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Panel 8: Transportation Sector Transformations Thursday, November 17 (11:45-12:45)

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Title: Panel 8: Transportation Sector Transformations Thursday, November 17 (11:45-12:45)


1
Panel 8 Transportation Sector
Transformations Thursday, November 17
(1145-1245)
12th Symposium on Development and Social
Transformation
2
12th Symposium on Development and Social
Transformation
Panel 8 Transportation Sector Transformations
The Impact of Low Cost Arilines on the
Patronization of AMTRAK in the US With
Particular Reference to the Northeast Anil
Pavithran
3
Virtually, nothing !!
  • For Amtrak rider ship constitutes a miniscule
    3/10th of 1 of all inter city passengers in
    United States.
  • Only 60,000 passengers per day.
  • Made losses continually from 1972, year of
    formation.
  • From 2001 it has notched up billion dollar losses
    every year.

4
Ray of hope for Amtrak?
  • Increasing congestion on highways and traffic
    delays
  • Door-to-door travel time high for air travel due
    to enhanced security procedures and long haul
    from airports to city centers.

5
Benefits of Rail Transport
  • Helps in reduction of congestion on highways
  • Public benefit of improving air quality
  • Investment in rail infrastructure increases
    transport capacity more than investment in other
    modes of transport
  • Expansion of rail transport will increase choice
    available to traveling public

6
Are the so called benefits real?
  • A 1995 study by the GAO revealed that in the busy
    Los Angeles - San Diego corridor the introduction
    of a passenger train kept around 130 cars of the
    2,240 cars daily.
  • Same study indicated improvement in air quality
    in above sector to be negligible after
    introduction of train as the numbers involved are
    insignificant.
  • The 1995 GAO study showed the development costs
    for both rail and road to be much higher than for
    air travel.
  • Increase in choice to public is meaningless
    unless there is a viable alternative capable of
    fulfilling consumer requirements.

7
Pointers from Canadian Rail
  • VIA Canada managed to turn the tide by reduction
    of workforce and linking wages to worker
    productivity.
  • Renewed focus on customer by eliminating all in
    fructuous costs not impinging on customer
    satisfaction.
  • Display of requisite foresight to conduct a
    detailed study of customer preferences and then,
    necessary political will to implement the same by
    rolling back loss making services.

8
Following European Railways
  • Redemption for Amtrak distress could lie in
    innovative services such as the TGV to snare the
    fast disappearing intercity traffic.
  • Increased attention to passenger needs of speedy
    travel to inner city areas.
  • Provision of inter modal linkages

9
Conclusions
  • Studies reveal intercity rail service can best
    compete with other modes where travel is between
    densely populated cities at a distance of about
    200 miles.
  • Leverage advantages of dove tailing inter modal
    transport for providing quicker access to city
    centers.
  • Curtail all costs inconsistent with customer
    satisfaction requirements.

10
12th Symposium on Development and Social
Transformation
Panel 8 Transportation Sector Transformations
Third Party Logistics Outsourcing in the US and
Lessons for India Prem Narayan
11
BACKGROUND
  • Prior to 1978 the US for hire transport industry
    was subjected to significant economic regulation.
  • Rates charged, market entry / exit and service
    levels were monitored by the Interstate commerce
    commission for trucking rail and by the Civil
    aeronautics board for air freight.
  • Since deregulation, 3PL companies have emerged as
    providers of a wide variety of logistics and
    supply chain management functions.
  • Some 3PLs grew out of the shippers agents and
    freight brokerages that existed under regulation.
  • 3PL companies originated from their parent
    transportation or warehousing companies.
  • Logistics has been legitimate business practice
    since the 1980s. Proportion of 3PL users has
    increased to 80by 2004.

12
DEFINITION
  • Logistics is the process of managing both the
    movement and storage of goods and materials from
    source to the point of ultimate consumption and
    the associated information flow1.
  • Figure 1
  • The services offered by a middleman in the
    logistics channel that has specialized in
    providing a considerable number of the logistics
    activities including the management of
    information
  • 1 (Crompton Jessop, 2001) Fig1 (GUPTA, R. p8
    MMR Aug. 2005)

13
SERVICES PROVIDED BY 3PL
  • Transportation (80)
  • Warehousing (65)
  • Custom services (25)
  • Freight finance services (25)
  • IT support (75)
  • Product support services (45)
  • Logistics Management/consulting(65)
  • Major 3PL providers in US are nearly 100
  • (Regan Song, Nov. 2000)

14
DRIVERS OF 3PL IN US
  • To control costs and use logistics services as a
    means of differentiation in both domestic and
    international markets.
  • 3PL industry has changed structurally with
    mergers, acquisitions, company failures, and the
    entry of many new competitors into niche markets.
  • The geographic coverage and service offerings of
    the major providers has expanded dramatically to
    cope with a significant economic slowdown.
  • Rapid change in the technology employed by 3PL
    industry has not only increased the capital costs
    of the service providers, but also exerting
    pressure on industry prices.

