India's Road Transport Efficiency is Significantly Lower than the Global Average: Roland Berger Strategy Consultants

• Capacity and efficiency improvements in India's road transportation are a critical focus area for both the government and industry

• India has a negligible percentage (<0.01) of roads capable of supporting high speed transportation and average truck speed is approximately 50% lower than the global average

• OEMs in India are spending approximately 2% more in their transportation costs compared to other Asian economies

• OEMs need to revisit their business model for logistics to improve their performance within the current road infrastructure

According to a study, "Outlook on Road Logistics for Finished Vehicles", conducted by Roland Berger Strategy Consultants (RB), India's road logistics capacity and efficiency is a significant impediment in the Indian manufacturing story. With the existing razor thin margins in manufacturing and an increasingly complex supply chain, the inefficiencies in India's road logistics represent a very steep uphill climb.

Using Europe Union (EU) as a benchmark, the study establishes the need for renewed focus needed on logistics in India. 10 out of the 20 top performing economies in terms of logistics are in EU, which is a result of a pragmatic approach taken decades back, including initiatives on quality of roads, inter-modal connectivity, reduction on red tape and investments in R&D. The EU is further pressing its advantage with the launch of "Zero to Ten" strategy which includes Euro 250 Bn investment in capacity and Euro 6 Bn in R&D specifically for transportation.

The report reveals that of the current road networks in India, only a miniscule 0.02% can be utilized for high speed transport. The total length of expressways in India is approximately 1,000 km while China has a staggering 74,000 km. Moreover, the average truck speed of 30 km/h is significantly slower than the global average of 70 km/h, which directly impacts delivery time and hence costs. Add to this, the current structure of toll collection, state border crossing procedures and driver harassment, leads to further inefficiency in road logistics.

Speaking on the findings of this report, Dr. Wilfried Aulbur, Managing Partner at Roland Berger Strategy Consultants commented, “India should follow the European example to build a competitive auto road logistics capability that is built with long term aspirations. Continuous investment in improving infrastructure is the key to augment capacity and service speeds significantly.”

The report also indicates that 40% of Indian logistics market is automotive related (inbound and outbound), of which 85% is based on road transportation. It further delves into the growing disparity between the demand for road logistics for finished vehicles and the pace of road development projects.

For example, road transportation comprises a large part of logistics for finished vehicles in India and the robust growth expected in the Indian automotive sector. The RB study forecasts the overall growth in volumes for automotive sales is expected to be approximately 12.1% by FY 2020 in contrast to the 2.8% growth rate that currently exists for road network expansion, indicating a clear mismatch between the growth rate of sales of vehicles and the roads needed for transporting them.

Roland Berger’s analysis suggests that currently the OEMs in India are spending approximately 2% more in their transportation costs compared to other Asian economies. RB recommends OEMs to revisit their business model for logistics to improve their performance within the current road infrastructure.

RB report further recommends that the OEMs need to strategically plan their manufacturing footprint based on forecasted demand pattern hotspots and not base decisions primarily on short-term government subsidies, especially, once GST is implemented in the country. Operationally, OEMs need to review the logistics models currently used and enhance multi modal mix to optimize network design. To drive efficiency, OEMs need to revaluate pricing arrangements, loading technologies, return loads and establish a quality control systems focussed on logistics.

Further, OEMs in India need to co-operatively plan capacities (with other OEMs and suppliers) for effective utilization, work with specialized car-carrier manufacturers to develop India specific solutions and invest in real-time forecasting for enhanced production planning across the value chain.

For the government, implementation of an integrated logistics plan for India is key for building a competitive automotive road logistics capability for India. There is a need for sketching out a long term plan for 2030 instead of a shorter term plan for 2020, incorporating future projections of population growth, migration patterns, GDP and industrial production.

About Roland Berger Strategy Consultants:

Roland Berger Strategy Consultants is a global consulting firm, a top player in the premier league of international consultancies. They serve top clients on challenging assignments in the global market. The Company prides itself on having a deep understanding of diverse cultures and markets. Roland Berger Strategy Consultants has 53 offices in 36 countries worldwide, with a local presence in all important markets. They advise the world's leading corporations, non‐profit organizations and public institutions on management issues ranging from strategy development to performance improvement.

The India office was opened in 2012. The local experts have a deep understanding of the country's culture and approach to business. As part of their global network, they share the common professional values of entrepreneurship, partnership and excellence.