Logistics and Characteristics of Modes of Transportation Learning Objectives After studying this chapter, you will be able to understand ‘« the importance of physical distribution system ‘the benefits of an efficient logistics system © the critical elements of a logistics system « the international transport system « how to choose the best mode of transportation Marketing can be defined as a system of business activities designed to plan, price, promote, and distribute satisfying products to a target market in order to achieve organizational objectives (Stanton, Etzel and Walker, 1994). This definition assigns equal importance to manufacturing, advertising/publicity, and distribution of goods. Any marketing activity is incomplete if a well- manufactured product of the right quality, produced at the right cost and which is well promoted, does not reach the consumers at the right time. For example, if woollen garments do not reach the market well before winter, they have no value. Similarly, if they reach the customers well past the season, they have no value. The manufacturer, therefore, has to ensure that his/her product reaches the market in time, neither too early nor too late. If the goods reach the market too early, they lose their freshness and a higher inventory carrying cost is incurred, If the goods reach too late, the customers may not be interested in buying them. This underlines the importance of distribution in the entire marketing activity. Product distribution involves systems and procedures for physically moving the products and services from the point of origin to the point of consumption. The system and procedures involved in distribution of products and services is termed logistics. scanned with CamScannerLogistics and Characteristics of Modes of Transportation 115 In a modern industry, logistics functions are central to success in the marketplace. In the past, logistics was not a defined function. The task of purchase, material receipt, transportation, warehousing, despatch, and documentation was handled by different people, working under different departmental heads. These people learnt their skills on the job and rose in the hierarchy according to the level of their competence. Today, the scenario has changed completely. A logistics manager has to typically deal with a number of agencies, which are sub-sectors of logistics functions. The concept of logistics has also changed significantly. Evolution of logistics can be divided into three stages. Stage | In the 1960s and 1970s, the concept of logistics was confined to the physical distribution of goods or outbound logistics. Related activities included transportation, distribution, warehousing, packaging, material handling, and so on. The logistics manager had to deal only with outbound traffic. Stage 2 In the 1980s, the concept of integrated logistics management was developed. This concept combined outbound logistics (physical distribution) with inbound logistics (materials management). Companies leveraged their inbound and outbound traffic with transport companies, warehouses, and others to obtain competitive rates. Also, the logistics manager had to deal with both inbound and outbound traffic. In other words, the logistics manager was responsible for efficiency in materials management as well as physical distribution of finished goods. Stage 3 From the late 1980s onwards, organizations started thinking beyond the efficiency of their own logistics operations and expanded the concept of logistics to include all the firms involved-suppliers and sub-suppliers on the one hand and customers on the other. They jointly tied up with logistics service providers such as transporters, warehouse operators, and others to create a strong supply chain. The era of supply chain management thus began. This multiplied the responsibilities and the scope of work of a logistics manager manifold. To cope with these additional responsibilities, a logistics manager must be technology savvy, and possess new skills and knowledge of modern management practices. In recent years, globalization and advancement in Information Technology (IT) have added new dimensions to logistics operations. PLANNING PHYSICAL DISTRIBUTION ‘An effective physical distribution system needs careful planning, In order to plan, the objectives of the distribution system should be clearly defined. For Scanned with CamScanner116 Export import Management example, an objective could be, all the export orders to be executed within eight weeks of receipt of purchase order/letter of credit. The objective also could be to bring down the total distribution cost, or to ensure minimum damage or loss of goods. Onee the objectives are defined, important decisions regarding inventory levels, mode of transportation, warehousing and number of distributors, etc., can be taken. x Planning Process Given below are the five steps in the planning process. Step | To start with, a customer’s needs and expectations from the products and services must be determined. Sometimes the customer wants to buy the product off the shelf, as in case of cosmetics, confectionary, grains, vegetable oils, and FMCG (Fast Moving Consumer Goods) products. In such cases, the distribution system should be agile and prompt. Sometimes the customer is willing to wait for the product, as in the case of cars, two wheelers, machinery, and consumer durables. These being high-value products with very competitive markets; the distribution system should also be cost competitive and ensure the safety of the products. In either case a different approach is required. Step 2 Improved customer service comes at a cost. The next step is to determine the cost at which the company can fulfill the customer’s expectations. Prompt deliveries are always appreciated, but extra costs are not. Step 3 A balance needs to be struck between improved service and additional cost. For example, by deciding to airfreight the material, the objective of speedy services to the customer is