15
SELECTION OF 3 PL
  • Initially cost considerations dominate the
    decision.
  • The quality of service delivered during the life
    of the contract carry considerably more weight in
    the renewal process.
  • A combination of service, cost, and other
    considerations lead to a final renewal decision.
  • The final decision on contract renewal made by a
    committee generally consisting of representatives
    from several functional areas of the firms.
  • At an individuals level the decision of renewal
    in their companies are taken by Director of
    Supply Chain, Director of Logistics etc.

16
IMPACT OF USING 3PL
  • The negative impact- related to the downsizing of
    the logistics workforce. Due to outsourcing of
    logistics functions, the remaining workers become
    more skeptical about their future.
  • A positive impact - due to logistics costs found
    improving year to year and continues to be
    important because the logistics outsourcing is
    initiated due to cost considerations.
  • Competitive pressures in the global marketplace
    will continue
  • To focus management attention on controlling
    logistics costs.
  • To draw attention to the service offerings of
    3PL providers.

17
IMPACT OF IT
  • The main drivers of changes in 3PL industry are
    advances in information and communication
    technologies, development of on-line freight
    market places or dot-coms.
  • The cost of entry into the 3PL arena now includes
    information technology and implementation
    capabilities for warehouse management,
    transportation management, and web-enabled
    communications.
  • The minimum requirements from a 3PL provider is
    to provide IT capabilities.

18
IMPACT OF IT...
  • Users of 3PL services anticipate that the
    near-term differentiators will include electronic
    markets, supplier management systems, and supply
    chain planning.
  • The success of 3PLs will depend on their ability
    to deliver an integrated, end-to-end solution
    that provides significant financial and
    operational performance improvements.
  • The RFID technology has already been implemented
    by Wal-Mart, Gillette, and the Department of
    Defense of US within their logistics networks 3.
  • 3 (Lieb R. Sept.2004)

19
3PL MARKET IN INDIA
  • A relatively younger industry and currently
    undergoing transition which however has lot of
    potential for further growth.
  • Indian logistics market (ILM) was valued at USD
    14.31 billion (Rs 620.34 bn) in 2004.
  • India will continue to grow in importance to
    large north American manufacturers as centers for
    sourcing, manufacturing locations and end
    markets for many of their products.

20
3PL MARKET IN INDIA
  • 20 US based companies are using 3PL services out
    of which 18 support their sales efforts and 10
    support their manufacturing operations in India.
  • Among the most commonly used 3PL services are
    transportation services, shipment consolidation,
    warehousing, customs brokerage, freight
    forwarding, and contract manufacturing.
  • Maruti udyog, Toyota, Hero Honda, Mahindra and
    Mahindra, Tisco and other MNCs operating using
    3PL providers so as to remain cost competitive
    and can better concentrate in their core
    competencies.

21
3PL PROVIDERS IN INDIA
  • Western arya logistics ltd.Surat
  • Welgrow India Pvt. Ltd. Mumbai
  • Fast freight services online
  • Global presence in 35 countries. Provides all
    logistics functions.
  • Global presence in 65 countries. Provides all
    logistics functions.
  • International logistics and freight forwarders

22
CHALLENGES OF 3PL IN INDIA
  • Due to inadequate road, power supply and
    telecommunication infrastructure, companies are
    facing logistics problems.
  • 3PL providers are either not available in
    backward areas or others located in suburban
    areas are not interested to undertake contracts
    due to inadequate infrastructure.
  • Significant problems in finding or using 3PL
    providers are related to the limited scope of
    3PL operations in India.
  • The delays in customs clearance as their main
    problems.

23
LESSONS FOR INDIA
  • Large American manufacturers are continuously
    expanding their use of 3PL industry outside US
    and most rapid growth has occurred in India.
  • India will continue to grow in importance to
    large American manufacturers as center for global
    manufacturing, sourcing and sales (end market).
  • G.O.I has gone ahead in liberalizing the economic
    policy to fetch foreign investment in various
    sectors and accordingly development of 3PL
    industry is at rapid pace in India.

24
LESSONS FOR INDIA
  • The Golden quadrilateral highway project with
    8-lane is a path breaking innovation would meet
    the future need integration of 3PL
    infrastructure in India
  • A large no. of 3PL firms of India are developing
    and have their infrastructure world wide and
    growing to a greater extent to meet the need of
    3PL users of US.
  • 3PL industry has potential to grow due to low
    manpower cost, end market and scope for
    manufacturing facilities being created by US
    companies.

