CARANA C O R P O R A T I O N

Transport & Logistics Challenges in Bulgaria’s Apparel Industry

June 7, 2005Nimish Jhaveri

CARANA C O R P O R A T I O N

Project Overview

• Improve knowledge/understanding of transport & logistics efficiency in Bulgaria’s apparel industry

• Identify possible directions for business practices, investment priority & regulatory changes

• Bulgaria is part of a multi-country analysis under the USAID Trade Enhancement for the Services Sector (TESS) Project

• While the study focused on Bulgaria and the Textile and Apparel, the issues are relevant throughout the SEE region and multiple export sectors.

CARANA C O R P O R A T I O N

Other consumer

goods13%Raw

Materials (various)

41%

Capital Equipment

13%

Energy10%

Textile, Clothing, Footwear

23%

Apparel represents an important export sector for Bulgaria

Companies: 4,000+ total; 2,500 very active (2003)

SME Companies: 95% (2000)

Employment: 165,000 -170,000; 6% of workforce (2003)

Production: Euro 2170 Mil. (2004)

Foreign Investment: USD 210 Mil. (1998-2003)

2004 Exports:

Euro 1845 Mil.

~ 23% of exports

~ Top Product Category

CARANA C O R P O R A T I O N

Competitors

Volume Orders

High Efficiency

Labor/Capital Costs

Local Supply, Distant Markets

Established Relationships

Buyers

Price Competition

Quality & Reliability

Product Differentiation

Inventory Risk

Quick Response

New challenge for Apparel producers

Exporters

Higher Value Goods

Reduced Time to Delivery

Regional Supply & Demand

Reduced Transportation Costs

Increased Supply Reliability

CARANA C O R P O R A T I O N

Transportation and logistics is essential to improved competitiveness in globalized economy

• Takes advantage of proximity to suppliers and buyers to reduce manufacturing cost disadvantage

• Improves Time, Cost, Reliability, Quality of Service

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Findings: Transport & Logistics Costs

20-40% of the value of the delivered product

Transport and Logistics

International: 60-80%

Regional/Domestic: 15-30%

Pre-Shipment: 5-20% *

* 20-40% costs are Regional/Domestic/Pre-Shipment

*

CARANA C O R P O R A T I O N

Operational challenges

• Border crossing delays– Uneven traffic flows drive capacity bottlenecks

– Border agency coordination is weak

– Adds up to 35% of cost to certain European destinations

• Land transport regulations – EU limits carrier licenses destination and class

– Arbitrary and changing haulage regulations

– Wide-ranging visa, tariff, drive-time requirements

– Shortest routes are not most popular

• Size of fleet limits availability and long term scheduling• Trans-shipment of ocean containers adds cost, time

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Operational Challenges - Highly Complex Process

<Process Name>

International MoveOrder International Move Pre-shipment Domestic MovePre-Shipment Domestic Move

Containers Loaded unto

ship

Container/Truck/Van Stuffed

Equipment repositioned

Supplier produces inputs (fabric, components)

Procurement/Scheduling of T&L Services

Buyer, Buyer’s Agent of Producer

order inputs

Preparation of documentation

Buyer and Producer

Maker Deal

Inland Transport to International

Gateway

Ocean Transit

If by Sea:

Preparation of documentation for

inland move

Producer Manufactures

goods

Equipment repositioned

Delivery to Producer’s

Factory

Goods De-consolidated and consolidated at

warehouse

Container Unloaded

Customs/Inspection

at port

International Inland Transit

Border Stop #1(EU/Regional)

Border Stop #2(Regional/Bulg)

Domestic Inland Transit

If LCL:

Preparation of documentation for domestic inland

move

Customs/Inspection

Inland Transit to Producers Regional

Customs Office

Customs/Inspection at regional customs

office

If F

CL

Procurement/Scheduling of T&L Services

Preparation of documentation

Container/Truck/Van

Stuffed

If LCL:

Inland Transit to Warehouse

Goods De-consolidated and consolidated at

warehouse

Customs clearance/inspection

Preparation of documentation

IF F

CL

Inland Transport to International

Gateway

If by Land, or Land/Sea via Regional Port

Border Stop #1(Bulg./Regional)

Border Stop #2(Regional/EU)

