The automotive industry has one of the highest multiplier effects and many industries are allied to its fortunes; one such industry is automotive logistics. Logistics experts talk to CARGOTALK about the impact of unprecedented decline in the auto industry and its repercussion on the logistics sector.
The Indian automobile industry is one of the driving forces of Indian economy which contributes around 49 per cent to the country’s manufacturing Gross Domestic Product (GDP) and 7.5 per cent to its overall GDP, according to the Indian Auto Industry Report Status 2020. With the Automotive Mission Plan (AMP) 2026, government aims to take this figure close to 13 per cent. However, the industry has seen a major slowdown for over a year. Logistics is an integral part of the automotive manufacturing industry and it is important to mention that supply chain of automotive is complex and requires constant attention to details. explores where the Indian automotive logistics is heading and how the current scenario of automotive industry has impacted the logistics industry.
Commenting on the present scenario, Aditya Shah, Executive Director, V Trans India, says, “The Indian auto logistics industry is going through a tough phase for quite a time now; best of the best companies’ plant have been reported idle for five days to a few weeks. One prominent reason of slowdown is unpreparedness of the industry to meet the BS VI norms along with sentimental slowdown in demand and liquidity crisis in the form of lack of easy lending. This also affected the ancillary industry segments. Many of the ancillary industries are MSMEs which do not have shock absorbing capacity to a bigger extent and are finding it difficult to sustain and continue the operations. Naturally, the logistics business related to auto industry has also been affected badly. There are many companies specialised in auto logistics that were having a large chunk of business from auto industry. Adding to the trouble, there is no clear sign of how long this slowdown will take to recover. Auto logistics had its proportion of supply for auto part and vehicles which has cascaded with downturn in the overall economy and resulted in big impact on logistics, especially on transport business.”
“India’s economy is facing the slowdown for almost a year and the automotive industry is one of the worst hit by the slowdown,” points, Huned Gandhi, Managing Director – Air & Sea Logistics Indian Subcontinent, Dachser. “From two-wheelers to cars and heavy duty trucks, all segments of the sector have seen a dip. It is expected that the slowdown will cause the industry to close the FY 2019-20 with a decline of 13-17 per cent in wholesale dispatches as compared with last financial year.”
“Despite the continued discounts and freebies for over a year, the year-end sale didn’t help much in stimulating any major demand. The growth of the auto component industry is totally reliant on vehicle industry, a current 15-20 per cent cut in vehicle production has led to a crisis like situation in the auto component sector too. It’s like a ripple effect and if such a big industry will remain on a downward spiral for such long period, it’s most definitely that the logistics industry will face the heat of the slowdown. The sales slump and the drop in auto manufacturing has affected the business in both the transportation and warehousing. However, with industries like Life Science and Healthcare (LSH) and e-commerce is still growing in the country, it helped logistics players to subsidise the effect due to the auto slowdown,” he continues.
India being a prominent exporter of automotive vehicles has strong export growth expectations for the near future. Sharing a positive perspective, Amit Tandon, Managing Director, AS India, informs, “Several policy initiatives in investment and technology development by the government as well as the major automobile players in the Indian market are expected to make India a leader in the two-wheeler and four-wheeler market in the world by 2020. The Government of India has been encouraging foreign investment in the automobile sector by allowing 100 per cent FDI under the automatic route. The Ministry of Heavy Industries, Government of India has also shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems.”
“In line with general slowdown in the Indian economy, the automotive industry in India is facing a slackening of the demand which has led to inventory pile-up, stalled production lines, disturbance in supply chains, languishing dealership operations, etc. The manufacturers are also looking for cost reduction, inter alia, on logistics, to meet the challenges of excess stocks, competition and availability of more advanced models,” Tandon adds.
Adding to these lines, Alexandre Amine Soufiani, Managing Director – India Operations, FM Logistic, says, “A dip in the sales volume of commercial vehicles in the end of 2018, immediately after the regulatory change in axle load norms, has turned into a full-blown conflagration in a year, engulfing at least five segments of the automotive industry in India, comprising commercial vehicles, passenger cars, two-wheelers, tractors, and construction equipment. These segments are down by more than 15 per cent in their sales volumes.”
On the other hand, seeing it as a prospect for new age logistics companies, Manish Ahuja, Director, Holisol, tells, “The slowdown in the auto industry is not only impacting the OEMs but the support industries are also facing the brunt. For new-age logistics companies, this is an opportunity to work with industry to make supply chain logistics agile and lean for long term benefits. Industry players are open to evaluate and replace the conventional methods with new practices such as looking at ‘packaging of the product from a logistics perspective’ for overall benefit in the line-to-line supply chain. We are living in a time where the industry is gearing itself to answer this agile requirement to respond and adapt better to consumer demands, government policies & environment.”
Road or Rail?
Indian Railways has recently emerged as the most preferred mode of transportation given the low cost of transportation, faster service, reliability and safety offered by railway system and needless to mention that railways are the green mode of transportation. However, the country is more into modal mix for automotive logistics. On this Tandon says, “The railways have been constantly improving their connectivity to various industrial and manufacturing hubs with the gateway ports in India, particularly with the development of the dedicated freight corridors in the country, both in the private and the public sector. This has, to a very large extent, replaced the movement of the vehicular cargo from the traditional road movement to rake movements by rail for export consignments, as this is a cheaper and faster mode.”
Soufiani adds, “The Automobile Freight Train Operator (AFTO) policy was liberalised to encourage more private investment in special wagons, procurement of Indian Railway’s own BCACBM (high-capacity railway wagons) and NMG wagons. With the government increasing its focus on promoting alternative means of transportation to reduce carbon footprint, demand for transporting vehicles through railways is also increasing.”
However, Gandhi feels, “The model mix for automotive logistics in India is largely dependent on road transport, followed by rail transport. It’s the global rise in fuel prices and the cut down in automobile production, which played more significant role in putting pressure on road transport than the decision of automobile companies to transport vehicles via railways. As the automobile sector shows little signs of revival, we will soon see the situation getting back to normal.”
Stressing on the challenges part, Ahuja says, “Railways has its own set of challenges. Opting rail mode is not going to be enough, relooking into first and last-mile connectivity catered by transport industry is also required. So, what is needed today is an integrated solution which can seamlessly connect the rail and road.”
“The automobile companies are increasing their transportation through railways because of cost cutting pressure. In Indian scenario, the model mix is not as good as of developed countries. India has 60 per cent load on roads whereas in developed countries as high as 60 per cent of entire transportation happens through railways,” explains Shah.
Shah believes the shift will certainly affect the logistics business. He adds, “The infrastructure development, mainly of warehousing, will take place near railways hubs and the LSPs will have to deliver under the cost pressure and should bring increased efficiency to counter the shift towards railways. Even collaborating with railways and making the first mile and last mile delivery in sync will also see rise in coming times”