Transcript 12 Symposium on Development and Social Transformation Panel 8: Transportation Sector Transformations

12th Symposium on
Development and Social Transformation
Panel 8: Transportation Sector Transformations
Thursday, November 17 (11:45-12:45)
12th Symposium on
Development and Social Transformation
Panel 8: Transportation Sector Transformations
The Impact of Low Cost Arilines on the
Patronization of AMTRAK in the US – With
Particular Reference to the Northeast
Anil Pavithran
Virtually, nothing !!
• For Amtrak rider ship constitutes a
miniscule 3/10th of 1% of all inter city
passengers in United States.
• Only 60,000 passengers per day.
• Made losses continually from 1972, year
of formation.
• From 2001 it has notched up billion dollar
losses every year.
Ray of hope for Amtrak?
• Increasing congestion on highways and
traffic delays
• Door-to-door travel time high for air travel
due to enhanced security procedures and
long haul from airports to city centers.
Benefits of Rail Transport
• Helps in reduction of congestion on
highways
• Public benefit of improving air quality
• Investment in rail infrastructure increases
transport capacity more than investment in
other modes of transport
• Expansion of rail transport will increase
choice available to traveling public
Are the so called benefits real?
• A 1995 study by the GAO revealed that in the busy Los Angeles San Diego corridor the introduction of a passenger train kept around
130 cars of the 2,240 cars daily.
• Same study indicated improvement in air quality in above sector to
be negligible after introduction of train as the numbers involved are
insignificant.
• The 1995 GAO study showed the development costs for both rail
and road to be much higher than for air travel.
• Increase in choice to public is meaningless unless there is a viable
alternative capable of fulfilling consumer requirements.
Pointers from Canadian Rail
• VIA Canada managed to turn the tide by reduction of
workforce and linking wages to worker productivity.
• Renewed focus on customer by eliminating all in
fructuous costs not impinging on customer satisfaction.
• Display of requisite foresight to conduct a detailed study
of customer preferences and then, necessary political
will to implement the same by rolling back loss making
services.
Following European Railways’
• Redemption for Amtrak distress could lie in
innovative services such as the TGV to
snare the fast disappearing intercity traffic.
• Increased attention to passenger needs of
speedy travel to inner city areas.
• Provision of inter modal linkages
Conclusions
• Studies reveal intercity rail service can
best compete with other modes where
travel is between densely populated cities
at a distance of about 200 miles.
• Leverage advantages of dove tailing inter
modal transport for providing quicker
access to city centers.
• Curtail all costs inconsistent with customer
satisfaction requirements.
12th Symposium on
Development and Social Transformation
Panel 8: Transportation Sector Transformations
Third Party Logistics Outsourcing in the US
and Lessons for India
Prem Narayan
BACKGROUND
 Prior to 1978 the US for hire transport industry was subjected
to significant economic regulation.
 Rates charged, market entry / exit and service levels were
monitored by the Interstate commerce commission for
trucking & rail and by the Civil aeronautics board for air
freight.
 Since deregulation, 3PL companies have emerged as
providers of a wide variety of logistics and supply chain
management functions.
 Some 3PLs grew out of the shipper’s agents and freight
brokerages that existed under regulation.
 3PL companies originated from their parent transportation or
warehousing companies.
 Logistics has been legitimate business practice since the
1980s. Proportion of 3PL users has increased to 80%by 2004.
DEFINITION
Logistics
is the process of managing both the movement
and storage of goods and materials from source to the
point of ultimate consumption and the associated
information flow1.
Figure 1
The services offered by a middleman in the logistics
channel that has specialized in providing a considerable
number
of
the
logistics
activities
including
the
management of information
1 (Crompton & Jessop, 2001) ; Fig1 (GUPTA, R. p8 MMR Aug. 2005)
SERVICES PROVIDED BY 3PL
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Transportation (80%)
Warehousing (65%)
Custom services (25%)
Freight finance services (25%)
IT support (75%)
Product support services (45%)
Logistics Management/consulting(65%)
Major 3PL providers in US are nearly 100
(Regan & Song, Nov. 2000)
DRIVERS OF 3PL IN US
 To control costs and use logistics services as a means of
differentiation in both domestic and international markets.
 3PL industry has changed structurally with mergers,
acquisitions, company failures, and the entry of many new
competitors into niche markets.
 The geographic coverage and service offerings of the major
providers has expanded dramatically to cope with a significant
economic slowdown.
 Rapid change in the technology employed by 3PL industry has
not only increased the capital costs of the service providers,
but also exerting pressure on industry prices.
SELECTION OF 3 PL
 Initially cost considerations dominate the decision.
