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Contents March/April 2012
02 Editor’s View 12 Maritime Express mega-merger Shipping carriers hike Asia-Europe rates 04 President’s Message Changing times Prius of the seas?
Prepare now for 22,000 teu ships Strategy 32-38 Global supply chain risk 10-11 Air Cargo Mitigating risk and building resilience Indian air cargo market set to soar, foreign birds appear on horizon Demand-driven supply chains Regional focus for CAL 12 Country Focus SIA Cargo cuts capacity by a fifth Maritime 24-26 India Private equity keen on logistics again 28-31 Supply Chain Asia Logistics Japan to the fore Awards 2012 event heads to Singapore Northern hub
Gati and Kintetsu tie the knot 40 Customs Q&A European questions 24 CF-India Regulars 06-09 Developments 42-43 Book Reviews Opportunities and challenges in Burma Watching – A New Sport for Indonesia Many
APL Logistics revolutionises shipment planning 44 Blog China brands EU plan for ship Mapletree: High and Mighty emission trading ‘illegal’ 42 Economic concerns Blog EDITOR’S VIEW
of Brazilian express delivery firm Mercurio, Chinese freight and parcel delivery firm Hoau and Executive Board of Advisors Indian express road company Speedage. Dr Robert Yap (Founding Chairman) The strategy a combined UPS-TNT will chart Chairman & CEO, YCH Group in China remains unclear. UPS says it is in the Mr Paul Bradley (Vice Chairman) process of waiting for a domestic licence from Chairman & CEO, Caprica International the Chinese government. TNT purchased Hoau in 2007 and has stated it a preferred strategic Mr Ajay Mittal Chairman & MD, Arshiya International partner in China. But UPS management states: “On the other hand TNT does have an express Mr Wayne Hunt UPS + TNT = explosive business in China as well as freight business, President, Asia, Toll Global Logistics which coincide nicely with our strategy.” Mr Colin Nelson growth? FedEx has been far ahead of UPS in Asia Senior Vice President, GlaxoSmithKline investments. UPS’s purchase of TNT will help Much has been made of UPS’s European Mr Jeff Baum intentions with its $6.8bn takeover of TNT it to catch up, but it will still remain behind its Senior Vice President, Manhattan Associates Express. The proposed purchase, the biggest greatest rival in this region. Stifel, Nicolaus & Co analyst David Ross Dr Mark Goh in Atlanta-based UPS’s 105-year history, would Director, Industry Research, create a parcel shipper with more than $60bn wrote in a note on the strengths of the two big The Logistics Institute Asia Pacific in annual sales. US parcel giants post-TNT merger: “If you think the growth is in Asia, FedEx is better positioned; Mr Onno Boots UPS estimates that Europe and the Middle Supply Chain Asia East account for 63% of TNT’s revenues by if you think the growth is in Europe, UPS is better Mr Peter O’ Brien geography, and calculates through the acquisition positioned.” Regardless of where you are based all of a Head of Supply Chain Practice, it will bolster its non-US revenues from 26% Russell Reynolds Associates to 36%. sudden there is a stampede for business in that vital pivot between India and China, as our cover Mr Sundi Ayer The acquisition allows UPS to pull ahead Strategic Consultant and Advisor of FedEx in Europe, and positions UPS a strong story on page 40 examines. second behind Deutsche Post. Mr Tony Lugg Vice Chairman, TAPA Asia “TNT Express fits into UPS’s long-term network plan,” UPS chief executive Scott Davis Mr Turloch Mooney told investors. “This broadens UPS’s global Chief Editor, TACT, IATA footprint.” Mr Vijay Anand But what of emerging markets, not least Sam Chambers Senior Director, Oracle Asia? Make no mistake, another reason UPS finds TNT Express attractive is its investments, made Editor, Supply Chain Asia magazine during the last few years, in the emerging markets [email protected] of Brazil, India and China through its acquisitions Supporting Organisations Corporate Endorsers Management Team & Support Team American Society of Transportation and Logistics (ASTL)
China Federation of Logistics & Purchasing (CFLP) Publishing Company Singapore Economic Development Board (EDB) SC Asia Publications Pte Ltd Federation of Malaysian Manufacturers (FMM) Editor Global Logistics Council of Taiwan (GLCT) Sam Chambers International Enterprise Singapore (IE Singapore) [email protected] Kainan University of Taiwan (KUT) Publisher Korea International Logistics Council (KILC) Frank Paul Logistics Association of Australia (LAA) [email protected]
Philippines Institute of Supply Management (PISM) Design & Production Supply Chain & Logistics Group of the Middle East (SCLG) Design Workz Thai Logistics and Production Society (TLAPS) Printing Vietnam Supply Chain Community (VSSC) Magnum Offset Printing Company Ltd Republic Polytechnic Singapore Institute of Materials Management Printed in Hong Kong
PRESIDENT’S MESSAGE
position. Ask any of my ex-TNT colleagues Dr Robert Yap, intends to push forward today and you can certainly feel their anxiety a longer term plan to ensure that SCA now that they are a part of UPS. But check remains relevant and is able to contribute with the people who used to be a part of to the growth and personal development the companies before they became CEVA of its community members. We target to (EGL & TNT Logistics), DHL (Danzas, announce our engagement plans during the AEI, etc) and DBSchenker (Bax) and you annual Supply Chain Asia Forum that will can sense that many have either already be held in Singapore from 28-30 August assimilated into the new environment or this year. found something somewhere else. Transformation may be uncomfortable, Supply Chain Asia is certainly undergoing but if it leads to the betterment of the a transformation and we realize that we need community, then we must be prepared to Overcoming to do this if we hope to continue expanding change so that we remain relevant and our work in reaching out to the community. focused in our service to the logistics and transformation fears The discomfort is being felt by some of the supply chain community here in Asia. founding team members, as the community Transformation is never easy. I suppose structure was always one that is informal this may be one reason why we humans and rather unstructured. However, if we assume ourselves into a contented position hope to achieve more and be able to provide and then refuse to change as change can a better and more organized support to the sometimes be painful and often perceived community, then this transformation is as too hard. inevitable. The other aspect of transformation has For a start, we have re-aligned our to deal with the fear of losing our position Advisory Board members to comprise – especially when the current position is those who are prepared to contribute and perceived to be comfortable and any change participate in our development efforts. Paul Lim may bring about further discomfort or lost of The Board, led by its Founding Chairman, Founder/President, Supply Chain Asia
Executive Committee Members
Advisory Council Mr Abhishek Rao, Independent Mr Sharuddin Razie, Western Digital Dr Mohd Amin Kassim, Dy MD, Century Logistics Mr Raymond Tan, Spansion Mr Mahendra Agarwal, MD & CEO, GATI Technology, Equipment & Solutions Mr Vijay Anand, Oracle, Senior Director, Oracle Mr Xavier Perello Pairada, SSI Schaefer Young Professionals Advisors Mr Jeff Baum, SVP, Manhattan Associates Mr Pari Annamalai, JDA Software Mr Akash Agarwal, GATI Mr Neeraj Bhargava, Regional Logistics Procurement Mr Darren Lo, Softwise Mr Ang Tian Teck, StickySpy Director, Johnson & Johnson Asia Pacific Mr Peter Chiong, Harley-Davidson Mr Vittorio Favati, Independent Transportation & Networks Mr K H Goh, Analog Devices Mr Allen Fukada, Vice President, Commercial Development, Mr Kam Poh Yuen, Oracle Mr Koh Jin Kiat, Harley-Davidson Asia Pacific, DHL Supply Chain Mr Travis Wong, Baker Hughes Ms Christine Lee, DHL Mr Mike Gildea, CEO, SEA, Agility Logistics Mr Durairaj Veeraiyah, BASF Mr Travis Wong, Baker Hughes Mr Raymond Heman, Head of Procurement, Asia Pacific, Mr Raymitra Bhundhoombhoad, Leo Links Mr Shawn Tay, Hewlett Packard Eastman Chemical Mr Zuhaimi Mohd Nor, Western Digital Mr Caleb Tan, Lenovo Mr Torbjorn Karlsson, Managing Partner, Heidrick & Struggles Security & Compliance Academy @ SCA Board Mr Richard Loretto, Executive Director, Commercial & Mr Tony Lugg, Vice Chairman, TAPA Asia Professor Mark Goh, NUS Supply Chain, AVON Ms Rosalind Lim, CEO, Dyzle Asia Pacific Mr Koh Jin Kiat, Harley-Davidson Mr Tony Lugg, Vice Chairman, TAPA Asia Mr Raymond Heman, Eastman Chemical Dr PN Mukherjee, Director, Vivekanand Education Society’s Talent & Leadership Development Mr Peter Chiong, Harley-Davidson Institute of Management & Research (VESIMSR) Mr Darryl Judd, Logistics Executive Ms Christine Lee, DHL Mr Peter O’ Brien, Head, Asia Pacific Supply Chain Mr Torbjorn Karlsson, Heidrick & Struggles Mr K H Goh, Analog Devices Practice, Russell Reynolds Associates Mr Nigel Moore, Logistics Executive Mr Travis Wong, Baker Hughes Mr Frank Paul, MD, Commercial, SC Asia Publications Mr Neil Morrison, Stones International Mr Y Y Leow, Crocs Asia Mr Michael Proffitt, Strategic Advisor & Consultant Mr Peter O’Brien, Russell Reynolds Mr Vivek Sood, MD, Global Supply Chain Group Country Partners Research & Innovation Mr Nayeem Hossain, Bangladesh Supply Chain Executive Committees Professor Mark Goh, The Logistics Institute Asia Pacific Council (Bangladesh) Infrastructure, Real Estate & Ports Mr Shawn Tay, Hewlett Packard Mr Sanjay Goel, GTC Corporation (India) Mr Vijay Anand, Oracle Dr Balan Sundarakani, University of Wollongong in Dubai Mr Darren Lo, Softwise (Malaysia) Mr Pelham Higgins, Macquarie Goodman Japan Mr Shiekh Abdul Hai, Abdullah Fouad (Saudi Arabia) Logistics Fund Materials Management, Manufacturing & Procurement Mr Peter Barbut, AITT (Sri Lanka) Mr James Sung, Director, Business Development, Mapletree Mr K H Goh, Analog Devices Mr Philip Tsou, GLCT (Taiwan) Logistics Investment Trust Mr Raymond Heman, Eastman Chemical Ms Quyen Nguyen, Vietnam Supply Chain Mr Benny Woenardi, Cikarang Dry Port Mr Ian Manning, National Starch Community (Vietnam)
Supply Chain Asia Magazine (MICA (P) 062/02/2012) is published by SC Asia Publications, a partner of the Supply Chain Asia industry community. All rights reserved. No part of the publication may be reproduced without prior permission from the publisher. For subscription and other enquiries, please visit www.supplychainknowledge.asia World Courier
When Precision Counts
Meticulous Two-Pronged Strategy Keeps Production Alive Only 16½ hours stood between the 2,300-kilometer transport of 20 tons of materials from northern Spain to Frankfurt and shut-down of the production line at 00:30 Saturday morning. Working closely with the client, World Courier expedited the delivery of five tons of materi- als − enough to keep production running for the weekend − via charter aircraft, successfully delivering the consignment on Friday night. The remaining 15 tons were conveyed by 18-wheeler to the French/German border. Due to a truck ban prohibiting large transport trucks on Ger- man motorways between 10:00 p.m. Saturday and 10:00 p.m. Sunday, Visit: www.worldcourier.com the contents were transferred to two smaller awaiting vans. With an early Monday morning delivery, production never missed a beat. DEVELOPMENTS