achieved, but the additional cost could be exorbitant. Or, deciding to increase the frequency of replenishment of stocks at the warehouse may make the response to the customer’s demand agile, but will burden the product with additional costs. Hence this step involves an examination of the entire distribution system to identify the locations where the goods can be made available at a reasonable cost. Step 4 An assessment of the competitor's quality of service vis-a-vis the cost is necessary. Keeping an eye on the best practices adopted by competitors can help the organization to redefine its distribution strategy. Step 5 There should be a regular evaluation of the physical distribution system, keeping in mind the change in technology in the areas of production, promotion, and distribution. The system should always be in line with the available technology. For example, the use of Electronic Data InterchangeLogistics and Characteristics of Modes of Transportation 7 (EDI) or Radio Frequency Identification (RFID) system can make the tracking of cargo on high seas or elsewhere possible. The physical distribution system should be flexible enough to adopt new technology. BENEFITS OF AN EFFICIENT LOGISTICS SYSTEM In the age of universal globalization, the World Trade Organization (WTO) is working towards reducing tariff barriers and eliminating all non-tariff barriers. Tariff levels the world over are also being brought down. The mantra of free trade is spreading fast and manufacturers and service providers are now exploring global opportunities. The need to physically carry the goods from one country to another has highlighted the importance of a sound logistics system. It is now being realized that the desired efficiency of 4 logistics system is directly proportional to the distance travelled by the cargo. The longer the distance to be travelled, the higher is the efficiency demanded of a logistics system, Integrated logistics, which takes into account fast-paced technological changes and the forces of globalization, works as a strategic weapon for business. Strategy guru Michael Porter acknowledges the importance of logistics by assigning in-bound logistics (spanning sourcing and procurement) and out-bound logistics (covering post manufacturing deliveries) two out of five links on the value chain from which companies can derive their competitive advantage. The following are the various benefits of an efficient logistics system. Increased Operational Efficiency The primary objective of any logistics system is to make optimum use of resources available so that in-bound raw materials, components and sub- assemblies as well as finished products are delivered in the right quantity, at the right place, and at the right time. This helps the supply chain become more responsive to the ever-changing market demands at minimum cost and time. In international business, the choice of mode of transportation such as road, rail, sea, river, or air is critical, The choice is made depending on the nature of the cargo, delivery commitment, and the cost of transportation. Other considerations include prevention of damages, theft, and pilferage. Transnational companies with multiple locations of manufacturing plants and warehouses must devise a system that enables them to deliver the goods to the market using the shortest routes, keeping the minimum inventories, and avoiding duplication. A logistics system can be designed to increase operational efficiency and help the company respond to market demands and service customers better than competitors. In other words efficient logistics means an edge over the competitors,Logistics ond Characteristics of Modes of Transportation 119 schedules to the customer because he/she is sure that the company is capable of backing the deals with on-time deliveries without cost overruns. A reputed tyre manufacturing company managed to halve its inventory of finished goods from 50 days to 25, thanks to the use of logistics. This company used to overstock products due to the long distance between its despatch centres and selling points. The logistics solution was to ensure the supply at a short notice by creating despatch centres at various strategic locations, which were accessible to 125 selling points within 48 hours. Hence, the logistics system helps a company tailor its inventory exactly to customer demand. In a fiercely competitive marketplace where along with the price, the quality of customer services too decides the fortunes of a business, more and more companies are relying on logistics solutions to provide them a cutting edge over their competitors. Large MNCs have their own logistics departments headed by senior managers with several years of experience. Many companies outsource their logistics operations to the logistics management companies who specialize in this field. These companies cater to a number of clients and can provide an entire range of value added services. Their services range from customs clearance to storage, from physical distribution to material handling, and from transportation to packaging. This helps companies concentrate on their core areas of expertise such as manufacturing, marketing, etc. They need not waste their resources in creating the service infrastructure, which can be provided more efficiently at competitive rates by logistics management companies. Some of the leading companies offering logistics solutions in India are Federal Express, Blue Dart Express, DHL Logistics, Maersk Logistics, Safe Express, Geologistics, and Miebach Logistics. The presence of so many companies providing specialized solutions is an ample testimony of the importance of logistics management. MARKETING LOGISTICS SYSTEM: THE CONCEPT Logistics is defined by the Council of Supply Chain Management Professionals, Ohio USA, as the process of planning, implementing, and controlling the efficient, cost effective flow and storage of raw materials, in- process inventory, finished goods, and related information from point of