 The quality of service delivered during the life of the contract
carry considerably more weight in the renewal process.
 A combination of service, cost, and other considerations lead
to a final renewal decision.
 The final decision on contract renewal made by a committee
generally consisting of representatives from several functional
areas of the firms.
 At an individual’s level the decision of renewal in their
companies are taken by Director of Supply Chain, Director of
Logistics etc.
IMPACT OF USING 3PL
 The negative impact- related to the downsizing of the logistics
workforce. Due to outsourcing of logistics functions, the
remaining workers become more skeptical about their future.
 A positive impact - due to logistics costs found improving year to
year and continues to be important because the logistics
outsourcing is initiated due to cost considerations.
 Competitive pressures in the global marketplace will continue;
 To focus management attention on controlling logistics
costs.
 To draw attention to the service offerings of 3PL
providers.
IMPACT OF IT
 The main drivers of changes in 3PL industry are
advances
in
information
and
communication
technologies, development of on-line freight market
places or dot-coms.
 The cost of entry into the 3PL arena now includes
information technology and implementation capabilities
for
warehouse
management,
transportation
management, and web-enabled communications.
 The minimum requirements from a 3PL provider is to
provide IT capabilities.
IMPACT OF IT...
 Users of 3PL services anticipate that the near-term
differentiators will include electronic markets, supplier
management systems, and supply chain planning.
 The success of 3PLs will depend on their ability to
deliver an integrated, end-to-end solution that
provides significant financial and operational
performance improvements.
 The RFID technology has already been implemented
by Wal-Mart, Gillette, and the Department of Defense
of US within their logistics networks 3.
3 (Lieb R. Sept.2004)
3PL MARKET IN INDIA
 A relatively younger industry and currently undergoing
transition which however has lot of potential for
further growth.
 Indian logistics market (ILM) was valued at USD 14.31
billion (Rs 620.34 bn) in 2004.
 India will continue to grow in importance to large
north American manufacturers as centers for
sourcing, manufacturing locations and end markets
for many of their products.
3PL MARKET IN INDIA
 20 US based companies are using 3PL services out of which
18 support their sales efforts and 10 support their
manufacturing operations in India.
 Among the most commonly used 3PL services are
transportation services, shipment consolidation, warehousing,
customs brokerage, freight forwarding, and contract
manufacturing.
 Maruti udyog, Toyota, Hero Honda, Mahindra and Mahindra,
Tisco and other MNCs operating –using 3PL providers so as to
remain cost competitive and can better concentrate in their
core competencies.
3PL PROVIDERS IN INDIA
 Western arya logistics
ltd.Surat
 Welgrow India Pvt. Ltd.
Mumbai
 Fast freight
online
services
 Global presence in
countries.
Provides
logistics functions.
35
all
 Global presence in
countries.
Provides
logistics functions.
65
all
 International logistics
freight forwarders
and
CHALLENGES OF 3PL IN INDIA
 Due to inadequate road, power supply and
telecommunication infrastructure, companies are
facing logistics problems.
 3PL providers are either not available in backward
areas or others located in suburban areas are not
interested to undertake contracts due to inadequate
infrastructure.
 Significant problems in finding or using 3PL providers
are related to the limited scope of 3PL operations in
India.
 The delays in customs clearance as their main
problems.
LESSONS FOR INDIA
 Large American manufacturers are continuously
expanding their use of 3PL industry outside US and
most rapid growth has occurred in India.
 India will continue to grow in importance to large
American manufacturers as center for global
manufacturing, sourcing and sales (end market).
 G.O.I has gone ahead in liberalizing the economic
policy to fetch foreign investment in various sectors
and accordingly development of 3PL industry is at
rapid pace in India.
LESSONS FOR INDIA
 The Golden quadrilateral highway project with 8-lane
is a path breaking innovation would meet the future
need & integration of 3PL infrastructure in India
 A large no. of 3PL firms of India are developing and
have their infrastructure world wide and growing to a
greater extent to meet the need of 3PL users of US.
 3PL industry has potential to grow due to low
manpower cost, end market and scope for
manufacturing facilities being created by US
companies.
