Report On :

Short Case Study

“Majors Plan Big”

With Illustration On

“Fedex Corporation”

Submitted By :

Pranshur Aggarwal (09-I-139)

Harsh Bhatia (09-I-119)

Majors Plan Big

About The Case :

There has been a rapid growth recorded in the cargo sector in the last three years .The air cargo has galloped ahead well past the traditional favorites railways and shipping to take the biggest bit in freight traffic. In India there are three major transportation modes Aviation , Railways and Shipping for the 2000-07 period and found that air cargo has grown by around 19% as against 10.3% and 9.2 % growth in shipping and railways during the last three years. The government is emphasizing on food processing sector & horticulture. There arises a need for greater capacity in the domestic airway facility at low cost.In such circumstances dedicated freight aircraft on national and international routes would provide a boost to industry.

First Flight Couriers Ltd. had announced its air cargo services not too long ago and said that it would replace its small cargo planes with Boeing B737-300 cargo planes on lease. The new planes would be a part of `100 investment that the company has planned in anticipation of the air cargo boom. Company will also enter in the 3PL business by setting up warehouses across the country. Blue Dart another Giant in the logistics sector in the country has induced its 7th freighter a Boeing 757 into service .Another big Player in the Industry Safexpress Pvt. Ltd. has pulled its socks up to give & face competition and for this the company has also made strong expansion plans.

The growth prospects in this sector is attracting the Business Tycoons like Anil Ambani who has acquired 44 % stake in courier and express company DTDC Ltd and Elder Brother Mukesh has plans to start a dedicated freighter airline to service the retail and perishable goods industry.

The Construction of the cargo friendly airports in Some cities has enthused most cargo operators, the way the new operators of the country’s top gateways Delhi & Mumbai have been addressing the

needs of the air cargo sector can only help to enhance the growth of the industry.

Analysis :

Triggering intense competition, globalization, coupled with liberalization, forced both private and public firms to commit themselves to making available to their customers the right material of right condition, at the right time and place at the lowest cost — be it a product or a service. The World Bank, in a recent survey Connecting to Compete: Trade Logistics in the Global Economy, has developed a Logistics Performance Index (LPI) that can serve as a benchmarking tool for measuring performance of businesses along a country’s logistics supply chain. The Bank study asserts that countries that are able to connect to the global logistics web would not only have access to vast new markets but also remain a part of the global trade growth. The report avers that it is not the income of nations but their undergoing trade expansion that determines their logistics efficiency, as the survey shows that nations with increasing trade (imports and exports) to GDP emerged as the out-performers on the LPI scale relative to their income levels.

Country LPI ScoreUsa 3.85Uk 3.84

Singapore 4.19India 3.07China 3.64

Mexico 2.64

India’s spend on logistics activities - equivalent to 13 percent of its GDP is higher than that of the developed nations. The key reason for this is the relatively higher level of inefficiencies in the system, with lower average trucking speeds, higher turnaround time at ports and high cost of administrative delays being just a few of the examples. These inefficiencies have arisen over the years from a combination of a non-conducive policy

environment, extensive industry fragmentation and lack of good basic infrastructure. India's indirect tax regime discouraged large centralized warehouses and led, over time, to fragmentation in the warehousing sector.

Country Logistics Cost/GDPIndia 13%USA 9.9%

Europe 10%Japan 11.4%

In addition, the evolving business landscape and increasing competition across industries, is creating the need for more efficient and reliable logistics services than what exist today For example, rapid growth of organized retail and the need to reach out to the large untapped rural markets in India are necessitating development of strong back end and front end supply networks.

SIZE OF THE LOGISTICS MARKET IN INDIA:

Indian Supply Chain and Logistics Industry is more than USD 100 Billion in size and is the backbone of Indian Economy. Our industry is growing at a rate of 8-10% annually and has been a crucial contributor in the growth and development of the Indian economy. Growth in this industry is currently being driven in India by over USD 300 billion worth of infrastructure investments, In addition, we expect strong Foreign Direct Investment inflows in the Indian markets, which would lead to increased market opportunities for providers of Third-Party Logistics in India.

LOGISTICS ON A HIGH GROWTH TRAJECTORY

There are several factors have favorably impacted the growth of the logistics industry, like the country's changing tax regime, growth across major industry segments such as automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence of organized retail. With escalating competition and cost pressures, companies are increasingly focusing on their core competencies by outsourcing their logistics requirements to third party logistics (3PL) players.

ESTIMATE OF BUSINESS SPACE IN LOGISTICS SECTOR

Sno. Type Of Infrastructure

Estimated No.s/Demand in next

5-10 years

Investment Needed Approx.