origin to point of usage. More simply, the objective of a logistics system is that the right products reach the right place in the right quantity and at the Tight time to satisfy customer demand. Logistics is also defined as the design and operation of the physical, managerial, and informational systems needed to allow goods to overcome time and space. Logistics encompasses all the activities, which move the goods from raw material to finished stage, store and sort them to facilitate scanned with CamScanner120 Export Import Management distribution process, deliver the products to the customers as per their requirements, and provide spares for after sales service to customers. Logistics is the flow of material, information, and money between customer and supplier, whereas global fgistics is the flow of material, information, and money between countries (Frazelle). The UK-based Chartered Institute of Logistics and Transport define Logistics as the time related positioning of resources. Logistics is also defined as the management of inventory in motion and at rest. Logistics Process The various steps involved in setting up an effective logistics system are discussed as follows. Planning This is the first step towards an effective logistics system. The system can be effective if the geographical locations and the distance between the point of origin of goods and the point of consumption are kept in mind. Depending upon the distance and geographical hurdles such as, oceans, mountains, rivers, and the various difficult terrains involved, different modes of transportation can be considered. Also, the nature of the product plays an important role. Physical attributes such as weight, volume, perishability, and fragility play an important role in the logistics planning process. Implementing This is the second step of an effective logistics system. Theory aside, in a real life situation it is found that even the best-laid plans go haywire due to unforeseen circumstances. Therefore, contingency plans should also be in place in case of need. Implementation of a logistics plan is a group process, where different agencies and people located in different geographical locations have to coordinate their activities with each other. Precise instructions, quick communication, and mutual understanding are the key ingredients of the successful implementation of a logistics plan. Controlling The third step of an effective logistics system is controlling the flow of goods. The timely arrival of cargo at the destination is very important. Sometimes if the goods arrive too early, they incur demurrages on ports or warehouses or else they simply perish. On the other hand, if the goods arrive late, it leads to customer dissatisfaction and loss of opportunity. Therefore, an effective logistics system is one, which ensures the timely and safe delivery of goods at the most economical cost. This can be achieved only through keeping a tight control on the passage of goods from the point of origin to the destination. Scanned with CamScanner122 Export Import Management CRITICAL ELEMENTS OF A LOGISTICS SYSTEM The following critical elements decide the structure of the entire logistics system. Nature of the product Location of the manufacturing plant Availability of infrastructure such as roads, ports, airports, material handling system, etc. Availability of different modes of transportation © Dealer/ distributor network Government policies Each element dictates the form of the system; a small change in any one of these can change the entire logistics system. We will now discuss each element in detail. Nature of the Product ‘The mode of transportation depends upon the product to be transported. The nature of the product also determines the type of packing and the material handling system required. In international business, where the cargo has to cover a distance of thousands of miles, the safety of the product is a very important factor. The product should not only reach the destination in time, but should also reach intact. Another issue involved is the cost of transportation. If the product is of a high value and low volume, the ideal mode of transportation would be by air. The high value of the product can easily absorb the air freight. However, if the product is of a low value and high volume, the ideal mode of transportation would be by sea. The product could be solid or liquid. If it is solid, then it could be in the form of a powder, in a granular form, or it could even be a bulky product like industrial machinery. Each type of product requires a different kind of transportation arrangement. For example, products, such as fertilizers or wheat would need logistics systems very different from those required for fresh fruits or toothpastes or automobiles. Bulk commodities like wheat or fertilizers could be shipped without much packing. Perishables, on the other hand, would need careful packing and carriage in refrigerated containers, in which the temperature could be set anywhere between + 25 degree centigrade to ~ 25 degree centigrade. Different transportation arrangements are required for different type of liquid cargo. Special containers are devised to carry highly volatile or inflammable cargo. Hence it is obvious that the logistics system is highly product dependent. scanned with CamScannerLogistics and Characteristics of Modes of Transportation 123 Location of Manufacturing Plant Normally, manufacturing plants are located either close to the source of raw materials or close to the markets to which the company caters. Another criterion for choosing the plant location is government subsidies available at the location. In India, the government offers various tax holidays to plants located in economically backward regions. Nowadays the survival of manufacturers depends not only on the domestic markets but also, increasingly, on export markets, It would be more convenient for an export- oriented manufacturing plant to be located near the port or airport; the