Market Analysis: The South African Transport and Logistics Industry – An Industry in Turmoil
Most industries in South Africa face globalisation and transformation challenges but the South African Transport and Logistics industry faces its own peculiarities that impact on the country as a whole. Shaun Scott and Henry Carelse, Directors of Worldwide Integrated Logistics (WIL) provided Smart Procurement with an up to date market analysis of this core driver of cost and performance.
“This diverse industry comprises tens of thousands of individual truck and bakkie owners as well as some of South Africa’s largest conglomerates including Transnet, Bidvest, Imperial and Grindrod. These all experience reliability and cost efficiency challenges and many are faced with poor assets that struggle across inadequate road, rail and port infrastructure,” he says.
Challenges abound in the current situation
“Relentless service improvement and investment programmes will eventually have an impact on these issues, but there deep-seated challenges they face:
• The industry is rapidly consolidating – global deals are making a local impact;
• Most struggle to be relevant in global markets – there is no “SAB Miller” in this space;
• Empowerment deals have advanced, but their sustainability within a consolidating world is a challenge;
• Supply chains are demanding increased levels of integration forcing often reluctant changes to business models;
• Transnet, and particularly Spoornet have been in a downward spiral, impacting everyone that uses rails and sea ports;
• Technology is changing rapidly and South Africa’s players are going to have to play catch-up soon; and
• Supply chain skills are where IT skills were in the 20th Century; they are in demand, scarce and mobile.
This white paper outlines these challenges and provides a base for exploring potential solutions. “
1.1 Industry Consolidation
“In South Africa the industry went through a consolidation phase in the 80’s, 90’s and early part of the 21st century. This process saw the emergence of local conglomerates: Bidvest, Imperial, Unitrans, Supergroup, Grindrod, Crossroads, Fuel Group, Value Logistics and Laser Logistics, to name some of the largest in the market.
Whilst consolidation has slowed in South Africa, it has maintained its pace internationally.
Until recently, South African players have been relatively shielded by this unyielding process. But since 2004, local players have experienced an uncomfortable shift.
Unitrans, until 2004, built strong ties with UPS, the $37billion US-based parcel courier giant. Unitrans managed the growing UPS Parcel business and also had a joint stake in the UPS Supply Chain Services venture focused on technology and integration solutions.
UPS pulled out of both deals in 2004 and set up a separate entity. The Unitrans-UPS relationship remains cordial but the split hurt Unitrans. They quickly established a relationship with Aramex and have continued to reposition the express and supply chain parts of the business.
Unitrans is not alone. Bidvest has had deals with Fedex and Panalpina; and local Grindrod Limited has had deals with P&O Logistics and also Röhlig. Each company has been impacted by the global consolidation developments.
Exel is a well-regarded supply chain services company with operations across the globe. In 2001 Exel acquired Eagle (South Africa) and established its first presence locally. This however posed little competitive threat to local players.
With the acquisition of Tibbet & Britten in 2004, global consolidation started to hit home.
Tibbet & Britten was a successful player in the local consumer goods industry and had Unilever and Pfizer amongst its customers. Since the acquisition, Exel became a major player in the local market and started to make an impact winning a few large clients and deals. But it didn’t end there. Exel was acquired by Deutsche Post in late 2005. The $55b German giant that has been on an acquisition spree since 1999. The Deutsche Post brand that most of us are familiar with is DHL. The acquisition impacted the local operations and may have been the cause of some losses such as Pfizer. But the DHL brand is strong and DHL have started to win a few new local deals on the back of there global clients.”
1.2 Global relevance and ambitions
“Supply chains are increasingly global. A wide range of South African products from cars to coal and jeans to flowers, are exported. Apart from some transport on the local leg, SA’s transport and logistics companies struggle to be relevant within the international legs of the supply chains.
Large South African players have tried to establish a global footprint, but the success stories are few.
Bidvest acquired Jacobs Holdings in 2002 as the “base for international expansion of BidFreight”. After recently “rightsizing” the business, the newly renamed BidCorp plc, contributed 9% of the Freight Division’s revenue and 3% to its income. BidCorp plc is now a niche automotive transport company primarily based in the UK. It seems to have slim chance of providing Bidvest with a base to play in the international transport and logistics space.
Imperial’s international transport and logistics thrust is based in Germany. Imperial’s offshore operations have represented a more substantial share of its revenue (53%) and profit (22%). However, it recently chose to divest of a profitable offshore asset.
Amongst the other transport majors, Supergroup and Unitrans focus on Africa when they look beyond South Africa’s borders. The Transnet Group seems to have little capacity and no appetite for any offshore ventures.
UTi is an exception. This group started in the late 1970’s as Rand Freight. By the mid 90’s it had built a solid courier outfit (Sun Couriers) and acquired it first offshore asset, Union Transport. It now has over 260 UTi branch offices in 58 countries and agencies in another 75 countries.
UTi’s Africa operations accounted for only 19% of its gross revenue and 25% nett revenue. It is a global supply chain player.
This South African exception in the international transport and logistics field is listed on NASDAQ but keeps a strong leadership presence in Bedfordview, Gauteng.
Will Bidvest or Imperial decide to leverage its recent strong performances and the strong Rand to extend its global reach and follow the likes of UTi?”
”Only time will tell, “ says Scott.
1.3 Sustainable Empowerment
“There have been a plethora of empowerment deals in the industry.
Bidvest’s BEE deal has helped it achieve an “A” by the empowerment rating company Empowerdex.
Imperial has completed the Ukhamba and Lereko deals and believes it has struck a balance between broad-based and individual empowerment.
Supergroup’s link with Peu Investments; Unitrans’ Mvelaphanda deal; and Grindrod’s J&J relationship have all ensured that the main industry players are well on their way to meeting and exceeding the industry’s empowerment scorecard.