operating in the logistics space looking to Opportunities and challenges in Indonesia expand into the country,” said Colin Moran, the firm’s logistics director. Sam Chambers catches up with fast exciting, yet complex emerging markets expanding RichLand Logistics in the world. With difficult regulations, infrastructure challenges, and bureaucracy, Rich advice Passengers on any one of the many flights many in our business can easily get lost from Singapore to Jakarta will immediately in the complexity. As with any emerging How to do business in Indonesia, by notice the number of business professionals market, for every success story coming out RichLand Logistics flying to Indonesia on a daily basis – a testa- of the country, there are still more who have 1. Establish, build and respect ment to the importance of the Indonesian tried and failed. relationships market to businesses in Singapore. With the RichLand Logistics Indonesia was 2. Be prepared to invest and bring economic and political stability of Indonesia founded in 2007 with the goal of becoming real value to the table over the last decade – combined with the a logistics solutions provider in the 3. Mix local ground talent with country reaching Investment grade in De- Indonesian market. In a relatively short international industry knowledge cember 2011 – it is easy to understand why time, RichLand has enjoyed remarkable and skills so many are eager to enter this market. success in the country. In 2010, it won two 4. Understand the rules – Indonesia is The logistics and supply chain sectors major contracts to provide logistics support a complex landscape to operate in are no exception, with Indonesia presenting for PT BASF Indonesia (BASF) and Styrindo 5. Give your time to your staff – enormous opportunities for those operating Mono Indonesia (SMI). Additionally, in strong and respected leadership is in this space. However, navigating the coun- 2011, it commenced its inaugural project important in the Indonesian culture try’s landscape is not without challenges. in the offshore oil and gas servicing sector 6. Be patient with your customers – not Indonesia remains one of the most in Indonesia’s Natuna Sea. everything happens immediately or This year, it was awarded a major tender at once to provide warehousing and transport 7. Remain focused – research and support to PT Chandra Asri Petrochemical qualify each opportunity to make Tbk. This contract marks the largest dollar- sure that they are genuine and will value contract ever awarded to RichLand’s benefit your business business – both in Singapore and Indonesia. 8. Segregate duties with strong Signed in February, RichLand now hauls checks in place that clearly outline over 1m tonnes of domestic transport per roles and responsibilities year. 9. Be prepared for the unexpected “As a company, we are very optimistic and be able to adapt to change. Home to the world’s largest Muslim population, about the future of this market. However, Go with the flow – don’t fight it Indonesia is a tough nut to crack there are still many challenges for those
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6 Supply Chain Asia March/April 2012 DEVELOPMENTS
of shipment flows, modes, routes and APL Logistics revolutionises shipment cargoes are duly considered before the planning ideal plan is recommended. The optimal plan is continually updated as assumptions or conditions change, relying on real-time data fed by Simultaneous optimisation of other applications in APL shipment time, space and cost an Logistics’ technology suite. industry first ShipmentOptimizerTM trimmed the shipment APL Logistics has launched a shipment planning process of a pilot planning platform that could change the customer from two days way large freight buyers coordinate their to just 90 minutes. The transportation activities. process used to take the Engineered by APL Logistics, customer multiple iterations ShipmentOptimizerTM is the industry’s first and human intervention. global shipment planning platform capable With the platform, a single, of automatically generating the best fully automated run was all shipment plan against three key objectives it needed to arrive at the concurrently: optimal plan. s CARGOES ARRIVING AT lNAL DESTINATION ON ShipmentOptimizerTM with a world-leading In addition to efficiency, the preferred date; sportswear brand last November, APL ShipmentOptimizerTM gives the shipper s MAXIMISING SPACE AND LOAD UTILISATION Logistics has already begun to deploy the greater control over its product flow. This and powerful automated planning and decision is because the platform has the ability s MINIMISING OVERALL TRANSPORTATION COSTS support platform for two other international to forecast shipment schedules, support on a door-to-door basis. apparel giants. collaboration among the shipper’s supply ShipmentOptimizerTM integrates a web- chain partners and automatically flag any “This technology innovation allows based shipment planning and optimisation deviation from plan. global shippers to advance their allocation tool with APL Logistics’ supply chain “ShipmentOptimizerTM creates value by decisions,” said Jim McAdam, president expertise and technology applications. It taking complexities out of shipment planning of APL Logistics. “They are now better uses algorithms specifically designed to and reducing unnecessary airfreights,” empowered to ship more efficiently and handle complex and ever-changing real- said Raffy Cipriano, APL Logistics’ vice accurately, meeting critical in-store or world supply chain environments. Given the president for supply chain technology. “The planned delivery requirements.” shipper’s unique preferences, requirements more complex your supply chain, the greater Fresh from a global rollout of and constraints, all possible combinations value the benefits.”
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March/April 2012 Supply Chain Asia 7 DEVELOPMENTS
The seven high quality logistics High and mighty facilities are strategically located within the key logistics hubs across Japan in the Hokkaido, Greater Tokyo, Nagoya and Living up to its name Mapletree has hubs. They enable us to tap into the Osaka regions with an aggregate gross floor grown much higher in the region growing demand for quality warehouse area of 124,300 sq m. facilities and at the same time, further Currently, the properties are 100% In a busy couple of weeks for Mapletree entrench our presence in Malaysia.” leased to single users who are engaged Logistics Trust, the Singapore outfit Iskandar Malaysia is a strategic and mainly in the food and consumer product completed big expansion outlays in both important economic development region industries. Malaysia and Japan. located in Johor, the southern state of “As some of the assets have yet to On February 28 the company Malaysia. Set up in July 2006, Iskandar reach their maximum permissible plot announced it had bought Malaysian Malaysia has to date attracted over RM77bn ratio, we are excited with the opportunity properties for close to RM60m. worth of investment commitments. for organic growth which can potentially It paid Fuji Properties RM31.5m With a development area spanning generate an additional 30,000 sq m of (US$10.3m) for a storage warehouse some 2,200 sq km, three times the size of gross floor area, as and when required by facility in Pasir Gudang Industrial Estate in Singapore, the flagship economic project of customers,” said Lai. Johor and also spent a further RM27.5m Johor will be developed into key industry Demand for large, high quality logistics buying two industrial warehouses from Well- clusters that include healthcare, education, facilities in Japan has been on the rise Built Holdings in Senai, also in Johor. electrical and electronics, creatives, after the earthquake last year as firms Fuji Warehouse comprises a single- logistics, leisure and tourism as well as food seek to improve supply chain management storey warehouse and an ancillary office and agro processing industries. and crisis management capabilities. New building with a total gross floor area of about Mapletree has also completed the supply of logistics facilities has been 23,500 sq m. Located within Iskandar acquisition of seven dry warehouse limited, especially in Greater Tokyo where Malaysia’s Eastern Gate Development facilities from Goodman Japan Limited for 70% of Mapeletree’s new portfolio is zone, which is the key industrial hub in a total consideration of JPY17.5bn. located. Johor, the property is a five minutes’ drive from Johor Port and is easily accessible via the Pasir Gudang Highway. The property is currently leased to Padiberas Nasional Berhad, the major supplier of Malaysia’s paddy and rice industry. Celestica Hub comprises two single- storey air-conditioned industrial warehouses and an annexed office building, covering a total gross floor area of 22,300 sq m. A five minutes’ drive from Senai Airport, this property sits strategically within the electrical and electronics hub of the Senai-Skudai zone in Iskandar Malaysia. The property is currently leased to Celestica (AMS) Sdn Bhd, which is part of Celestica Inc, a listed global electronics manufacturing services company headquartered in Canada, with an extensive manufacturing network in Asia. Richard Lai, ceo of MLTM, said, “We are pleased with these acquisitions as they are strategically located in Iskandar Malaysia, which is poised to become one of the region’s major integrated investment
8 Supply Chain Asia March/April 2012 DEVELOPMENTS
Business innovation initiatives (56 percent) Economic concerns also ranked highly in terms of strategic priorities for 2012 as companies seek new ways of strengthening their supply chain A recent supply chain survey head start on their competitors in 2012 operations. shows what wide-ranging issues as they will be able to measure and adapt However, as the pessimistic economic the industry faces their supply chains more easily. outlook forces companies to reevaluate As companies seek to further strengthen priorities and focus on programs that Capgemini Consulting, the global strategy supply chain operations in response to the will improve efficiency and save costs, and transformation consulting brand of challenging economic environment, 65 many continue to face difficulties in the Capgemini Group, announced the percent of respondents plan to implement implementing supply chain improvement findings of its 2012 Global Supply Chain operational excellence initiatives designed strategies. Business prioritisation (44 Agenda study in mid-March, examining to establish more value driven and cost percent) remains the main bottleneck, the key business priorities of supply chain effective operations. Supply chain visibility closely followed by limited IT capabilities executives around the world. improvement (57 percent) is also a key (42 percent) and financial resource The study reveals that ongoing priority as market volatility continues to challenges (39 percent). It is clear that uncertainty around the global economy increase the need for a single, consistent faced with increasing market uncertainty and euro zone crisis is having a significant view of the end-to-end supply chain. and a higher number of business priorities impact on supply chain strategies at every that companies are being forced into level. Specifically, market volatility (52 being more selective in their supply chain percent) and the economic downturn (39 investment decisions and as such, it is percent) were cited as the biggest business Lessons have been learned increasingly important that at even a senior challenges currently faced by respondents, “from previous periods of level, there is a common understanding of with just 17 percent optimistic about the economic uncertainty the business-critical nature of supply chain outlook for the economy in 2012. However, initiatives. Key factors for implementing a the survey suggests that companies will ” successful supply chain strategy include be better able to handle this market senior leadership commitment and well uncertainty than during the previous managed organisational change with economic slowdown of 2008-2009, with consistent objectives. 52 percent of respondents indicating “Continued market volatility is they are now better prepared for a severely impacting supply chain more volatile environment. strategies everywhere, but it would The study, which surveyed appear that lessons have been 350 supply chain executives learned from previous periods from leading companies across of economic uncertainty as Europe, the US, Latin America companies are better prepared and Asia Pacific, also examines for the challenges of 2012 and the strategic measures that are have implemented a number of being taken within supply measures to improve visibility, chains as companies seek flexibility and control within to maintain business growth their supply chain,” said Ramon and competitiveness in current Veldhuijzen, global logistics and volatile markets. Faced with fulfillment lead, Capgemini an uncertain outlook for 2012, Consulting. “However, it is vital 67 percent of respondents have that supply chain executives and implemented measures to improve company management have a shared visibility and control within the supply understanding of the benefits that chain and 59 percent have taken steps supply chain projects can bring to the to increase flexibility within supply chain whole organisation in order to establish a operations. Companies that have taken The eurozone’s ongoing fraility remains a truly successful supply chain strategy and these measures should expect to have a worry maintain competitive advantage.”
