Auto Industry Opportunities & Challenges

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

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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

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• 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

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• 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

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• 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.


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• 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.

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Indian automotive supply chain

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• 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

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• 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

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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

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• 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

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CV Transportation by Trailer

Industry Initiative

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• 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

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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


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Thank You

Auto Industry Opportunities & Challenges

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