But as important as they are, are these deals structured to assist with the market challenges the companies face? And, given their conglomerate nature, how long will it take before the deals, mostly struck at holding company level, change a management team in an operating company housed within a subsidiary in the group? And what will happen when the company is acquired by a large multinational? The groups must move fast to cascade these deals to the benefit of the smallest operation.”
1.4 Service Integration
“Customers in the supply chain are requiring increased levels of integration from their service providers. In an Accenture, INSEAD and Stanford study of 600 global organisations, a key findings was that these organisations are “devoting significant attention to building integrated business models”. Many of them are expecting integration from their transport and logistics service providers.
The large international service providers are responding by restructuring their organisations, and building integrated processes and systems.
Common branding is one of the more visible signs of the extent of structural integration.
Deutsche Post’s DHL brand has “consumed” the brands of the companies it acquired: Air Express; Airborne Express; and Danzas have all been replaced by DHL.
The UPS brand is one of the most recognised Brands in the USA and is used as a key thrust in achieving integration amongst the many companies that UPS has acquired.
Exel was quick to close down the Tibbet & Britten website and has rebranded most of the buildings, trucks and stationary with the blue and red logo. It was not long before all those logos were changed to the DHL brand. Even the Kinesis brand that survived the Exel rebranding effort, succumbed to the DHL logo.
A common, integrated suite of IT applications is also key to achieving service integration required in modern supply chains. DHL invested a considerable amount in its IT platform and has strategically aligned itself with SAP, so we can expect to see significant continued investment.
The larger South African players have had little success in integrating their business models. BidFreight, the freight transportation division within Bidvest, consists of over 30 companies loosely grouped into 6 subdivisions. Each is autonomous and there is little that is done to change the entrepreneurial drive that exists amongst each of the operations that sometimes compete with each other.
Imperial’s logistics division has 60 entities across 3 subdivisions. They attempted a technology-lead integration initiative with their Synchrony venture, but it has had little visibility of late.
Transnet also tried a technology lead integration initiative with B2B Africa. Whilst some progress was made in a few of Transnet’s supply chains, B2B Africa closed its doors.
Supergroup and UTi are exceptions in the integration game.
Supergroup acquired The Logistics Bureau in early 2000 as their key integration capability. In 2002, they launched the Collaborative Xchange to provide the IT platform; and Supply Chain Partners to provide an integrated management capability. These have all subsequently been integrated into Supergroup’s “Supply Chain Solutions” vehicle with a common brand, technology platform and management structure.
UTi have made a substantial investment in IT using strategic alliances with i2 Technologies and Oracle. The organisation has a well integrated business model and seamless processes.”
1.5 Transnet’s Downward Spiral
“Rail and port services are integral to all freight transport and logistics companies, be it bulk or parcels. Yes, even small parcels. The express courier company UPS, is one of the largest users of rail services in the US.
Whether the cause be regulatory, as in the case of high axel load limits, or through poor management, the result is that Transnet, and particularly Spoornet is a weak link in the overall delivery of transport and logistics services in Southern Africa. The Road vs Rail debate has raged since the early 90’s. Spoornet’s infrastructure investment shortfalls have also been well documented recently.
The downward spiral is not as a result of the change in government in 1992. The spiral started before that when maintenance budgets and investment decisions were cut and deferred. The downward spiral started when customers started moving off rail. Fewer customers meant less revenue on some routes. This in turn made it difficult to justify continued investment and maintenance of infrastructure. Poor infrastructure resulted in poor service and drove even more customers away. And the cycle continues.
Ms Maria Ramos and the Transnet group have recognised the predicament and have started to address matters. These initiatives will go some way towards alleviating the situation, but it will take a Herculean effort to reverse the spiral.”
1.6 Technology Catch-up
“There have been significant developments in the Information and Communication Technology (ICT) industry over the past decade. This has resulted in advanced technology solutions with strong business propositions, coming onto the market in the last few years. Some examples relevant in the transportation and logistics industry include:
• Radio Frequency Identification (RFID);
• Advanced Track and Trace solutions;
• Electronic Proof of Delivery (ePOD) solutions;
• Leading-edge Warehouse Management and Transportation Management solutions that incorporate the latest and greatest features promised to improve productivity and customer service.
It might be argued that some of these technologies are still in the introductory stages, but in reality they are maturing at a rapid pace. Large customers like Wal-Mart and the USA Department of Defence are already insisting that service providers incorporate the above capabilities into their service or product offerings. These demands will increase and within the foreseeable future. It will not be uncommon for customers to insist that the above technology solutions become “must-haves”.
The challenge faced by transportation and logistics service providers is how to strike a balance between investing in developing technologies, whilst remaining cost competitive. This market has small margins and is very price sensitive.
Technology Integration is another challenge the industry faces. This issue will become more and more prominent over time.
Companies are introducing sophisticated and industry specific information system solutions to help managing their business operations. Coupled with this, supply chains involve numerous trading partners or intermediaries. In a bid to capitalise on the benefits envisaged different trading partners are looking for automated interfaces between each other’s systems.
Some of the more common integration needs have already been addressed. Uploading orders from customers to supplier; and downloading Goods Receipt transactions from customer to supplier are some of the achievements. However, integration needs are increasing. Shippers are already insisting that their transportation service providers automatically upload electronic Proof of Deliveries (POD’s) back to the shipper and that waybills are electronically uploaded into the transportation company’s systems. Another example cited recently was the request of a shipper that an exception signal (e.g. delay or cancellation of a scheduled flight) trigger an exception alert to inform the customer’s systems that all consignments on that particular trip run the risk of arriving late and even what the revised time of delivery will be.
