ARTICLE

DEMAND MANAGEMENT
Taking supply chain management to a new level

In virtually every industry, companies are challenged by ever-higher customer expectations, stricter regulations, changing market dynamics and the ongoing impact of the Web – all of which are compelling them to re-examine and refine how they forecast and manage demand. Enterprises are thus, focusing on managing demand, rather than simply reacting to it.

Demand management and forecasting is essential for all strategic decisions in the supply chain. If the supply chain begins with a forecast that is substantially in error, in terms of timing or quantity, the ramification will be felt throughout the entire process. This is why demand forecasting has assumed significant importance and commitment to it seems to be increasing day by day. Two things are fundamental to supply chain success.

The first is to have strong demand forecasting and planning systems. The second is to have adaptive supply processes. On the manufacturing side, for instance, most of the successful fashion retailers have built core capabilities in these two areas. The objective is to predict and plan as best as possible, and then have a flexible supply system that can adapt to the vagaries of demand. The supply chain agility in that sense becomes purely an extension of predictability of demand. In fact, the very design of the supply chain would depend on how far the demand side is configured in the business model being implemented.

Essentially, one is here trying to reciprocally configure the demand and supply and to scale them up against each other to create a viable operational business plan. Demand management in fact takes supply chain management to the next level by enabling an automated “ecosystem” that simultaneously maps demand forecasting against factors like supply restrictions, customer commitments, inventory counts, financial predictions, as well as patterns of behavior that can affect demand at any given time.

From demand planning to demand management
Demand management has been defined as a set of activities and decisions, tools and techniques, that firms adopt to assess, predict, and encourage the purchases of their products and services. It seeks to forecast, and even to regulate, the quantity, mix, price and timing of such purchases. To control the volatility of demand such that the firm can forecast sales accurately, and thereby, orchestrate their resources optimally to fulfil customers’ needs, as well as to maximize revenues and, ultimately, profits.

Demand information is often used more for tactical and operations purposes than for strategic purposes. Primary emphasis should be on using demand information to create likely scenarios of the future as they relate to product supply alternatives. Resulting business successes will be a outcome of the better match of demand to product availability.

Demand Forecasting
'Demand Forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market

A major component of demand management is forecasting the amount of product that will be purchased by consumers or end users. In the integrated supply chain all other demand will be derived from the primary demand. A key objective is to anticipate and respond to primary demand as it occurs in the marketplace.

Demand forecasting assumes a particularly a strategic importance in retail sector, both for the retailer and the manufacturer of goods. The Retailers need to base their decisions on customer insight and customer understanding in order to be successful and to differentiate themselves from competition. The most common way to gain customer understanding is to forecast consumer demand measured by store sales as well as by consumption data through other channels, such as shipment data or aggregated sales order data.

A “Demand Based Forecast” can support various applications such as Replenishment, Merchandise & Assortment Planning, ERP, and Workforce Management. The Demand Forecast also adds the value that every decision taken within any application is based on a common demand model and forecast, so that one single “version of the truth” can implement business strategies in a consistent way.

Necessity for forecasting demand
Often forecasting demand is confused with forecasting sales. But, failing to forecast demand ignores two important phenomena:

Stock effects
The effects that inventory levels have on sales. In the extreme case of stock-outs, demand coming into your store is not converted to sales due to a lack of availability. Demand is also untapped when sales for an item are decreased due to a poor display location, or because the desired sizes are no longer available.

For example, when a consumer electronics retailer does not display a particular flat-screen TV, sales for that model are typically lower than the sales for models on display. And in fashion retailing, once the stock level of a particular sweater falls to the point where standard sizes are no longer available, sales of that item are diminished.

Market response effects
The effect of market events that are within and beyond a retailer’s control. Demand for an item will likely rise if a competitor increases the price or if you promote the item in your weekly circular. The resulting sales increase reflects a change in demand as a result of consumers responding to stimuli that potentially drive additional sales. Regardless of the stimuli, these forces need to be factored into planning and managed within the demand forecast.

Methods for Demand Forecasting
Review of forecasting methods and practices used at large are reveal interesting insights on how a number of techniques being deployed today. Research indicates that during the 1980s, despite the growing availability of computer-based forecasting systems, most companies have continued to rely predominantly on contingent and subjective techniques og assessing demand and it is only subsequently by mid-'90s, they have started using standard computer-based forecasting systems.

However, the forecasting methods and models need that may be applied have to intelligently factor in many specifics to make the forecasted results significant and relevant. It would be wholly inappropriate, if the firms in question are using the forecasting as might be purely dictated by their supply chain requirements and use available forecasting technology with little understanding of when, where and what to forecast and how to forecast. Often the available IT solutions, in their attempts to be comprehensive in meeting requirements of a number of potential user industries, have tended to overlook the need to fine-tune themselves to particular user requirement, thereby forcing the customer to try generic forecasting techniques without much fruitful results.

The very central idea behind the concept of demand management and forecasting is to enable design and implementation of an agile supply chain response and this basic distinction is indeed,very critical. Besides, since supply-side of the business model entails modular and multiple-stage assembly or production, using methods of outsourcing, franchisee production, distributed manufacturing, production of short life-cycle products, the choice of an appropriate demand forecasting technique would depend on the inherent uncertainty in the business environment and the factors which cause this uncertainty. Needles to say, this would vary from industry to industry and and fromm product to product.

While the demand-side issues across industries and products might share a number of common attributes, it is the differences that are crucial to their understanding and for framing a suitable supply chain response. Planning right, in a supply chain, thus, comes first followed by effective execution. The SCM softwares must seamlessly integrate the planning and execution functionalities for operations, improving workflow and reducing inventory.

