CARANA

CORPORATION

Transport & Logistics Challenges in Bulgarias Apparel Industry

Nimish Jhaveri

June 7, 2005

CARANA
CORPORATION

Project Overview
Improve knowledge/understanding of transport & logistics efficiency in Bulgarias apparel industry Identify possible directions for business practices, investment priority & regulatory changes Bulgaria is part of a multi-country analysis under the USAID Trade Enhancement for the Services Sector (TESS) Project

While the study focused on Bulgaria and the Textile and Apparel, the issues are relevant throughout the SEE region and multiple export sectors.

CARANA
CORPORATION

Apparel represents an important export sector for Bulgaria

2004 Exports: Euro 1845 Mil. ~ 23% of exports ~ Top Product Category
Raw Materials (various) 41 % Other consumer goods 1 3% Capital Equipment 1 3% Energy 1 0% Textile, Clothing, Footwear 23%

Companies: SME Companies: Employment: Production: Foreign Investment:

4,000+ total; 2,500 very active (2003) 95% (2000) 165,000 -170,000; 6% of workforce (2003) Euro 2170 Mil. (2004) USD 210 Mil. (1998-2003)

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CORPORATION

New challenge for Apparel producers

Buyers
Price Competition Quality & Reliability Product Differentiation Inventory Risk Quick Response

Competitors
Volume Orders High Efficiency

Exporters
Higher Value Goods Reduced Time to Delivery

Labor/Capital Costs Local Supply, Distant Markets Established Relationships

Regional Supply & Demand

Reduced Transportation Costs Increased Supply Reliability

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CORPORATION

Transportation and logistics is essential to improved competitiveness in globalized economy

Takes advantage of proximity to suppliers and buyers to

reduce manufacturing cost disadvantage

Improves Time, Cost, Reliability, Quality of Service

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CORPORATION

Findings: Transport & Logistics Costs

Transport and Logistics
20-40% of the value of the delivered product

International: 60-80% Regional/Domestic: 15-30% Pre-Shipment: 5-20%

* *

20-40% costs are Regional/Domestic/Pre-Shipment

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CORPORATION

Operational challenges
Border crossing delays
Uneven traffic flows drive capacity bottlenecks Border agency coordination is weak Adds up to 35% of cost to certain European destinations

Land transport regulations

EU limits carrier licenses destination and class Arbitrary and changing haulage regulations Wide-ranging visa, tariff, drive-time requirements Shortest routes are not most popular

Size of fleet limits availability and long term scheduling Trans-shipment of ocean containers adds cost, time

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CORPORATION

Operational Challenges - Highly Complex Process

<Process Name>
Order Import of Inputs Pre-Shipment International Move
If by Sea:
Buyer and Producer Maker Deal Preparation of documentation Ocean Transit Domestic Inland Transit Producer Manufactures goods Inland Transport to International Gateway

Export of Finished Goods Domestic Move Pre-shipment Domestic Move International Move
If by Land, or Land/Sea via Regional Port International Inland Transit

If LCL:
Buyer, Buyers Agent of Producer order inputs Preparation of documentation for inland move Goods Deconsolidated and consolidated at warehouse

If FCL

Equipment repositioned

Procurement/ Scheduling of T&L Services

If Sea via Bulg. Port, or Air Customs clearance/ inspection

Border Stop #1 (Bulg./Regional)

Preparation of documentation

Supplier produces inputs (fabric, components)

Container/Truck/ Van Stuffed

Customs/ Inspection at port

Border Stop #2 (Regional/EU) If Land/Sea via Reg. Port

Preparation of documentation for domestic inland move

Equipment repositioned Container/ Truck/Van Stuffed Containers Loaded unto ship or airplane

Customs clearance/ inspection Containers Loaded unto ship International Air or Ocean Transit Preparation of documentation Arrival at Destination Customs clearance/ inspection Container Unloaded at Destination

Container Unloaded Procurement/ Scheduling of T&L Services Inland Transport to International Gateway Customs/ Inspection If by Land, or Land/Sea via Regional Port Inland Transit to Producers Regional Customs Office

If LCL:
Inland Transit to Warehouse Goods Deconsolidated and consolidated at warehouse