To address these challenges the major software vendors have already started to introduce integrations features such as adaptors in i2 to communicate with SAP and other ERP vendor products. SAP’s investment in its Netweaver offering is another example of vendors’ commitment to improving integration capabilities. There are also a number of third party integration products also called EAI (Enterprise Application Integration) products on the market, such as Webmethods, WebSphere, Sonic Software, etc. “
1.7 Supply Chain Skills
“Supply Chain Management is where IT was in the 80’s and 90’s. It is an exciting and vibrant field with huge potential.
In particular, there is a major need for an increase in skill levels across all components in the supply chain. A number of companies have recognised the need and are offering numerous training courses to meet the demand. Just do a scan on the web to see how many companies are offering Supply Chain training!
Traditionally, people in the supply chain space were critical to the operations of the companies that employ them. Any requirement of these employees to attend training, by implication stretches the organisation’s operations. However, this has significantly changed today with employees having different alternatives to class room based training (e.g. e-learning, self-study, etc.).
The challenge in the industry is that people are not valued above a company’s traditional assets. Just look at where people are listed and referenced in company annual reports, most of the time after the financials, and the warehouses and the trucks and forklifts.
But it is a two way street. Unitrans, and many of the local transport companies, lost significant revenue due to strike action recently. The “contract” between workers and their employers needs constant attention and development.
People will however continue to be integral to our supply chains. They will continue to drive trucks, trains and ships; answer calls and queries; hand-over parcels; pick and pack parcels; and resolve glitches.
Those companies that get the people side of the business right, will be the winners in modern supply chains. Watch this space.”
SA ranks 24th in trade logistics index
South Africa has ranked 24th in the World Bank’s New Logistics Performance Index (LPI), making it the leading African country in trade logistics.
Released on Monday the survey, entitiled Connecting to Compete: Trade Logistics in the Global Economy, is the World Banks first in-depth, cross country assessment of the logistics industry. It provides a comprehensive picture of the supply chain performance of 150 countries.
The LPI is based on a worldwide survey completed by more than 800 logistics professionals and aggregates logistics performance in seven areas. These include customs procedures, costs, infrastructure quality, tracking and tracing, timeliness and the competence of the domestic logistics industry.
South Africa ranked among the world’s top 30 countries in five of the seven categories. The country’s highest rank was in tracking and tracing where South Africa ranked 18th, ahead of countries such as Norway (20th) and the United Arab Emirates (23rd). South Africa ranked 22nd in international shipments, 26th in infrastructure, 27th in customs and 31st in timeliness. The country’s overall score was brought down dramatically in the domestic logistics cost category, with a ranking of 124.
The top three countries in the index are Singapore, the Netherlands and Germany. All developed countries turned out to be top performers with Japan ranked 6th, Hong Kong 8th and the U.S. 14th.
South Africa (24) tops the list of Africa’s rankings, followed by Tunisia (60), Guinea (62) and Sudan (64). At the bottom end of the index are low-income countries, particularly those landlocked in Africa and Central Asia and those afflicted by conflict or severe governance problems. The bottom 10 includes Chad (142), Myanmar (147), Rwanda (148) and Afghanistan (150).
One of the key findings of the survey is that developing countries where trade has been central to their economy perform better than others with similar incomes. Examples among the upper middle income countries included South Africa, Malaysia (27), Chile (32), and Turkey (34). In addition, the report states that “logistic overachievers among developing countries are also those experiencing economic growth led by manufactured exports.”
The report emphasises the importance for developing countries in harnessing global trade and thus reaping the benefits of globalization. “Being able to connect to global markets is fast becoming a key aspect of a country’s capacity to compete, grow, attract investment, create jobs and reduce poverty,” said Danny Leipziger, World Bank Vice-President for Poverty Reduction and Economic Management. “But for those unable to connect, the costs of exclusion are large and growing.”
For more informaion on the World Bank’s first Logistic Performance Index visit: www.worldbank.org
read moreWhat do International Logistics Companies do?
Though many people use international logistics companiesfor their shipping needs, they do not always understand everything that these companies do. For most, the only thing they need to know is that they are able to load their shipping containers with their goods and have them arrive at their destination in a foreign port without hassle. The companies that handle all of the shipping and logistics do quite a bit of behind the scenes work though to make sure that everything goes off without a hitch.
One of the first things that the international shipping companies will do is determine what it is you need to ship, where you need to ship it to, and how many containers you will need. They will be able to provide you with a quote to give you an idea of what the overall cost will be.
The companies also have working relationships with various countries so they know all of the policies that entail shipping goods into that nation’s port. Because there are so many ports around the world, it means that they will have to know about many different nations. Only a large company with a dedicated team and a lot of experience will be able to handle the logistics entailing international shipping.
The companies also make sure that each of the containers you have is able to be tracked, not only by them but also by you. Not all companies can offer this tracking service, but it is in your best interest to choose one that does. When you are able to track the containers, you will know where your goods are every minute of their trip across the sea.
These are only a few of the many things that go into the daily routine of a logistics company. There are many other behind the scenes jobs that help to make sure your packages arrive on time.
read moreGIS Improves Mobile Resource Planning and Logistics
In today’s fast-paced society, customers demand service and products sooner than ever.
Companies offering delivery services are fi nding they need to provide quick deliveries and accurate
time windows. While companies struggle to meet these demands, they also must weigh their
costs for services since mobilizing workforces can be an expensive endeavor in both assets and
personnel resources.
Small companies and Fortune 500 companies alike are fi nding that ESRI’s GIS software for mobile
resource planning is critical to meeting these goals. They are discovering how ESRI software
makes it easier to improve business operations so they can get the right goods and services to the
correct place at the appropriate time for the least cost.
Transport operators, logistics companies, and service engineers are realizing major improvements
in operational effi ciency, cost reduction, and resource deployment. Using a GIS-based,
geographically focused logistics package allows users to
Calculate realistic travel times and distances between stops, deliveries, and depots.