For the manufacturer, such a system could help save millions by reducing inventory and lowering order-processing costs, not to mention saving time. While at the retailer's end, it increases affordability, with "low, everyday prices" resulting in higher customer satisfaction. Demand-driven supply networks use new technologies such as RFID (radio frequency identification) to achieve accurate forecasting, which goes a long way in maintaining demand-supply balance.

NEWS ROUND UP

ROAD

Cost of Chennai-Ennore road project up 74%
The cost of the Chennai-Ennore Port Road Connectivity project has increased by nearly 74 per cent due to factors such as increase in the cost of land acquisition, resettlement and raw material. The project to improve movement of road-bound cargo to and from Chennai port is likely to be completed by 2011 instead of 2008-end.The revised project cost is now Rs 537 crore, against Rs 309 crore earmarked in 2000. The project was originally conceptualized in 1998 at a cost of Rs 150 crore, according to sources. The Chennai Port Trust is one of the partners of the special purpose vehicle called Chennai-Ennore Port Road Company Ltd, along with National Highways Authority of India (NHAI) and the Tamil Nadu Government. This project is part of the Government’s plan to improving port connectivity of Chennai port to the State/National highway network. The road connecting the port’s northern gate, which passes through the Fishing Harbour, will also be upgraded under the project. As on date, the shore protection work has been completed and about 80,000 sq m land has been reclaimed along the Ennore coast, which was in the past severely affected by sea erosion. Earlier works such as shore protection work, the four-lane Ennore Expressway, improving the Tiruvottiyur-Ponneri-Panjetti Road and the Inner Ring Road, and rehabilitation and resettlement of families affected by the project were entrusted to different vendors. All these will be given to a single vendor. The NHAI has come out with a new tender for the revised project.

Government okays Bill to revamp highways authority
The Government has cleared the National Highways Authority of India (NHAI) Amendment Bill, paving the way for restructuring the authority enabling it to execute its delegated powers. “The National Highways Authority of India Amendment Bill has been approved. The Bill is to increase the institutional capacity of the NHAI and for ensuring that NHAI effectively executes its delegated powers,” the Finance Minister, Mr P. Chidambaram, said. The restructuring exercise of the NHAI includes increasing the number of part-time members of the authority from the existing four to six. The two additional members will be from non-Government sector. It also includes appointment of six full-time members, against five at present, one each for finance, administration, public-private partnership, two members for projects and one for technical. Besides, it includes creation of quality assurance cell for promotion of quality assurance initiatives and a standardisation and research and development cell for tracking technical developments in road construction.

RAILWAYS

Sical Logistics starts 3rd box train on Delhi-Chennai sector
Sical Logistics Ltd has started operating a third container train on the Delhi-Chennai sector. The deployment of the third rake on the North-South corridor promises improved frequency with one train every four days, according to a press release. The service will be further increased with the addition of a fourth rake by December. Sical’s second rake is deployed on the Delhi-Chennai sector carrying general cargo such as cars, steel pipes, malt, raw rubber and industrial chemicals. It has transported about 20,000 tonnes of cargo on the Chennai-Delhi sector since August 2008, the release says. The company has a tie-up with Sattva Conware Pvt Ltd, for establishing an ‘inland container depot’ at Melpakkam, enabling it to service the industrial belt of Sriperumbudur, Ranipet, Tiruchi, Puducherry and Salem. The company also has an agreement to access a private rail siding at Patli, near Delhi, which it currently utilizes for the operations of its second rake. The Chennai-based multimodal logistics solutions provider for bulk and containerized cargo obtained the category one pan-India licence in January 2007 to run container trains for export-import and domestic cargo. It has since transported about 0.5 lakh tonnes of copper concentrates, copper cathodes and finished products for Hindustan Copper Ltd (HCL) between Ghatsila in Jharkhand, Khetri in Rajasthan and Taloja near Mumbai. Sical Multimodal And Rail Transport (SMART) Ltd, the 100 per cent subsidiary of Sical operating and managing container trains, plans to add ten more rakes to its fleet by 2011, the release says

Indian Railways fall short of Plan targets in new line projects
Indian Railways (IR) has blamed delays in land acquisition and forestry clearances for not being able to achieve the ‘new line’ targets during the Tenth Plan period (2002-07). During this period, Railways was able to build 920 km of new line against a target of 1,310 km. “Land acquisition is a very serious problem…We have not been able to complete many projects today because of land. We are working on a plan on how to get power to the Central Government for land acquisition,” the Railway Board Chairman has stated in the Parliamentary Standing Committee on Ministry of Railways report on ‘Review of Plan Performance and the 11th Five-Year Plan projections’. Soaring land price is another problem area, according to Railways. “Take Rohtak-Rewari line. The original land value was said to be Rs 23 crore; the State Government said that they would share the cost of the project. The cost of project was less than Rs 300 crore. But the land value has (now) become Rs 130 crore,” the Member-Engineering stated. “Forestry clearance is a long drawn process – starting from State level to the Ministry of Environment level – it does take about two years’ time. Then even compensatory afforestation is to be done; land to be found for that purpose and Railways cannot afford that. Land has to be found from the State Governments,” he stated. The shortage of capable contractors is also an issue. “There is a shortage of capacity in the country. Shortage is so severe that for bridging Ganga at Patna and Munger, (only) two parties in the country want to do that work. I wish there were more parties,” the Member Engineering stated. However, the Parliamentary Committee has said it is not satisfied with reasons such as land acquisition, contractual failure, forestry clearance, etc put forward by the Railways as these are perennially being cited by the Railways for non-completion of targets.