proximity would make the movement of material easy. If the plant is situated far away, then the availability of good roads becomes critical. In a country like India, this is a very important issue because very often a truck carrying very tall cargo has to travel extra miles due to obstructions, such as railway bridges with low heights, low hanging electric or telephone wires, etc. The timely delivery of the cargo at the port/airport is important because of the adherence to conditions of purchase order/letter of credit. Hence the location of the plant in relation to the port is an important element of the logistics system. Nowadays, many countries are very consciously developing free trade zones, which are close to seaports or international airports. Jebel Ali Free Trade Zone (FTZ) near Dubai and Shenzen Special Economic Zone (SEZ) in China are good examples of this strategy. The proximity to a port helps the manufacturer to devise an efficient logistics system, thereby providing better service to the overseas customer. Many manufacturers nowdays prefer to have their manufacturing units in such FTZs/SEZs. Availability of Infrastructure Infrastructure is the backbone of industry in any country. If the infrastructure of a country is strong, its industry can prosper. The success of the Chinese industry in exports can be attributed to the strong infrastructure the Chinese government has created over the last ten years. This includes good roads, railways, air transport and inland waterways systems, efficient telecommunication system, and modern ports with the capability to handle all types of containerized and break-bulk commodities. Good road conditions help speedy movement of cargo. Also, good port facilities with suitable material handling systems help the cargo move without wastage of time. In many developed countries land transport, such as trains are used to carry bulky or voluminous materials. For such a cargo, the roads and the entire infrastructure have to be excellent. Many ports in developing countries lack adequate warehousing and material handling facilities. In India too, poor scanned with CamScanner124 Export import Management infrastructure is one of the obstacles restricting the growth of exports. Indian exporters have to keep in mind various possibilities of delays during transit due to lack of good infrastructure while designing their logistics systems. On the other hand, ports in-snany developed countries are equipped with excellent facilities, which ensure speedy despatches. Modern airports are also designed keeping in mind the necessity of the smooth movement of cargo. Availability of Different Modes of Transportation Nowadays, the export cargo moves on various modes of transportation. Containerization has revolutionized the concept of multi-modal transport. If the air service is available to an exporter of flowers or vegetables, his/her products can reach the desired overseas markets in fresh condition and in time, However, in the absence of air service, the exporter would have to depend upon refrigerated containers to carry the cargo to the nearest port. This would delay arrival of the cargo at the destination. Because it is now possible to transport cargo through various modes of transportation, the absence of any mode of transportation becomes a weak link in the entire logistics system. Efficiency of the logistics system depends upon the availability of different modes of transportation. In India, the air feeder system at various locations in the hinterland could help the exporters meet their overseas commitments more efficiently. Location of Warehouse Today, every customer prefers off-the-shelf delivery. This is the result of the ‘Just-In-Time’ concept of inventory adopted by many companies. No company wants to keep their capital locked in inventories. Warehouses help the industries keep the stock of goods, which can be lifted at the time of consumption. The location of the warehouse is important because it helps solve distribution problems. Besides offering storage facilities, modern warehouses offer many more services to the exporters and importers, which includes bar coding, assembly, custom-bonding, etc. Automobile giants such as General Motors, Ford Motor Company, BMW, and Mercedes prefer those automobile component suppliers who can keep their stock ready close to their assembly plant locations. The Engineering Export Promotion Council (EEPC) of India has established warehouses at various locations around the world to help exporters keep their stocks in the overseas markets ready. Availability of such warehousing facilities cuts down the response time of the exporters and makes their logistics system more efficient. Scanned with CamScannerLogistics and Characteristics of Modes of Transportation 125 Dealer and Distribution Network This is an important component of the product mix of any company. A. company may have an excellent product, which is attractively priced and aggressively promoted, but if it does not have an efficient distribution system, its success in the market will be doubtful. A dealer or a distributor is the vital link between a manufacturer and a customer. A customer prefers the product that is available next door. An extensive network of dealers and distributors makes it possible for a company to reach the nook and cranny of each market. A classic example is Coca Cola, which has a very impressive network of outlets all over the world, A strategically located dealer brings more business for the company; however, if the dealer or the distributor is not conveniently located, it can lead to a loss of business opportunity. A distributor who is willing to keep adequate stocks of the product makes the logistics system more effective. Government Policies The logistics system needs to be designed to conform to the policies of governments of exporting countries as well as the importing country. Government policies related to sales tax, excise duty, Octroi, MODVAT, Motor Vehicle Act, etc., in India affect