March/April 2012 Supply Chain Asia 9 AIR CARGO
to its geographical location Indian air between southeast Asia and cargo market the European Union. Raising of the FDI cap in cargo airlines from set to soar, “International air cargo 49%“ to 74% is attracting major overseas players. traffic is concentrated in ” foreign birds the three key international gateway airports – Mumbai, has adopted the private-public for increased connectivity for appear on New Delhi and Chennai,” said partnership (PPP) model to cargo movement between the horizon Ratan Shrivastava, director build a new international airport Tier-II cities and cargo hubs,” of Aerospace and Defence at Hyderabad and install state- said Shrivastava. By Shirish Nadkarni in Practice. of-the-art cargo infrastructure. Over the last five years, Mumbai “With the development The total area allocated dedicated freighter services of support infrastructure in for cargo operations is around have been launched by various India’s air cargo market is the new greenfield airports 10 acres, of which three acres airlines. Air India was the first expected to soar over the next Bangalore and Hyderabad, and have been dedicated to cargo scheduled passenger airline in three to four years, with the with the proposed air cargo hub processing and storage. Above India to enter this arena, and Indian economy on a solid in Nagpur, higher cargo traffic all, the cargo terminal will have in 2008 embarked on a 25% growth trajectory and the is expected from these airports, a cargo handling capacity of capacity expansion. liberalisation of the aviation as well.” 100,000 metric tonnes on a Airlines of high stature sector in the works. Mumbai airport could cumulative basis. like Jet and Kingfisher and While the freight industry is well become a benchmark While international air other formidable players in expected to grow at 10.3% per among airports, with Mumbai cargo traffic is much higher the logistics industry have annum by 2014, the air cargo International Airport Ltd (MIAL), than domestic traffic, the also launched their own cargo business has overtaken both a joint venture between GVK- latter offers greater potential offshoots. Kingfisher Airlines, ocean freight and rail freight, SA consortium and the Airports for Indian investors, since currently in serious financial expanding at nearly 19% in the Authority of India, unveiling regulations prevent foreign difficulties, started Kingfisher last three years, and forecast to a master plan to expand and airlines from competing in the Xpress, a door-to-door cargo grow by at least 8.5% per year upgrade Chhatrapati Shivaji domestic air cargo market. delivery service in 2010. for the next five years. International Airport (CSIA) to “The domestic segment The Indian air cargo market T h e r e i s n o w r i s i n g cater to a traffic of 1m tons of is the one to watch for growth, is expected to receive a further optimism that India will cargo annually. given the current robust growth boost with the recent raising emerge as a cargo hub due The GMR-Menzies combine in Tier-II towns and the need of foreign direct investment (FDI) limits, permitting foreign equity up to 74% in Indian cargo airlines. The FDI limit in domestic passenger airlines, however, remains at 49%, not permitting any overseas airline to gain control over the management of an Indian operator. The raising of the FDI cap in cargo airlines from the earlier 49% to 74% is attracting major overseas players to expand their Indian networks and capacity. Middle East carriers like Emir- ates, Saudi Arabian Airlines, Qatar Airways and Etihad are particularly prominent in the build-up.
10 Supply Chain Asia March/April 2012 AIR CARGO
Regional focus for CAL
China Airlines (CAL), Taiwan’s largest air carrier, has detailed various plans to deal with soaring oil prices and weak demand for air cargo this year. Since fuel expenses account for about 60 percent and 40 percent of CAL’s cargo and passenger operating costs respectively, Chang Chia-juch, chairman of China Airlines, said further adjustments are aviation-related issues in future SIA Cargo had a $32m focusing on regional trade,” an needed for its flight services. Taiwan-China talks, which will operating loss in the quarter analyst at a leading American “Rising crude oil prices, likely make more progress after ended December and it filled bank in Singapore told Supply which have further driven up jet Beijing-friendly President Ma just 58.5 percent of cargo Chain Asia. “The air cargo fuel costs, as well as continued Ying-jeou won re-election in space in January, the lowest market has shown weakness weak cargo demand, will be January. amount since April 2009. for the past nine months, the two major uncertainties for The capacity reductions and the depressed demand the airline sector this year,” were implemented recently that we are seeing across all Chang said. and will continue into the markets gives us little reason China Airlines plans second quarter, SIA Cargo to be optimistic about the near- to focus more on the Asia- SIA Cargo said in a statement, adding term outlook,” said Tan Kai Pacific region this year by cuts capacity that the capacity reductions, Ping, president of SIA Cargo. increasing routes and flights to which are mainly for long- “With no improvement expected Northeast and Southeast Asia by a fifth haul services, have led to a in the first half of this calendar including establishing more corresponding reduction in year, and with stubbornly high flight destinations in China and Singapore Airlines Cargo the number of flying hours for fuel prices pushing up costs, Japan from March to save fuel announced February 22 that it each aircraft. we have taken appropriate costs. “We will place emphasis has reduced freighter capacity “SIA’s January volumes action to reduce our freighter on short-haul and connection by 20 percent in response were shocking, but they have operations to better match flights in both passenger and to continuing weakness in been quick to react. Other capacity to demand,” Tan cargo sectors, the new strategy demand and high fuel prices. Asian carriers are following suit, added. could offer the airline stronger operation flexibility,” Chang added.China Airlines also announced it will temporarily lay up a third freighter from its fleet in the middle of this year, after it put two freighters in protective storage in the US in February. Having joined SkyTeam last September, China Airlines is also looking to join SkyTeam Cargo, Chang said. Meanwhile, Chang urged the government to highlight
March/April 2012 Supply Chain Asia 11 MARITIME
meaning they will have doubled and a container security fee - precise breakdown and dates Shipping the Asia to Europe spot rates of has left carriers “without any of introduction vary. carriers hike $700 per teu seen at the end of proper coverage of these costs”. Utilisation levels in March February. Rates had already risen Adverse weather conditions and were predicted by Alphaliner Asia-Europe recently by $200 per teu thanks emerging congestion at certain to remain below what it calls rates to a ‘peak season surcharge’ Asian ports have also forced “the critical 90% threshold” introduced before Chinese carriers to speed up vessels - meaning shippers not lines March 1 saw several leading New Year - but according to on the westbound leg to meet should have held the upper shipping lines on the Asia– Alphaliner still remained “below berthing windows in Europe bargaining hand and yet they Europe trade attempt to raise breakeven with the average and Suez Canal convoys, it appear to have caved in. freight rates by between Bunker (Adjustment Factor or adds, offsetting any fuel-saving Furthermore, the new G6 US$300 and $700 per teu BAF) surcharge alone standing benefits of slow steaming. alliance of predominantly Asian westbound in a bid to recover at $740per teu.” CMA CGM decided to lines – former Grand Alliance heavy losses sustained during French line CMA CGM has impose a one-off rate restoration partners Hapag-Lloyd, NYK and 2011. Container analyst provided the fullest rationale of $200 per teu and an interim OOCL with ex-TNWA members Alphaliner dubs the hike “the for its proposed increase. fuel surcharge of $550 per teu, APL, Hyundai Merchant Marine highest quantum proposed by It says that the practice of the latter to vary monthly in line and MOL – has brought forward carriers since the abolition of quoting ‘all in’ rates that lump with the carrier’s BAF. introduction of its services by conferences on the European together various surcharges Other lines including one month to the first week trades in 2008.” – eg, for bunkers, currency Maersk, Cosco, Evergreen and of March, to coincide with The lines’ move appears fluctuations, transits of Suez OOCL have all announced proposed rate increases by its successful as we went to press, and piracy-ridden Gulf of Aden, similar increases, although rivals.
12 Supply Chain Asia March/April 2012 MARITIME
generated by the solar power Prius of the generation system while the seas? vessel is under way and stored in the lithium-ion batteries. Japanese car manufacturers The diesel-powered generator are arguably the most famous will be completely shut down designers of so called hybrid when the ship is in berth, vehicles. Now the nation’s and the batteries will provide maritime side is laying claim all the electricity it needs, to similar design firsts in hybrid resulting in zero emissions at vessels. March 12 saw the the pier. launch of Mitsui OSK Lines’ hybrid car carrier Emerald Ace at Mitsubishi Heavy Industries’ Kobe shipyard. The Emerald Prepare now Ace is designed to generate for 22,000 teu zero emissions while berthed. The Emerald Ace is equipped ships APM Terminals is readying for ever larger vessels with a hybrid electric power supply system that combines The remarkable supersizing of Korea, and now APM Terminals support to accommodate such a 160kW solar generation container shipping in the past are planning their ports with vessels and their container system—jointly developed by decade has presented plenty this ship type in mind. volumes is a very necessary MHI, Panasonic and MOL— of infrastructural problems APMT’s crane & engineering exercise for any major hub with lithium-ion batteries for terminal operators and services’ managing director, port”. that can store some 2.2MWh these are only likely to grow, Halfdan Ross said: “While none As of February 1 there of electricity. Conventional delegates attending TOC Asia have been ordered yet, studies were 153 containerships on power generation systems use in Hong Kong this March were have been completed on the order with capacities in excess diesel-powered generators to told. feasibility of constructing of 10,000 teu, including 20 supply electricity on board Supply Chain Asia has seen containerships with a 22,000 of the 18,000 teu capacity while berthed. However, on the a model and blueprint for a for teu capacity so planning for EEE class vessels ordered by Emerald Ace, electricity will be a 22,000 teu ship developed in crane and other infrastructure Maersk Line, the first of which is expected for delivery next year. There are currently 121 vessels of 10,000 teu capacity and above in service. “There are issues of structural stiffness, weight, visibility and wind load which all must be taken into account with cranes of such dimensions, along with the question of upgrading existing equipment or installing new cranes entirely” explained Ross. “The point is that ultra- large vessels are already in service, and even larger vessels will follow, and so the time to prepare the necessary terminal and quay infrastructure is now,” concluded Ross.
March/April 2012 Supply Chain Asia 13 SUPPLY CHAIN
Data recently published by insurance mutual the TT Club Freight risk hot spots shows the main causes for supply chain disruptions
peaking at the freight industry forum, TOC Container Supply weather related incidents contributing only 4% of the cost. Chain Asia in Hong Kong in March, TT Club’s director of When it comes to the movement of freight around the world, S global risk assessment, Laurence Jones highlighted the TT Club’s experience concludes that the prevention of many claims key factors that cause disruption throughout the global supply lies in efficient and well-constructed processes and the analysis chain and spoke of opportunities for operators to save costs by presented by Jones reinforced this belief. 43% of the cost of claims tightening procedures to minimise accidents, breakdowns, delays resulting from operational factors was as a consequence of errors and other risks. or faults in an operator’s systems or processes. Based on an extensive analysis of TT Club’s claims, valued in “While straight forward theft accounted for 29% of operational excess of $120m, Jones revealed that nearly 80% of incidents claims, poor processes and systems were the biggest culprit,” resulting in a claim were avoidable and the vast majority involved Jones demonstrated. “A whole range of substandard practices were some form of human error. In urging operators to pay heed to the in evidence, such as bad stowage and handling; customs fines due lessons of TT’s analysis, Jones said, “We found that the adoption to incorrect or late paperwork; poor instruction on management of proven operational procedures and available safety technology of refrigeration equipment; and wrong release of cargo. All such could prevent many of the incidents. Relatively small investments claims could have been avoided with tighter procedures.” in training, and maintenance could bring significant commercial The other major contributor to damage and cost was found to benefits through less disruption to operations, lower insurance be fire destroying property, equipment and cargo. Most building premiums and more satisfied customers.” damage came from electrical faults; for lifting equipment, a lack of In terms of causal effect the analysis showed that 63% of sufficient, regular maintenance checks was the main cause and fire the total cost (as opposed to the number) of claims were due to in container cargo was mainly due to poor stowage or misdeclaration operational factors, with maintenance (or lack of it) accounting for of the goods. Each factor, argued Jones could be mitigated by a further third; leaving those lacking human intervention, mainly adequate attention by either operators or shippers.