(in Crores)1 *ICD/FTWZ 50 Nos. `75002 Air Cargo Centers 1.50 lac sq.mt. `3003 Agro Warehouse 35 million MT. `6004 Integrated Transport

Centers 15 nos. `4875

Total Investment Needed Approximately `13275

*Free Trade Warehousing Zones (FTWZ)

*Inland Container Depot (ICD)

Mode Of Transport :

Preferred Mode Of Cargo Movement

Mode Of Transportation % Of Total Cargo MovementAirWay 2.5 %

Waterway 20%Railways 23%

Roadways 54.5%

Road

The road freight industry in India is worth about INR 1.42 trillion and is growing at about 6-8 percent year on year (refer figure 6). Manpower spends amount to only about 4 percent of sales as against the overall sector average of 8-10 percent. The industry has traditionally been extremely fragmented - almost 75 percent of the trucking 'companies' are single truck operators and almost 90 percent of trucking companies have a turnover of less than INR 10million. Road network of 3.3 million km is the second largest globally and offer wide reach and easy accessibility to even small markets.

Railway

Rail freight traffic revenues stood at around INR 350 billion in 2006 having grown at around 8 percent in the recent past with the growth in the last

couple of years being around 10 percent. It is the world's second largest rail network spread over 81,500 km and covering around 7000 stations. Manpower spends amount to about 45 percent of revenues as against the overall sector average of 8-10 percent. Also, non-salary expenditure comprises 36 percent of overall manpower expenditure compared to the sector average of 13-14 percent. Spread over 81,500 km, railways carries 25% of total freight movement and has Low transportation cost as compared to roads

Water/Port

The growth in shipping has been even higher than that of the railways driven by strong growth in foreign trade both in bulk and containerized cargo. Manpower spends amount to about 8-10 percent; non-salary expenditure varies greatly between companies ranging from 3-20 percent of overall man power expenditure. With increasing capacity and infrastructural support, the scope of the operations is set to increase! India now has the largest merchant shipping fleet among the developing countries! India ranks 17th in the world in shipping tonnage. ! Indian share of maritime transport services is 1 percent of world market.! The container traffic has registered an impressive growth of 15 per cent over the last five years.

Air

Though the air freight segment holds a small share of India's freight market, it is growing at a fast pace. While India accounts for meager 3 % of the global air cargo market, the Indian air cargo industry is expected to double in size by the year 2010, as per an expert estimate. As in the case of sea freight, the level of formalization and standardization of operations in the air freight segment is greater than in the road sector. By virtue of the level of investments in assets, network and relationships required to be a player in this segment, it has traditionally been relatively more organized leading to greater regard for manpower development. The market leaders typically have established internal structured training practices to train thestaff employed at this level. Nevertheless, there exist perceived gaps at the operational / front line level and are primarily to do with soft skills, such as relationship management, interpersonal and managerial, and supervisory skills.

More on Air Cargo :

Size of Business

Current worth is Rs. 100 bn which is expected to increase to Rs. 400 bn in next five years

International Air Freight –0.92 Mn MT Domestic Air Freight –4.3 Mn MT 80% of international cargo is handled at Delhi & Mumbai

Government Initiatives

Modernization / restructuring of Delhi, Mumbai, Chennai and Kolkata Airports

Greenfield airports at Bangalore, Hyderabad, Goa, Pune and Navi Mumbai

City side development of 35 Non-Metro airports There are plans to allow foreign airlines to stake of upto 75% in

cargo airlines India has started automation of cargo operations

Business Opportunity

Total warehousing & processing space required-2,00,000 sq. m. Total available space-50,000 sq. m. => Infrastructure Gap of

1,50,000 sq. m. Project size = Rs. 300 Crore (@ Rs. 20,000/ sq. m. of

development)

Prospective Areas

Location Type Of InfrastructureDelhi, Mumbai Complete Air Cargo Center

Bangalore , Kolkata Bonded WarehousingRanchi , Jammu, Madurai ,

VaranasiAir Cargo Center

Huge requirement for air cargo centers due to growth in air cargo as well as up gradation of infrastructure at various airports

It is anticipated that air cargo activity shall expand from metro airports to mini metro and non metro airports post development of necessary infrastructure

Assisting DDA to set up air cargo based integrated freight complex at Dwarka in Delhi

LIST OF TOP LOGISTICS COMPANIES IN INDIA :

TNT Express SafexpressDHL Ashok LeylandAFL Aggarwal Packers & Movers

Blue Dart DTDCGati First Flight

Entry and expansion plans of logistics firms

DHL and India-based the Lemuir Group entered into a 76: 24 joint venture – DHL Lemuir Logistics Private Ltd.

Germany-based Rhenus AG and Hyderabad based Seaways Shipping Ltd have set up a joint venture – Seaways Rhenus Logistics Ltd.