Improve work area balancing, work scheduling, and route optimization.
Create more realistic and accurate routing and scheduling plans that consider natural barriers,
street-level travel times, traffi c fl ows, and holdups.
ESRI’s GIS software can be used for many aspects of logistics and supply-chain management
including site selection analysis, asset and property management, route optimization, scheduling,
vehicle tracking, and long-range planning and forecasting.
Large-scale users of ESRI software have shown an average savings of $15 million over traditional
manual methods, while other operators have found a 15–30 percent inventory reduction by taking
corrective action earlier and mobilizing their inventory more effectively.
To avoid being overwhelmed by the scale and cost of planning deliveries and operating fl eets
effi ciently, businesses are turning to GIS-based logistics solutions, replacing guesswork with
strategy to generate the most effi cient routes.
Green Logistics, Urban Air Quality Management And Biofuels Use
Introduction
Logistics constitute a vital link in the present day transportation systems. They have improved the cost, efficiency and reliability aspects of our delivery systems comprising the end part of supply chain. However, the negative environmental impact of transport movements leading to high fuel consumption emissions, enhanced noise levels, movement vibrations and accident rates have now reached such high proportions that the sustainability issues have inevitably come to the forefront of discussions all the world over. Logistics, including the reverse distribution logistics, have to be made environment friendly. In this context, ‘Green Logistics’ assumes great significance.
Present day transportation owes much to modern technology which has indeed helped develop a high degree of organization and control over freight movements not only within a country but also across the seven seas. Technology could be called the most effective driver of growth of transportation industry today. It is however paradoxical that logistics providers in their eagerness to serve own narrow and commercial interests have lost sight of the objectives of green logistics. The conflict between industry’s self-interest and the much-avowed green objectives therefore deserves serious debate and action.
The objective of this paper is to discuss the significance of the concept of green logistics, transport industry related green house gas (GHG) emissions, air quality management in urban agglomerations, modal shift issue, use of bio-fuels and sustainability issues in general.
What is Green Logistics?
The concept of ‘greenness’ came to be discussed in relation to the transportation industry during the eighties and nineties, especially after the World Commission on Environment and Development Report, 1987 announced environmental sustainability as a goal for international action. The transportation industry was identified as one of the culprits contributing to environmental degradation. Studies and reports had also suggested that environment ought to be incorporated in the logistics framework or supply chain paradigm. The term ‘green logistics’ has since then become a catchword.
Traditionally, logistics takes care of the forward distribution of products which includes transport, warehousing, packaging, inventory management and information processing starting from the producer to the retailer and end user. Environmental considerations require that, as a corollary, care has also to be taken of ‘reverse logistics’ which involves recycling and disposal of waste and used materials. Reverse flow logistics have, in fact, opened up a new market for the take back (10). In fine, the entire life cycle of a product – production, distribution, consumption and disposal – has to be considered as part of logistics. Since quite a few related operations like inventory, materials handling, packaging etc may be outsourced to other agencies, operational integration assumes great significance in the total supply chain. In other words, the various independent operations linked together on a transactions-to-transactions basis are buffered by inventory. The focus is on maintaining a continuous flow of desired velocity by synchronizing all the activities which form part of the supply chain.
The key benefit of establishing an effective connectivity is the minimization of transport costs incurred by firms. The logistics expenditure is comprised of following elements: (a) In-bound logistics cost (operations), (b) Out-bound logistics cost (marketing and sales), (c) Service cost, and (d) Management profit (12). The hallmark of an effective integration in supply chain is (a) Transit time compression, (b) Reliability of service,, (c) Just in time (JIT) delivery (d) Good information systems support, (e) flexibility in operations (f) Customization and (g) Minimization of ‘back haul’ or empty trucks in return journey. The same criteria apply to reverse logistics which require management of products returned by customers, their recycling or reuse, repair or removal of products and finding alternate channels to sell impaired assets (18). All these have environmental implications.
Transport administration, as part of supply chain is also of great significance. It involves expertise in vehicles and equipment scheduling, load planning, routing of freight, advance shipment notification, consolidation of cargo, tracing the movement of cargo as part of control and an efficient information system. It also involves documentation in terms of bill of lading and shipment manifest and what is quite important, a competitive pricing strategy (2, 4).
In modern times international trade has become a bigger part of world’s economic activity. The role of transportation in the global supply chain is now all the more important. Transporters may use a combination of modes like air, road, rail, water, pipelines and inter-modal. Trucking is normally more expensive than rail or water but it provides the advantage of door-to-door shipment and shorter delivery times. It also eliminates the need for transfer or transshipment between pick-up and delivery points. Shippers therefore often prefer road transport over rail for all short distance movements within the country. When it comes to global trade, water transport becomes the dominant mode, although air transport is also preferred for light-weight and perishable cargo.
Transport Industry and Green House Gas (GHG) emissions
Transport is certainly an energy- intensive industry involving high levels of direct and indirect GHG emissions. According to Carbon Budget and Trends Annual Report, 2007, global carbon emissions rose rapidly during 2007 with industrializing nations like China and India producing more than half of mankind’s output of carbon dioxide CO2 which happens to be the main cause of global warming (11). The Report states that emissions from burning fossil fuels was the major contributor to CO2 increase and India would soon overtake Russia to become the world’s third largest emitter of CO2. It should be noted that 450 parts per million (ppm) of CO2 leads to two degrees Celsius increase in atmospheric temperature with disastrous consequences in terms of global warming. A wake- up call to industry, business and our wily politicians is given by recent figures of atmospheric CO2 concentration in general which rose to 383 ppm in 2007. This was 37% higher than the mean level. China, India, Russia and Japan are considered as the big players in CO2 emissions and in that the vehicular pollution is the main culprit(6). Country wise figures in the accompanying table 1 illustrate the severity (23).