the critical elements of any logistics system. For example, due to regulations related to Octroi and Motor Vehicle Act, many companies prefer to have their warehouse outside city limits. In international business, where many developed countries offer access to the products of developing countries under a Generalized System of Preference (GSP), the exporter can avail of the benefit of lower or zero import duty if his/her products have already reached the host country and been kept in customs bonded warehouse from where they can be cleared without any delay. Speed in such cases is very important because such benefits are provided in many cases on first come first served basis. In a nutshell, whereas each of the above elements affects the logistics system, they also affect each other considerably. Each element of a logistics system is important individually as well as collectively. Hence, exporters and importers have to give due importance to all these elements while targeting an overseas market. INTERNATIONAL TRANSPORT SYSTEM Transportation refers to the movement of product from one location to another as it makes its way from the beginning of the supply chain to the consumer's hands. Transportation plays a key role in every supply chain scanned with CamScanner126 Export Import Management because products are rarely produced and consumed in the same location (Chopra and Meindl, 2004). Transportation is an integral part of logistics. In case of international business where the supplier of the goods and his/her customers are situated far apart, transportation is a vital link in the entire supply chain. Transportation doesn’t merely provide movement to the goods, but a high quality transport system adds value to the goods. In the age of just-in-time inventory system, efficient transport systems keep the assembly lines of manufacturing companies continuously fed with raw materials, spare parts, and components. Any fault in the transport system brings the entire manufacturing process to a grinding halt. Therefore, the choice of mode of transportation is a strategic decision for anybody involved in international business, Due to technological advancement, a variety of options are available for transporting the goods. Many a time a single mode of transportation is not adequate for the speedy and efficient movement of cargo. In such a case, the cargo has to use multiple modes of transportation. Some of the popular modes of transportation are as follows: Air Transport Air transport is resorted to only in case of absolute necessity or urgency. Two factors are responsible for the infrequent use of air transportation in India. First is the cost of air freighting which is very high compared to other modes of transport. The second factor is the lack of connectivity by air to international and domestic destinations. India has 60 airports, including 11 international airports. This still leaves a large part of the country unconnected by air. Exporters of perishables such as fruits, vegetables, flowers, etc., suffer due to lack of air connectivity. Large quantities of food products perish in India every year, which if exported could bring in precious foreign exchange for the country. The absence of necessary infrastructure is costing the nation heavily. The biggest advantage of air transportation is speed. Modern commercial aircraft travel at high-speed. But the average speed of the journey between ‘one airport to another is somewhat less than the flying speed due to lower speeds during taxiing on the runway and the ascent and descent of the aircraft. In addition to this there is ‘cooling off period up to 72 hours before the cargo is loaded on board the aircraft. This period is mandatory at many airports across the world due to terrorist threats of planting bombs and detonators in the air cargo. The cooling off period is expected to defuse explosive devices, after which the cargo is considered safe for stacking on board the aircraft. All these factors bring down the average airport to airport scanned with CamScannerLogistics ond Characteristics of Modes of Transportation 127 speed of an aircraft. In fact, for shorter distances it is easier and quicker to send the cargo by surface transport instead of air. Air service however depends on various factors, such as mechanical breakdowns, weather conditions and traffic congestion at the airports. Due to these factors the reliability of air transport often comes under question. Also, the physical dimensions and the load carrying capacities of an aircraft put constraints on the utility of air transport in many cases. For example, Boeing 747 ‘jumbo jets’ and Lockheed 500 aircraft can handle 125 to 150 tons of cargo. One of the attractions of air transportation is lesser incidence of loss or damage during transit. It is a fact that the claims against loss and damage during air transit are much less than surface transport, such as ships, trains, or trucks. Due to this air cargo needs less protective and therefore less expensive packaging. Insurance companies also consider air cargo less risky as compared to cargo travelling by surface transport and, therefore, they charge lesser premiums on air cargo. Ocean Transport Since antiquity, sea routes are being used for transportation of cargo from one continent or country to another. More than 95 per cent of international trade is conducted by sea routes. Maritime transport, a key constituent to the trade and economic growth in India, contributes 90 per cent in terms of volume and 7 per cent in terms of value. India has 12 major and 184 minor / intermediate ports spread across its vast coastline of 7517 km (Chandrasekharan and Kumar, 2006). Coastal shipping is also used for transporting cargo from one port within the country to another. For example, in India, the cargo can be transported from Chennai port to Visakhapatnam port using the coastal shipping route. Sea routes are used for carrying bulk commodities, such as coking and thermal coal, ores, grains, fertilizers, rock