Home Interviews “Logistics will play important role to support auto spare parts business”

“Logistics will play important role to support auto spare parts business”

“Logistics will play important role to support auto spare parts business”

The logistics sector, which has been in the limelight in the past couple of years, is undergoing a significant transformation on account of various reform initiatives and policy changes. At the same time, supply chain for auto parts is shifting to a new market place model (similar to e-commerce). This will call for logistics to play an important role in supporting the spare parts business for the auto industry in India, opines Naresh Sharma, Managing Director, Avvashya CCI Logistics. Rising auto sales is likely to give an impetus to the logistics industry as well. In this interview with Rakesh Rao, he highlights how new regulations and market trends are re-shaping the landscape of automotive logistics sector.

How is Avvashya CCI Logistics catering to the logistics requirements of Auto OEMs and auto component makers?
We at Avvashya CCI provide end-to-end supply chain solutions which position us as an integrated logistics specialist for auto OEMs and auto component makers with a special focus on inbound consignments. We not only cover manufacturing but also after-market logistics needs of the vast majority of OEMs. In fact, we cover the entire spectrum of logistics for the automotive industry and our services include preparing, transporting and importing vehicles in completely knocked down units (CKD) or semi knocked down components (SKD). With zero downtime inbound solutions and 100-per cent tracing of material with our outbound capabilities, we are known to deliver mission critical solutions thus enabling our clients to thrive in an intensely competitive and challenging market like automobiles.

What is the present status of the Indian automotive logistics market?

The Indian automotive logistics sector is expected to grow at 20 per cent over the next two years. The growth would continue to be buoyed by pick up in industrial activity and consumption sectors, while increasing preference for outsourcing logistics activities would provide further impetus to organised players. Additionally, factors like improvement in logistics infrastructure and technologies, prevalence of trends like rise in integrated logistics, e-commerce logistics, investments in warehousing and penetration of technology in the sector, in tandem with the ongoing shift towards organised logistics players, would also induce a structural shift in the industry. The Indian automotive market has been growing faster than almost all major markets, including China and Asia, the US and Europe.

Since April 2017, the new Central Motor Vehicles Rules (CMVR) regulation on car transporters calling for a standard 18.75-m trailer length for car carriers came into force. How it has affected the automotive logistics market?
The impact of the CMVR regulation, which limits the length of road-based car carrier equipment, also means that an alternative mode is necessary to take the pressure off capacity constraints now impacting the 15,000-plus car transporter fleet in the country.

The 18.75-metre length will limit the transporters to carrying eight cars, which results in approximately 25 per cent reduction in the number of cars carried compared to the longer trucks which could lead to a rise in costs of more than 20 per cent. Car manufacturers and logistics service providers will now seek for alternative modes of transport mostly railways and waterways so as to reduce the cost. The government regulations have been conducive in this regard. Indian Railways has ambitious plans to increase its share from 4 per cent to 20 per cent over the next decade and in this regard, it has opened a multi-user hub in Chennai. Changes are also made to the shipping regulations to allow for domestic short-sea services.

Are OEMs also opting for waterways to shift finished vehicles?
With regards to waterways, it was not found to be financially viable because trucks would still to be used for transporting cargo from factory to port and again from port to dealers, besides the time taken to ship the vehicles. We hope that with the proposal by the major ports to constitute special purpose vehicles to develop rivers, there would be a boost in inland waterway transportation.

What has been the impact of GST on automotive logistics segment?
Post GST implementation, coupled with the E-way bill, remain a potent disruptor to logistics and warehousing sector. Even though it is early to comment on the impact of this regulation on the sector, implementation of GST has definitely accelerated the evolution of Indian warehousing, logistics and supply chain industry towards being more organised and transparent in the coming years.

Is rising oil prices a cause for concern for automotive logistics sector?
Rising oil prices are a cause of concern for the automotive logistics sector, the reason being increase in the fuel costs which ultimately results in increase in the cost of transportation. The increased cost may shift the preferred mode of transportation to more fuel efficient methods like railways and waterways. The companies may also prefer to keep more inventories in hand, by transporting larger bulk shipments, which in turn reduce the cost per vehicle, which results in less transportation. This affects the logistics industry because it increases the number of empty miles driven by a carrier – the more stops a carrier has in a route, the more profitable the trip.

What are the emerging trends in auto logistics sector in India?
Shared facilities, automation and smart integration of technology in warehouse is the emerging trends in the automotive logistic. The uniqueness of Avvashya CCI lies in the degree of automation and smart integration of technology. It helps in efficiency and makes the logistics processes more effective. At Avvashya CCI, a large chunk of our investment goes into the automation of the state-of-the-art facility. Our investment in technology for automation enables us to multiply manifold without compromising on quality and allows us to scale down quickly. This flexibility alongside scalability and economies of scale have helped us to be a leader in this space. As the industry moves up the economic curves, we foresee clear demand for the quality facility on ‘shared facility’ basis and we establishing our presence in the shared facility as well.

What are the key challenges before logistics service providers in India?
The Indian logistics sector has benefited immensely from the emergence of organised retail, increase in foreign trade and India becoming the manufacturing hub. However, it continues to face challenges due to lack of proper infrastructure which is one of the major deterrents to its growth. The infrastructural bottlenecks increase the logistics cost of the country to around 10-15 per cent compared to other countries where it is only 3-4 per cent. Besides, the lack of trained human resources is another challenge for the sector. We believe that India still has a big opportunity compared to other countries. Higher and fluctuating fuel prices contribute to the increase in transportation costs. Fuel price risings escalate surcharges and ads up to the freight rates that cut into revenue. Poor integration of transport networks, information technology and warehouse & distribution facilities and regulations differ from city to city, hindering the creation of national networks.

All put together, it has become a growing concern and need of the hour is to adopt a strategic approach in order to eliminate all possible bottlenecks.

Tier 2 and Tier 3 cities in India are experiencing high growth in vehicle sales. How is Avvashya CCI tapping this trend?
Usually, the Indian logistics service providers have excellent reach in metros cities. But the tier 2 and 3 cities lack proper infrastructure, which is immensely potential auto & e-commerce markets. We are tapping this region with strategically opening warehouses we have recently open one at Guwahati. Currently we have 3.5 million sq ft of operating facility across the country. By 2022, we are looking to grow it to 10 million sq ft.

The supply chain model for parts will change in the coming years and move from the traditional dealer/distributor model to a hybrid of the traditional and the new market place model (akin to E-COM), directly terminating at the point of consumption (service center). Logistics will, thus, play an important role in supporting the spare parts business for the auto industry in India. Logistics Service Providers (LSPs) performance will be largely measured by the TAT time to deliver the part to the consumer.

This growing demand puts significant pressure on logistics – to ensure that the right product is delivered in the shortest time at the lowest possible cost. This will mean significant investment in technology, quality of people, delivery network to manage small infrastructure (good quality warehouses). We worked on asset light model of infrastructure which can scale up during peak seasons and scale down during non-seasons.

What are your plans to further grow your automotive logistics business?
We are planning to invest Rs 400 crore by 2022 to expand our warehousing capacity to 10 million sq ft. Auto logistic will continue to remain a key focus area for the company with plans to enhance penetration by increasing services, the growth will be more in retail where the industry has been growing at a compounded annual growth rate (CAGR) of 30-34 per cent.
Our investment in technology for automation of processes and storage operations enables us to multiply manifold without compromising on quality while allowing us to scale down quickly.

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