India’s sophistication emerges

IndiaÆs sophistication emerges Head of Maersk logistics subsidiary in India says shippers prefer visibility over shortened lead times.

By Eric Johnson

      In a country as rife with logistical challenges as India, gradual improvements are to be cherished dearly.
      For Lars Sorenson the change in expectations of Indian shippers from their logistics service providers has been noticeable and gratifying.
      Sorenson is managing director of Damco in South Asia, Maersk's logistics and forwarding subsidiary for India, Pakistan, Sri Lanka and Bangladesh, with 23 offices in the region, including 18 in India. He's spent the last five years in the fast-growing and fast-changing region.
      'You go a little bit back and look at the requirements of Indian exporters and it's changed from the last five or eight or 10 years,' he told American Shipper in a December interview. 'In the past, their requirements used to be very basic and transactional in nature; for example, to make sure their shipments were loaded on vessels. Now that India is an integral part of global trade, and the exporters have become suppliers to leading global multinational companies (MNCs), they are much more focused on timely delivery, safety and security of the cargo and other aspects of quality control related to their transportation and supply chain management needs.'
      He said Indian shippers now have requirements of a more international nature, and that the market is developing accordingly.
      'You're seeing improved customs clearance,' he said. 'Previously a process that was done manually is now automated. And with easier processing, they have realized that they need fewer intermediaries in their supply chain to manage the processes.'
      That bodes well for Damco, and international companies of their ilk. Sorenson sees a period of consolidation in the Indian logistics industry as not only likely, but necessary.
      'There's lots of fragmentation in logistics in India and that goes for all the various components (inland container depots, warehousing, trucking),' he said. 'That will give a lot of opportunity for consolidation, which will simply have to take place.'
      Sorensen said one of India's emerging strong suits is that international logistics providers are not ignoring the local knowledge developed by domestic companies.
      'More and more international players are coming into the country, and there's a nice mix between MNCs and local players,' he said. 'That's a strong point, because you need to have the local flavor to truly serve customers.'
      No discussion of logistics in India is complete without a mention of the country's underperforming infrastructure. But like many other forward thinking logistics professionals here, Sorenson sees the short-term infrastructure challenges as opportunities to better serve shippers.
      'All countries have their own challenges,' Sorensen said. 'What is an opportunity here is to assist Indian manufacturers to be more competitive in the global market. No matter what numbers you use, logistics are more costly here (than in other markets). Trucking, customs clearance, ocean freight forwarding, they all are huge opportunities. It's obviously not something you change in a day or two.'
      Some argue India's government doesn't have a handle on how to build a transportation network to truly maximize goods movement in the country. Projects to link major cities and ports by rail and highway are well underway, but even those projects may not provide enough capacity. And the pace of construction is slower than in some of India's Asian rivals.
      But Sorenson said the problem boils down to cash and can be met with adequate public-private partnership in the area of infrastructure development.
      'I think there's no doubt the government knows what it takes,' he said of the government's recognition that it needs to upgrade infrastructure for freight movement. 'But we're talking about substantial amounts (of money) to cover everything. That will be partly covered by the government, but there also has to be (foreign direct investment). Infrastructure development will take place over the next 15 years, but a lot depends on how much the government continues to open itself to FDI.'
      There may yet be opportunities for Damco in the infrastructure journey, not just the destination. After all, infrastructure development provides chances for logistics companies to expand their business through direct involvement in the projects themselves.
      'It's one of the reasons we have looked to project cargo as one of our biggest growth areas,' Sorensen said.
      For now, significant obstacles exist because of infrastructure constraints, but Sorensen insists those obstacles can be managed with proper preparation.
      'I think you need to be able to see the various segments in your transportation chain, and proactively prepare for the various contingencies that may affect these segments,' he said. 'There's the rainy season, and the peak season, so you generally know the times of year that shipments can be delayed. As long as you have a clear plan and fast reactions, you're able to overcome these things.
      'That said, road infrastructure and rail infrastructure is improving,' he added. 'Things are not as challenging as they were.'
      Sorensen said one aspect the company markets is that its services in the Indian Subcontinent mirror those the company provides in more developed markets.
      'We're able to offer the same visibility as anywhere in the world because we're dealing with our own offices,' he said. 'We don't operate with agents. Talking about lead times is important, but more than that is reliability and visibility.'
      In terms of marketing Damco, Maersk undertook a huge change in 2009, rolling the Maersk Logistics and Damco forwarding units under one global brand.
      'Hopefully it will have a positive effect for our customers,' Sorensen said of the rebranding in India. 'Damco was the forwarding product and Maersk Logistics provided the supply chain services. Hopefully it makes it easier for our customers to go through one brand. It's the same people and the same services so there's not a lot different internally.'
      As far as Damco's business in India, it is overwhelmingly related to exports out of the region. Sorensen said Damco's proportion of import business into India is 'far too small,' something the company is looking to change in coming years.
      'Imports are higher than exports in India by value,' he said. 'There is a significant volume of imports coming into the country and we're not doing enough. That's one of our goals. In terms of exporting, I have never seen India as a China, with mass production of very-low-value merchandise. We'll see more sophisticated goods coming out of India.' He mentioned in particular auto parts, pharmaceuticals, and high-end garments and textiles.
      A retailing revolution that has been expected in India for the last few years has yet to truly materialize ' in part, because of the global economic malaise. But Sorenson said retailers looking to import into India do have high expectations logistics-wise.
      'Some retailers are looking for the same service into India as they do into Europe or North America,' he said. 'They're looking for the same sort of consolidation service out of China.'
      Sorenson heads not only India, but also Bangladesh, Sri Lanka and Pakistan.
      He said he expects growth to continue in Bangladesh as a market to source textiles and garments. India's neighbor to the east has enjoyed growth in 2009 when most markets have seen a decline, largely because its costs have remained low, even relative to other Asian sourcing locations.
      'Exports have actually increased slightly year-on-year,' he said. 'It's an important market for us because we sit on a solid chunk of that market. We're one of the biggest consolidators from there to Europe. If you look at the country, you can expect its textiles and garments exports to increase because it's very cost competitive. And some customers are using it as a way to diversify risk slightly.'
      As for Sri Lanka, which is also focused heavily on textiles and garments, he said the country presents some freight forwarding and consolidating opportunities, particularly now that the government has gotten the country's long-term conflict with native Tamils in the northeast more or less under control.
      'Damco has been in the market for a number of years,' Sorensen said. 'Our focus has been on finding the best people within our industry. We're asset-light in Damco, but as the A.P. Moller – Maersk Group we've tried to also identify where the infrastructure challenges could be and address those, through (inland container depots) and (container freight stations) owned by sister concerns within our group. It gives us an advantage to have those strategic assets.'
      Sorensen also mentioned Damco's wide experience in emerging and developed markets would help them to succeed in markets like those in South Asia.
      'We've had experience and we're able to bring in that expertise from other markets,' he said. 'At the same, you have to constantly adapt and develop new solutions all the time here.'