Logistics, Freight & Customs Issues In India

by Rajeev K Chopra

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Topics
The Relationship of Market Entry Strategy and Logistics in India Most Popular Question Networks of Relationships an Adaptable Model for Exporters Designing Your Logistics Plan Key Practical Issues
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The Relationship of Market Entry Strategy & Logistics in India

Mode of Market Entry Export direct to customer, distributor or reseller Manufacture in India Types of Logistics Activities that are Outsourced Freight Forwarding, Express Courier, Customs Clearance, Break-Bulk, Delivery, Fund Management, Customer Service, Order Taking, Warehousing, 3PL, 4PL Import of raw materials by freight forwarding, Customs Clearance, Delivery to Manufacturing Facility, Warehousing, Distribution, Delivery, 3PL, 4PL

Finishing of Product in India

Import of unfinished product by freight forwarding to Finishing Centre, Customs Clearance, Delivery, Re-export by Freight Forwarding, Customs Clearance, Delivery
All of the above confidential

Mix

Most Popular Question

The most popular question I am asked by CEOs is IF WE DO NOT HAVE OUR OWN COMPANY IN INDIA, HOW CAN WE DO BUSINESS THERE AND GET PROFITS REPATRIATED BACK TO OUR HOME COUNTRY?
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Networks of Relationships Adaptable Model for Exporters

Partner A Logistics Service Provider Partner C Distributor, Reseller or Customer Partner A, B or C can be Agent
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Partner B Importer Of Record (IOR)

Networks of Relationships Adaptable Model for Exporters

Channel of Distribution - Goods Logistics Partner IOR (Agent) Customer/ Reseller

Mfr

Channel of Distribution - Funds

Profits (or Surplus after paying suppliers and taxes)

Mfr

Govt. (Duties, Taxes)

Logistics Partner

IOR (Agent)

Customer/ Reseller

Repatriation Of Profits
COD Fund management up to USD$5,000 per remittance can be repatriated abroad Agent after paying and deducting all fees, suppliers, duties and taxes in India, balance profit can be repatriated abroad by Agent Branch Office after paying and deducting all fees, suppliers, duties and taxes in India, balance profit can be repatriated abroad by Branch Office
Subject to Reserve Bank of India and Govt of India guidelines confidential

Design Your Logistics Plan Key Practical issues

Characteristics of Logistics in India Modes of transport Customs Taxes Configuration of Supply Chain SEZs

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Logistics In India

Different from developed nations in three

important aspects
Relatively small manufacturing base

High logistics cost relative to GDP

The very low penetration of specialist 3 PL

providers in the country (< 5%)

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Outsourcing Trends in India

Predominantly Outsourced Current Debates 3PL Future Debates 4 PL

Inventory Management Procurement

Invoicing

Added Value

Order Processing Returns / Services Warehousing Customs Brokerage Transportation

Express / Courier
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Source: MDI Study 2004

Outsourcing
What are the major reasons for outsourcing of supply chain activities?

Strategic Reasons 26%

Process Effectiveness 24%

Investment Reasons 12% Lack of Internal Capability 11%

Lower Cost 27%

Source: MDI Study 2004

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Indias Economy & Logistics Cost

Indias GDP is USD 691 billion and would touch USD 1.4 trillion in the next two decades (as per Goldman Sachs). Currently it is the 10th largest economy

Contribution to GDP

Work Force Employment

Agriculture
Manufacturing Service

21%
28% 51%

60%
17% 23%

Indias Logistics Spend is currently 13% compared to 8.7% of the US.

