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Auto Industry –
Opportunities & Challenges
2nd SIAM Automotive Logistics Conclave
Greater Noida
16th & 17th January 2015
Table of contents
Auto Industry
• Global perspective
• India - Trends & Challenges
Logistics sector in India
Indian automotive supply chain
Logistics Industry Challenges
• Skill gap
• Multimodal
CV transportation by trailer – Industry Initiative
3
Auto Industry
• Global perspective
• India - Trends & Challenges
• Automotive industry is major driver of global economic growth –
contributes 6% to the world’s GDP.
• In case auto industry was a country by itself, it would have been the 6th
largest economy in the World.
• Asian countries, especially China and India are expected to account for
40% of the growth in the auto industry over the next decade
• The automakers continue to shift their production facilities from high-cost
regions to lower-cost regions such as China, India and South America.
• Auto industry is a leading driver of global economic growth and accounts
for 5% of global manufacturing jobs
• “Green” cars are getting increased response, particularly in developed
countries – likely to contribute around 30% of total car sales by next
decade
Auto industry – Global perspective
5
• Indian Automobile industries accounts for 22% of India’s manufacturing
GDP and about 7% of India’s overall GDP.
• Indian vehicle industry is the sixth largest in the world with an annual
production of around 18 million vehicles (2.5 mn are exported)
• By 2016, India likely to overtake Germany, Brazil and Japan to become
world’s 3rd largest automotive market.
• India is one of the world's fastest growing passenger car markets
• We are the largest two wheeler and tractor manufacturer in the world
• India is the fifth largest commercial vehicle manufacturer in the world
• Indian automotive industry will provide direct & indirect employment to
around 200 million people by 2020
Auto industry India – Trends & Challenges
6
• Vehicle market to reach volume of 75 millions by 2026
• Auto Industry to continue its growth trajectory – Two wheeler and
passenger car to propel volume growth
(Nos. in Millions)
Segment wise FY 2014 FY 2026
Passenger Vehicles 3.1 13.4
Commercial Vehicles 0.7 3.9
Three Wheelers 0.8 3
Two Wheelers 16.9 55.5
Total 21.5 75.8
(Source - SIAM)
Auto industry India – Trends & Challenges
Automobile Production Volume
7
Logistics sector in India
• Logistics sector in India is currently valued at US$ 110 billion and
expected to touch US$ 200 billion by 2020.
• Nearly 61% of the cargo is moved by road, 30% by rail and rest by
airways, pipelines and inland waterways.
• National Highways constitute only about 2% of the road network of India
though they carry nearly 40% of the total traffic.
• The trucking industry is largely fragmented as nearly 70% of the truck
owners in India own between 1-5 trucks.
• Road freights in India less than US comparatively despite various
constraints
• Country loses around Rs 600 billion P.A. due to congestion, slow speed
and high waiting time at large number of toll and check post barriers.
Logistics sector in India
8
Logistics sector in India
• Lack of proper training, not stringent process for driving license,
inadequate facilities for boarding and lodging of drivers and poor
maintenance of trucks makes them vulnerable to accidents.
• Estimated cost due to accident - 3% of India’s GDP (estimated by
transport and communications bulletin of Asia)
• JNPT, premier port in India, has more than 2 times TAT of Colombo &
Singapore ports due to congestion on berths & slow evacuation of cargo.
• Railways have a tonnage based tariff structure which is more suitable for
bulk cargo
• Indian rail freight rates are one of the highest in the world - nearly 4 times
that of United States.
9
10
Indian automotive supply chain
11
• Caters to a large and geographically diverse market base
• Sub optimal modal mix - 95% of vehicles (Cars, 2 & 3 Wheelers, Small
commercial vehicles) were transported by road last year.
• Auto carriers are specialized vehicles – high idling of trailers coupled with
empty hauls adds to the cost
• Emergence of markets in rural, Tier II and Tier III towns throw a new
challenge for Auto supply chain – hub and spoke, most suited model.