The UAE-based Swift Freight has forayed into the Indian market. The Future Group plans to develop 3 million square feet of

warehouses by 2010. National Bulk Handling Corporation plans to set up 200

warehouses across the country by 2012.

Comparison of Indian Logistics industry with other countries:

USA Europe Japan China IndiaLPI Score 3.85 3.84 4.02 3.64 3.07LPI Rank 14 9 6 21 39Logistics

Contribution From GDP

9.9% 10% 11.4% 12% 13%

Share of 3PL in 57% 30% 80% 15% 10%

overall industriesLogistics Activity

By organized Sector

57% 40% 80% 10% 6%5

Emerging concept of third party logistics

Third party logistics or 3PL is a concept where a single logistics service provider manages the entire logistics function for a company. Although still at a nascent stage, the Indian 3PL industry is growing at a rapid pace. Global sourcing activity and fierce competition amongst manufacturers to cut costs have made movement of materials rather complex, giving rise to the emergence of several third party logistics players.Fuelled by the increasing trend of outsourcing, coupled with the rapid growth in the Indian manufacturing sector, 3PL is estimated to grow at about 30 per cent annually and become a US$ 30 billion industry by 2010.

Firms Investment Details/Plans(2007-08)(in US$ millions)

DHL 250TNT 115Gati 200

Shreyas Shipping & Logistics

350

Share of 3PL in overall industry

Country Share Of Third Party Logistics In Overall Logistics

India 10%USA 57%

Europe 30%Japan 80%

The entry of large third party logistics (3PL) carriers – like Federal Express (FedEx) and DHL – and network expansion by the existing domestic players (such as Gati and Shreyas Shipping) have also contributed to the transformation of services and the business practices across this sector.

The organized 3PL market in India can be categorized into three major segments – public sector, private sector and foreign entrants. Some of the major players in each category are as illustrated. P

Public Sector Companies

Foreign Entrants Private Sector

Transport Corp. Of India

DHL Gati

Container Corp. of India

Fedex Safexpress

Food Corp. of India Bluedart Reliance Corp. Logistics

Central Warehouse Corp.

TNT All Cargo

LOCATION ATTRACTIVENESS ANALYSIS

Established hubs

These hubs offer excellent road, rail and sea port connectivity and are also witnessing significant investments in infrastructure. High penetration of organized retail, presence of industrial clusters and upcoming industrial projects and SEZs in and around these areas make these 'established' hubs all the more attractive. Major ports and existing logistical hubs – like Mumbai, Kolkata and Chennai – fall under this category.

Emerging hubs

Gurgaon, Vizag, Nagpur and Indore fall under this category since these hubs have a high potential, but lack the supporting infrastructure as of now. These hubs however have major infrastructure projects underway which are scheduled to be completed within the next three to five years.

Promising hubs

Promising hubs comprise of areas such as Jamshedpur, Alwar, Ahmedabad, Bangalore and Ambala and have considerable prospect of being developed into logistics hubs. Increase in manufacturing activities is bringing about a change in these areas and opening up opportunities for the logistics players.

Conclusion

Indian Logistics industry is continuously improving its performance in the global logisticsIndustry by improvement of customs, trade-related infrastructure, inland transit, logisticsServices etc. Indian Logistics industry has low performance than developed countries like USA, UK and Singapore in global logistics sectors due inefficiency in logistics services and highest among the low-income group countries. India spend in Logistics activities equivalent to 13 % of its GDP is higher than that of developed countries. 3PL service provider share is less in logistics sector in India as compare to developedcountries and still at the nascent stage. Multinational companies in all industries have been predominant users of this service as one of reason for lesser share 3PL in India. Also in India organized sector not well established as compare to developed nation this contain cost of inventory holding, transportation, warehousing, packaging, loss and related to administration is higher. Air mode of transportation helps in bothdomestic and international movement of goods but for international movement is more as compare to the domestic due to the higher cost, safe and faster way as compare to others modes.

ILLUSTRATION

The air freight segment holds a small share of India's freight market, it is growing at a fast pace. While India accounts for meager 3 percent of the global air cargo market, the Indian air cargo industry is expected to double in size by the year 2010, as per an expert estimate. So to encash this opportunity many big players have jumped in this mode of logistics and Fedex is among those .

Federal Express : Moving The World and a Commitment to Indian Businesses.

Worlds 3rd Largest Logistic Company & Ranked 2nd In the Air Cargo Operators 2010 List of Forbes.

India: Economic Overview and Growth Prospects in Air Cargo Sector

Despite the economic crisis, Indians are most optimistic than their peers in developed nations like Japan, France, Germany and the United Kingdom according to Worldwide Independent Network(WIN)survey.