phosphate, etc., and liquid cargo, such as crude oil, ammonia, and acids, among others. Ideally, goods with high volume and low value are suited for ocean transport. In the era of containerization even high value cargo can be safely transported within containers over long distances. Technology has enabled the cargo carrying capacities of ships to increase manifold. In 1956, the first containerized ship belonging to Sea Land Corp. carried 58 20-feet containers; modern ships have the capacity to carry 7000 such containers. One of the biggest ships owned by Maersk-Sea Land is 1,138 feet long from end to end and 140 feet wide at midship. Such ships are called post-Panamax ships. scanned with CamScanner128 Export Import Manogement Table 9.1 shows growth in the volume of cargo handled by major Indian ports. Table 9.1 Cargo Handled by Major Indian Ports (in million tons) Port 1997- | 1998- | 1999- |2000- |2001- | 2¢ sift 98) Ju ol ifs 02 Kolkata 795 715 | 5.37 Haldia 20.20 22.84 25.01 Paradip 13.30 13.10 13.63 19.90 21.13 Visakhapatnam 36.01 35.65, 39.10 44.68 44.34 Chennai 35.53 35.20 37.44 4122 36.11 Tuticorrin 9.97 10.15 9.99 12.28 13.01 Cochin 1A7 12.68 12.79 EAL 12.05 New Mangalore 15.28 1420 17.60 1789 17.50 Mormugao 21.18 18.02 18.22 19.62 22.92 Mumbai 32.09 30.96 30.38 27.06 26.43 JNPT, Navi Mumbai 8.89 11.72 14.97 18,57 22.52 Kandla 38.90 40.63 46.30 36.74 37.72 TOTAL 251.47 | 251.68 |271.42 [281.06 [264.11 % Growth Rate over| Previous Year .08 7.84 3.55 1,09 Source: Indian Ports Association At present, the major Indian shipping lines are the Shipping Corporation of India (SCI), Essar Shipping, and Great Eastern Shipping, each with a capacity in excess of 1 million DWT (Dead Weight Tonnage). All these companies carry bulk commodities and liquid cargo, with only SCI involved in the carriage of containerized cargo. SCI’s present fleet stands at 80 vessels aggregating about 2.75 million GT (Gross Tonnage) (4.79 million DWT) consisting of cellular container vessels, crude oil tankers (including combination carrier), product tankers, bulk carriers, LPG/ammonia carriers, acid carriers, passenger vessels, and offshore supply vessels. SCI provides fully containerized cellular liner services to USA, Europe, West Asia Gulf, and Far East Asia; through a mix of three owned and five chartered vessels. Table 9.2 gives the comparative shipping data of various countries, including India. scanned with CamScannerLogistics and Characteristics of Modes of Transportation 129 Table 9.2 The 35 most important maritime countries and territories as of | January 2006" ‘Number of vessels Deadweight tonnage Total | National | Foreign | Total eee 115928 [163394 119940 |131703 58397 | 71516) 35656 | 65488) 36755 | 46927 31738 | 45397 25870 | 43843 Republic of Korea| 16977 | 29672 Tiwan Province 19618 | 24389) | 22980) 12334 | 21295 10328 | 19556 9889 | 16692 4297 | 14490. 1264 | 16774 10968 | 11759) 5657 | 11559 10387 3497 lubie 936 Taree [A175 Netherlands [Canada 4007 Sweden I Mees Indonesia ae Kuwait Philippines LE France Brazil 2164 United Arab 3225 457130 Export import Management in 20 Sr] 72] 868 | 1828] 2697 | 6780 _ 030 Croatia B 37 110 |. 1684 979 | 2663 | 36.77 0.29 Australia 45 35 80 | 1375 1253 | 2628 | 47.68 0.29 Total (35 countries] 13355 | 15576 | 28931 |285855 | 577123 [862978 | 66.88 95.17 World Total 15576 | 17238 | 32814 |303768 | 602985 |906753 | 66.50 100.00 Source: Compiled by the UNCTAD secretariat on the basis of data supplied by Lloyd's Register Fairplay. *Vessels of 1,000 grt and above, excluding the US Reserve Fleet and the US and Canadian Great Lakes fleets. ’The country of domicile indicates where the controlling interest (i.e. parent company) of the fleet is located. In several cases, determining this has required making certain judgements. Thus, for instance, Greece is shown as the country of domicile for vessels owned by a Greek owner with representative offices in New York, London and Piracus, although the owner may be domiciled in the United States. “includes vessels flying the national flag but registered in territorial dependencies or associated self-governing territories. For the United Kingdom, British flag vessels are included under the national flag, except for Bermuda (listed in Table 17 as an open registry territory) The popularity of ocean transport over other means of transportation is due to the various advantages ocean transport offers. The biggest advantage of this mode is the ability of a ship to carry a very large volume of cargo. Technology has enabled gigantic ships to travel faster than ever before. ‘Also, the increased efficiency at various ports translates into fast turnaround time for the ships. The costs arising from loss and damage from sea transport is low as compared to other modes of transport. As far as low value cargo is concerned, damage and delays are not serious concerns for the shippers. Information technology also helps trace and track services for the cargo ships, due to which a shipper can closely monitor the cargo during transit. The major disadvantage of sea transport, however, is the relatively higher percentage of losses to high value cargo. Also the cost of packaging of sea cargo is high due to the possibility of damages during loading and unloading operations at the port. For similar reasons, the insurance premium for sea cargo is also higher than other modes of transportation. Due to longer voyage time and longer transit time in warehouses the cost of carrying the inventory is also high. Rail Transport Rail transport is basically suitable for carrying raw materials, bulk commodities such as coal, grains, petroleum products, timber, ores, chemicals etc. over long distances. It is estimated that more than 70 per cent of goods carried by the Indian Railways belong to state-owned enterprises, major amongst these being Coal India Ltd., Food Corporation of India Ltd., Fertilizer Corporation of India Ltd., etc. For the past 20 years, freight trains Reannec wi CamecarnerLogistics