-built Micra continues to be exported to Africa and the Middle East. The Nissan Sunny, as well as the Datsun Go/Go+ are also exported to the Middle East, numbering around 37,000 per year, while shipment also started to South Africa in 2016. The Sunny is exported as knockdown kits to Egypt and Myanmar.
Renault, which has exported very few vehicles from India, is also increasing volumes, although on a smaller scale to Nissan’s total. The Kwid, for example, is shipped to several Asian countries including Sri Lanka, Nepal, Bhutan and Bangladesh, and this year started shipping to Africa. The Duster is also exported to Asia.
While MacDonald does not think logistics and shipping are the biggest issue in deciding the carmaker’s export strategy from India, he does see scope for wider improvements, especially at ports.
“There is a huge scope for improvement in terms of infrastructure at ports, including connecting modes of transport and space,” says MacDonald. “We would also like to have a clear government policy for ro-ro sailings.”
A taxing, but improving outlook
While India faces many internal challenges in its regulatory framework and infrastructure, the implementation of the GST in July 2017 represents hope for many in the sector. Supply chain executives, among many others, have long called for the tax as a means to standardise interstate trade. Historically, moving goods between states in India was complicated by different tax rates and even duties, leading to extra costs as well as long queues at border checkpoints. The GST aims to standardise these differences and establish a common market across the country.
There have been teething issues in the early rollout of GST. The government quickly changed several tax rates shortly after the tax bands were introduced, including increasing those for fast-growing SUVs. Sales across the industry dropped somewhat at first, although the effect appears to have been temporary.
However, MacDonald points to signs that state border tolls are being removed, albeit slowly. In future, smoother transport flows and the removal of internal barriers could encourage more rail and multimodal flows to large distribution centres, for example. Renault Nissan, as well as other carmakers, is also engaging closely with the federal government and the state government in Tamil Nadu. MacDonald agrees that it is all moving in the right direction.
“We are in the process of consolidating the benefits due to the GST regime,” he says.
The same could be said of the Alliance’s operations in India. As the Oragadam plant matures, Renault and Nissan have been doing more to standardise manufacturing, products and simplify the supply chain, including logistics. With a greater focus on economies of scale and efficiencies, the operation is set to be more profitable as production ramps up. Vehicle logistics is also set to contribute to this improvement, thanks in part to more multimodal transport, better quality and lead times. The outlook is certainly getting brighter.
“[New car carrier legislation effectively] put the cost up and cut capacity, as we lost about two cars per truck. We have faced overall cost rises of about 20-25% in vehicle logistics.” – Colin MacDonald, Renault Nissan Automotive India