• Railways share need to move from 4% to 20% by 2020 to decongest
highways.
Indian automotive supply chain - An overview
12
• Multimodal transportation – usage of general purpose rolling stock –
movement by containers viable option due to its intermodal flexibility and
environment friendly mode
• OEMs and LSP need to collaborate to improve customer service level
and rationalize logistics cost
• Shortage of skilled drivers as end of “cleaner culture” which used to be
breeding ground for future drivers.
• Investment in IT still perceived as additional cost than investment – can
reduce operational expenses by almost 25%.
• Ambiguity in CMVR norms has resulted in multiple agencies interpreting
different aspects of regulations in terms of carrier dimensions – need
support of Govt to consider all aspects before concluding the same in
the interest of all stakeholders including society.
Indian automotive supply chain - An overview
13
Logistics Industry Challenges
• Skill gap
• Multimodal
• Employs around 60 million people
• Core activity still being transportation and warehousing
• Major part of industry unorganised
• Logistics being service oriented sector - workforce skill development is a
key requirement
• Less than 10% of overall manpower costs (out of 600 billions) spent on
non - salary area like employees development / training, welfare
schemes etc. - 20%+ by global logistics companies
• Lack of quality manpower creates obstacles in adapting to modern
management practices and technology
Skill gaps in logistics sector
Key supply chain activities / services and its gaps
A. Transportation / movement of goods by road - availability of trained
drivers
B. Storage and warehousing- requirement of warehouse managers
and loading supervisors
C. Value added and emerging services – manpower capable of
operating and maintaining systems e.g. track & trace technology
Skill gaps in logistics sector
Skill gap could be a key impediment in the growth of logistics sector
• Managing business today is fundamentally different than it was even 10 years ago
• Most profound difference - level of complexity employees / managers have to cope with in current environment
• Managers need to know the difference between complicated and complex business
Complicated vs Complex
Complicated - Outcome can be usually predicted by knowing the starting conditions
Complex - Same starting conditions can produce different outcomes depending upon the interactions of the elements of the system.
Skill development – significance / criticality
Most senior logistics functions have started moving
from complicated to complex in the recent past
17
• Traditionally transport policies have focused on individual modes of
transport like rail, ships, road goods carrier etc.
• Need to interconnect such systems in a seamless multi modal
transportation system which is supplementing each other besides
• Safe, efficient, flexible
• Environmentally sound
• Cost effective
• Meets the needs of large spectrum of industries
• Ultimate goal – deliver greater value to customer or create compatible
value at higher efficiencies
Multimodal Transportation
• Despite Indian railways network being 2nd largest in the world it is
contributing just 4% to auto movements
• Indian Railways needs to be integral part of multi modal movement due to
its sheer size & coverage.
• Railways have a tonnage based tariff structure – more suitable for bulk
cargo than auto.
• Unutilized coastal line – huge potential untapped - could provide
reduction in freight by sheer economics of scales.
• Most eco friendly mode of transportation
• Various constraints in Railways, underdeveloped waterways and ports -
Impediment for implementing multimodal transportation
Multimodal Transportation
19
CV Transportation by Trailer
Industry Initiative
20
• Conventionally OEM’s have been transporting chassis and fully built
vehicles by road / own power from plants to stockyards
Challenges & Concerns
• Skilled driver availability
• Damages to vehicles due to en-route accidents
• Wear & Tear, thefts of parts
• Not eco friendly
• Safety of drivers – No protection
CV transportation by trailer
21
Advantages
• Environment friendly – reduction in emission by at least 50% in the total
transported vehicles
• Reduction in traffic congestion
• Reduced consumption of fuel – direct and indirect benefits to exchequer
• Safety of drivers
• Factory fresh vehicles to customers
CV transportation by trailer
22
CV transportation by trailer
23 23
Thank You