Claims due to errors in operators systems or processes
Uncollected (Other) Bad stowage / cargo 4% handling 5% 21%
Release - no B/L 12%
Customs 17%
Contractual 13%
Reefer Clerical error 14% 14% Fire such as this 2006 disaster onboard an HMM boxship is a major cause of disruption
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Headaches multiply with inevitable tonnage cascade The normally resilient intra-Asia trades are not immune to the vast ships pouring out of East Asian shipyards, reports Katherine Si
istorically intra-Asia freight rates have always proved less volatile than the main east-west Htradelanes. Arguably more competitive, yet without the vast swings in profitability, intra-Asia operators have stood out from their bigger peers over the years for staying in the black during container Ships in excess of 5,000 teu will become shipping’s many downturns. German firm Germanischer Lloyd reckons intra- commonplace“ on this regional trade. Asia makes up 25% of all container volumes placing ” it firmly as the largest sector in the world. However, market fundamentals on Asia-Europe and the transpacific are filtering their way inevitably down to Asian regional trades, leaving many a furrowed brow from Taipei to Thailand. The scale of the giant tonnage coming out of
16 Supply Chain Asia March/April 2012 INTRA-ASIA
shipyards in Korea and China these days is leading Container Line, CC Tung, who in his March annual to an enlarging of ship size on intra-Asia that is likely report noted: “Looking to 2012, we expect trading to make the sector suffer the same overcapacity that conditions to continue to be difficult. has done such damage to the longer trade routes. “There has been some freight rate improvement A vessel cascade is happening right now, on both Asia-Europe and transpacific routes since whereby intra-Asia, which has been made up of the beginning of the year, but freight rates for those ships between 1,000 to 4,000 teu in capacity, is trades do not yet fully cover costs, especially given being supersized and ships in excess of 5,000 teu the increase in the cost of bunker fuel.” will become commonplace on this regional trade, The company’s trade within Asia, which dampening freight rates. contributes about half of OOCL’s container liftings, By the end of 2014, the post-panamax fleet provided a cushion last year against poor trading will exceed 50 percent of all capacity in service, conditions on East-West routes. according to analysis by SeaIntel. With way too much “We may, however, see a slowing in growth rates capacity to operate on Asia-Europe, the traditional for intra-Asia container volume in 2012, as Asian home for the largest ships, these vessels will cascade economies are not immune to the slow growth of down to the transpacific, then to everywhere else the export markets of Europe and North America,” including Asia. Tung stressed. Asian According to a report from Box Trade Intelligence, Samudera Shipping Line is also sceptical on from 2006-2012, the average annual container intra-Asia at the moment. It saw profit last year rise economies“ are not growth rate has been around 6%. Even in 2009 33.8% year-over-year to $12.6m, as the Singapore- immune to the during the great downturn of the global economy, listed carrier’s expansion in Indonesia domestic the container volume in the region increased 3.1%. shipping helped offset a downturn in intra-Asia slow growth of the Box Trade Intelligence is predicting 7% growth for markets. export markets of the trade this year. SSL’s healthy bulk and tanker business also The problem is the capacity addition with the helped boost revenue 23% year-over-year to Europe and North analyst noting that very soon thanks to the ongoing $454.2m. The company warned the oversupply of America. cascade of tonnage 50% of ships servicing the region vessel capacity in key markets, the ailing Eurozone ” will be 1,500 teu and above. and an anticipated growth slowdown in China could One of the leading Chinese container operators dampen intra-Asia trade. SITC reckons the intra-Asia market bottomed out “We foresee a number of challenges in front of at the beginning of last year and thanks to vastly us in 2012 as a result of the oversupply situation in growing trade between China and ASEAN following the regional container shipping business, continued the signing of free trade agreements, intra-Asia is pressure on freight rates and the hike in bunker set to be the fastest growing container segment in prices,” said CEO David Batubara. 2012. SSL also warned that while domestic demand According to Taiwanese giant Evergreen Line, the on the Indonesia container trades would remain free trade agreement between China and ASEAN has “relatively healthy,” this could be offset by significantly boosted bilateral trade. Among ASEAN port congestion, increasing operating cost and members, Indonesia and Vietnam gained higher newbuilding deliveries. trade growth with China than others. For the first nine Many are taking the time to rethink their earlier months of last year, the statistics of China Customs irrational exuberance. Take, for instance, Yang show that the trade amount between Indonesia and Ming, Taiwan’s second largest shipping line after China surged by 43.1% over the same period last Evergreen, which this March took the decision to year while Vietnam’s increased by 38.6%. Evergreen delay the delivery of five newbuild ships destined has made a couple of service redeployments to for intra-Asia trades by up to 16 months. specifically meet this changing market trend and to With the current monster container ship orderbook tap into the growth potential. stretching through to end 2013 such delays look SITC is also planning a number of new services prudent. This regional trade has supersized, and as in the region this year. Chairman Yang Shaopeng a result a number of niche players in this, the most says, “Intra-Asia potential is still great.” cut throat box shipping sector, may be forced out of Not so sure is the chairman of Orient Overseas business in the coming years.
Supply Chain Asia March/April 2012 17 COLD CHAIN
Out of the Ice Age Jason Jiang identifies challenges in China’s cold chain sector
hina’s food figures make for fat more diversely – demand for cold chain numbers. Domestically, for instance, logistics has expanded at an annual rate Cthere are more than 2,500 large of more than 8%. meat factories, with a combined output The shocking statistic, however, is of more than 60m tons a year. Likewise one to put you off your appetite. Official there’s more than 2,000 large frozen food estimates suggest that between 25 and factories with an annual output of more 35% of all meat, vegetable and aquatic than 10m tons. There’s a similar output products in China, some RMB80bn in of cold beverages made in the People’s value, are damaged during transportation Demand for China cold Republic, while 8m tons of dairy products and storage every year. chain“ logistics has expanded are made at home and a huge 44m tons of In recent years, food safety problems at an annual rate of more aquatic products are made in China each have been a hot issue in China. Sinian, a year. No wonder, then, as Chinese have leading Chinese brand for quick-frozen food than 8%” become richer and consumed more - and recently has been reported by consumers
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Refrigerated vehicles and media for selling bacteria-contaminated largest refrigerated warehouse operator only“ account for 0.3% of quick-frozen dumplings. Consumers are in North America and the third largest all freight vehicles still reeling from a series of high profile in the world, and Dalian’s Yida Group, dairy disasters too. a conglomerate in the fields of property ” “Cold chain logistics industry in China development, IT and logistics. The jv is still in its infancy. The next 15 years will has recently started construction of its be a period of rapid development of China’s cold chain distribution centre project in cold chain industry,” asserts Liu Weizhan, Tianjin Port. The project will be a modern chief secretary of the cold chain branch refrigeration house with the most advanced of the National Logistics Standardised facilities and most diversified functions in Technology Committee. north China and it will serve markets in The main problems for China’s cold Tianjin, Beijing, Hebei Province and the chain industry, Liu suggests, are the low northeast of China, the jv company claims. operational efficiency thanks to the small- It will also serve as a regional cold chain scale and non-standard market. transit distribution centre upon completion “First, there is a serious shortage of next year. cold chain infrastructures. Refrigerated PFS opened its first cold storage vehicles only account for 0.3% of all freight facility in China at the end of 2011. vehicles. Existing refrigeration and cold With a capacity of 40,000 tons the storage facilities are generally too old and building is based in Shanghai Lingang regional distribution is imbalanced. Logistics Park near Yangshan port. Its “Secondly, the cold chain technology is second facility in Shanghai’s other port lagging behind. Thirdly, the development of area, Waigaoqiao, has a storage volume of third-party cold chain logistics companies up to 30,000 tons, and was due to open is slow. The cold chain logistics system is as we went to press. not complete. Some big manufacturers “The next step will be setting up have to spend huge money to build their operation in Shenzhen to cover the market own cold chain logistics systems, but in the Pearl River Delta region,” says Steven obviously smaller companies don’t have Miao, PFS’s vp of business development. the capability to do that.” “We believe the participation of PFS in Moreover, Liu states that currently China’s cold chain market will greatly the standards for the Chinese cold chain improve the industry’s standards and industry are incomplete, in need of uniform service.” rulings for equipment, manufacturing, “We are building our new state of the operations, management and so forth. art cold storages as well as offering a cold “We have a long way to go,” Liu admits. chain logistics delivery solution with our jv Nevertheless, there is a raft of logistics partner Sinotrans and we will be international companies seeing plenty of expanding our business model into other opportunities in the world’s most populous regions in China with a long term goal of nation. being able to provide a national network PFS Yida Logistics, for instance, is of cold chain facilities,” comments Tim a joint venture between the US-based McLellan, PFS’s md of international Preferred Freezer Services (PFS), the business development.
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March/April 2012 Supply Chain Asia 21 INDUSTRIAL PROPERTY The road ahead for China industrial property
To get a read on China’s industrial property sector, Russel Beron looks at recent trends and speaks with two top movers and shakers
espite the ongoing European debt For companies crisis, decelerating manufacturing l o o k i n g f o r Dand rising labour and commodity an affordable costs, China’s industrial property sector t o p g r a d e appears to be on firm ground. Rents warehouse in are increasing steadily and demand is Shanghai, it’s outpacing supply, mostly due to limited very challenging supply of high grade property along with due to scarce high prices and a shortage of land for land resources development in prime locations. At the and high land same time industrial property investment p r i c e s . F o r yields remain in the solid range of 9%, example, in making the sector attractive for investors. Shanghai land The major driver for property demand i s c u r r e n t l y is Chinese consumers, who are propelling selling for over retail sales at double digit growth rates. RMB1m per This represents a growth in both physical mu. However, property, which has a good balance stores, as foreign retailers clamour to in second tier cities demand is also strong between efficiency, quality and value establish their brands, and in e-commerce and a large amount of supply is becoming for money. Logistics costs in China are as online sales continue to grow. available. The combination of increased relatively high, so many companies look to According to a Boston Consulting Group land availability at lower prices and offset this by optimising their warehouse report, China’s e-commerce industry is government support arising from attracting operations. Adopting a local standard expected to surpass RMB750bn ($118bn) FDI is creating new levels of growth in these warehouse might be cheaper in the short in gross merchandise value this year, which locations. term, but this can often be inefficient in is higher than Vietnam’s GDP. The report Michael Cole, RightSite.asia: For terms of material handling capability and predicts that China will become the world’s logistics space, the demand from traditional ultimately results in higher operating costs. largest e-commerce market in 2015. and online retailers continues to grow at Having a higher quality space, designed Taobao, Dangdang, Tencent Holdings, more than 15% annually, and this trend for efficient operations and integrated Wal-Mart Stores Inc and 360buy are key should continue as I don’t see any drop off with practical sustainability features such players in China’s fierce e-commerce in shopping as the major pastime for China’s as natural lighting, water harvesting and space. China’s online and offline retailers, increasingly wealthy urban dwellers. While I efficient lighting provides for efficient competing in a climate of high logistics remain hopeful that local governments will facilities with reduced operational costs. costs, need distribution hubs in key see the value of setting aside more land to MC: The market is still facing a severe locations which can cut costs and add value support logistics development, I don’t see shortage of logistics space to support retail to their operations. any dramatic increases of supply in the distribution and ecommerce. China’s retail logistics market. For manufacturing sites, sector continued its double digit growth in How do you see supply and demand for I expect that demand should pick up again 2011, with sales increasing 17% during industrial property in China shaping up in the second half of 2012 from the current the year. At the same time, most local in the next 1-2 years? low levels as Europe sorts out its current governments resist making land available Sally Lin, Gazeley China: It depends economic issues. for warehousing because of what they on the location - in general demand is perceive as a lack of added value. On soaring, especially in first tier cities such What kind of property is most RightSite we saw average logistics rents as Shanghai, Beijing and Guangzhou, desirable? increasing more than 15% during 2011 which is occurring against limited supply. SL: Most companies are looking for for sites in or near first-tier cities.
