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Home Cover Story Auto Logistics: Riding the manufacturing wave

Auto Logistics: Riding the manufacturing wave

Logistics is an integral part of the automotive manufacturing industry. It is expected to benefit from the anticipated growth coming from the emergence of India as a manufacturing hub.

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The Indian automotive industry contributes more than 7 per cent to the national GDP and with the ‘Automotive Mission Plan 2026’ (AMP 2026), the government plans to take that figure to nearly 13 per cent. After a prolonged period of slow growth the industry too is starting to look up. April to May 2015 sales figures disclosed by SIAM shows that the sales of Passenger Vehicles grew by 9.98 per cent over the same period last year, while Commercial Vehicles registered a growth of 5.16 per cent. The Indian government’s focus on making the country an automotive manufacturing hub is drawing investments and attracting the attention of automakers from around the globe. Additionally, many automobile manufacturers are perceiving India as an export hub for small cars and are making sizeable investments to that effect. CV manufacturers are also setting up new plants and expanding existing ones to ramp up production in anticipation of a rise in demand, both in domestic and export markets.

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The automotive industry has one of the highest multiplier effects and many industries are allied to its fortunes. One such industry is Automotive Logistics. It is a vital cog in the overall functioning of the automotive manufacturing machinery. It is the subsystem that integrates the suppliers, warehouses and manufacturers; some of them also work closely with the manufacturers and are involved in strategising and executing their supply chain requirements. In India, the auto sector along with auto components grab the highest share of the logistics industry with over 40 per cent. The APAC region constitutes a major chunk of global automotive logistics with over 50 per cent of market share. According to a leading report, this region has the highest growth rate of 7 per cent and is expected to reach USD 110.9 billion. This growth forecast is on the back of rising vehicle production from APAC countries such as China, India, Japan, Thailand and Korea; which are also touted to be the next export hubs. The major players in the Indian automotive logistics industry are APL Logistics VASCOR Automotive Ltd, TVS Logistics Services Ltd, Mahindra Logistics Ltd, TCI Supply Chain Solutions, K M Trans Logistics Pvt. Ltd, V-Trans India Ltd, NYK Line India, TML Distribution Company Ltd and Adani Logistics Ltd.

Automotive logistics are mainly split in to two types: Auto component logistics (Inbound logistics) and finished vehicle logistics (also called outbound logistics). The majority of the cargo, an overwhelming 85 per cent, is moved through on-road transportation while a meagre two-three per cent is taken care of by the rail network. This reliance on road networks is likely to be a major issue in the future, as increase in production will put additional stress on infrastructure which is already unable to cope with the current freight tonnage.

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Inbound Automotive Logistics providers are further classified in to the following types:

3PL (Third Party Logistics)-

These days almost any company that offers some logistic service for hire calls themselves 3PL. They are called as pioneers of logistics outsourcing. Their clients outsource a part, or all of their supply chain functions to 3PLs. They draw on their core business competencies, be it forwarding, trucking or warehousing and offer specialised services, in a customised and scalable format. Having a third party logistics provider take care of the logistical functions offers several benefits to its customers (OEMs) such as savings on cost and time, flexibility and the ability to focus more on core business areas.

LLP (Lead Logistics Provider)-

Lead Logistics Providers – also known as 4PLs – are the client’s primary supply chain management providers. They assume full responsibility of the supply chain and are responsible for procuring parts from the suppliers and delivering it to the assembly plant in a timely manner. They can be effectively defined as “An integrator that assembles the resources, capabilities, and technology of its own and other organisations to design, build and run comprehensive supply chain solutions.”

There are many companies which use the LLP model for their logistics needs. For example – Ford India, which was previously using the 3PL model has now opted for LLP with Penske Logistics. This same duty for Ford is carried out by DHL Supply Chain for its European operations. TCI SCS is one of the largest LLP service providers in
the country; it’s client list includes names like Toyota, General Motors, Tata Motors, Maruti Suzuki and two-wheeler manufacturers like Bajaj Auto and Hero Motocorp.

Outbound Logistics are primarily dominated by 3PLs who carry the finish products (automobiles) from the plant, towards the dealers or ports in case of export units. They make use of specially designed automotive trailers that facilitate easy loading and unloading of cars as well as the harnessing capability for carrying cars over long distances without damaging them. The inadequacy of our road transport system has deeply affected the automotive logistics industry. The emergence of India as a manufacturing and export hub will pressure the OEMs and the government to look for alternate sources of freight transport or multimodal transport.

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Railways has the potential to fill this gap as it is faster, more cost efficient and environmentally friendly compared to road transport. The administration is acutely aware of this and has come out with a scheme called AFTO (Automobile Freight Train Operator). This policy provides an opportunity to logistics service providers and road transporters to invest in wagons and rail transport, as well as to tie up with end users and market train services; in the process creating a beneficial situation for both railways and themselves. The wagons used for transportation of vehicles are customised for the purpose and provide double decker capacity, weather protection, secure lock mechanisms and space to accommodate vehicles of different shapes and sizes. These services have not yet caught on despite their great promise, and only a handful of OEMs and logistic service providers are making use of them. APL Logistics Vascor Automotive is one of the first providers to offer these services with their AutoLinx solution; Ford India is already using this service for transporting it’s cars from Chennai to Delhi.

Another game-changing measure is the introduction of GST (Goods and Services Tax) in 2016 by the Indian government. Currently, as freight moves through the country, it encounters state border crossings, where they are required to pay taxes that vary from state to state. When GST is implemented, this taxation will be done at a national and not state level. The plan is to replace the prevalent practice with a system that will levy taxes at the time of sale. There are huge benefits in this for the automotive logistics sector. GST will result in reduced freight times by allowing trucks to pass without any stoppages, as the state authorities will no longer need to stop trucks to assess their cargo and apply taxes accordingly. An trimming down of transit time by 20 to 30 per cent is expected.

Moreover, costs will also be reduced as the logistic companies will be able to operate from a reduced number of warehouses, unlike the current scenario where inventories are maintained in every state to save on CST (Central Sales Tax). The Union Budget brought out by the government clearly laid the path ahead by stressing on infrastructure and connectivity. Adding his views Pirojshaw Sarkari, CEO, Mahindra Logistics Ltd. says, “The decision to increase public investment in infrastructure development including national highways is pragmatic. Better surface connectivity will provide both better speed and cost efficiency for the logistics service provider and consumer alike. The announcement of the much awaited GST too, is encouraging and should make manufac-turing more competitive.”

With the downturn in the automotive sector getting into the rear-view mirror, the industry is viewing the future with much optimism. Prem Verma, CEO, TML believes that there are better days ahead, “We are on the cusp of huge growth potential. There is a pending opportunity in the automotive industry and logistics per se. There are clear signs of green shoots.” The automotive logistics industry is poised and prepared to take full advantage of the upswing in demand for their services, which is set to witness never before levels, as India looks to become the auto manufacturing hub of the world.

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