Railways to acquire land in Gujarat for freight corridor
The Railway Ministry has issued a notification for acquisition of land from 59 villages in Bharuch and Vadodara districts in Gujarat for a Rs 22,000-crore Delhi-Mumbai dedicated freight corridor project. The notification, while announcing the State's intention of acquiring the land, said those interested in the land may raise objection to its acquisition and use, in writing, within thirty days of the publication of the notification in the official gazette. Land from 31 villages of Karjan, Padra, Vadodara talukas in the district and of 28 villages from Ankleshwar, Bharuch and Amod talukas in Bharuch district are to be required for execution of this project, it said. Prime Minister Manmohan Singh, during his visit to Japan last week is understood to have been assured of financial assistance for the project from the Japanese government. Another project, the Delhi-Mumbai Industrial Corridor, to be developed through Public-Private Partnership (PPP), will be developed simultaneously along with the freight corridor, Minister of State for Railways Naranbhai Rathwa told media. A special purpose vehicle, Delhi-Mumbai Industrial Corridor Development Corporation, has been set up and an international consultant has already been appointed to carry out a pre-feasibility study for the project, he said. Both the freight corridor and the industrial corridor covering Delhi, National Capital Region (NCR), Uttar Pradesh, Haryana, Rajasthan, Gujarat and Maharashtra, are expected to be completed by 2013, Rathwa said. Meanwhile, farmers in Bhrauch and Vadodara, whose lands are to be acquired have opposed the move and are demanding more compensation.

Railways to undertake surveys for Indo-Nepal rail link
The Indian Railways will undertake a final location survey for establishing more rail-based connectivity between India and Nepal. Currently, there is one rail link between the two countries that connects Raxaul (India) with Birganj (Nepal).The surveys would be taken up on establishing a new line between Jogbani (India) to Biratnagar (Nepal); and Jaynagar (India) to Bijalpura gauge conversion with extension to Baridibas (Nepal), the Rajya Sabha was informed. Steps have been taken for final location surveys which are expected to be completed within five-six months, said the Minister of State for Railways, Mr R. Velu, in a written reply in the Rajya Sabha. For providing broad gauge rail connectivity between the border-towns of India and Nepal, preliminary engineering-cum-traffic surveys were conducted at five locations on behalf of the Ministry of External Affairs.

AIRLINES/AIRPORTS

Airport Economic Regulatory Authority Bill cleared
The Airport Economic Regulatory Authority Bill, which seeks to create a level playing field and to foster healthy competition among major airports within the country, was passed by Parliament. The Bill, which was cleared by both houses of Parliament thereby clearing the way for the establishment of the authority — which will have a chairperson and two full-time members. The authority will be empowered to protect the reasonable interest of the users apart from regulating the tariff for aeronautical services at major airports. The Government considers an airport that handles at least 1.5 million passengers annually, as a major airport. It shall determine tariff once in five years, but may if it considers appropriate and in public interest, amend the tariff from time-to-time during the five year period. It will also have the power to determine the amount of development fees and the amount of passenger service fee that these airports can charge.

IATA agents seek regulatory board for airline pricing, taxation
The IATA Agents Association of India has requested the ministries of Finance, Civil Aviation and DGCA to intervene in the airline pricing and taxation policies by forming an airline pricing and taxation regulatory board to regularize, scrutinize and monitor the air fares, taxes, surcharges, commissions and incentives applicable in India. In a memorandum submitted to the Prime Minister, the President of the Association, Mr Biji Eapen, urged the Government to sign and implement the IATA Resolutions 001 on permanent effectiveness and 200 G on filing of Government requirements and authorizations to enforce the rule that all airlines operating in India should declare and file their airfares, taxes, surcharges, commissions, discounts and incentives with the Government and enable DGCA to monitor and control the same. He pointed out that the service tax is presently imposed only on tickets issued by travel agents, whereas neither service tax nor income-tax is applicable on tickets issued by airline offices directly or through e-ticketing on Internet. The service tax should be made applicable to all tickets issued in India through agents or directly by airlines, as presently agents are getting commission and airlines are swallowing the entire commission together with the service and income-taxes that would also have been applicable on such tickets issued directly by them. Since airlines do not merge fuel surcharge with the base fares, the association decided to charge the airlines a collection fee of nine per cent on the fuel surcharges collected. The Government will benefit by way of tax revenue on such fees, he said, adding that higher commissions earned by the agents would be made taxable. The Association pointed out that a foreign airline is doing a better job than the national carrier in India. The obvious reason is that the fuel surcharge is merged with the base fare. The Government, therefore, should make it legally binding on airlines to disclose the complete fare and tax structures, including the rates of commission. The European Commission has already announced its goal to ensure more transparency in airline fares and taxes, he added. The association noted that earlier travel agents were being paid commission at a rate of 11 per cent. Over the years, this was reduced to 9, 7, and then 5 per cent with an attempt now to reduce it to ‘zero’ commission. However, abolishing the agency commission will result in a total loss of revenue, as almost 85 per cent of travel agents will be forced to pull down their shutters. Quoting figures, the association pointed out that Rs 26,000 crore worth of international tickets was issued by IATA Travel Agents during the last fiscal, which earned the Government 12.36 per cent as service tax and 11.33 per cent as income tax on the commissions earned.