According to the international Monetary Fund(IMF),India and China- the only sizeable economies likely to record growth rates of over 5% prevented the world from recording negative growth in 2009.

According to industry forecasts, the cargo segment of the airline business will more than triple by 2025. But before industry players begin celebrating, they should consider that the boom in air freight will not deliver an automatic “bump up” in growth across the board. In fact, according to Accenture research, 5.5 billion US dollars will move from the top line of air cargo carriers to their competitors over the next five years.

The air imports from Europe to the subcontinent will average 6.6 per cent growth per year, growing from around two lakh tonnes in 2005 to six lakh tonnes by 2025. Exports between the two regions would continue to expand approximately 6 per cent annually till 2025. Foreign Direct Investment also has stimulated international air trade in

the region. This growth coincides with a jump in air cargo traffic with North America and Asia.

Fedex India Service Expansion

FedEx Express, a subsidiary of FedEx Corp and the worlds largest express transportation company, has announced new service expansions in India that will connect more of India to more of the world by providing customers with enhanced transit and cut-off times, increased cargo capacity and faster and more flexible access to the global marketplace. "FedEx was the first air express company to establish direct international air routes in India and commitment is to provide customers with a superior international express service, with maximum connectivity by air. The package of service enhancements announced today will help do this--no matter where a small, medium or multi-national company is located in the country." 

Air Cargo : Commitment to Indian Businesses

FedEx Corp. has launched a new flight from Bengaluru establishing direct connections to Europe and the Middle East and the U.S.  With this, Bengaluru becomes the third Indian gateway for FedEx joining Delhi and Mumbai and enhancing FedEx customers’ access to the global marketplace. The launch of the new flight from Bengaluru, coupled with the domestic service expansion, broadens market opportunities  for customers doing business locally as well as internationally by leveraging the reach of the FedEx worldwide network. With the share of Europe and America in India’s exports at 23.8 per cent and 16.5 per cent respectively between 2008 and 2009, the new flight from Bengaluru opens up immense possibilities for South Indian companies trading with Europe, the Middle East and the US. Key enhancements offered by the new flight include Later pick-up times for customers by up to 90 minutes in Bengaluru. Some of the services offered by either FedEx that include air freight, small package and courier services are less than any other mode.

Strength of Fedex :

FedEx Express, a subsidiary of FedEx Corp., connects areas that

generate 90% of the world's gross domestic product in one to three

business days with door-to-door, customs-cleared service and a

money-back guarantee. The company's unmatched air route

authorities and infrastructure make it the world's largest express

transportation company, providing fast, reliable and time-definite

transportation of approximately 3.1 million packages to 215 countries

each working day. FedEx Express employs more than 137,000

employees and has approximately 50,000 drop-off locations, 649

aircraft and approximately 42,000 motorized vehicles in its integrated

global network.

Fedex : In Domestic Indian Service :

FEDEX will start operating a domestic express service in India by offering deliveries from 14 cities to 50 others.. This will place it in direct competition with DHL’s BlueDart, Deccan 360 and the soon-to-be-launched Quick Jet. Currently FedEx only provides a domestic service in three other countries: China, Mexico and the UK.

Rank Top 10 Air Cargo Operators Globally

Top 10 Logistic Companies Globally

1 South West Airlines DHL2 Federal Express UPS3 Emirates Sky Cargo FedEx Corporation4 Virgin Atlantic Deutsche Bahn AG5 Nippon Cargo Airlines Kuehne + Nagel

International AG6 Japan Airlines TNT 7 Continental Airlines CEVA Group8 Lufthansa Cargo C.H. Robinson

Worldwide Inc9 Singapore Airlines Panalpina World

Transport (Holding) Ltd

10 Cathay Pacific Agility Logistics Co.

Entry Of New Players In this Sector

Neither Go Cargo nor Kingfisher Xpress are pure cargo offerings; their business model is built around delivering cargo that is carried on the

same planes on which they ferry passengers. Another Delhi-based low-fare carrier Spice Jet Ltd has similar cargo operations and carries 120 tonnes of cargo a day. Jet Airways (India) Ltd, which runs India’s largest airline, is in initial discussions with FedEx Corp. for a dedicated cargo airline that it wishes to set up either as a joint venture or in alliance with the multinational logistics firm. G.R. Gopinath, founder of India’s first low-fare carrier Air Deccan, has launched Deccan Cargo and Express Logistics Pvt. Ltd, that flies cargo airlines in India and international destinations under the brand name Deccan 360.

Conclusion

There is a promising future for the air freight industry, with business continuing to grow faster than the passenger sector's. Shipments to, from and within Asia, especially China and India, will be the main drivers of this growth but African business will develop firmly too. These factors are encouraging the huge investment by the New & Existing Global Players in this rapidly growing Sector .