22 Supply Chain Asia March/April 2012 INDUSTRIAL PROPERTY
What locations are companies looking can see that the land price has increased at? from RMB400,000 per mu in 2008 to SL: The major locations are still Shanghai, one million now. In the same period, rental Beijing, Guangzhou, Shenzhen and Tianjin, rates have increased from RMB0.90 sq but companies are aware of the limited m/day, to around RMB1.1 sq m/day. In availability and high land prices. So Chengdu, land prices have increased from increasingly I observe companies looking RMB120,000 per mu to RMB400,000 per to balance land costs with transportation mu now whilst rental rates have increased costs and expanding their location options from around RMB0.70 to RMB0.85. The to within one hour’s proximity of major discrepancy is likely to continue, which cities; such as Dongguan for Shenzhen, means developers have to be creative by or Kunshan for Shanghai. Demand from finding property in the right locations and ecommerce companies looking to establish building highly efficient warehouses to regional distribution centres is soaring. meet our customer’s requirements. With limited options in first tier cities MC: For distribution space, based on that can meet their requirements, these the demand we are seeing on RightSite for companies are looking at second and third new warehouses near urban areas I would tier cities in recognition of the large amount expect rents to increase another 15% on of property coming on stream. average during 2012 compared to 2011. MC: For logistics space, companies are For manufacturing, demand for new space primarily looking at sites near the urban has slackened, so now would be a good centres, with Kunshan developing into a time to negotiate for a production site with noteworthy distribution hub near Shanghai. some local governments. However, there is also increasing demand to support retail in emerging cities such Are there any particular trends you are as Chengdu, Changsha and Hangzhou. seeing in the market? Shanghai For manufacturing, more companies are SL: We are seeing a number of retailers migrating their production inland to escape looking to establish in cities such as rising costs in the first-tier cities and closer Wuhan and cities in northeast China such snapshot to growing markets in central and western as Shenyang, locations where consumption China. Many Shanghai-based companies is rising. Another trend we are seeing is According to a Collier’s Q4 report have shifted production to Changzhou in for European companies to relocate their on Shanghai’s industrial property Jiangsu, as well as to cities in Anhui such distribution centre from Europe to coastal sector, prices and rental values are as Hefei and Wuhu. cities in China. From there, they can either holding steady, with logistics property ship direct to their customers or ship to prices averaging RMB1.11 per sq Where do you see prices in the sector smaller DCs in Europe, which reduces their m per day and rentals for workshops going? costs. We are also seeing 3PLs relocating averaging RMB0.88 per sq m per day. SL: I think it is interesting to consider their DCs into a central DC to optimise their According to the report, traditional two factors in regards to prices - land cost operations. manufacturing is expected to be phased and rental rates. These two factors are not MC: The most interesting trend is out in Shanghai as policies continue to increasing at the same rate. Taking Qingpu, the movement toward investing in high favour higher value, high tech and R&D a district of Shanghai, as an example you tech and other service sector industries. investment. As a result land supply While overall FDI into China has dropped for industrial property development in in the last few months, investment into proximity to Shanghai is limited and Shanghai - which is in many ways China’s factories and warehouses continue to most expensive city - has actually gone be pushed to smaller satellite cities. up as foreign firms pumped US$1.3bn This trend is evident in other major in the service sector during January. At cities on the eastern seaboard and even the same time, Shanghai’s manufacturing in fast growing cities inland such as sector dropped 19.5% compared to Chengdu. 2011.
March/April 2012 Supply Chain Asia 23 COUNTRY FOCUS - INDIA
of India that are both expanding into cold chain storage and distribution. “The anticipation around the full opening up of the sector, that is expected to see a number of global retailers set up shop in India, makes it further attractive,” says Seksaria. LCL Logistix India, one of Tuscan’s portfolio companies, is in the process of raising $10-12m from investors. The increased interest from investors is also attributed to the fact that logistics players have realised that they cannot just be transporters, and are therefore becoming less asset-heavy and offering more services. Private equity keen “These companies have begun to move towards providing third-party logistics,” says Shruti Gupta, vice president of Tano on logistics again India Advisors, a private equity firm. “They have started evolving, so though Shirish Nadkarni in Mumbai notes what sectors are a significant part of their revenue comes gaining capital interest from trucking, there is now a mix of other services in their revenue. Deals in this rivate equity firms in India are untested ideas in this sector in the Indian space are typically between $7m and looking for investments in logistics context,” says Gautami Seksaria, founder $15m in size.” Pcompanies once again, after a lull and partner in Supply Chain Leadership At least half a dozen logistics companies due to mismatch in valuations. These firms Council, which conducts business events on involved in 3PL and cold chain storage and were earlier looking at deals of at least logistics and supply chain management. distribution said that they were in talks with $50m, while smaller logistics companies This uptick in transaction volume is a private equity investors for a possible equity were interested in smaller deals valued at welcome change for a sector that saw 11 dilution over the next three to six months. $20m or less. deals worth $245m conclude in 2010, There has also been significant deal “A good number of deals in the sector relatively better than the 10 deals worth activity in those segments of transportation were concluded in 2011, and a healthy $182m in 2009, but not anywhere near infrastructure where the policy framework number of deals are in the pipeline, the 17 deals worth $491m that were sealed is firmer and friendlier than in other sectors reflective of the strong private equity in 2008. – such as roads and minor ports. interest in the sector,” says Manish Saigal, “Many logistics players are now While minor ports have private equity executive director and national industry expanding into cold chain, so the investments already, there have been seven head of transportation and logistics at opportunities to invest are increasing,” says deals in the roads segment in 2011, more KPMG India. Vishal Sharma, founder and ceo of Tuscan than the number of deals in the previous The primary change is among buyers, Ventures, a private equity firm focused on four years put together, according to who are now more flexible and receptive logistics, citing examples of companies Seksaria of the Supply Chain Leadership to smaller ticket sizes. An added incentive such as Gati and Transport Corporation Council. for investors is the sops that this sector received in the 2011-12 budget. Finance Minister Pranab Mukherjee had unveiled plans for 15 or more mega Recent transactions food parks in the country, with the budget s )NDIA %QUITY 0ARTNERS M INVESTMENT IN 3WASTIK 2OADLINES extending infrastructure status to storage s !SHMORE !LCHEMY )NVESTMENT !DVISORS M PUMPED INTO 3IESTA and transportation facilities in addition to Logistics Corporation the mega parks, making these a lucrative s -AYlELD &UNDS AND 3)$") 6ENTURE #APITALS M INVESTMENT IN &OURCEE investment option. Infrastructure Investment, with another $10m expected from India “This flexibility will also help Equity Partners entrepreneurs raise equity capital for
24 Supply Chain Asia March/April 2012 COUNTRY FOCUS - INDIA
Japan to the fore
First the giant trading houses from Tokyo weighed anchor in India, now come the Japanese logistics firms
ogistics providers from Japan have A shrinking economy and an ageing according to Dealogic, a data provider on been either purchasing or partnering population have combined to make it tough mergers and acquisitions. Japan has also LIndian companies to grow in emerging for Japanese companies to grow at home. been a facilitator for funding the $80bn, markets, as a slowing economy in the Far “In 2012, Japan is expected to have 1,483 km Mumbai-Delhi Dedicated Rail Eastern country dampens prospects. stagnant GDP,” says Manish Saigal, Freight Corridor, which will provide high- SBS has become the most recent executive director and head of transportation speed connectivity to move goods. among a host of Japanese firms, such and logistics at KPMG India. The Indian logistics market recorded as Nippon Express, Mitsubishi Logistics “The Japanese have had a strong $89.1bn revenues in the calendar year Corporation, Hitachi Transport System and presence in China and Thailand, but due 2011, clocking a growth of 9.2% over the Itochu Logistics Corporation, which already to the political sensitivity in China and the previous year, according to consultants have a presence in India. devastating floods in Thailand, Japanese Frost & Sullivan (F&S), who have predicted “We are considering the best way firms have been pressurised to look at that the logistics market will cross $200bn to fund our expansion plans,” says newer markets for growth and hedge their by the year 2020. Katsuhisa Onodera, senior advisor for SBS portfolio.” “Strong growth of key manufacturing Holdings Inc, which has sales of 130bn The need to move beyond Japanese industry sectors, such as automotive, yen ($1.62bn). “We want to build quality shores has also been prompted by a series engineering, pharmaceuticals, food business in India.” of earthquakes and a tsunami in the nation, processing and textiles, among others, Japanese companies have been which totally disrupted supply chains. contributed significantly to this growth,” partnering Indian firms since 2007, but the Experts said a lack of organised logistics in said the F&S report. trend gained momentum in 2010. Nippon India and the Japanese companies’ strategy India spends roughly 14% of its gross Express purchased JI Logistics in 2007, to bring in trading companies as anchors domestic product (GDP) on logistics. This while Mitsubishi Logistics partnered with for large manufacturers has served as a high figure has attracted the Japanese. Gateway Distriparks and South India-based big attraction. “In the mid-1980s, they expanded cold chain logistics provider Snowman “Once they set their eyes on a new in the US; and in the ’90s, they explored Frozen Foods. market, first their large trading companies European nations,” says Krishnan of E&Y. NYK bought a minority stake in TM like Marubeni, Sumitomo, Mitsubishi and “In the early years of the new millennium, International, a Tata Steel subsidiary; Mitsui, among others, enter the market and they set their manufacturing plants in Hitachi Transport System acquired Flyjac act as anchors for other Japanese firms China.” Logistics which owned a number of to do business,” says Ajit Krishnan, who However, a complicated tax structure, warehouses; Arshiya International partnered heads the Japanese Business Desk at Ernst a shortage of skilled labour and indifferent Sojitz Corporation to provide logistics & Young (E&Y) India. infrastructure are the three main concerns infrastructure solutions to Japanese “India is far behind other Asian countries that Japanese firms are facing in India. companies, like free trade warehousing in providing logistics solutions; and hence, “It is a challenge for foreign supply zones. brings in a number of opportunities. chain companies to build and operate a Road and rail transportation, cold chains business in India,” says Vishwas Udgirkar, India is far behind other Asian and inland container depots (ICDs) are senior director at Deloitte India. “Most the focus segments for Japanese in this Indian players operate only one part of the countries“ in providing logistics space.” logistics chain. Also, the industry in this solutions, which brings many Japanese companies paid $80bn to country is fragmented, nascent and up for opportunities.” purchase 620 foreign companies in 2011, consolidation.”
March/April 2012 Supply Chain Asia 25 COUNTRY FOCUS - INDIA
Northern hub Booming
How the opening of a free trade zone in Uttar LCL biz Pradesh will change business prospects
rshiya International’s 135-acre Free Trade & Warehousing Zone llcargo Logistics has been able to grow its business (FTWZ) in Khurja, Uttar Pradesh, will be operational soon, and in Europe by 25% in the last one year. Allcargo, a Aappears set to revolutionise logistics in north India. Acompany listed on the Bombay Stock Exchange, Located near the confluence of the planned eastern and western managed a consolidated sales turnover of Rs35bn dedicated freight corridors, FTWZ is a part of Arshiya’s 315-acre mega ($713m) last year. Chairman Shashi Kiran Shetty’s secret logistics hub which includes a 50-acre rail siding and a 130-acre Domestic has been consolidation of less-than-container-load (LCL) Distripark (DDP), which will also be operational soon. cargo in India. This will be the flagship state-of-the-art logistics infrastructure in the Since Allcargo does not own either ships or containers, north to service the massive land-locked manufacturing belt. but is an agglomerator of cargo, lower freight rates work in “The Khurja FTWZ will benefit companies with export-import movement the company’s favour. Most of the benefit of lower freight in the northwest, by offering cost-effective bonded movement through rates is passed on to the company’s customers. Arshiya Rail, duty-deferred storage of imports, immediate export benefits Having bought out the Belgium-based ECU Line seven for companies in the north,” says Arshiya International’s group chairman years ago at a time when the latter’s revenues were four and managing director Ajay S Mittal. times that of Allcargo, Shetty managed to not only turn “Also, the proximity to the planned eastern and western dedicated freight the loss-making outfit around, but also expanded its corridors will allow convenient access to ports through rail.” global reach through more buyouts.