Fuel for large aircraft may be ‘declared goods’
The Government may provide ‘declared goods’ status to aviation turbine fuel (ATF) being sold to Boeing and Airbus aircraft being operated by domestic carriers, thereby ensuring that it attracts a uniform sales tax of 3 per cent throughout the country. The implementation of the decision will provide the much-needed fiscal relief as the sales tax levied on ATF sold to such aircraft varies from 4 per cent to more than 30 per cent. The high-level of taxes imposed on ATF, which accounts for between 45 per cent and 50 per cent of the operating cost of most domestic airline is one of the main reasons for the industry reporting losses of more than Rs 4,000 crore. Speaking to newspersons after a meeting with the Finance Minister, Mr P. Chidambaram, the Minister for Civil Aviation, Mr Praful Patel, said that all issues including taxes on crude and State level taxes and other steps that could be taken to help the industry through the current crisis were discussed.

SHIPPING/SEAPORT

SCI to invest $20 bn in enhancing cargo biz
Shipping Corporation of India (SCI) is aiming at doubling its fleet size from the current capacity of 5 million dwt (dead weight tonnage). Besides, the corporation, which is managing 81 ships, plans to add 69 ships and has already placed the order for 29 ships. Bids have already been invited for another 40 ships. The corporation has estimated the capital outlay of $20 billion to execute these plans. Keeping in mind that about 95% by volume and 70% by value of the country’s international trade is carried on through the maritime transport, CMD of SCI, S Hajra, said the Indian Shipping industry requires a facilitator taxation regime to push the growth of cargo business. “In the mid-80s, Indian shipping carried more than 40% of EXIM trade, which has dropped to 12% today. The growth of shipping industry is stagnant from the past many years because unfortunately, the shipping industry doesn’t have a level playing field. Foreign countries provide facilitative taxation for their shipping industry. Across the world, the shipping industry pays the rate of tax from 0.5% to 1%, but in India, the industry pays tax at the rate of more than 9%. We need a level playing field to push the growth of cargo business and preference should be given to Indian flags for carrying Indian cargo”, Hajra has stated.

Hamburg investor looks to set up India-focused shipping fund
German shipping investment firm Konig and Cie GmbH and Co. KG is likely to establish a fund focused on India, where shipping lines need to invest some $20 billion (Rs99,600 crore) to replace old vessels and acquire new tankers in line with changes in global norms. Under International Maritime Organization (IMO) norms, all liquid carriers have to be double-hulled by 2010 to prevent spillage of commodities such as oil in case of accidents. “We are looking to set up a shipping-focused fund for India. The size of the fund could be as much as $500 million,” Tobias Konig, managing partner of the Hamburg-based Konig and Cie, said in an interview during a recent visit to Mumbai. With money from traditional sources such as European banks hard to come by for Indian shipping firms in the wake of the global financial turmoil, speciality investment companies are coming up with focused funds to tap a potentially lucrative opportunity. However, unlike HSH Nordbank, which is looking at a wider portfolio of projects to invest in, Konig and Cie will focus mainly on ships and invest in assets such as dry bulk carriers, oil tankers and even dredgers, said Rajeev Kashikar, managing director at the firm’s Asia unit, Konig and Cie Asia Advisors Pvt. Ltd. Konig and Cie would raise money for the fund from both retail and institutional investors, a model it has followed to launch at least 75 funds in Germany that together invest some €4 billion (Rs25,360 crore), most of it in ships, Konig said. It is yet to decide whether to locate the India-focused fund within the country or offshore. Setting up local shipping funds could also help promote use of the rupee for shipbuilding, a business where Indian yards are just beginning to make a mark. Though Asian banks lacked the expertise required to finance ships, countries such as South Korea and China are promoting their own currency for shipbuilding, said Paul Chang, Hong Kong-based head of shipping in Asia for HSH Nordbank. This will also help local firms to raise money as overseas funds have become costlier. “It has become difficult to do business because of the liquidity problems… Cost of funds are increasing,” said Goh Mei Lin, a partner at London-based maritime law firm Watson, Farley and Williams Llp. According to industry lobby group Indian National Shipowners Association (INSA, companies such as Great Eastern Shipping Co. Ltd, Mercator Lines Ltd, Varun Shipping Co. Ltd and the state-run Shipping Corp. of India Ltd (SCI) need to invest close to $20 billion in five years to replace older, ageing ships and buy double-hull tankers, as mandated by global maritime regulator International Maritime Organization (IMO). IMO wants all liquid carriers to be double-hulled by 2010 in an attempt to prevent spillage of commodities such as oil in case of accidents and thus avoid expensive clean-up jobs. Currently, Indian ships, with a cargo carrying capacity of close to 9 million tonnes (mt), carry some 12% of the 723mt of cargo that is headed into or out of the country in a year. The total cargo capacity is expected to rise to 1 billion tonnes in the next four-five year and 2 billion tonnes by 2017, according to estimates by the shipping ministry. “Indian shipowners will have to acquire ships with an additional cargo carrying capacity of 15mt over the next four-five years to maintain the share of 12%,” said S. Hajara, chairman and managing director of SCI, India’s biggest shipping firm. Indian shipowners have together set aside more than $600 million that would only be used for buying ships, as required by the Tonnage Tax Act, which mandates shipowners to set aside 20% of their book profits in a year in a reserve account earmarked to buy ships. The government introduced the tonnage tax system for Indian shipping from April 2004, following a norm prevalent in other parts of the world. Tonnage tax is a levy based on the cargo carrying capacity of a ship that replaces the traditional corporate tax system. Firms accounting for at least 90% of the cargo shipped globally every year operate on a tonnage tax basis. In tonnage tax, the incidence of tax is 1-2%, compared to prevailing 30.9-33.9% corporate tax rate for Indian companies.