and Characteristics of Modes of Transportation 131 have run at an average speed of 23 km per hour; with electrification and modern locomotives the average speed should have increased to 40-45 km per hour. ‘The relatively slow speed and the shorter distance travelled by a railway wagon is due to the time spent in loading and unloading operations, the shunting of wagons within the station premises for assembling wagons into trains, or sometimes giving way to more important passenger trains. Out of the total transit time of a railway wagon between the point of origin and destination, more than 80 per cent is spent in these activities. Yet, railways is the most favoured mode of transportation for majority of the privately owned enterprises, including exporters and importers in India. These companies look for speedy movement of cargo with guaranteed arrivals and departures. Unfortunately, the Indian Railways does not provide such services. Some of the other disadvantages that rail transport suffers from are: « Railway freights are not always the cheapest. * The cargo has to be delivered to and collected from railway stations, which needs an additional road transport facility. ¢ Additional material handling is required during transportation by railways. This is cumbersome as well expensive. « Various formalities and approvals are needed to get a railway siding, which is not always easy and is time consuming as also tiring for an enterprise. In many countries, the railways provide professional services to their customers along with excellent links to ports and road networks. Such linkages encourage exporters and importers to opt for transportation of their cargo by railways. ie eae Freight Traffic Movements The Indian Railways is a massive 63,465 route-kilometre network that plays a significant role in the transportation and economic scenario of India. It is a known fact that there is a positive correlation between a country’s economic development and the demand for a transportation network. As the country develops, demand on the network increases. When technology advances, the network continues upgrading its systems to take advantage of the latest features and applications. In this context, Indian Railways paid close attention to upgrade its freight movements, ‘wagon turnaround time, maintenance, quality control and cost-efficiency, eee ec eearen pay) ape iemcaue weer st rere) die elacien operation of the railways. In 2005-06, Indian Railways carried 666.5 million tonnes of revenue earned cargo and witnessed a growth rate of 10.7 per cent against the (Contd) scanned with CamScanner132 Export Import Management Exhibit 9.1 (Contd,) previous year 2004-05. At the same time the increase in railway freight has posted a compound aiifiual growth rate (CAGR) of 7.1 per cent during 2001-02 to 2005-06. Factors like higher economic growth, increasing industrial activities, increasing consumer spending, and robust trade growth (both internal and external) have driven a higher growth in Indian railway freight traffic. Apart from these, improved wagon turnaround time also contributed to the growth in freight traffic. Currently, the Indian Railways is on the verge of a major change. Now, the railways is looking forward to improve its market share in both bulk and non-bulk freight traffic by improving its efficiency and providing better services with reduction in transit time and reliability. Source: Cll Logistics & Freight News Dt. 10.5.2007 Road Transport Semi-finished and finished products of medium and small sizes and weights are ideally suited for transportation by trucks. The best advantage of sending goods by trucks is the door-to-door services provided by them. Hence, once the cargo is loaded at the point of origin, it is unloaded directly at the destination. This saves time and money and also prevents damage resulting from the repeated handling of cargo. This is a distinct advantage of road transport over other modes of transport. Another advantage of road transport is that the trucks ean be hired on exclusive contract by shippers for their dedicated service. This facility of exclusivity is not available with other modes of transportation. Thirdly, road transport offers reasonably fast and dependable service for small consignments. Lastly, a shipper needs only 10 to 12 tonnes of cargo to fill the truck. A railway wagon on the other hand demands more tonnage to be filled and will move only when the entire goods train is fully loaded with cargo. India has an extensive road network of 3.2 million km. It comprises national highways (124,300 km), district roads, rural roads, urban roads and special purpose roads (for military, ports, etc.). Though the geographic coverage of India’s highway network, of 0.66 km of highway per square km of land, compares favourably with that of USA (0.65), the condition of Indian roads is very poor in terms of surface quality and lane capacity. iu 2 Fragmentation of truc ‘The trucking industry contributes over 75 per cent of total cargo movement. in India and plays a crucial role in the economy. Indian trucking industry has increased its contribution to freight movement from around 20 per cent in the 1950s to an estimated 75 per cent in 2006, (Contd,) canned wi aamocannerLogistics and Characteristics of Modes of Transportation 133 Exhibit 9.2 (Contd) The industry in India, however, is largely unorganized and extremely fragmented. As per the Transport Corporation of India, the trucking industry employs around 20 million people in various segments of the sector. There has been a rapid increase in the number of goods vehicles in India from 82,000 in 1951 to 4.04 million (estimated) in 2005, The road freight sector in India is highly fragmented as 86 per cent of the sector is unorganized and is estimated to have grossed revenues around Rs 370.2 billion in 2005. Whereas, the organized sector’s revenue was around Rs 60 billion, with a market share of 16 per cent. The road freight industry is largely in the hands of the private