Doing Business In India Logistics Overview


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Doing Business In India Logistics Overview

  1. 1. Logistics, Freight & Customs Issues In India by Rajeev K Chopra
  2. 2. Topics <ul><li>The Relationship of Market Entry Strategy and Logistics in India </li></ul><ul><li>Most Popular Question </li></ul><ul><li>Networks of Relationships – an Adaptable Model for Exporters </li></ul><ul><li>Designing Your Logistics Plan – Key Practical Issues </li></ul>
  3. 3. The Relationship of Market Entry Strategy & Logistics in India All of the above Mix Import of unfinished product by freight forwarding to Finishing Centre, Customs Clearance, Delivery, Re-export by Freight Forwarding, Customs Clearance, Delivery Finishing of Product in India Import of raw materials by freight forwarding, Customs Clearance, Delivery to Manufacturing Facility, Warehousing, Distribution, Delivery, 3PL, 4PL Manufacture in India Freight Forwarding, Express Courier, Customs Clearance, Break-Bulk, Delivery, Fund Management, Customer Service, Order Taking, Warehousing, 3PL, 4PL Export direct to customer, distributor or reseller Types of Logistics Activities that are Outsourced Mode of Market Entry
  4. 4. Most Popular Question <ul><li>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?” </li></ul>
  5. 5. Networks of Relationships – Adaptable Model for Exporters Partner A Logistics Service Provider Partner B Importer Of Record (IOR) Partner C Distributor, Reseller or Customer Partner A, B or C can be Agent Exports Exports
  6. 6. Networks of Relationships – Adaptable Model for Exporters Channel of Distribution - Goods Channel of Distribution - Funds Mfr Logistics Partner IOR (Agent) Customer/ Reseller Mfr Logistics Partner IOR (Agent) Customer/ Reseller Govt. (Duties, Taxes) Profits ¥¥¥¥¥ (or Surplus after paying suppliers and taxes)
  7. 7. Repatriation Of Profits <ul><li>COD Fund management – up to USD$5,000 per remittance can be repatriated abroad </li></ul><ul><li>Agent – after paying and deducting all fees, suppliers, duties and taxes in India, balance profit can be repatriated abroad by Agent </li></ul><ul><li>Branch Office – after paying and deducting all fees, suppliers, duties and taxes in India, balance profit can be repatriated abroad by Branch Office </li></ul><ul><li>Subject to Reserve Bank of India and Govt of India guidelines </li></ul>
  8. 8. Design Your Logistics Plan – Key Practical issues <ul><li>Characteristics of Logistics in India </li></ul><ul><li>Modes of transport </li></ul><ul><li>Customs </li></ul><ul><li>Taxes </li></ul><ul><li>Configuration of Supply Chain </li></ul><ul><li>SEZ’s </li></ul>
  9. 9. <ul><li>Different from developed nations in three important aspects </li></ul><ul><li>Relatively small manufacturing base </li></ul><ul><li>High logistics cost relative to GDP </li></ul><ul><li>The very low penetration of specialist 3 PL providers in the country (< 5%) </li></ul>Logistics In India
  10. 10. Outsourcing Trends in India Added Value Returns / Services Transportation Procurement Express / Courier Customs Brokerage Warehousing Order Processing Inventory Management Invoicing Increasing Processing Content ( High Value Added ) Increasing Physical Delivery Content ( Low Value Added) ( Commodity Pricing ) Time Current Debates – 3PL Future Debates – 4 PL Predominantly Outsourced Source: MDI Study 2004
  11. 11. Outsourcing What are the major reasons for outsourcing of supply chain activities? Process Effectiveness 24% Lower Cost 27% Lack of Internal Capability 11% Investment Reasons 12% Strategic Reasons 26% Source: MDI Study 2004
  12. 12. 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 10 th 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%
  13. 13. Components of Logistics Cost <ul><li>Nearly 40%( Inventory carrying costs + losses) of logistics cost is directly co-related with infrastructure. </li></ul><ul><li>Just imagine the potential savings by having efficient and good infrastructure!!! </li></ul>Logistics Costs – Key Driver of Logistics Strategy 35% 25% 14% 11% 9% 6% Transportation Inventories Losses Packaging Handling & Warehousing Customer's shopping
  14. 14. Surface Infrastructure in India - A Snapshot <ul><li>Though Indian Railways freight volumes have increased, its share of total freight movement has reduced from 70% in 1951 to 30% in 1995. </li></ul><ul><li>For total route length of 62,725 km, only 21% is electrified. </li></ul><ul><li>Rail connectivity to ports, development of railways to the hinterland and faster freight trains are lacking. </li></ul>