Containers Loaded unto ship

International Inland Transit

Border Stop #1 (EU/Regional) Customs/ Inspection at regional customs office

Preparation of documentation

Border Stop #2 (Regional/Bulg)

Delivery to Producers Factory

Customs clearance/ inspection

IF FCL

Inland distribution to buyers warehouse or retail outlet

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CORPORATION

Operational challenges (continued)

Complex customs requirements for re-export Weak coordination of supply chain partners
Reduces planning horizon for all parties Increases delays, rescheduling costs

Low visibility to total costs

Utilization efficiency before service commitments Few long term contracts Reduces investments

Supply chain management technologies not generally utilized

Planning, execution, documentation, workflow management

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CORPORATION

Evolving production model

Increasing Importance of Logistics

BRAND MANAGEMENT Subcontractors Domestic suppliers International suppliers Distribution centers International retailers QC, Packaging Consolidation Warehousing Customs Distribution

SUBCONTRACT DOMESTIC TRANSPORT INTERNATIONAL TRANSPORT SERVICES None

CUT MAKE TRIM Subcontractors

FULL PACKAGE
Subcontractors Domestic suppliers Buyer International supplier

None

Buyer

QC, Packaging

QC, Packaging Consolidation Customs

QC, Packaging Consolidation Warehousing Customs

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CORPORATION

Most exporters can add greater value through better logistics

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CORPORATION

Changing the production model

Costs as a Percentage of Total International: 60-80% Regional/Domestic: 15-30% Pre-Shipment: 5-20%
FCL Shipments
100% 80% 60% 40% 20% 0% 2a 2b Preshipment 3a 3b 8 International 9
100% 80% 60% 40% 20% 0% 1 4 Preshipment 5 Domestic 6 7

45-95% 5-40% 0-20%

LCL Shipments

Domestic

International

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CORPORATION

Changing the business model through better logistics

SC CMT FP BM ?? New services development
Store Direct distribution Outsourced production Small lot manufacturing: couriers and air freight Marketing, collaborative product development Quick response production Supply chain management Trade and customs management Transportation and Logistics Applications of new technology

New competency development

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CORPORATION

Closing Thoughts
Moving goods efficiently is critical for the region to be globally competitive
Exporters pay for transportation and logistics inefficiencies SMEs can gain efficiencies

Economies of volume: eg., LCL shipments

Shared equipment, facilities New competencies and skills Use new and appropriate technology Emergence of logistics service industry offers opportunities for increased competitiveness

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CORPORATION

Contact

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CORPORATION

Appendix

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CORPORATION

Project Participants

Private Sector
Producers (10) Logistics Service Firms (7) Business Associations (5)

Public Sector (3) Field Visits

Rousse Varna Border Crossings (2)

International Organizations (5)

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CORPORATION

Case Studies

Looked at sample of companies in Apparel Sector in Sofia and Rousse

2 Large (200 employees or more) 4 Medium-sized (50 100 Employees) 2 Small-Sized (10 50 Employees) 1 Buyers Agent (German-owned)

Identified transport and logistics models by CMT, FP and BM production Using case studies to identify supply chain management issues

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CORPORATION

Logistics Process Costs

Prepare Goods for International Transit
Inland Transportation & Customs Documentation
Load Truck Inland transport to International Port Cargo Inspection Insurance for Inland truck Customs Clearance Phyto or Zoo-sanitary Certificate Export License & Processing Health Testing Photocopy documents Corrections to Documentation Broker's Fee Documentation Expediting Charges Enter Port (Gating) Store & Retrieve Container @ Yard

International Transportation

Package export Store in Producer Warehouse Transport to Exporter Warehouse Producer Shipments Consolidate Producer Shipments Book Cargo & Prepare Documents

Load Cargo on Ship at Origin Transport Cargo to Destination Freight Charge Bunker Surcharge Chassis usage Theft Surcharge Security Charge Discharge Handling Charge Port Dues charges Container cleaning Insurance Air-Handling fees Air - Terminal Fees Air - Security Fee Air - Collection Fee (if prepaid) Taxes Unload Cargo at Destination