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Logistics, Freight & Customs

Issues

In India

by Rajeev K Chopra

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Topics

• The Relationship of Market Entry Strategy and Logistics in India

• Most Popular Question

• Networks of Relationships – an Adaptable Model for Exporters

• Designing Your Logistics Plan – Key Practical Issues

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The Relationship of Market Entry Strategy & Logistics in India

Mode of Market Entry

Types of Logistics Activities that are Outsourced

Export direct to customer, distributor or reseller

Freight Forwarding, Express Courier, Customs Clearance, Break-Bulk, Delivery, Fund Management, Customer Service, Order Taking, Warehousing, 3PL, 4PL

Manufacture in India

Import of raw materials by freight forwarding, Customs Clearance, Delivery to Manufacturing Facility, Warehousing, Distribution, Delivery, 3PL, 4PL

Finishing of Product in India

Import of unfinished product by freight forwarding to Finishing Centre, Customs Clearance, Delivery, Re-export by Freight Forwarding, Customs Clearance, Delivery

Mix All of the above

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Most Popular Question

• The most popular question I am asked by CEO’s is “IF WE DO NOT HAVE OUR OWN COMPANY IN INDIA, HOW CAN WE DO BUSINESS THERE AND GET PROFITS REPATRIATED BACK TO OUR HOME COUNTRY?”

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Networks of Relationships – Adaptable Model for Exporters

Partner ALogisticsServiceProvider

Partner BImporter OfRecord (IOR)

Partner CDistributor,Reseller orCustomer

Partner A,B or C canbe Agent

ExportsExports

Networks of Relationships – Adaptable Model for Exporters

Channel of Distribution - Goods

Channel of Distribution - Funds

MfrLogisticsPartner

IOR(Agent)

Customer/Reseller

MfrLogisticsPartner

IOR(Agent)

Customer/Reseller

Govt.(Duties,Taxes)

Profits ¥¥¥¥¥ (or Surplus after paying suppliers and taxes)

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Repatriation Of Profits

• COD Fund management – up to USD$5,000 per remittance can be repatriated abroad

• Agent – after paying and deducting all fees, suppliers, duties and taxes in India, balance profit can be repatriated abroad by Agent

• Branch Office – after paying and deducting all fees, suppliers, duties and taxes in India, balance profit can be repatriated abroad by Branch Office

• Subject to Reserve Bank of India and Govt of India guidelines

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Design Your Logistics Plan – Key Practical issues

• Characteristics of Logistics in India

• Modes of transport

• Customs

• Taxes

• Configuration of Supply Chain

• SEZ’s

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Different from developed nations in three

important aspects

• Relatively small manufacturing base

• High logistics cost relative to GDP

• The very low penetration of specialist 3

PL providers in the country (< 5%)

Different from developed nations in three

important aspects

• Relatively small manufacturing base

• High logistics cost relative to GDP

• The very low penetration of specialist 3

PL providers in the country (< 5%)

Logistics In India

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Outsourcing Trends in India

AddedValue Returns / Services

Transportation

Procurement

Express / Courier

Customs Brokerage

Warehousing

Order Processing

Inventory Management

Invoicing

Increasin

g Processing Content (

High Value Added )

Increasin

g Physical D

elivery

Content (

Low Value Added) (

Commodity

Pricing )

Time

Current Debates – 3PL Future Debates – 4 PLPredominantly Outsourced

Source: MDI Study 2004

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OutsourcingOutsourcing

What are the major reasons foroutsourcing of supply chain activities?

Process Effectiveness24%

Lower Cost27%Lack of Internal

Capability

11%

Investment Reasons12%

Strategic Reasons26%

Source: MDI Study 2004

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India’s Economy & Logistics Cost

India’s GDP is USD 691 billion and would touch USD 1.4 trillion in the next two decades (as per Goldman Sachs). Currently it is the 10th largest economy

India’s Logistics Spend is currently 13% compared to 8.7% of the US.

Enough Scope to reduce the Logistics Spend which would require growth of Logistics Service Providers and improvement in Infrastructure!!

Contribution to Work Force GDP Employment

Agriculture 21% 60%

Manufacturing 28% 17%

Service 51% 23%

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Components of Logistics Cost

35%

25%

14%

11%

9%6%

Transportation

Inventories

Losses

Packaging

Handling & Warehousing

Customer's shopping

Nearly 40%( Inventory carrying costs + losses) of logistics cost is directly co-related with infrastructure.