Gati and Kintetsu tie the knot
Supply chain solutions provider Gati has joined hands in The Gati-KWE partnership will combine the former’s February with Japanese logistics services firm Kintetsu World expertise in third-party logistics and express distribution in Express (KWE) to form a joint venture that will see the merger India with KWE’s freight forwarding expertise and global of the express distribution and supply chain businesses of customer base. both the firms. KWE will be infusing capital of Rs2.67bn ($54m) for its While Gati will hold a majority stake of 70% in the 30% equity stake. joint venture – to be named Gati-Kintetsu Express – the The new JV will invest in high-end 3PL facilities, including Japanese partner will hold the remaining 30%. Gati’s temperature controlled warehouses. entire express distribution and supply chain (EDSC) business Gati, now into its 23rd year of existence, will become will move into the jv through a business transfer entirely debt-free after it finalises another jv with an unspecified agreement, a process that could take up to two months global shipping company, in which it will move its entire to complete. shipping business.
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www.supplychainasia.org/events/scaf2012 Supply Chain Asia Logistics Awards
A night of celebration in Singapore In the fast moving world of Fashion, we have become something of a trend
Today, over 100 of the world's leading international brands are using Kerry Logistics. We provide professional, cost-e!ective and trusted supply chain solutions tailored to each brand's needs, serving tens of thousands of outlets every day. With the strongest distribution network across Greater China and the ASEAN markets, plus the region's most extensive hub operations, our expertise extends from all categories of merchandise, non-merchandise to POSM. We're here to support your growth in Asia. EVENTS
Supply Chain Asia Logistics 亚洲供应链物流奖 wardswards Supply Chain Asia Logistics Awards 2012 - Singapore
Into its eleventh year the region’s leading logistics awards head to one of the continent’s top supply chain destinations: Singapore, the crossroads of world trade. The awards will celebrate the best achievers in our industry at a fabulous gala evening including pre-show cocktail party, four course dinner, exciting entertainment, special guest MC and a post-show party. Rub shoulders with the brightest stars in our industry in this night of unrivalled networking, gourmet food and drinks. This year’s awards are open to everyone to enter and we anticipate record nominations in what is by common consent the fairest judging awards scheme of its type in Asia.
Categories in 2012 are:
Hall of Fame Award All categories, pre- and post-show parties are available Supply Chain Visionary of the Year for sponsorship. Global 3PL of the Year Sponsorship benefits include: Asian 3PL of the Year Green Supply Chain Award Sponsors logo in Supply Chain Asia Magazine and online Supply Chain Innovation Award averaging half a million hits per month Shipping Line of the Year Sponsors profile published online and in print Air Cargo Carrier of the Year Container Terminal of the Year Table of 10 seats at the gala dinner Air Cargo Terminal of the Year Presentation of the Award to the winner on stage Airfreight Forwarder of the Year
Seafreight Forwarder of the Year To find out about sponsorships, please contact Frank Paul: Supply Chain Manager of the Year – Consumer Electronics [email protected] or call +852 91432043
30 Supply Chain Asia March/April 2012 EVENTS
March/April 2012 Supply Chain Asia 31 STRATEGY
Global Supply Chain Risk Accenture reports on research and recommendations from the World Economic Forum
n our global, highly interconnected world, supply chain risk production/consumption hubs; retailers; the general public; is everywhere, notwithstanding the region covered editorially and government and regulatory bodies. This is why the WEF’s Iby Supply Chain Asia. After all, myriad countries (e.g., those report, and this abstract, focus on supply chain risks with global representing the Association of Southeast Asian Nations) are implications—those outside the direct control of any one individual rapidly building a new economic life with radically different supply organization. chain challenges. At the same time, more established brands, such as Japan and South Korea, are scrambling to adjust to a The nature of global supply chain risk very different, pan-APAC (and worldwide) business environment. Local disruptions to corporate supply chains occur on a daily Increased supply chain risk—environmental, geopolitical, basis. However, certain external events and network vulnerabilities economic, technological—clearly accompanies these changes. can turn these disruptions into much larger, global problems. For six months in 2011, the World Economic Forum (WEF) Respondents to the World Economic Forum’s risk survey ranked worked with supply chain leaders from business, government and those external disruptions (i.e., those not occurring within a academia to understand the nature and implications of risk in the company) that they believe are most likely to have significant and 21st century. Initiatives undertaken included surveys and executive systemic effects on supply chain operations (Figure 1). interviews, and encompassed a variety of industries and regions throughout the word. Environmental risks This article looks briefly at the supply-chain-risk findings According to a Swiss Re study, worldwide economic losses from reached primarily by forum participants but also by groups and natural disasters in 2010 totaled $194bn. Natural disasters initiatives associated with several other organizations. Three damage infrastructure, interrupt production, increase commodity important and interrelated insights frame the discussion: costs, and delay or curtail shipments, to name only a few. An s &IRST RISKS OUTSIDE THE CONTROL OF INDIVIDUAL ORGANISATIONS Environmental Natural disasters 59% from terrorism and weather to currency shifts and political Extreme weather 30% upheavals—have been escalating furiously; so much so Pandemic 11% that few, if any, can be mitigated (or even addressed) by Geopolitical Conflict and political unrest 46% one organisation alone. As a result, risk must be managed Export/import restrictions 33% collaboratively across companies’ global supply chains, Terrorism 32% in lock-step with suppliers, customers, third parties and Corruption 17% others. Illicit trade and organized crime 15% s 3ECOND RISK ASSESSMENT PLANNING AND RESPONSE CAN NO Maritime piracy 9% longer be the sole province of operational risk managers. Nuclear/biologival/chemical weapons 6% Effective risk management must now encompass multiple Economic Sudden demand shocks 44% Extreme volatility in commodity prices 30% levels within an organisation: from C-suites and boards Border delays 26% to logistics, finance and human resources. Currency fluctuations 26% s 4HIRDLY GOVERNMENTS MUST BE ENCOURAGED TO HELP Global energy shortages 19% companies understand and manage risk. The political, Ownership/investment restrictions 17% economic and security implications of regulating in a Shortage of labour 17% complex environment demand a new approach to public/ Technological Information and communications disruptions 30% private collaboration. Transport infrastructure failures 6%
Uncontrollable Each of the above insights makes the same basic point: Influenceable that supply chain risk has become too big an issue to handle Controllable insularly. This means that, moving forward, the most effective risk assessments, plans and solutions will have more inputs Figure 1: Triggers of global supply chain disruptions, according to and participants than ever before: manufacturers and vendors; respondents to “World Economic Forum Supply Chain and Transport Risk logistics operators, transport providers and transportation/ Survey 2011.”
32 Supply Chain Asia March/April 2012 STRATEGY
analysis of 15 multinational companies reported that operating to terrorism. A report by CIBC World Markets estimates that total profits caused by supply chain disruptions fell by up to 33% in infrastructure spending will need to reach between $25trn and the quarter following the 2011 earthquake and tsunami in Japan. $30trn USD by 2030. Because natural disasters are difficult to predict and impossible to prevent, companies must concentrate on actuarial and operational Identifying key vulnerabilities and developing metrics planning: making pre-facto investments to reduce vulnerability, In addition to identifying global triggers, the WEF study group also increase network flexibility (redundant manufacturing/distribution, sought to identify those vulnerabilities with the greatest impact on readily available supply alternatives, larger safety stocks, etc) and global supply chains. Among the top five, all but the very highest accelerate recovery. concern (reliance on oil) relate to visibility and control, and three of the top five deal with managing multiple players across the Geopolitical risks ecosystem. Each of these also remains largely within the long- A good example of geopolitical risk is terrorism. Since 9/11, the term control of supply chain organizations. However, as stressed United States has spent $1trn of people’s and companies’ tax earlier, the strategic and operational decisions required to build dollars on homeland security. The costs of new industry regulations resiliency are often beyond the direct control of any one player. and requirements resulting from terrorism are also astronomical. Those decisions need to be the focus of broadly collaborative (eg, In addition, businesses must worry that new security disruptions pan-company) activity. could further affect production or distribution hubs, and that such Companies struggle to quantify the risk exposure of their own events would drive more legislation that could hamper supply chain organizations due to a lack of understanding, standardized metrics, effectiveness. Supply chain risk studies must address all these and relevant and up-to-date data on supply chain risk. Assessing facets. Like environmental concerns, companies are highly limited systemic global exposure is difficult without a platform to share in their ability to manage geopolitical disruptions or influence their data and information. A study by the Business Continuity Institute, outcomes. Thus a dual approach—risk reduction and increased Chartered Institute of Purchasing and Supply, Zurich and DHL network resiliency—is clearly called for. found that 85%of corporate respondents suffered at least one significant supply chain disruption in the previous 12 months. Economic risks However, the impact of disruptions on corporate performance Economic disruptions cover a huge range of issues, including tended to be insufficiently understood and quantified: 26% of currency fluctuations, commodity price volatility and sudden respondents to the WEF’s survey could not estimate the financial demand shocks. For multinational and local companies, border impact of disruptions to their business. delays, export/import restrictions, and ownership/investment restrictions are particularly big APAC risk issues. A study by the Improvement priorities World Bank concluded that enhanced capacity in global trade Risk quantification metrics facilitation—resulting, for example, from streamlined customs programs, minimized tariff and non-tariff barriers, more-rational Business continuity planning Scenario planning quota systems and fewer infrastructure bottlenecks—would increase world trade of manufacturing goods by almost te10%. Data and However, from a risk perspective, the greatest concern is the centralized risk management information sharing programme possibility of sudden new restrictions or delays. This in turn highlights the need for more advanced risk management policies Trusted networks across and mechanisms in national border administration. business and government
Business-led quality standards Professional certification and licensing Technological and infrastructure risks Supplier audit collaboration
Forty one percent of respondents to the WEF survey stated that their Training and Event management tools Shaping new legislation companies have experienced disruptions as a result of unplanned education Track and trace tools Legislative compliance outages of IT or telecommunication systems. Increased reliance Industry benchmarking on, and use of, IT solutions such as electronic data and analytics Government incentive programmes for real-time risk assessment (eg, electronic manifests for cargo Vendor compliance policies Financially accruing for and advanced passenger information for air travel) have proven the cost of risk effective in facilitating movement of freight and people. However, Insurance these advances concurrently put more pressure on governments
and businesses to maintain robust and secure information and Importance in the future Need to improve communications networks. Similar to technological concerns, infrastructure failures—from roads to power stations—are Figure 2: Risk management improvement priorities. subject to greater risk due to everything from lack of investment Source: World Economic Forum Supply Chain and Transport Risk Survey 2011.