APL to suspend connector service to Singapore
Container shipping line APL will suspend its Singapore Subcontinent Express (SSX) service that connects Nhava Sheva with Singapore, Port Klang and Chinese ports of Shanghai and Chiwan. APL has said that the suspension from November 2 is part of its reduction in capacity and changes to its global service network in response to increasingly challenging conditions in the major container trades. “It is a big blow to the trade. The APL service used to give a volume of around 2,400 TEUs (twenty foot equivalent unit) every week for the DP World Nhava Sheva container terminal. We do not know how to fill this slot. Despite the good volume, we do not know why they suspended the service,” said a source. The SSX route will be now covered by a combination of the China-Middle East Express (CMX) and the China-Singapore Service (CSS). CMX has been upsized to a “five ship loop” with a revised rotation of Shanghai, Hong Kong, Chiwan, Jebel Ali, Sharjah, Nhava Sheva, Colombo, Singapore and Shanghai. CSS will provide additional coverage of Shanghai and Ningbo, the shipping line said in its Web site.The Singapore Subcontinent Express was launched in November 2004. It provided an extensive inland network in the India West Coast via the Nhava Sheva gateway, the line said when it launched the service. APL, a member of the New World Alliance, said that it will reduce capacity in the Asia-Europe trade by close to 25 per cent on the transpacific trade by 20 per cent and also restructured its Inter-Asia services. APL, a unit of Singapore-based Neptune Orient Lines, offers more than 60 weekly services and nearly 300 calls at more than 90 ports in Asia, Europe, the Middle East and the Americas. It is also suspending two other services on the transpacific route, APL said.

Tuticorin port short-lists five companies to build its second box terminal
Tuticorin Port Trust (TPT) has short listed five companies, including the existing private container terminal operator PSA-Sical, for operating the second container terminal under ‘build, operate and transfer’ basis. This terminal would add six lakh TEUs to the port’s existing capacity of 4.70 lakh TEUs. These are: PSA-Sical (a joint venture of the Singapore-based PSA International and the Chennai-based Sical Logistics), Oceanic Transport, Chettinad Logistics, Afcons Infrastructure and Larsen & Toubro. The private operator will bring in Rs 312 crore of investment in the new terminal to be given on a 30-year lease. On its part, the TPT has so far invested over Rs 40 crore on dredging and berth construction. The second container terminal is expected to be operational in the first quarter of next year, Mr G.J. Rao, Chairman, TPT, has said. In 2007-2008, the PSA-Sical container terminal handled 4.50 lakh TEUs. In the current year, till September, the terminal handled 2.33 lakh TEUs. According to Mr. Rao, the port trust is converting the eighth berth (general berth) into a container terminal. Currently, this terminal is 345 metres long and 10.9 m deep. In the next 15 months, the port trust will dredge the basin and port entry channel at a cost of Rs 538 crore to receive vessels of up to 12.8 m draft. This will help the port to handle large vessels of around 5,000 TEUs from the present 3,000 TEUs, he said. TPT got the security clearance from the Centre for the new terminal.

Gangavaram port to be formally opened in November
Gangavaram port, built by a private consortium headed by D.S Raju and Co, is ready for inauguration. According to Mr. M. Venkata Ramana Rao, the State Minister for Ports, the date has not been fixed, but it may take place in November. Though the port has not been formally opened, it has already handled four, or more, vessels on a trial basis. Five berths are ready for operation in the first phase. The berths and the other infrastructure have been built at a cost of Rs 1,800 crore. Gangavaram port, it is apprehended, will emerge as a major rival to the main Visakhapatnam port.

Two new National Waterways 4 & 5 are approved
The Parliament has passed the two National Waterways Bills. The first Bill relates to the declaring of Talcher-Dharma stretch of the Brahmani-Kharsua-Dharma rivers, Geonkhali-Charbetia stretch of the East Coast Canal and Charbatia-Dhamra stretch of the Matai as well as Mahanadi delta rivers as National Waterway No. 4, covering West Bengal and Orissa. The second Bill pertains to declaring Kakinada-Puducherry stretch of canals covering Kakinada Canal, Eluru Canal, Commander Canal, Buckingham Canal and Kaluvelly Tank and Bhadrachalam-Rajamundry stretch of the Godavari and Wazirabad-Vijaywada stretch of the Krishna as National Waterway No. 5, covering Andhra Pradesh, Tamil Nadu and Puducherry. The members, cutting across party line, welcomed the Bills. However, there was also demand for linking the Brahmani with the Mahanadi in Orissa to ensure availability of water in the Brahmani throughout the year. Also, there was demand for declaring Haldia-Sunderban stretch as a national waterway.

WAREHOUSING/DISTRIBUTION

NSEL in pact to set up 20 warehouses in Maharashtra
NCDEX Spot Exchange Ltd (NSEL), the Maharashtra State Warehousing Corporation (MSWC) and the National Collateral Management Services, a subsidiary of NCDEX, have signed a memorandum of understanding (MoU) for creating warehousing infrastructure at 20 locations in Maharashtra. The alliance will also give a boost to on-line trading on NSEL. The MoU was signed by Mr. R. Ramaseshan, Director of NSEL, Mr. U.K. Agarwal, Joint Managing Director, MSWC and Mr.Sanjay Kaul, Managing Director, NCMSL. The MoU will pave way to jointly modernize the operations of mandis under the World Bank-assisted Multi State Agricultural Competitiveness Project (MACP).The three signatories to the MoU have agreed to work towards providing facilities to farmers and traders for screen-based spot trading in agricultural commodities and other value added services such as storage, grading, packaging. Bank finance will also be made available for the farmers. Mr. Agarwal said, “We will be working together to provide complete post-harvest solutions for farmers”. Mr.Ramaseshan said, “The arrangement will be beneficial for farmers in Maharashtra as they will realize a better price for their produce by selling on our online spot trading platform. NSEL’s pan- India reach and superior real time price discovery will be a boon for farmers.” Mr. Sanjay Kaul said, “Farmers will no longer be forced to sell their produce at a lower price in the mandi at the time of harvest. Distress sale of their produce will become a thing of the past”. The World Bank, through the MACP, intends to foster the development of a more competitive marketing system and improve market access for farmers through enhanced knowledge. It aims at upgrading infrastructure and building capacity so that collateral management procedures could help warehouses and mandis to act as integrated hub.