25
12th Symposium on Development and Social
Transformation
Panel 8 Transportation Sector Transformations
Public Private Partnership in the Transportation
Sector V. Sivasubramanian
26
Road transportation
  • Roads are the dominant mode of transportation
  • India 84 of passenger traffic and 67 of
    freight movement
  • US 99 of passenger traffic and 31 of freight
    movement
  • Roads are also big business
  • Road transport sector contributes to about 5 of
    Indian GDP
  • Total expenditure on roads in US US 80
    billion per year
  • Revenues (excluding tolls)
  • Highway Trust Fund (US) US 20 billion
  • Road Cess Fund (India) US 3 billion

27
Traditional model
  • Design-bid-build model
  • Separate contracts for design and construction
  • Detailed plans, specifications and estimates
    prepared
  • Bids solicited through public advertisement and
    award to L1 bidder
  • Construction Supervision usually by the agency
    itself
  • Arms length relationship between Government and
    private sector
  • Risk aversion and not risk management
  • Cheapest (L1) cost and not necessarily best
    value of money
  • Life cycle cost (from inception to end of design
    life) not considered
  • Funded through general budget, fuel tax, user
    fees or bonds
  • No incentive for innovation
  • Technology
  • Materials
  • Financing techniques

28
Experience in India so far
  • National Highway Development Programme
  • 12000 kms at estimated cost of US 12 billion
  • Expanded further US 40 billion to be spent by
    the next 7 years
  • Innovation in oversight/construction supervision
    mechanism
  • Bipartite model to a tripartite model
  • Outsourcing of contracting and consultancy
    services
  • National Highways Act amended in 1995
  • Private persons can invest in national highways,
    collect fee, regulate traffic, etc.
  • Standardized contract conditions (FIDIC, World
    Bank, ADB)
  • Quality and Cost based selection
  • Financing mechanism
  • Road cess
  • Capital gains tax free bonds (54EC)
  • World Bank, JBIC and ADB loans
  • Private sector participation under BOT/Annuity
    models

29
PPP initiatives in US
  • Innovative contracting
  • Traditional Design, Bid, Build
  • Design-Build
  • Build-Operate-Transfer (BOT)
  • Design-Build-Finance-Operate (DBFO)
  • Build-Own-Operate (BOO)
  • Purely private
  • Innovative financing
  • Flexible Matching
  • Toll Credits
  • Grant Anticipation Revenue Vehicle (GARVEE)
  • Federal credit assistance
  • Innovative project management

30
PPP experience in US
  • Significant project cost savings/overruns
  • Ranging from 6 to 40 of Engineer estimated cost
  • Reduction in overruns from 12.4 to 3.6
    (Florida)
  • However some contrary experiences in Florida and
    Washington
  • Faster completion of projects
  • Upto 50 reduction in project duration
  • Allocation of Risk to the party best able to
    manage risk
  • Risks such as setting and monitoring safety
    standards
  • Transfer of risks of price escalation tort
    liability with private sector may increase costs
    and lead to sub-optimality
  • States ability to raise funds for other purposes
    not jeopardized

31
PPP experience in US
  • State procurement statutes incompatible with PPP
  • Only 28 States have allowed for design-build
  • Only 21 States have allowed for private
    participation
  • Private sector funding does not ensure financial
    solvency
  • Dulles Greenway, Virginia partly defaulted in
    1996
  • Investment rating problems for Pocahontas
    Parkways and Southern Connector
  • Greater time and efforts to be spent by senior
    officials
  • Need for developing new systems
  • Earlier approach was risk aversion
  • Lack of experience with private sector
  • Local opposition to tolls and toll financing

32
PPP experience in US
  • Private sector concerns
  • Financial feasibility
  • No tax exemptions
  • Uncertainty of revenue streams
  • Tort liability
  • Land/RoW acquisition and environmental clearances
  • Changes in political leadership
  • Smaller firms at a disadvantage
  • Inability to manage large projects
  • Cannot bear the risk transferred
  • But they could come together to form joint
    ventures

33
Lessons for India
  • Innovative contracting
  • Only two methods allowed so far
  • Elements of other methods present in some cases
  • Bonus allowed for earlier completion
  • Pre-construction activities continue with public
    authorities
  • Tort is not a major issue in India so far
  • Innovative Contract Management
  • Tripartite approach
  • Issue of Engineer as an adjudicator under FIDIC
  • Expertise in the form of dedicated cadre

34
Lessons for India
  • Innovative Financing
  • No matching required from States
  • Compartmentalized approach
  • No federal control over State expenditure on
    roads (except on national highways)
  • Central/State finances and user fees/tolls to be
    leveraged for attracting private investment
  • Difficulty in allowing a PPP to default debt
    repayment

35
General conclusions
  • Specification to performance based contracts
  • Level of service requirements
  • Role of public and private sectors
  • Difference in goals
  • Life cycle costing
  • Risk sharing
  • Financial leveraging
  • Quality and cost based selection
  • Issue of unsolicited projects

36

12th Symposium on Development and Social
Transformation
Panel 8 Transportation Sector Transformations Th
ursday, November 17 (1145-1245)
Anil Pavithran The Impact of Low Cost Airlines
Prem Narayan Third Party Logistics Outsourcing
V. Sivasubramanian Public Private Partnership in the Transportation Sector

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