Supply Chain Asia March/April 2012 33 STRATEGY
Mitigating risk and building resilience
he WEF taskforce identified a number of priority increasing network resilience. Improving the two-way flow improvement spots: areas where upgrades are needed of information between businesses and government was Tmost and that are likely to become more critical in the identified as a particular priority, given that 24-hour global future (Figure 2). These are not mutually exclusive but rather news media can rapidly spread inaccurate or out-of-context should be thought of as integral parts of a suite of five enhanced information. Two specific actions were suggested: capabilities: s %STABLISH RELIABLE DASHBOARDS FOR MACRO LEVEL mOWS AND disruptions through key infrastructure. 1. Trusted networks across business and government s )NCREASE THE mOW OF INFORMATION ACROSS END TO END Bringing together public and private sector entities will networks to improve transparency at all tiers of the supply allow greater sharing of data and information, thus enabling chain. organisations to better understand and quantify supply chain risks. This in turn will point public and private 4. Quantification metrics sector investment more tightly toward areas of vulnerability Insufficient or improperly focused metrics leave many and facilitate the development of proactive and effective companies struggling to quantify the risk exposure of their legislation. Managed sharing of information, expertise own organisations, or to compare risk mitigation service and priorities also is crucial to pre-disruption preparation providers. Thus a top priority is developing a broadly accepted and post-disruption rapid response. Aligning priorities and set of supply chain risk-quantification metrics that can be agreeing on focus areas clearly will be a gradual process. used to obtain accurate, consistent insights, prioritise risk However, there also are immediate opportunities for greater management activities more effectively, and align incentives, understanding and coordination at the industry and/or exposure and risk appetite. In the commercial sector, the regional level. revenue or gross profit at risk as a result of supplier failure is a useful measure to help senior management understand 2. Legislation and regulation their companies’ risk exposure. Simplifying, internationally harmonising, and implementing effective risk-focused legislation is a key concern across 5. Scenario planning industry groups. However, poorly targeted legislation and Scenario planning is currently used effectively by many regulation also have the potential to unintentionally and companies. It also has the potential to play an integral unnecessarily exacerbate disruptions to supply chain role in reducing systemic risk across networks. Scaling networks. Consider that when Iceland’s Eyjafjallajökull scenario planning to the multi-stakeholder level enhances volcano erupted in 2010, the sluggish response of European understanding of external environments while contributing transport ministries and civil aviation authorities resulted to better anticipation of actions by network partners and in uncertainty and delays in restarting air traffic. This was improved joint preparation of continuity plans. Scenario primarily a function of the failure to recognize in advance planning at the regional and/or sector level can enable the potential threat presented by volcanic ash clouds from areas of conflict and lack of coordination, and clarify the Iceland, the inflexible nature of existing aviation protocols roles and responsibilities of public and private actors in the and the absence of any pre-existing agreement on safe face of major global disruption. Stress testing of critical ash levels. By the time the Grimsvötn volcano erupted in infrastructure would enable greater public- and private-sector May 2011, contingency plans had been established and understanding of resiliency in the event of a disruption. recommendations made to help agencies make better- informed decisions. Looking ahead The above priorities for improved risk management are clearly 3. Data and information sharing a wish list that will take considerable time and investment to Access to accurate and reliable information can ensure a implement. However, as noted at the outset of this article, clearer global picture of supply chain networks’ vulnerabilities, collaboration—across supply chains, across organisations, and and support the harmonizing of back-up plans in the event of across business and government—is rapidly becoming the only a disruption. Identifying recurring risks at the industry level way that effective preparation and mitigation plans can be also can help businesses and governments focus efforts on developed for a truly global business environment.
34 Supply Chain Asia March/April 2012 CALL FOR SPEAKERS CALL FOR SPONSORS
Supply Chain Asia are running 2 panel discussions at Asia’s biggest Logistics show this year, Transport Logistics China 2012, which is held at the Shanghai New International Expo Centre from June 5th to 7th.
COLD CHAIN:
Supply Chain Asia run a 90 minute panel discussion on the Cold Chain sector in China. This definitive and objective feature will look at all aspects of Cold Chain development in the market including key market drivers; the current approach to the industry by national and local government, key private sector players and leaders in Cold Chain systems and technologies, and prospects for foreign and domestic investment in the sector.
CHINA DOMESTIC:
For supply chain and logistics players, 2011 has brought a greater focus on China as both a manufacturer and engine of economic growth. With policies to build domestic consumption and rebalance the economy away from reliance on exports and investment, brand-owners and logistics service providers are working to develop more efficient domestic China supply chain and distribution systems to serve new, potentially huge interior markets. Executives are also looking more closely at locating more supply chain operations away from coastal areas were labour and real estate costs continue to rise, while tax and other incentives to move inland expand and logistics infrastructure improves.
A joint collaboration between Asia’s leading supply chain publication, Supply Chain Asia Magazine, and Asia’s largest logistics conference and exhibition, Transport Logistic China, will host a China Domestic Logistics Panel at the Transport Logistic China 2012 conference in Shanghai.
With an expert panel of speakers, the discussion will cover continuing structural and administrative problems with goods distribution in the market; specific distribution challenges faced by retailers and brand-owners; recent and incoming measures from government aimed at improving supply chain and logistics operations, and the attraction and challenges of relocation of supply chain operations and facilities away from coastal areas.
For more information please contact [email protected] STRATEGY
rofessionals and executives in the supply chain world strive continuously for innovations, leading practices, and new Pideas that can improve how supply chains help businesses Demand-driven grow profitably. Because supply chains provide value to companies of all types, demand-driven value networks should be a prime objective. supply chains “Demand-driven” is a relatively new term for an operations strategy, or business model, that is gaining momentum in the Tompkins International argues the entire supply supply chain community. chain of a company needs to be re-examined to Developing a “demand-driven business” is an emerging goal get volumes just right of business leaders. Knowing what customers bought yesterday and what they want to buy today is not enough. Due to the increasingly global economy, shorter product cycles fueled by instantaneous information, and increasing specialised needs of Six levels of supply chain excellence global markets, the common views about supply and demand are Level 1: Business as usual. At this level, a company works hard no longer adequate. to maximise its individual functions. Organisational effectiveness While it is more important than ever to have near real-time is not the focus. Instead, each organisational element attempts information, even this is insufficient for today’s business leaders. to function well on its own. Each division/department applies its Instead, companies must find ways to differentiate based on own strategy for applications used. latent demand, unmet demand, and even emerging demand. Why customers buy is more important than who they are or what Level 2: Link excellence. Now, the link eliminates and blurs any they buy. boundaries between departments and facilities, and begins a The idea of shifting the focus of supply chains from “pushing never-ending journey of continuous improvement. Its individual products to markets” to “pulling products to sales” is not new. link must evolve to make it the most efficient, effective, responsive Operations strategies of “make to stock,” “make to order,” and and holistic that it can possibly be. “make to both” have been the descriptors of supply chains ever since Dell brought to life “make to order and deliver in three days” Level 3: Visibility. Links work better when they share information. in the early ‘90s. It is common knowledge that as a company Visibility establishes the groundwork for information sharing. It increases and ships to order, its total costs of operations are minimises supply chain surprises because it provides the information reduced. links needed to understand ongoing supply chain processes. The markets, however, do not always work this way, at least not in any large scale for most products. Level 4: Collaboration. Collaboration is achieved through the proper application of technology and true partnerships. Through Out with the old collaboration, the supply chain can determine how best to meet the Most forecasting models are based on assumptions that do not demands of the marketplace. The supply chain works as a whole cooperate with complex current conditions. Neither is true in to maximise customer satisfaction while minimising inventory. today’s complex markets; no degree of past business intelligence is adequate for predictive purposes. Level 5: Synthesis. Synthesis is a continuous improvement process Companies are facing new and unprecedented business that integrates and unifies a supply chain. Synthesis harnesses the challenges and trying to solve them with outdated tools and energy of change to address a turbulent marketplace and ensure practices, which worked well (for some) in the past, but are not customer satisfaction. It is from synthesis that true supply chain equipped to deal with the degrees of volatility, uncertainty, and excellence is achieved because it enables a supply chain to reach complexity of today’s world. unparalleled levels of performance.
“All trading partners in the supply chain should operate with one single consensus sales forecast.”
36 Supply Chain Asia March/April 2012 STRATEGY
Level 6: Velocity. The goal becomes accelerating the organisation Only 46% of supply chain managers are or supply chain to a higher velocity. Velocity creates shorter time involved“ in S&OP at their companies. frames, and this begets demand-driven. ” Demand-driven takes customer purchase information at the point of sale (POS) and provides it in real-time to all trading managers are involved in S&OP at their companies. And, further, partners throughout the end-to-end supply chain. This means the only 15% of these are involved with suppliers. Collaboration entire supply chain sees one set of sales numbers and responds continues to be elusive for the very profession that should be to those numbers in real-time. The key success factor of demand- advancing and driving it. driven is the timeliness of the data reflecting real transactions. The demand-driven process A true demand-driven business The new demand-driven process, referred to by Gartner as the This new strategy takes the form of new operations processes, new “Demand-Driven Value Network (DDVN),” is based on a single organisations and cultures, new mindsets, and new solution sets sales forecast that drives the entire supply chain – from “suppliers’ (processes, people, and tools/methods). Note that most companies suppliers to customers’ customers.” This means that all trading – even those that have launched paths toward improvements in partners in the supply chain (suppliers, producers, distributors, demand planning and supplier relationship management – are not retailers, and service providers) are operating with one single fully transformed to the right-hand side of this graph. “consensus” sales forecast for the product group in question. Thus, At the heart of the new demand-driven operations strategy is this describes the “demand chain,” and not an individual “demand the sales and operations planning (S&OP) process, as shown in link.” It also means that the single “consensus” sales forecast is Figure 1. Created originally some 20 years ago in the consumer as up to date as possible to reality – ie, knowing what is actually products and retail sector, it was designed to obtain collaboration selling (realtime) at least daily, and even hourly. around sales forecasts and supplier networks, so that flows of goods The new Demand-Driven Supply Chain (DDSC) strategy destined for sale at retail would be more efficient. provides more. It brings the SELL process into the supply chain world (see the supply chain model, Figure 2), which has been a missing element. This allows the executive view of the end-to-end supply chain to actually start with the sale, and not at the point of delivery. The DDSC, then, provides for one more critical success factor: It enables the S&OP plan to be a continuous, living, and scenario- based tool for the planning and execution cycles. Not only does this change the rigid, plan and act behaviour, it also allows for near-term “what-if” scenario alternatives.
The new demand-driven operations Figure 3 illustrates the demand and supply model. The critical success factors are not the principles of demand and supply balancing, which are understood; they are careful design and Figure 1: Sales & Operations Planning Process execution in the company and among its trading partners.
Over this period, however, the rational promises of these programs have eluded many. Collaboration is easier to discuss than to execute, products have proliferated, and volatility and uncertainty have predominated. The traditional approaches to S&OP have largely hit the wall – as data timeliness, quality and availability have become limited; alignment with ever-evolving business strategies is too difficult; and moving from demand and supply balancing to profitability is a large barrier. Moreover, a recent report from the annual survey of supply chain and logistics masters finds that only 46% of supply chain Figure 2: Tompkins Supply Chain Model
Supply Chain Asia March/April 2012 37 STRATEGY
trading partners and is providing them near-real-time visibility and collaboration. One Network provides cloud technology for access to real-time data, a vital element in DDSCs.