UK firm to invest $5 m in CFS near Ennore port
Eredene Capital Plc, a UK-based company that invests in infrastructure projects in India, will invest £5 million in a new Container Freight Station (CFS) close to the Ennore port. The investment is for an initial 85 per cent equity stake in a Special Purpose Vehicle to develop and operate the CFS located near Ponneri town, 18 km north of Ennore port. This is Eredene’s ninth investment in India and its third in a CFS. The investment is a joint venture with the Sattva Business Group (Sattva) with which Eredene has invested in a separate revenue-producing CFS at Vichoor, which serves the nearby Chennai port. Eredene’s stake in the new CFS will be brought down gradually from 85 per cent to 74 per cent, linked to achievement of certain agreed business milestones, the last one being the payment of the first dividend to shareholders, according to a press release. The land will be purchased for the new CFS in phases with an initial acquisition of around 35 acres. The Eredene Group is also bidding for the Ennore Container Terminal project in a consortium headed by Spain’s leading port operator, Barcelona-based Group Marítime TCB SL, Spanish construction group Obrascón Huarte Lian SA, and GE Mauritius Int Holdings, a subsidiary of America’s GE Equipment Services. The consortium is one of the six bidders selected for a new 1,000-metre container terminal with an estimated capacity of 1.5 million twenty-foot equivalent units a year. Eredene holds a 22 per cent interest in this consortium. The same consortium has also applied for short-listing to build and operate a new 330-metre container terminal at Jawaharlal Nehru Port Trust (JNPT) near Mumbai – the Eredene Group has a 22 per cent stake in that consortium, says the release.

EXPRESS/MAIL

FedEx on trade mission to India in November
FedEx Corp, in collaboration with the US Department of Commerce's US Commercial Service has scheduled a trade mission to India in November 08 for US-based businesses interested in expanding into the Indian marketplace. FedEx is the first private-sector company to lead a trade mission to India in conjunction with the Commercial Service. It has scheduled visits to New Delhi, Hyderabad and Mumbai between 9 and 14 November this year, with a view to enable US businesses to better understand trade opportunities across key economic hubs in India. Additionally, the trade mission will help Indian companies seeking to pursue new buying opportunities with American businesses. Companies who are part of the trade mission represent small and medium-sized businesses and sectors in manufacturing, transportation equipment, engineering, business services, consulting, architecture, information technologies, pharmaceutical, consumer goods, and others. Participants will meet with potential Indian business partners, agents, distributors and buyers to discuss opportunities through business appointments arranged by the US embassy's Commercial Service. While in India, participants will also have access to leading business centers, a production site and an educational institution, US and Indian business leaders successfully operating in India, US and Indian government officials and business decision-makers, and market intelligence and other relevant data to help determine if India is right for their business. Rajesh Subramaniam, senior vice president, international marketing, FedEx Services said, ''India is one of the best-performing economies in the world, and it is one of the top consumers of US exports. By holding this trade mission, FedEx and the US Commercial Service will provide US and Indian businesses with valuable networking opportunities needed to grow their businesses and maintain a competitive edge in the global marketplace.''

INTERNATIONAL NEWS

Freight rate plunge spells prolonged woes for dry bulk carriers
Pacific Basin Shipping, Hong Kong’s largest dry bulk carrier, said it is “difficult to predict” when the market will improve after freight rates collapsed to a six-year low. The company said in a statement today that the “volatile and extraordinarily challenging” conditions will continue into 2009. Morgan Stanley Research has said that it expected spot and one-year time charter rates in 2009 to decline 60% from 2008 levels. Thoresen Thai Agencies, Thailand’s biggest dry bulk shipper said today that a sharp drop in freight rates in the wake of the global credit crunch is expected to hit its results in the next two years. “Traders are finding it hard to get letters of credit that guarantee payments for goods, while banks are wary of financing commodities and shipping transactions,” Thoresen Thai managing director Chandchutha Chandratat has told Reuters.” The financial crisis has led to a drop in metal demand. In China, reduced steel demand from the construction and infrastructure sector, coupled with mandated steel production cuts during the Olympics brought a 7.7% fall in Chinese crude steel production in the third quarter compared to the previous quarter. The handysize market is also affected by the negative sentiment surrounding the iron ore price dispute between Vale and Chinese mills, which have led to a fall in capesize rates. But with 33% of all handysize tonnage more than 25 years old, Pacific Basin said that increased scrapping, combined with newbuilding order cancellations, could have a positive impact on the dry bulk market. However, this is dependent on the demolition yards being able to arrange letters of credit, which so far have also dried up, bringing scrapping activity to a near halt.