.Table 1 : Showing GHG emissions for select countries
Country CO2 Emissions Growth Rate
(In million tones) (1990-2004)
United States 6,046 25
China 5,007 109
Russia 1,524 23
India 1,342 97
Japan 1,257 17
Germany 808 -18
Canada 637 54
United Kingdom 587 01
Korea 465 93
Italy 450 15
World 28,983 28
_________________________________________________-
Note: Share of developed countries is 15% in world population,
but 50% in CO2 emissions.
It is also felt that since Russia is effectively reducing the emission rate, India may soon rank as third greatest polluter after U.S.A. and China.
Addressing Urban Transport Air Pollution
Transport no doubt plays a crucial role in the proper and efficient functioning of our cities.\, but it is also responsible mainly for air pollution. Vehicle emissions are considered a serious issue in most metro cities of the world including India. The levels of Suspended Particulate Matter (SPM) is much higher than the standard of 90 (as in 1992) set by the World Health Organization (WHO). A comparison of the SPM concentration in selected Indian Cities with that in other Asian cities is given in Table 2.
As can be seen, in 1992 each of the three Indian cities of Delhi, Mumbai and Kolkata had exceeded many times over the WHO limit of 90 SPM and our national capital was the worst offender.
Table 2: Figures of Average Annual SPM Concentration in Cities of Asia- During 1990-1999 (WHO SPM limit 90 as in 1992) _________________________________________________________________________
Bangkok 215 Hong Kong 55 New Delhi 490
Beijing 380 Kolkata 394 Seoul 101
Busan 100 Manila 198 Shanghai 250
Chonguing 250 Mumbai 252
The blame for rising pollution levels can be laid at the door of steeply rising vehicle population in Indian cities as show in Table 3.
Table 3: Total Number of Registered Motor Vehicles in India during 1951-2004
(Figures in thousands)
Year All Two Cars, Jeeps Buses Goods Others
Vehicles Wheelers & Taxis Vehicles
1951 306 27 159 34 82 4
1961 665 88 310 57 168 42
1971 1865 576 682 94 343 170
1981 5391 2618 1160 162 554 897
1991 21374 14200 2954 331 1356 2533
2000 48857 34118 6143 562 2715 5319
2001 54991 38556 7058 634 2948 5795
2002 58924 41581 7613 635 2974 6121
2003 67007 47519 8599 721 3492 6676
2004 72718 51922 9451 768 3749 6829
_______________________________________________________________________-
Source: (19) and Transport Research Wing, Ministry of Road Transport, G.O.I.
Motor vehicles are prone to emit large quantities of Total Organic Gases (TOG) including hydrocarbon (HC), Carbon Mono oxide (CO), Fine Particulate Matter (PM), Nitrogen Oxide (NOx), and Sulphur Oxides (SOx). These air pollutants cause severe health and environmental effects. The fine Particulate Matter (PM) results in aggravating respiratory and cardio vascular diseases and impairing lung function. Besides, the environment may get degraded by way of acid rain, eutrophication, visibility impairment and, of course, climate change. According to a study published in Current Science (5), while the Indian economy grew by 2.5 times during 1975-1995, the vehicle pollution level increased by 7.5 times. This is disturbing indeed. It shows that transport system and air pollution are directly co-related. The emissions from motorized vehicles in practical terms depend on vehicle kilometers, vehicle speeds, life of vehicles and composition of vehicle fleet. The emission rates of different categories of vehicles are shown in Table 4.
Table 4: Emission Rates of Different Categories of Vehicles in Typical Indian City in gms/km
Vehicle category CO HC NOx SO2 Pb TSP
Two- wheeler 8.3 5.18 - 0.013 0.004 -
Motor car 24.03 3.57 1.57 0.053 0.012 -
Three-wheeler (autos) 12.25 7.77 - 0.029 0.009 -
Bus 4.38 1.33 8.28 1.441 - 0.275
Truck 3.43 1.33 6.48 1.127 - 0.450
Light commercial vehicle 1.30 o.50 2.50 0.400 - 0.100
Note: (-) indicates negligible quantity
Source: (21)
Here one can see that emission rates in terms of CO and HC for personalized modes of transport like motor car and two wheelers are very high suggesting the need for their substitution by public passenger transport modes lie bus or metro rail. The figures of average efficiency of different categories of motor vehicles as expressed in terms of kilometers per litre are as in Table 5.
Table 5:
Vehicle category _Fuel type Kms. per litre__
Bus Diesel 4.30
Two wheeler Petrol 44.40
Three wheeler Petrol 20.00
Motor car Petrol 10.90
Source: (21)
An idea of the vehicular emission loads in selected Indian cities can be had from the figures in Table 6.
Table 6: Estimated Vehicular Emission Load in Selected Metropolitan Cities of India
Name of city Vehicular pollution load (tonnes per day)
_________________________________________________________________________ Particulates Sulphur Oxide of Hydrocarbons Carbon Total
Dioxide nitrogen monoxide
________________________________________________________________________
Delhi 10.30 8.96 126.46 249.57 651.01 1046.30
Mumbai 5.59 4.03 70.82 108.21 469.92 659.57
Bangalore 2.62 1.76 26.22 78.51 195.36 304.47
Kolkata 3.25 3.65 54.69 43.88 188.24 239.71
Ahmedabad 2.95 2.89 40.00 67.75 179.14 292.71
Pune 2.39 1.28 16.20 73.20 162.24 255.31
Chennai 2.34 2.02 28.21 50.46 143.22 226.25
Hyderabad 1.94 1.56 16.84 56.33 126.17 202.84
Jaipur 1.18 1.25 15.29 20.99 51.28 88.99
Kanpur 1.06 1.08 13.37 22.24 48.42 6.17
Lucknow 1.14 0.95 9.68 22.50 49.22 83.49
Nagpur 0.55 0.41 5.10 16.32 34.99 57.37
Grand Total 35.31 29.84 422.88 809.69 2299.21 3597.20
Source: (3)
The air pollution levels in our cities are disturbing indeed. The number of motor vehicles moving on Indian roads today is certainly much more than the figure of 7.2 crore in 2004 (See Table 3). What is more alarming is their concentration in metropolitan cities like Delhi, Mumbai, Kolkata and Chennai. Delhi, for instance, which had 1.4 percent of Indian population accounted for 7 percent of total motor vehicles in the country. Another worrying feature is that while the share of mass transport (buses) is quite below the desired range of 60-85 for two million plus cities, the share of personalized transport (cars and two wheelers) and para- transit (autorikshaws and taxis) is above the optimal range of 10-20 in most cities.