Getting it all right The principles of demand-driven operations are being understood more and more, as companies move forward with continuous improvements. But, the fact that so many companies are at an impasse with their S&OP processes suggests that the adoption, and adaptation, of leading practices is not keeping pace with new requirements and market challenges. Figure 3: S&OP Demand-Supply Model
Supply chains exist not just to flow products; rather, they can be leveraged for demand creation. The leaders (eg, Apple, Learning from the best P&G, Amazon, Cisco Systems, IBM) have begun to recognise this opportunity. They have changed their operations strategies to focus There are a few lessons learned that can help guide heavily on demand-driven opportunities and have transformed their companies to move forward into advanced stages of processes, people, and technologies to execute in superior ways. collaboration and orchestration. Then they can achieve Thus, DDSC begins with the formulation of operating strategies the dramatic performance gains reported by a few of the that focus their operations on demand, as close to 100% as leaders. These are: practical. s &OCUS ON THE RIGHT TARGETS 3TORE LEVEL IN STOCK IS ONE The next step is to examine the supply chain processes. All of the most critical metrics for the entire supply chain, six mega processes (PLAN-BUY-MAKE-MOVE-STORE-SELL) must not just for the retailer. Traditional DC-based measures be evaluated completely for their drivers, performance measures, hide the true value (ie, the item is there for sale when and productivity. The reorientation of BUY (procurement) in recent customers want it). Other key target measures include times illustrates this need. Buying lowest delivered price is one inventory levels for working capital and cash conversion transformation, but buying what is needed for true demand is even purposes. In general, these measures should be limited, more important. A true DDSC includes procurement in its IBP, allowing the organization to focus on achieving them. along with other operations in S&OP. s 5NDERSTAND TRUE DEMAND DRIVEN !CHIEVE THE COMMON Process assessments are critical for new operations. Identifying realisation that this is, at best, a continuous business what, why, who, how, when, and where, with process mapping, will planning activity that crosses multiple planning get at the alignment and effectiveness of how work is done in the horizons and organisational functions or groups - a supply chains. The relevant example for this action is the process collaborative, consecutive, and synchronized process that addresses sales and operations – again, the S&OP. Although to enable demand response. hundreds of businesses have initiated in some way this process, s ,AYER AND TAILOR THE 3/0 PROCESSES !T LEAST THREE Gartner reports that some two-thirds have been unable to progress levels of planning need to occur: the executive, the beyond the first two stages of the S&OP “maturity model.” managerial or commercial, and the operational. Unless the processes are mapped, critiqued, specified, and Each level needs the right mission, principles, rules, disciplined, it is not likely that true progress will be made. practices, and discipline. This in itself may well require The changes in processes involve the redefining authorities, transformation of planning within the entire enterprise, responsibilities, work flows, collaborations, and performance as well as for those in the supply chain. measures. Once redefined, these can be implemented by “process s 4RANSFORM THE FULL SOLUTION SET PROCESSES PEOPLE AND playbooks,” which are useful for people and teams to work in new tools/technologies. ways. s $ONT JUST CAPTURE SALES AND OTHER OPERATIONS DATA n USE Of course, the new demand-driven operations require new it. Yes, DDSCs are data engines. More sales data is and improved technologies to enable near real-time planning and available earlier (near real-time); and end-to-end supply execution. Tompkins and One Network Enterprises have formed chain visibility is a powerful step forward in becoming a partnership for this purpose. One Network has addressed the demand-driven. complexities involved in a many-to-many, multi-echelon network of
38 Supply Chain Asia March/April 2012 Supply Chain Asia Logistics Awards
The Awards return to Singapore in 2012 It’s your chance to be recognised!
For more details please contact [email protected] CUSTOMS
Why do we receive an increasing are dealing under a trade agreement such number of Customs queries from our as the EU-Korea Free Trade Agreement. customers in Europe? A trade agreement is similar to a special At the moment, in the EU, we are seeing trade corridor between two or several a campaign of audits by some Customs countries. These countries have agreed to administrations. The objective of such give each other preferential duty rates for audits could vary. For instance, to ensure a whole range of products. However, these that revenue is collected appropriately. preferential duty rates are only available to This could be timely as the challenging these two trading partners. This preference economic conditions in the EU are pushing is not open to other countries that are not EU member states to look at methods of part of the deal. To avoid traders from increasing revenue. neighbouring countries simply transhipping products to enter the trade corridor, trade What are the areas of interest to agreements contain rules of origin. These Customs? are the economic nationality of the good. Customs will check that all procedures So for goods coming, for instance, from a available to the trade helping reduce or neighbouring county that is not part of the remove import duties are used in accordance agreement there might be a requirement to with the Customs code. This will affect undergo substantial processing. the so-called ‘procedures with economic EU trade agreements often use as a impact’ such as Customs warehousing, rule a maximum percentage of the ExWorks drawback and processing procedures. It value. For instance 10% of ExWork value will also affect goods moving under a trade of the exported goods can be made up agreement. of material coming from other countries. European This is why you are asked to produce the Why are we affected over here? costed bill of material with the origin of Because Customs authorities are the product. If the calculation shows that questions increasingly connected. A few years ago, imported parts, material and components the World Customs Organisation developed make up more than the allowed percentage Founder of International Trade a system of harmonisation of Customs then the goods can’t have the origin label. processes. The Revised Kyoto Convention There might also be other requirements Instrument and Supply Chain provides a series of standards covering a such as changes in tariff heading or specific Asia magazine correspondent, wide range of clearance activities from manufacturing processes. The consequence Catherine Truel, answers your simple import or export to more complex of a product not matching the rules of origin queries on customs regulations regime. A set of mandatory standards is that, at import in the EU, they can’t and processes must be implemented for countries joining access the preferential rates. the convention while optional standards can be implemented at a later date. What are the consequences of not Consequently, as Customs authorities providing this information? worldwide increasingly use common Your customer will have to pay duty standards it becomes easier for them to at import. Customs authorities can go check that what was declared at export in back three years and check all previous one country is the same as what is declared shipments and collect duties on every at import in another. shipment which is not compliant with the rules of origin. This explains why The information requested is very time we increasingly see in procurement consuming to collect, We need to pull contracts a clause covering origin so out costs from all our bills of material. buyers can charge back to sellers the duty Why? they had to pay at the time of import or This is because you and your customer retrospectively.
40 Supply Chain Asia March/April 2012
BOOK REVIEWS
Burma Watching – A New Sport for Many
Paul French sifts through the myriad books on suddenly-in- vogue Burma
t is amazing how fast things change. Suddenly we find ourselves with, what Iappears to be, a genuine change and series of reforms in Burma (Myanmar). After years of being a closed and paranoid country run by a junta of secretive generals and off limits to most people and corporations due to the imposition Where China Meets India: Burma of sanctions, now we have elections (and and the New Crossroads of Asia more to come apparently), economic Thant Myint-U reform, the release of political prisoners and a major effort to woo western foreign inward investment. The joke in Rangoon is Thant Myint-U’s Where China Meets that in the last three months more private India: Burma and the New Crossroads jets have landed at Yangon International of Asia (Faber and Faber) might be a Airport than in the last 30 years. good place to start. The title alone tells Those jets of course contain you the geo-political importance of bankers, corporate CEOs and officials Burma – betwixt Beijing and New Delhi. of organisations such as the World Bank Burma offers China energy, a market and and Asian Development Bank all coming a route to the Indian Ocean that avoids to see if the reforms are real and if it’s the time consuming and pirate infested finally time to invest in Burma. Many of Malacca Strait. Traditionally India has long them, including most recently economic courted Rangoon, but Chinese spending Nobel laureate Joseph Stiglitz, believe the has pushed them aside. But now, with time is right to start trading and investing a democracy emerging in Burma, India In the last three months with Rangoon again. So, if Burma is appears to have the inside track and about to become important to us again Beijing is not sure how to deal with all this more“ private jets have and integrated back into the Asian supply change. In this book Thant Myint-U travels landed at Yangon than in the chain, then it might be worth reading up across Burma looking at the country and last 30 years ” a bit on the place. its 60m people as well as what the future
42 Supply Chain Asia March/April 2012 BOOK REVIEWS
may hold for Sino-India relations as Burma emerges as a country able to end its isolation and take on a serious geopolitical role once more. David Steinberg’s Burma/Myanmar: What Everyone Needs to Know (Oxford University Press) is well worth reading just to make sure you know your Rangoons
Burma Redux: Global Justice and the Security and Sustainable Quest for Political Reform in Myanmar Development in Myanmar Ian Holliday Helen James
Reform in Myanmar (Columbia University (Routledge Contemporary Southeast Asia Press) takes a punt and tries to divine Series) looks at. James rightly argues the possible futures for Burma. Holliday that the seemingly separate issues of affirms the importance of foreign interests economic development, health, education, in Myanmar's democratic awakening, environmental issues, the eradication yet only through committed, grassroots of the drugs trade, human rights, ethic Burma/Myanmar: What Everyone strategies of engagement encompassing minority community issues and political, Needs to Know foreign states, international aid agencies, social and economic reforms, will all David Steinberg and global corporations. Crucially Holliday require improved governance at both a also considers, given that investment government and corporate level. from your Mandalays and your Shan is likely to flow, what this will mean for Burma’s list of potential pitfalls is long from your Kachin. However, there is a socially responsible corporate investing indeed. The country could slide back into big question as to whether or not the and the (at the moment) still in place the repressive dictatorship it was until so current reform process is real or merely sanctions regime against Rangoon. recently, the environment could suffer a giant smoke and mirrors act; genuine And there are many issues that from investment, corruption and crime and heartfelt or cynical manipulation foreign investment will have to come to could spiral as money pours in. However, to pull in some much needed foreign grips with in Burma if they start pouring it does provide China with the old Burma investment dollars? Planning a move cash in. The country’s environmental Road again to access western markets and into Burma could be costly if the whole infrastructure is very weak and could it does provide India and southeast Asia project collapses and the country sinks easily be tipped over the edge (and has with a new neighbour and possible partner. back into the reclusive junta it was until in some places) by rapid development, In 2012 Burma will certainly be the Asian just recently. Ian Holliday’s Burma Redux: something Helen James’s Security and country to watch most closely and to read Global Justice and the Quest for Political Sustainable Development in Myanmar about too perhaps.
March/April 2012 Supply Chain Asia 43 BLOGS
China brands EU plan for ship emission trading ‘illegal’
A unilateral measure from“ the EU does not meet the requirements of international law”
s the row over the inclusion of ships calling EU ports would be subject in Moscow to draw up a raft of retaliatory international aviation in an EU to regional emission rules. Its intention is counter-measures; China has gone a step AEmissions Trading Scheme (ETS) to have binding measures for shipping in further and actually banned its airlines continues, China has moved to quickly slap place by year-end - in line with the EU’s from taking part in the ETS. down an EU proposal that shipping should target to reduce its industrial CO2 output The IMO has long resisted EU attempts follow suit. by 20% before 2020. to impose regional carbon rules, seeking “The [International Maritime The move came immediately after instead consensus among its member Organisation] has been discussing [how to the failure in late December of a legal states for a global solution. Technical reduce shipping emissions] for years and challenge, in the European Court of Justice, standards on energy efficient ships have hopefully can deal with these issues,” said by North American airlines to aviation’s been adopted but all further attempts to China’s head of climate change affairs Su inclusion in an EU ETS. As of January 1 agree market-based measures to incentivise Wei, from the National Development and all international airlines serving EU are the active reduction of CO2 emissions - in Reform Commission, attending a meeting required to start buying ‘carbon permits’ the form of either a worldwide ETS or of UN maritime body, the IMO, in London covering CO2 emissions during their flights a more straightforward levy on bunker at the beginning of March. “A unilateral by the end of this year. purchases - have so far failed. measure from the EU does not meet the But a powerful group of non-EU Recently new IMO secretary-general requirements of international law.” countries – including China, Russia, Brazil Koji Sekimizu from Japan called for In January EU executive body, the and Saudi Arabia – are staunchly resisting renewed efforts by member states to agree EC, launched a three-month consultation the move. In late February representatives market-based measures this year - no doubt process on various proposals whereby all of 29 nations attended a two-day meeting mindful of the latest EU pressure.
44 Supply Chain Asia March/April 2012 INTRACTABLE SUPPLY CHAIN PROBLEMS? ANYWHERE IN THE WORLD? Service Guarantee WE WILL NOT CHARGE YOU ANYTHING UNLESS WE DELIVER THREE TIMES THE VALUE OF WHAT YOU PAY US.
TYPICALLY WE DELIVER 3-25 TIMES THE VALUE OF WHAT WE CHARGE (AVERAGE VALUE 10 TIMES).
CONTACT US www.globalscgroup.com.au [email protected]
AUSTRALIA (SYDNEY) GERMANY (MUNICH) GLOBAL SUPPLY CHAIN GROUP GLOBAL SUPPLY CHAIN GROUP Level 3, 80 Arthur Street (PO Box 636) Sudetenstrasse 14a North Sydney, NSW 2060 D-82031 Guenwald Tel: +61 2 8920 0694 Tel: +49 89 641 50 40 Fax: +61 2 8920 0689 Fax: +49 86 641 50 55 Email: [email protected] Email: [email protected]