Just imagine the potential savings by having efficient and good infrastructure!!!

Nearly 40%( Inventory carrying costs + losses) of logistics cost is directly co-related with infrastructure.

Just imagine the potential savings by having efficient and good infrastructure!!!

Logistics Costs –Key Driver of Logistics Strategy

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Surface Infrastructure in India - A Snapshot

Though Indian Railways freight volumes have increased, its share of total freight movement has reduced from 70% in 1951 to 30% in 1995.

For total route length of 62,725 km, only 21% is electrified.

Rail connectivity to ports, development of railways to the hinterland and faster freight trains are lacking.

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New Highway Project• Golden Quadrilateral Project• Reduced transit time• More lanes; larger trucks; greater

economies of scaleIndian Road Network 

Indian road network of 33 lakh Km.is second largest in the world and consists of :

Length(In Km)

Expressways 200

National Highways 66,590

State Highways 1,31,899

Major District Roads 4,67,763

Rural and Other Roads 26,50,000

Total Length 33 Lakhs Kms(Approx)

Source: www.nhai.org

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CFS’s (Container

Freight Stations) &

ICD’s (Inland

Container Depot’s)

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Infrastructure Development

The Silk Road route linked China via Central Asia to Europe

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Infrastructure Development

• Re-opening of Silk Road between India and China at Nathu La– Started in July 2006– Customs, warehousing, storage and freight

handling infrastructure are being developed.

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Port Infrastructure in India - A Snapshot

Indian ports handle 3.9 million TEUs as compared to 48 million TEUs by China.

Maritime transport accounts for 95% of country's foreign trade in terms of volume; yet the infrastructure at ports is very obsolete.

Turnaround time at ports is very high as compared to other countries in the region.

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Infrastructure Development

• Ports – Nhava Sheva– India's eight largest container ports handled about 3.8

million standard 20-foot containers last year (Containerisation International). Nhava Sheva, the biggest port on the Indian sub-continent, shipped 2.4 million containers.

– It takes as long as three-and-a-half days for a ship to unload and load at Indian ports, the government said last year. That compares to eight hours at Hong Kong, the world's biggest container port, which handled 22 million containers last year.

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Infrastructure Development

• Ports – Nhava Sheva– Big congestion problem in 2004– Stacking of 16,000 TEU’s against capacity of

11,500 TEU’s– 188 Crore in detention charges (Mar to Jul

2004); and 500 Crore loss of business for 2004

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Infrastructure Development

• Ports – Nhava Sheva– Jawaharlal Nehru Port is converting a bulk

cargo terminal into a container terminal at a cost of 9 billion rupees ($205 million) and the expanded capacity will be ready by 2010.

– The port will be able to handle an additional 1.5 million containers a year after the new terminal is built

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What is the best mode?

• Road versus Air in India

• Think twice before committing to Air;– Consider day of week– Date required for delivery

• Calculate the break even points for Ocean, Air and Courier; ask your carrier to help

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Thinking multi-modal

• Plan the modes according to cost and speed required. Some examples of multi-modal shipping used today:– Air from China to Singapore, Ocean from

Singapore to India– Ocean from Guangzhou to Chennai, Rail

from Chennai to Mumbai– Air from Hong Kong to Chennai, Road from

Chennai to South India, Air from Chennai to BOM, DEL and CCU

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Environmental Factors

• Monsoon Season (June-August)– Use multi-level racking warehouses– Adopt dynamic approach to choosing airport

gateways

• Fog Season (November-January)– Prepare contingencies, especially for Delhi

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SEZ’s (Special Economic Zones)

• SEZ's are duty free enclaves and are treated as foreign territory for trade operations & duties and tariffs. SEZ's provide internationally competitive & hassle free environment for exports, units may be set up in SEZ’s for manufacture of goods, rendering of services & trading. Up to 100% Foreign Direct Investment (FDI) in manufacturing sector is allowed through automatic route barring a few sectors. Units in SEZ’s have to be net foreign exchange earners within 3 years.

• Other benefits of SEZ's– Exemption from customs duty on import of capital goods, raw

materials, consumables & spares– Exemption from Central Excise duty on procurement of capital goods,

raw materials, consumables, spares, etc. from the domestic market– 100% income tax exemption for a block of five years;– 50% tax exemptions for two years; & Up to 50% of the Profits

ploughed back for next 3 years under S.10-A of Income Tax Act– Reimbursement of Central Sales Tax paid on domestic purchases

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Thank You!

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