  15. 16. New Highway Project <ul><li>Golden Quadrilateral Project </li></ul><ul><li>Reduced transit time </li></ul><ul><li>More lanes; larger trucks; greater economies of scale </li></ul>Source: 33 Lakhs Kms(Approx) Total Length 26,50,000 Rural and Other Roads 4,67,763 Major District Roads 1,31,899 State Highways 66,590 National Highways 200 Expressways Length(In Km) Indian road network of 33 lakh second largest in the world and consists of : Indian Road Network 
  16. 19. CFS’s (Container Freight Stations) & ICD’s (Inland Container Depot’s)
  17. 20. Infrastructure Development The Silk Road route linked China via Central Asia to Europe
  18. 21. Infrastructure Development <ul><li>Re-opening of Silk Road between India and China at Nathu La </li></ul><ul><ul><li>Started in July 2006 </li></ul></ul><ul><ul><li>Customs, warehousing, storage and freight handling infrastructure are being developed. </li></ul></ul>
  19. 22. Port Infrastructure in India - A Snapshot <ul><li>Indian ports handle 3.9 million TEUs as compared to 48 million TEUs by China. </li></ul><ul><li>Maritime transport accounts for 95% of country's foreign trade in terms of volume; yet the infrastructure at ports is very obsolete. </li></ul><ul><li>Turnaround time at ports is very high as compared to other countries in the region. </li></ul>
  20. 23. Infrastructure Development <ul><li>Ports – Nhava Sheva </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>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. </li></ul></ul>
  21. 24. Infrastructure Development <ul><li>Ports – Nhava Sheva </li></ul><ul><ul><li>Big congestion problem in 2004 </li></ul></ul><ul><ul><li>Stacking of 16,000 TEU’s against capacity of 11,500 TEU’s </li></ul></ul><ul><ul><li>188 Crore in detention charges (Mar to Jul 2004); and 500 Crore loss of business for 2004 </li></ul></ul>
  22. 25. Infrastructure Development <ul><li>Ports – Nhava Sheva </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>The port will be able to handle an additional 1.5 million containers a year after the new terminal is built </li></ul></ul>
  23. 26. What is the best mode? <ul><li>Road versus Air in India </li></ul><ul><li>Think twice before committing to Air; </li></ul><ul><ul><li>Consider day of week </li></ul></ul><ul><ul><li>Date required for delivery </li></ul></ul><ul><li>Calculate the break even points for Ocean, Air and Courier; ask your carrier to help </li></ul>
  24. 27. Thinking multi-modal <ul><li>Plan the modes according to cost and speed required. Some examples of multi-modal shipping used today: </li></ul><ul><ul><li>Air from China to Singapore, Ocean from Singapore to India </li></ul></ul><ul><ul><li>Ocean from Guangzhou to Chennai, Rail from Chennai to Mumbai </li></ul></ul><ul><ul><li>Air from Hong Kong to Chennai, Road from Chennai to South India, Air from Chennai to BOM, DEL and CCU </li></ul></ul>
  25. 28. Environmental Factors <ul><li>Monsoon Season (June-August) </li></ul><ul><ul><li>Use multi-level racking warehouses </li></ul></ul><ul><ul><li>Adopt dynamic approach to choosing airport gateways </li></ul></ul><ul><li>Fog Season (November-January) </li></ul><ul><ul><li>Prepare contingencies, especially for Delhi </li></ul></ul>
  26. 29. SEZ’s (Special Economic Zones) <ul><li>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. </li></ul><ul><li>Other benefits of SEZ's </li></ul><ul><ul><li>Exemption from customs duty on import of capital goods, raw materials, consumables & spares </li></ul></ul><ul><ul><li>Exemption from Central Excise duty on procurement of capital goods, raw materials, consumables, spares, etc. from the domestic market </li></ul></ul><ul><ul><li>100% income tax exemption for a block of five years; </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Reimbursement of Central Sales Tax paid on domestic purchases </li></ul></ul>
  27. 30. Vision for Logistics In India <ul><li>Logistics infrastructure to support high growth industries </li></ul><ul><li>Increasing logistics efficiency to achieve global standards </li></ul><ul><li>To build logistics as a part of the industry cluster </li></ul><ul><li>Reduce Transit time and turnaround times </li></ul><ul><li>Reduce costs and increase quality of logistics services </li></ul><ul><li>To effectively utilize warehouses </li></ul><ul><li>Increase in CFS and ICD capacity </li></ul><ul><li>To reduce and simplify procedures </li></ul>
  28. 31. Thank You! Queries Welcome