Panalpina net plunges on weaker air, ocean demand
Swiss forwarder, Panalpina has reported that net income in the first three quarters tumbled 34 percent from a year ago and trimmed its full-year outlook as a slowing global economy cuts demand for air and ocean transport. Net earnings in the nine months to Sept. 30 fell to 105 million Swiss francs [$91.3 million] from 158.8 million francs [$138 million] in 2007 as the company took a charge of 77 million euros [$70 million] for exiting Nigeria. Net forwarding revenues rose 6.9 percent to 6.71 billion francs [$5.8 billion]. Panalpina ceased operations in Nigeria earlier in the month after suspending some services in 2007 following bribery investigations by authorities in the United States. The company said it is expecting “neutral or slightly positive” profit growth for the full year after previously forecasting an increase of four percent. It is aiming for a 2008 operating margin of between 13 percent and 14 percent, down from the previous estimate of 16 percent. For the nine-month period, the slowing global economy trimmed year-on-year growth in air freight tonnage to 1.4 percent, while ocean freight, measured in TEUs, gained 7.1 percent. Air forwarding revenues rose 13.3 percent, while ocean revenues were up just 2.9 percent. “Despite the economic decline, there are still vast growth opportunities in our heavily fragmented market,” chief executive officer Monika Ribar said. “We are continuing to gain market shares in air as well as ocean freight. "The company said it would not give a gross profit forecast for next year “in the light of the global economic development and outlook.”

Momentum Logistics to invest Dhs1bn over next seven years
Momentum Logistics, subsidiary of international port management company, Gulftainer, has officially launched its third party logistics (3PL) operations. The company offers a complete suite of top-quality 3PL and supply chain management services, including freight forwarding, transportation, storage and container repair services to clients looking to outsource their logistics requirements. These provide a natural extension of the services offered by Momentum's parent company, Gulftainer. According to Momentum Logistics General Manager, Matthew Derrick, the time is ripe for logistics-focused companies in the UAE and in the Middle East in general. 'In light of the current global situation, we believe that the need for dedicated logistics companies in the region is greater than ever. Momentum's offices in the Sharjah Inland Container Depot (SICD) form the base of operations for its first freight forwarding office, which, along with its transportation division, is ready to commence operations. According to Mr Derrick, this will be the first of three offices, with another scheduled to open in Dubai in 2009, and the third in Abu Dhabi later in 2009. Once Momentum has established itself within the UAE, the company plans to continue its expansion and become a global provider of choice for 3PL and supply chain management services, with a total projected investment of Dhs1bn over the next seven years. Momentum has already announced its plans to develop a one-of-a-kind logistics city from which customers will be able to manage their entire supply chain. International Logistics City (ILC) is a 700,000 square metre development located in Sharjah that will become home to Momentum's first 25,000 square metre state-of-the-art distribution centre.

China to impose new cargo rule: 24-hour advance manifest
China plans to impose new rules governing entry of cargo, a move that could raise the cost of Indian exports to that country. From 1 January, all cargo bound for China will be subject to the 24 hours advance manifest rule. In shipping terminology, a manifest is a document that lists all cargo carried on a specific vessel. According to the new regulation, carriers undertaking shipments to China must submit manifest details to Chinese customs 24 hours before a ship arrives at the port of loading anywhere in the world.“ Upon screening of manifest data received, the Chinese customs will advise back to the carrier whether or not the cargo can be allowed into China. Only if customs feedback/response is positive, cargo will be accepted on board a ship. Under no circumstance, the carrier will be allowed to load cargo on board if manifest filing is rejected by Chinese customs,” said a trade notice issued to customers by Chinese shipping firm Cosco Container Lines. In case a shipment is rejected, all resulting charges fall on the shipper (exporter). Globally, only the US and Canada have enforced such rules so far in order to prevent arms and ammunition from entering through the sea route. Shippers say that the new requirement represents an additional burden and creates more confusion. “The costs of exports from India to China will go up because of the new rule by Chinese customs,” said S.R.L. Narasimhan, secretary, Western India Shippers’ Association, a body representing India’s exporters in the country’s western region. China is India’s second biggest trading partner and accounts for Indian exports valued at about Rs8,000 crore between April and August, according to the figures from the Union ministry of commerce. India exports basic raw materials such as iron ore, components and pharmaceuticals to China. “When the US imposed such a regulation from 2 December 2002, shipping lines operating between India and the US started collecting a fee of $25 (Rs1,217.50) per standard container for providing this service to their customers,” said Narasimhan. “Carriers may charge a token fee from their customers to comply with the new regulation of Chinese customs,” said Bernard Soh, managing director at the Indian unit of Hong Kong-based container shipping and logistics firm Orient Overseas Container Line Ltd. The new regulation will have a significant impact on the way shipping lines and customers handle their documentation and operations for shipments bound for China. “Both parties (the shipping line and its clients) will be forced to adjust their internal workflow in order to meet the different time scale required by the introduction of the new 24-hour advance manifest rule,” said Priya Safaya Fotedar, director, policy, at the Federation of Indian Export Organisations. With the new rule, exporters and customers will be asked to provide manifest details and shipping instructions well in advance to allow the shipping line to meet the 24-hour advance manifest requirement, says the notice by Cosco.

ICTSI bags Brunei port contract
Listed International Container Terminal Services, Inc. (ICTSI) has signed a deal with the Brunei government to develop its Pulau Muara Besar cargo terminal. In a disclosure, aICTSI told the exchange the company would help the Brunei Economic Development Board (BEDB) design, build and develop the new terminal. ICTSI will store and handle all container terminal cargoes through the terminal. The BEDB will award a concession contract to ICTSI or its subsidiary to operate the terminal once it is completed and ready for commercial operation, it added. It did not say when it expects to complete the port terminal. Efforts to reach company officials for comment were unsuccessful. Earlier this month, the Sultan of Brunei Darussalam awarded to ICTSl the deal for the container terminal’s cargo handling operations.