12th Symposium on
Development and Social Transformation
Panel 8: Transportation Sector Transformations
Public Private Partnership in the
Transportation Sector
V. Sivasubramanian
Road transportation
Roads are the dominant mode of transportation
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India: 84% of passenger traffic and 67% of freight movement
US: 99% of passenger traffic and 31% of freight movement
Roads are also big business
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Road transport sector contributes to about 5% of Indian GDP
Total expenditure on roads in US ~ US $ 80 billion per year
Revenues (excluding tolls)
 Highway Trust Fund (US) ~ US $ 20 billion
 Road Cess Fund (India) ~ US $ 3 billion
V Sivasubramanian (24)
Traditional model
Design-bid-build model
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Separate contracts for design and construction
Detailed plans, specifications and estimates prepared
Bids solicited through public advertisement and award to L1 bidder
Construction Supervision usually by the agency itself
Arms length relationship between Government and private sector
Risk aversion and not risk management
Cheapest (L1) cost and not necessarily best ‘value of money’
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Life cycle cost (from inception to end of design life) not considered
Funded through general budget, fuel tax, user fees or bonds
No incentive for innovation
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Technology
Materials
Financing techniques
V Sivasubramanian (24)
Experience in India so far
National Highway Development Programme
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12000 kms at estimated cost of US $ 12 billion
Expanded further: US $ 40 billion to be spent by the next 7 years
Innovation in oversight/construction supervision mechanism
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Bipartite model to a tripartite model
Outsourcing of contracting and consultancy services
National Highways Act amended in 1995
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Private persons can invest in national highways, collect fee, regulate
traffic, etc.
Standardized contract conditions (FIDIC, World Bank, ADB)
Quality and Cost based selection
Financing mechanism
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Road cess
Capital gains tax free bonds (54EC)
World Bank, JBIC and ADB loans
Private sector participation under BOT/Annuity models
V Sivasubramanian (24)
PPP initiatives in US
Innovative contracting
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Traditional Design, Bid, Build
Design-Build
Build-Operate-Transfer (BOT)
Design-Build-Finance-Operate (DBFO)
Build-Own-Operate (BOO)
Purely private
Innovative financing
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Flexible Matching
Toll Credits
Grant Anticipation Revenue Vehicle (GARVEE)
Federal credit assistance
Innovative project management
V Sivasubramanian (24)
PPP experience in US
Significant project cost savings/overruns
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Ranging from 6 to 40% of Engineer estimated cost
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Reduction in overruns from 12.4% to 3.6% (Florida)
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However some contrary experiences in Florida and Washington
Faster completion of projects
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Upto 50% reduction in project duration
Allocation of Risk to the party best able to manage risk
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Risks such as setting and monitoring safety standards
Transfer of risks of price escalation & tort liability with private
sector may increase costs and lead to sub-optimality
State’s ability to raise funds for other purposes not
jeopardized
V Sivasubramanian (24)
PPP experience in US
State procurement statutes incompatible with PPP
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Only 28 States have allowed for design-build
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Only 21 States have allowed for private participation
Private sector funding does not ensure financial solvency
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Dulles Greenway, Virginia – partly defaulted in 1996
Investment rating problems for Pocahontas Parkway’s and
Southern Connector
Greater time and efforts to be spent by senior officials
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Need for developing new systems
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Earlier approach was risk aversion
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Lack of experience with private sector
Local opposition to tolls and toll financing
V Sivasubramanian (24)
PPP experience in US
Private sector concerns
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Financial feasibility
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No tax exemptions
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Uncertainty of revenue streams
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Tort liability
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Land/RoW acquisition and environmental clearances
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Changes in political leadership
Smaller firms at a disadvantage
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Inability to manage large projects
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Cannot bear the risk transferred
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But they could come together to form joint ventures
V Sivasubramanian (24)
Lessons for India
Innovative contracting
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Only two methods allowed so far
Elements of other methods present in some cases
 Bonus allowed for earlier completion
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Pre-construction activities continue with public
authorities
Tort is not a major issue in India so far
Innovative Contract Management
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Tripartite approach
 Issue of ‘Engineer’ as an adjudicator under FIDIC
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Expertise in the form of dedicated cadre
V Sivasubramanian (24)
Lessons for India
Innovative Financing
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No matching required from States
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Compartmentalized approach
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No federal control over State expenditure on roads
(except on national highways)
Central/State finances and user fees/tolls to be
leveraged for attracting private investment
Difficulty in allowing a PPP to default debt repayment
V Sivasubramanian (24)
General conclusions
Specification to performance based contracts
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Level of service requirements
Role of public and private sectors
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Difference in goals
Life cycle costing
Risk sharing
Financial leveraging
Quality and cost based selection
Issue of unsolicited projects
V Sivasubramanian (24)
12th Symposium on
Development and Social Transformation
Panel 8: Transportation Sector Transformations
Thursday, November 17 (11:45-12:45)
Anil Pavithran
Prem Narayan
The Impact of Low Cost Airlines
Third Party Logistics Outsourcing
V. Sivasubramanian
Public Private Partnership in the
Transportation Sector