Tuesday, June 20, 2006

The physical internet

The Economist has a good survey (subscription only).

LOUISVILLE, Kentucky, 2am. Roaring thrust-reversers rapidly slow the giant MD-11 jet as it touches down on the runway before turning to taxi towards a sprawling floodlit building. Seconds after it has pulled up at the ramp, large doors on the fuselage swing open and people scurry around with equipment. But they are not about to unload hundreds of passengers: instead, the aircraft carries stacks of air-freight containers stuffed with parcels and documents. Soon they will be emptied to join the 300,000 packages that are sorted every hour at the UPS Worldport.

Every package is automatically photographed, measured and weighed and has the information on its super-barcode analysed by computers to determine its trajectory along some of the 17,000 conveyor belts. This requires awesome computing power: more data are processed here every 30 minutes than in an entire day of trading on the New York Stock Exchange. Eventually the packages slide down a chute to be placed into a bag or an air-freight container. And before dawn they are off again to complete their journey in another aircraft or in one of a fleet of waiting trucks.

And this, on the peculiar challenges of logistics in India:

THERE are few customers more demanding than Toyota. The challenge that Transport Corporation of India (TCI) has been set is to deliver the parts the Japanese company needs to build cars at a factory near Bangalore. TCI operates some 6,000 trucks, which is a good start. But the obstacles are formidable.

For a start, Toyota wants just-in-time delivery. In the car business that usually involves suppliers delivering to a staging area near the factory, often run by a logistics partner, from where components are taken directly to the production line where they are needed, when they are needed. In Bangalore, Toyota wants those deliveries to take place every two hours—and with a level of reliability in excess of 99%.

But how do you do that when roads are often in poor condition and sometimes choked with traffic, and when crossing from one state to another can involve hours of border queues and miles of red tape? Trucks are lucky to manage an average speed of 30-40km (19-25 miles) an hour. With the most distant supplier more than 2,000km away, some components could take a week to reach the factory, always assuming the drivers and the lorries prove reliable and there are no accidents.

“Toyota taught us how to do it,” says Vineet Agarwal, executive director of TCI. His company set up a joint venture with Mitsui, a Japanese trading group, which acts as Toyota's logistics partner in India. They began with training to ensure that drivers would take care of their loads, moderate their aggressive driving habits and wear seat belts. Sometimes trucks are followed to make sure standards are maintained. This has helped to build a reliable service that meets Toyota's service levels, says Mr Agarwal. It has also cut stocks, saving $100m a year in financing costs.

With more overseas companies investing in India, companies like TCI can expect to be kept busy. It is not just India's business-processing sector that is attracting foreign investment. The country is also enjoying a—less noticed—manufacturing boom, and merchandise exports are growing at a rate of about 25% a year.


John said...

one of these transportation companies would be a good invetment, eh?

Rajeev Ramachandran said...

Possibly, but not necessarily, dude.. Check this out: http://www.marginalrevolution.com/marginalrevolution/2005/10/the_undercover__1.html
Why is this? Need to study more Economics to understand why. :-) But I guess the value created by these firms tend to be competed away. The railways had great "barriers to entry", and still made no more than average returns for their shareholders. What are the barriers to entry for logisttics firms?

John said...

as opposed to fedex which went from ~$38 to ~$120 over a period of 5 years, or UPS which went from ~$50 to ~$80. Maybe the key is to find the right buy point and sell point?

Rajeev Ramachandran said...

:-)) Yup- the key is to buy low and sell high. The question is "how?". Not impossible, but with all the players out there.. hmm.