sector, mostly dominated by small fleet operators. Basically, the industry operates through brokers who arrange load for small fleet owners from the shippers. Source: Cl Logistics & Freight News dated 14 December 2006 Inland Waterways The commercial utility of transportation by inland waterways in India is limited, basically because either the shipper must be located on the waterway or he/she has to transport the cargo at the water head by other means of transport. Another limitation posed by inland waterways is the average speed of water service, which is 6 to 10 km per hour, that is among the lowest. This speed further reduces if the vessel travels against the direction of water flow. Weather also affects the water services; for example, during monsoon season, when the rivers are flooded, it is not safe to ply boats on the waterways, and during summer when the water level depletes, the waterways cannot be used by boats laden with cargo. The river ports are also not as well equipped in terms of material handling equipment and other infrastructure as seaports. All these factors severely limit the use of inland waterways in the country. Considering the variety of modes of transportation available, each with its unique advantages and disadvantages, it is necessary for shippers to analyse various factors and choose the most appropriate mode of transportation for their cargo. Selecting the Right Mode of Transportation tis a challenge to every logistics manager to decide the most suitable mode of transportation or transportation mix which will best serve organizational objectives as well as the interest of the customer. The manager has to ensure that the cargo reaches the destination safely at the most economical cost possible, without any delays in the transit. The task of the manager becomes even more challenging in case of an overseas customer. This is because the manager has to choose the most appropriate mode of transport from the scanned with CamScanner134 Export Import Management various choices available. He/she can also consult the freight forwarder concerned for expert advice while making this decision. Example | An exporter who deals with cutting tools in India can send his/her cargo to Bangladesh either by truck, or by sea, or even by air. While choosing the mode of transportation, the exporter has to keep in mind the cost and the delivery commitment to the customer. If the exporter is located in Central India, he/she may choose to send the cargo by road because of economy and also the speed. If he chooses the sea route, the cargo will first have to cover a long journey to the nearest port of despatch on truck. Then only can the cargo travel by sea. However, if the exporter is located near a port from where there is a direct shipping service to Bangladesh, he/she may choose to send the cargo by sea and still enjoy the benefits of cost and speed. Fig. 9.2 Selecting the right mode of transportation Example 2 An exporter of cut flowers based near Bengaluru in Karnataka has an export order from Dubai. The exporter has only one choice, which is to send cargo by refrigerated container to the Bengaluru airport and from there by flight to Dubai. In this case, because of the nature of the product, the choice of mode of transportation is limited to only air. Example 3. An exporter of heavy machinery in Delhi has to execute an order for a customer in Malaysia. The exporter will load the machinery weighing 10 tonnes in a container and send it by truck to the Local Inland Container Depot in Tughalakabad. From there the container can travel to Jawaharlal Nehru Port in Mumbai by rail or by road. From Mumbai, this container can be loaded on to-a ship bound for Malaysia.Logistics and Characteristics of Modes of Transportation 135 Example 4 An exporter of readymade garments from China receives an order from a customer in Germany. This order has to be executed on an urgent basis and must reach Germany within eight weeks to meet the heavy demand during Christmas season. The manufacturing time required by the exporter for this consignment is four weeks. The transit time between Shanghai port and Hamburg port is eight weeks by sea. Hence, the total delivery period needed is 12 weeks if the cargo is sent by sea. If the cargo is sent by air, it will be very expensive. The exporter consults the freight forwarder who advises the exporter to send the cargo from Shanghai to Jebel Ali port in Dubai by sea, and from Dubai to Germany by air, This will enable the exporter to economize on the freight charges, and to meet his delivery commitment also. The above examples highlight that different situations demand different logistics solutions. Often, the logistics managers can apply their own experience and knowledge to find a suitable solution. Sometimes they may have to seek expert advice from a professional like a freight forwarder. The variables which make the difference are the nature of the product, urgency or, geographical locations of buyer and seller, proximity to a port or international airport, and last but not the least the cost of transportation. Logistics managers use the total cost approach to coordinate logistics, materials management, and physical distribution in a cost-effective manner. This approach is built on the premise that all relevant activities in moving and storing products should be considered as a whole (i.e., their total cost), not individually (Murphy and Wood 2004). Example 5 Sunshine International, a Chennai based electronic goods manufacturer, exports its products generally by sea to its customers in Singapore. The sea freight works out to $ 500 and the transit time is 10 days. For an urgent consignment, Sunshine invited from an airline a quotation, which worked out to $ 1400; the goods would reach the customer the next day. Sunshine also knew that the cost of carrying the in-transit inventory is $ 120 per day for these goods. The logistics manager of Sunshine calculated the logistics costs as shown in Table 9.3. Table 9.3