The impact of such a rapid growth of vehicle population in the background of grossly inadequate road space, poor street furniture, illegal encroachment by hawkers, parked vehicles and pavement dwellers can be easily imagined. Most Indian cities today face severe traffic congestion, especially during peak hours when vehicle speeds slow down to 5-10 kms per hour in central business district areas. Vehicular emissions in the form of CO2, HCs and NOx drastically increase the pollution levels.
Mass transport services like buses and suburban rail systems are generally overcrowded. They are irregular and involve long waiting times. This naturally leads to a massive shift to personalized transport and para-transit modes. In India owning a motor car is still considered a status symbol. As a result the neo-rich are fast joining the car-owners club and it is feared that the situation may worsen after the rupees one-lakh nano car arrives on Indian roads. All this may also lead to a soaring up of accident rates to dizzy heights. It is time we listen to the wake up call and save ourselves from turning into a car-oriented society.
Air Quality Management – Measures
It is obvious that we need to act without delay through effective intervention in the transport sector. Green transport through green logistics should be our goal. Maintenance of air quality standards is possible through setting an ambient air quality monitoring network for vehicular emissions and simultaneously helping motorists to make the transition. The variety of measures that need to be undertaken can be on following lines:
(a) Diesel engines emit carbon particles TSP, heavy hydrocarbons, sulphate and other by-products of combustion, and petrol engines also emit CO, NO and other volatile compounds. However, diesel engines are considered as relatively dirtier and government should discourage their use through suitable policy measures including differential pricing (14).
(b) The government should promote the use of alternative cleaner fuels like liquefied petroleum gas (LPG) and compressed natural gas (CNG). Thankfully, it is already doing this gradually and effectively. The air quality in Delhi and Mumbai has certainly improved after their use in public transport buses and autorikshaws. It should also take care to establish CNG filling stations along all major roads. Another good news, according to a Research Report by Frost and Sullivan ( ), is that car makers in India are soon likely to roll out models that run on alternative fuels like CNG and LNG. They are also developing a converter kit which will transform an existing petrol and diesel vehicle into a CNG/LPG driven vehicle. Such converter kits for three-wheelers are already in the market. After this conversion India will actually need 10,000 CNG pump stations whereas today their number is less than 5000 across 15 cities.
(c) Use of old vehicles should be effectively curbed. Shortage of finance or fear of unemployment should not come in the way of enforcement of government directives. Petitions for judicial intervention should be quickly dealt with. Obsolete models, except those used for vintage car ralleys, ought to be made to retire.
(d) Improvement in fuel quality in terms of lower surphur content in diesel and lower benzene and aromatics in petrol should be enforced. The Department of Road Transport of the Government of India has rightly promulgated Rules in April 1995 regarding use of unleaded petrol and fitting of catalytic converters in new petrol-driven cars. Similarly, the norms for sulphur content in petrol have been fixed at 0.1% and for diesel at 0.25%
(e) Setting up of emission standards for all kinds of motor vehicles is necessary. Happily, the next generation emission norms for two-wheelers and three-wheelers have been made effective from April 2005. If feasible, the government may start conducting emission testing of motor vehicles prior to their registration. It may be stated that the automotive sector of Indian industry is quite sensitive to environmental risks and safeguards.
(f) The local enforcement agencies should launch sustained drives against smoke-belching vehicles which abound in small and medium sized Indian cities. For this purpose they should bring emission testers to roadsides for inspection of vehicles. Forced retirement of older high-polluting vehicles may be resorted to. The government should also bring in pedestrian safety laws and clear footpaths of all encroachments to allow pedestrians their right to walk safely.
(g) Better integration between rail transport systems and other ‘feeder’ bus services and water transport facilities should be brought about by linking them together. Common ticketing and information systems to offer seamless connections between different transport modes can also be thought of. Elevated railways integrating LRT and MRT lines may be constructed to discourage private car ownership. (20)
Modal Shift
The question of changing the modal split in favour of railways and waterways also needs to be addressed seriously. It is a well-established fact that road freight vehicle movements give out greater carbon emissions per tonne kilometer than rail or water borne freight. The road arteries in India these days are getting more and more congested affecting climate change. The share of rail transport in freight movements, not in absolute but relative terms, has been declining relative to road transport, because of the accessibility and door-to-door delivery advantage enjoyed by road transport. This however does not augur well from the environment and sustainability viewpoint. There is no doubt that Indian rail freight traffic during the last decade has increased in absolute terms thanks to the Container Corporation of India – a subsidiary of Indian Railways- playing a more customer-friendly role in providing ISO containers both at port terminals and inland container depots (ISDs). However, for logistics providers road transport still continues to be the favoured mode for the reason that their criterion of measuring transportation costs differs from that of the government. The costs of environmental degradation for them are external and do not need internalization for business accounting purposes.