Schenker opens new cargo terminal in Riga
Schenker company will launch its new cargo terminal at Kalnciema Street in Riga, as LETA learned from representatives of the company. The new terminal will be a hub, creating a connection between the enterprises' cargo routes from the Far East, North America and Europe to capital cities of several CIS countries. A press conference will take place at the terminal's opening event, during which representatives of the company will inform about options, how to optimize logistics costs by using modern services packages and will outline the functions and advantages of Riga as a transit axis between the U.S., European Union and CIS countries. Among the participants of the opening event will be the Ambassador of Germany to Latvia Detlef Weigel and clients and cooperation partners of the enterprise. The new terminal's area covers 4,000 square meters and will serve as an extension to Schenker Stinnes Logistics center of logistics, which has been operating in the territory of the ancient concrete factory at Kalnciema Street already since several years. It is planned than in the next five to ten years time Schenker Stinnes Logistics logistics center will be expanded to 40,000 – 60,000 square meters and will have various new functions, introduced to suit the market demands, as board member of the company Schenker Aivars Taurins explained. Schenker Stinnes Logistics has been operating in Latvia since 1995. Schenker is subsidiary company of the Stinnes concern, which is owned by the German Deutsche Bahn AG.

UPS announces 2009 rates, raises it by 6.9 %
UPS will raise base rates for its air and international services an average of 6.9 percent, but that will be offset by a 2 percent reduction in its air and international fuel surcharge. UPS ground rates will rise an average of 5.9 percent. The new rates will take effect Jan. 5, 2009. The carrier posted updated rate and service information at ups.com/rates on Oct. 24. The carrier’s beginning Oct. 24, 2008. The 2009 Rate and Service Guide will be available on the site on Dec. 18.

Trans Pacific carriers reduce trans-pacific bunker fuel surcharges
Importers and exporters in the trans-Pacific trades will be paying lower bunker fuel surcharges in the months ahead, according to information published on the Web sites of the carrier discussion groups in the trades. The Transpacific Stabilization Agreement, a discussion group of shipping lines that carry imports from Asia, and the Westbound Transpacific Stabilization Agreement, its counterpart in the export trade to Asia, publish ancillary charges such as bunker fuel surcharges online. Carriers refer to these voluntary guidelines for bunker fuel surcharges when assessing charges designed to cover some of the costs they incur due to fluctuating fuel prices. The TSA and WTSA change the recommended bunker surcharges each month as the price of fuel increases or decreases. The price of crude oil has dropped sharply in recent weeks, and will be reflected in the surcharges that carriers in the trans-Pacific assess on imports and exports. According to the TSA Web site, the bunker surcharge for a 40-foot container in October was $1,355. The surcharge is scheduled to drop to $1,220 on Nov. 1 and to $770 on Dec. 1. The voluntary guidelines for surcharges change on the first day of each month. Surcharges are also listed for containers of other dimensions and for break-bulk cargoes. The WTSA recommends different surcharges for exports from the East Coast and for exports from the West Coast, a new policy for that discussion group. The TSA is considering a similar two-tiered system that will reflect the longer voyages from Asia to the two coasts. The WTSA’s new guideline for a 40-foot container moving from the East Coast is $900 and from the West Coast, $767. Those charges are down from the previous surcharge covering both coasts of $1,355 per 40-foot container. The discussion groups also publish recommended surcharges for rail intermodal moves. The inland charges are designed to recover some of the ocean carriers’ costs for diesel fuel that are levied by railroads. Most intermodal contracts are between the ocean carrier and the railroad. Importers and exporters pay a single contract rate to the ocean carrier that includes the base freight rate plus bunker and inland fuel surcharges. According to the TSA Web site, the recommended rail intermodal diesel surcharge was $411 in October. The voluntary guideline for November is $275 and for December it is $317 per container. The current WTSA guideline for inland fuel surcharges is $411. The WTSA Web site does not list inland fuel surcharges for November and December. Discussion agreements have antitrust immunity to discuss rates and agree on voluntary guidelines, but cannot set rates.

NYK logistics arm Yusen profits nosedives
Japan’s Yusen Air & Sea Service Co., Ltd., the core logistics arm of NYK Line group, reported sharp declines in profits on a consolidated basis for the first half of its business year ending in September due to higher fuel surcharges and other factors. Consolidated operating revenue during the April-September period increased 1.3 percent from the previous-year period, to 92.85 billion yen ($993 million). But the company’s consolidated operating, ordinary and net profits all fell sharply. Operating profit plunged 29.4 percent year-on-year to 3.447 billion yen ($36.8 million); ordinary profit fell 26.8 percent to 4.122 billion yen ($44.1 million), and net profit dove 29.2 percent to 2.382 billion yen ($25.5 million).The company downgraded its previous full-year group revenue and profit forecasts, which were released on July 25, citing higher-than-expected fuel surcharges and an anticipated slowdown in its international air-cargo transport business amid increasingly darkening prospects for the global economy.Yusen now projects 190 billion yen ($2.03 billion) in full-year group operating revenue, down 5.5 percent from the previous forecast. The company also projects group operating profit of 7.150 billion yen ($76.5 million), down 23.9 percent; group ordinary profit of 8.2 billion yen ($87.7 million), down 20.4 percent, and group net profit of 4.7 billion yen ($50.3 million), down 23 percent.The company already announced downgraded unconsolidated full-year revenue and profit forecasts on Oct. 23. The downwardly revised projections on a parent-only basis remain unchanged, the company said on Monday.

FREIGHT RATES

(Prices listed below are Indicative Ocean freight rates for a Container and negotiable with respective Shipping/Liner Agents).