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

12 th Symposium on Development and Social Transformation. Panel 8: Transportation Sector Transformations Thursday, November 17 (11:45-12:45). 12 th Symposium on Development and Social Transformation. Panel 8: Transportation Sector Transformations.

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

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  1. 12th Symposium on Development and Social Transformation Panel 8: Transportation Sector TransformationsThursday, November 17 (11:45-12:45)

  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 NortheastAnil 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 IndiaPrem 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 shipper’s agents and freight brokerages that existed under regulation. • 3PL companies originated from their parent transportation or warehousing companies. • Logistics has been legitimate business practice since the 1980s. Proportion of 3PL users has increased to 80%by 2004.

  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 individual’s 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. 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 3PL PROVIDERS IN INDIA

  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 SectorV. 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 V Sivasubramanian (24)

  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 V Sivasubramanian (24)

  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 V Sivasubramanian (24)

  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 V Sivasubramanian (24)

  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 • State’s ability to raise funds for other purposes not jeopardized V Sivasubramanian (24)

  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 Parkway’s 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 V Sivasubramanian (24)

  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 V Sivasubramanian (24)

  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 V Sivasubramanian (24)

  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 V Sivasubramanian (24)

  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 V Sivasubramanian (24)

  36. 12th Symposium on Development and Social Transformation Panel 8: Transportation Sector Transformations Thursday, November 17 (11:45-12:45)

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