Containers Loaded unto

ship or airplane

If Sea via Bulg. Port, or Air

Customs clearance/inspection

International Inland Transit

If Land/Sea via Reg. Port

Customs clearance/inspection

Containers Loaded unto ship

International Air or Ocean Transit

Preparation of documentation

Container Unloaded at Destination

If by Land, or Land/Sea via Regional Port

Inland distribution to buyer’s warehouse or

retail outlet

Customs clearance/inspection

Arrival at Destination

Export of Finished GoodsImport of Inputs

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Operational challenges (continued)

• Complex customs requirements for re-export• Weak coordination of supply chain partners

– Reduces planning horizon for all parties

– Increases delays, rescheduling costs

• Low visibility to total costs– Utilization efficiency before service commitments

– Few long term contracts

– Reduces investments

• Supply chain management technologies not generally utilized– Planning, execution, documentation, workflow management

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Evolving production model

SUBCONTRACT CUT MAKE TRIM FULL PACKAGEBRAND

MANAGEMENT

None

None

QC, Packaging

Subcontractors

Buyer

QC, PackagingConsolidation

Customs

SubcontractorsDomestic suppliers

Buyer International supplier

QC, PackagingConsolidationWarehousing

Customs

SubcontractorsDomestic suppliers

International suppliersDistribution centers

International retailers

QC, PackagingConsolidationWarehousing

CustomsDistribution

DOMESTIC TRANSPORT

INTER-NATIONAL

TRANSPORT

SERVICES

Increasing Importance of Logistics

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Most exporters can add greater value through better logistics

CARANA C O R P O R A T I O N

Changing the production model

FCL Shipments

0%

20%

40%

60%

80%

100%

2a 2b 3a 3b 8 9

Preshipment Domestic International

LCL Shipments

0%

20%

40%

60%

80%

100%

1 4 5 6 7

Preshipment Domestic International

Costs as a Percentage of Total

Regional/Domestic: 15-30%

Pre-Shipment: 5-20%

45-95%

5-40%

0-20%

International: 60-80%

CARANA C O R P O R A T I O N

Changing the business model through better logistics

• SC CMT FP BM ??• New services development

– “Store Direct” distribution– Outsourced production– Small lot manufacturing: couriers and air freight– Marketing, collaborative product development– Quick response production

• New competency development– Supply chain management– Trade and customs management– Transportation and Logistics– Applications of new technology

CARANA C O R P O R A T I O N

Closing Thoughts

• Moving goods efficiently is critical for the region to be globally competitive

• Exporters pay for transportation and logistics inefficiencies

• SME’s can gain efficiencies

– Economies of volume: eg., LCL shipments

– Shared equipment, facilities

– New competencies and skills

– Use new and appropriate technology

• Emergence of logistics service industry offers opportunities for increased competitiveness

CARANA C O R P O R A T I O N

Contact

CARANA C O R P O R A T I O N

Appendix

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Project Participants

• Private Sector– Producers (10)– Logistics Service Firms (7)– Business Associations (5)

• Public Sector (3)• Field Visits

– Rousse– Varna– Border Crossings (2)

• International Organizations (5)

CARANA C O R P O R A T I O N

Case Studies

• Looked at sample of companies in Apparel Sector in Sofia and Rousse– 2 Large (200 employees or more)– 4 Medium-sized (50 – 100 Employees)– 2 Small-Sized (10 – 50 Employees)– 1 Buyer’s Agent (German-owned)

• Identified transport and logistics models by CMT, FP and BM production

• Using case studies to identify supply chain management issues

CARANA C O R P O R A T I O N

Package export

Store in Producer Warehouse

Transport to Exporter

Warehouse Producer Shipments

Consolidate Producer Shipments

Book Cargo & Prepare Documents

Prepare Goods for International Transit

Load Truck

Inland transport to International Port

Cargo Inspection

Insurance for Inland truck

Customs Clearance• Phyto or Zoo-sanitary Certificate• Export License & Processing• Health Testing• Photocopy documents• Corrections to Documentation• Broker's Fee• Documentation Expediting Charges

Enter Port (Gating)

Store & Retrieve Container @ Yard

Load Cargo on Ship at Origin

Transport Cargo to Destination• Freight Charge• Bunker Surcharge• Chassis usage• Theft Surcharge• Security Charge• Discharge Handling Charge• Port Dues charges• Container cleaning• Insurance• Air-Handling fees• Air - Terminal Fees• Air - Security Fee• Air - Collection Fee (if prepaid)• Taxes• Unload Cargo at Destination

Inland Transportation & Customs

Documentation

International Transportation

Logistics Process Costs