It is here that policymakers should use their ingenuity in evolving such fiscal, regulatory and organizational measures which will bring about a modal shift from road to rail and water transport. Unfortunately, there is no evidence yet of serious thinking on the part of policymakers to bring about such environmentally desirable modal shift from road to rail and water. The reason is not far to seek. The decision about mode choice by shippers of freight involves many complex issues. It depends upon a variety of factors influencing performance of rail freight movements and the costs in terms of money and time that is to be borne ultimately. It is therefore necessary to identify the barriers that prevent the desired modal shift and evolve suitable measures to achieve the objective. It is the logistics managers who can really enlighten us on the eco-friendly way of influencing mode choice.( )
Switch to Bio-fuels
Due to soaring prices in the world oil market during the last few decades, need arose to break free from oil and use alternative energy sources like bio-fuels which would cut oil demand, provide energy security and prevent climate changes. Simultaneously, efforts were begun to promote research and development in clean alternative energy options like wind, water, solar and hydrogen resources. However, a switch to bio-fuels- specifically ethanol – was looked upon as the easier way to achieve the objective (7)
The question often being asked is whether reliance on bio-fuels would prove a good strategy. Researches undertaken by International Food Policy Research Institute (IFPRI) reveal a different story (17). During the period 2000-2007 there was a boom in ethanol production. Brazil and USA controlled the market producing 90% of ethanol. European Union (EU) also followed suit. Large tracts of land were diverted towards production of palm and soya-bean to produce bio-diesel and towards corn and sugarcane to produce ethanol. This led to a surge in commodity prices throughout the period. According to IFPRI, if this trend continues, by 2020 prices of corn are estimated to rise from present 26% to 72%, of sugar from 12% to 277% and of oilseeds from 18% to 44%. This scenario is bound to have a serious impact on the poor strata of society with diet quality getting reduced and malnutrition spreading to large parts of Asia and Africa.
In this situation, rich countries may continue to emit majority of green house gases (GHGs) and the poor countries will bear the burden of climate change in terms of hotter climate, lesser rain, and deforestation, and also low incomes, malnutrition and greater dependence on agriculture and natural resources for living.
It is feared that the risks in switching to agro-based fuels are real. The switch may trigger further deforestation and destruction of the ecosystem. Warnings are therefore being given that agro-fuel policies should not be pursued further without a proper risk analysis. (1). According to a UNIDO document, “the key concern here is the competition between land use for bio-energy production and food and animal food production.” The fuel versus food issue is really enigmatic. The document further states that “the coupling of energy market with food market can increase food prices and hence worsen the access to affordable food for many” (25). This warning can be ignored only at our peril.
It should be clearly understood that increased prices may result in increased incomes for farmers and give them their food security, but the overall effect would depend upon the distribution of increased incomes. In the opinion of the Food and Agriculture Organization (2006) the food versus fuel issue needs detailed analysis of the possible outcomes of bio-fuels policy. The Stanford University’s Wood’s Institute for Environment claims that reliance on bio-fuels as part of America’s new energy plan is not a good strategy. It is a fact that USA’s Ethanol-from-Corn Program has led to a rise in prices of food crops due to farmland diversion. (23) This can happen anywhere and in India too. Lands can be diverted for production of soya-bean and sugarcane. The decision to switch from fossil fuels to crop-based fuels has therefore to be taken with extreme caution. Scientists state that agro-fuels production from oilseeds and corn has the potential to damage our climate catastrophically.
Researches are being carried out to produce liquid bio-fuels for transport as such. Here the ‘first generation fuels refer to bio-energies made from sugar, starch, vegetable oils or animal fats using conventional technologies. ‘Second generation’ fuels refer to those from lingo-cellulose biomass feedback using advanced technologies. In India, we have resorted to gasification of solid bio-mass through setting up small scale plants mainly in rural areas which produce heat and energy. We should upgrade the technology so as to feed the gases into pipelines or alternatively compress them for use in transport vehicles. In this respect Brazil has a success story to report. The production of sugarcane ethanol has reduced that country’s dependence on fossil fuels and also ‘cleaned’ the industry. ( )
In fine, as long as the thrust is on producing ‘clean’ energy and on scaling down petroleum consumption, bio-fuels can be considered as welcome. But we must carefully assess the fall outs of switching to bio-fuels. President Obama’s New Energy Plan for USA supports greater use of ethanol produced from maize. This has led to increase in food prices, especially of wheat. If we in the same way produce sugar ethanol in India, it may deplete our water levels and degrade soil quality. Bio-fuels may not prove to be so ‘green’ after all. (23) The sustainability of bio-fuels does not seem to be as strong as it appeared earlier.