Enough Scope to reduce the Logistics Spend which would require growth of Logistics Service Providers and improvement in Infrastructure!! confidential

Logistics Costs Key Driver of Logistics Strategy

Components of Logistics Cost
9% 11% 6%

35%
Transportation Inventories Losses Packaging Handling & Warehousing Customer's shopping

14% 25%

Nearly 40%( Inventory carrying costs + losses) of logistics cost is directly co-related with infrastructure. Just imagine the potential savings by having efficient and good infrastructure!!!
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Surface Infrastructure in India A Snapshot

Though Indian Railways freight volumes have increased, its share of total freight movement has reduced from 70% in 1951 to 30% in 1995. For total route length of 62,725 km, only 21% is electrified. Rail connectivity to ports, development of railways to the hinterland and faster freight trains are lacking.
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New Highway Project

Golden Quadrilateral Project Reduced transit time More lanes; larger trucks; greater economies of scale
Indian Road Network
Indian road network of 33 lakh Km.is second largest in the world and consists of : Length(In Km) Expressways National Highways State Highways Major District Roads Rural and Other Roads Total Length 200 66,590 1,31,899 4,67,763 26,50,000 33 Lakhs Kms(Approx)

Source: www.nhai.org
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CFSs (Container Freight Stations) & ICDs (Inland Container Depots)

Infrastructure Development

The Silk Road route linked China via Central Asia to Europe
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Infrastructure Development
Re-opening of Silk Road between India and China at Nathu La
Started in July 2006 Customs, warehousing, storage and freight handling infrastructure are being developed.

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Port Infrastructure in India A Snapshot

Indian ports handle 3.9 million TEUs as compared to 48 million TEUs by China. Maritime transport accounts for 95% of country's foreign trade in terms of volume; yet the infrastructure at ports is very obsolete. Turnaround time at ports is very high as compared to other countries in the region.
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Infrastructure Development
Ports Nhava Sheva
India's eight largest container ports handled about 3.8 million standard 20-foot containers last year (Containerisation International). Nhava Sheva, the biggest port on the Indian sub-continent, shipped 2.4 million containers. It takes as long as three-and-a-half days for a ship to unload and load at Indian ports, the government said last year. That compares to eight hours at Hong Kong, the world's biggest container port, which handled 22 million containers last year.
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Infrastructure Development
Ports Nhava Sheva
Big congestion problem in 2004 Stacking of 16,000 TEUs against capacity of 11,500 TEUs 188 Crore in detention charges (Mar to Jul 2004); and 500 Crore loss of business for 2004
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Infrastructure Development
Ports Nhava Sheva
Jawaharlal Nehru Port is converting a bulk cargo terminal into a container terminal at a cost of 9 billion rupees ($205 million) and the expanded capacity will be ready by 2010. The port will be able to handle an additional 1.5 million containers a year after the new terminal is built
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What is the best mode?

Road versus Air in India Think twice before committing to Air;
Consider day of week Date required for delivery

Calculate the break even points for Ocean, Air and Courier; ask your carrier to help

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Thinking multi-modal
Plan the modes according to cost and speed required. Some examples of multi-modal shipping used today:
Air from China to Singapore, Ocean from Singapore to India Ocean from Guangzhou to Chennai, Rail from Chennai to Mumbai Air from Hong Kong to Chennai, Road from Chennai to South India, Air from Chennai to BOM, DEL and CCU
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Environmental Factors
Monsoon Season (June-August)
Use multi-level racking warehouses Adopt dynamic approach to choosing airport gateways

Fog Season (November-January)

Prepare contingencies, especially for Delhi

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SEZs (Special Economic Zones)

SEZ's are duty free enclaves and are treated as foreign territory for trade operations & duties and tariffs. SEZ's provide internationally competitive & hassle free environment for exports, units may be set up in SEZs for manufacture of goods, rendering of services & trading. Up to 100% Foreign Direct Investment (FDI) in manufacturing sector is allowed through automatic route barring a few sectors. Units in SEZs have to be net foreign exchange earners within 3 years. Other benefits of SEZ's Exemption from customs duty on import of capital goods, raw materials, consumables & spares Exemption from Central Excise duty on procurement of capital goods, raw materials, consumables, spares, etc. from the domestic market 100% income tax exemption for a block of five years; 50% tax exemptions for two years; & Up to 50% of the Profits ploughed back for next 3 years under S.10-A of Income Tax Act Reimbursement of Central Sales Tax paid on domestic purchases

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Thank You!
Queries Welcome

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