References
1. Almuth Ernsting, Deepak Rughani, Dr. Andrew Boswell (2007): “Agro Fuels Threaten to Accelerate Global Warming”, UNFCCC, Bali Version, www.biofuelwatch.org.uk 2. Bowersox, Closs, & Cooper (2008), Supply Chain Logistics Management, McGraw Hill, 2nd edition 3. Central Pollution Control Board: National Ambient Air Quality Statistics of India, different years 4. Chopra Sunil and Peter Meindl (2007) : Supply Chain Management- Strategy, Planning and operation, Prentice Hall of India 5. Current Science (1999): “Urban Air Pollution- Commentary”, Vol.77, No.3, August 10, 1999. 6. Financial Express, November 3, 2008, Emerging Ventures India 7. John Browne (1997): “Bio fuels – A Solution for Climate Change- Our Changing Earth Climate”, A Presentation in the Council of foreign Relations, New York, Nov.13, 1997. 8. John Pucher, Nisha Korattyswaropan, Neha Mittal, Ninu Ittyerah (2005): “Urban Transport Crisis in India”, Transport Policy 12, Elsevier, pp. 185-198. 9. Prodosh Mitra (2009): “Biofuels are not so green- Counter view”, Times of India, February 17, 2009 10. Rodrigue Jean-Paul, Brian Slack, Claude Comtois (2001): “Green Logistics (The Paradoxes of)”, in The Handbook of Logistics and Supply Chain Management, Brewer et al (eds.), Pergamon/Elsevier publishers, London Greening Business Survey 2008 11. Financial Express, September 22 & 29, 2009: “Global Carbon Emissions Rise Despite Abatement Steps” – Carbon Budget and Trends Report, 2007 12. G. Raghuram and N. Rangaraj (2005): Logistics and Supply Chain Management- Cases and Concepts, Macmillan, Delhi 13. Hindustan Times, December 19, 2007: “India is on an eco drive”. 14. House of Representatives, Phillipines Policy Advisory No.2004-03 (2004): Addressing Urban Transport Pollution. 15. Indian Express, November 16, 2007:International Energy Agency (IEA) Report on World Energy Outlook 16. Jain, A.K. (2009): ” Retrofitting Cities and Built Form to Meet the Challenges of Climate Change and Carbon Emission”, Akruti Journal of Infrastructure, Vol. II, No. 2, pp. 101-121 17. Joachin von Braun (2008): “Food Prices, Biofuels, and Climate Change”, International Food Policy Research Institute (IFPRI) 18. Sahay B.S. (Ed.) (2004): Energy Issues in Supply Chain Management, Akruti Journal of Infrastructure, Vol. II, No. 2, pp. 122-1 19. Sanjay K. Singh (2005): “Review of Urban Transportation in India”, Journal of Public Transportation, Vol. 8, No. 1, pp. 79-97 20. Warwick J. McKibbin (2009): “Climate Change Policy for India”, 21. Sibal and Sachdeva (2001), “Urban Transport Scenario in India and Its Linkage with Energy and Environment”, Urban Transport Journal, Vol.2, No.1, pp.34-55 22. Sudarsanam Padam & Sanjay K. Singh (2002), “Urbanization and Urban Transport in India- The Sketch for a Policy, Central Institute of Road Transport, Pune 23. Times of India, November 28, 2007, “Global Warming- Earth on Fire”- Subodh Varma 24. Tiwari Geeta (2007), “Urban Transport in Indian Cities”, Urban Age, Newspaper Essay, L.S.E. 25. UNIDO (2007): Bio Energy Strategy- Sustainable Industrial Conversion and Productive Use of Bio Energy – Report
read moreTips to Save On Logistics Cost
Today Logistics Management has gained special attention because of high emphasize on quality of goods and services as well as intense price competition which is forcing companies to control the costs to survive in the market.
Logistics Management is conventionally defined as the process that ensures the delivery of the right product at the right place at the right time in right quantities to its customers. Normally when logistics management is talked about, the entire supply chain is considered, from the procurement of raw material to the delivery of finished good and services to customers.
Logistics activities can be categorized as inbound and outbound logistic activities. Activities from procurement to final production are called inbound activities while activities concerned with distribution channel that is delivery of the finished goods and services to the customers from the manufacturer’s place are called outbound activities.
Four main areas of logistics management are procurement, transport, transshipment and storage of goods. Supply chain logistics costs account from 5% to 50% of a product’s total cost, depending on the industry. Following are the tips to reduce cost in these four areas:
Procurement
Keep your scope wider and search for the suppliers of your required inputs who can offer you in more favorable terms. Look for import options also. This does not mean changing the suppliers very frequently but just awareness about such suppliers can strengthen your company’s bargaining power. Always try to negotiate for favorable prices.
Understand the true costs of sourcing. Consider all the costs freight, duty, inventory carrying costs, brokerage involved in procuring. Comparing these costs will help company to decide on the best option.
Work with suppliers on the design and specifications for each order to identify cost savings that allow them to lower their prices.
Switch to lower priced substitutes available for the required inputs.
Try to switch to just-in-time deliveries from suppliers that can lower a company’s inventory as well as internal logistics costs. It may also allow its suppliers to economize on company’s shipping, warehousing, and production scheduling costs that can result in a win-win situation for both the parties.
Transportation
Select the mode of transportation (air, water, rail, road and through pipeline) which best suits the quantity and quality of goods to be supplied and required delivery time. Each mode has its own advantages and disadvantages in terms of costs, speed, capacity, flexibility and safety. Appropriate selection reduces the opportunity costs involved due to unavailability of goods at right time. Loss due to damage to goods during transit can be avoided.
Proper vehicle routing and scheduling can reduce the in-transit inventory. Today various mathematical and analytical methods are available to solve the problems of vehicle routing like shortest route method, transportation method, etc.
Freight consolidation can reduce the transportation cost to a greater extent. In involves bringing together smaller quantities of inventory in order to create a bigger quantity for transportation.
Transshipment
Controlling the express shipping costs, typically when a company have an entire shipment sent on an express service level basis for which higher cost is incurred. Such Panicking often results in higher costs. If the companies just do a little bit of calculating and planning it can determine the amount of goods that are needed immediately and have that amount sent by express service level, while the balance of the shipment can be sent using a standard service level which leads to lower cost.
Inventory
To build up inventory sufficient capital has to be tied up for a length of time. By proper analysis on demand and supply side and nature of the product, such capital cost can be reduced by optimizing the level of inventory. Use scientific method like EOQ (Economic Order Quantity) to decide on order quantity.
Use proper inventory control system.
Try to avail the quantity discounts from raw material suppliers by ordering in a lot.
On the basis of past experience, insure the stock against such contingency as fire, theft, accidents, etc.
Reduce the number of storage points to reduce the total variability in demand. This practice is called risk pooling. The total carrying costs get reduced with a lesser provision of safety stock at different storage points.
4 Step process of lowering logistic costs:
1. Determine the customer service targets and organizational goals.
2. Compute the current logistics costs.
3. Benchmark cost of performing a given set of activities against the best companies in similar business.
4. Develop a plan and implement the lowest cost method that meets the core business needs.