Tuesday, December 31, 2013

Roads Displacing Oxen Spur Rural India in Boost to Singh

For three decades, Indian rice farmer Lahu Bhiwa loaded his grain onto an ox cart and sold it to families in his village, earning about 2,000 rupees ($32) a month. His life changed in 2010, when bulldozers cleared a new road that has helped triple his income.
The smooth asphalt linking Kainad with the western Indian coastal town of Dahanu turned a three-hour journey by foot into a 25-minute car ride. Access to more buyers allowed Bhiwa to sell goods to the highest bidder, giving him enough cash to buy a mobile phone and check benchmark prices. His son now attends school in Dahanu, an opportunity unavailable a decade ago.
“Our life has completely changed for the better ever since this road was built,” Bhiwa, 45, said as he watered his land in the village. “Before, we were at the mercy of middlemen who would come here and take our produce. We had no way of knowing whether the prices they offered were good or bad.”
The construction of 600,000 kilometers (373,000 miles) of country roads, addition of 327 million rural phone connections and a rise in literacy to record levels since Prime Minister Manmohan Singh took office in 2004 has helped double the growth rate of India’s food output. The productivity boost has prevented a deeper slump in Asia’s third-biggest economy and may bring votes to Singh’s ruling Congress party in a 2014 election even as growth lingers near a 10-year low.
“What we see is a fundamental break from the past,” said Ganesh Kumar, an agricultural researcher who teaches at the Mumbai-based Indira Gandhi Institute of Development Research, which is funded by the nation’s central bank. “Higher farm output has kept rural demand alive and kicking, and that definitely helped the economy from a much more severe deceleration.”

Food Output

Food output increased 24 percent between 2001 and 2011, double the growth rate of the previous decade, and reached a record 259 million tons in the crop year ending June 2012, the latest year for which the Agriculture Statistics Division has data. India led the world in rice exports for the first time ever last year.
The rural road network increased to 2.75 million kilometers in 2011 from 2.14 million kilometers in 2004, more than double the annual average over the second half of last century, according to government estimates.
Rural phone connections rose about 30-fold to 339 million by the end of last year from 12.3 million in 2004, according to the latest statistics from the Ministry of Communications and Information Technology. Literacy in agrarian areas improved twice as much as in urban centers in the decade to 2011, with the rate of those who can read and write rising to 69 percent in 2011 from 59 percent in 2001, census estimates show.

Life Changes

“These once-in-a-lifetime changes are happening at the bottom of the pyramid due to a dramatic improvement in roads and phones,” said Neelkanth Mishra, head of Indian equity strategy at Credit Suisse Group AG who co-wrote a March report on rural development. “Contrary to popular belief that growth in all things rural is driven by unrestrained government spending, we believe the changes are already showing signs of being self-sustaining.”
Kainad sits between lush green rice fields and fruit orchards, about 175 kilometers (109 miles) north of Mumbai, India’s financial capital. Oxen mill throughout the sprawling tribal village of about 9,000 people, which is divided into clusters of thatch-roofed houses. It has no high schools.
Before the road was built, farmers mostly grew rice, as transporting goods carried prohibitive costs. Monsoon rains flooded low-lying areas, leaving Kainad isolated. When a villager fell ill, four men would need to carry the person on a hand-made wooden stretcher to the hospital in Dahanu about 12 kilometers away.

Village Changes

Signs of modernity began to appear in 2008, when Vodafone Group Plc (VOD), India’s second-biggest mobile-phone operator by subscribers, put up a tower in the area. Once the road came two years later, farmers could easily get to town to buy seeds and fertilizer.
Bhiwa and others started growing crops that fetched more cash, including chillies, coconuts, gooseberry and sapota, a fruit similar to a pear. Teenagers could access high schools in Dahanu, allowing them to continue studying beyond the age of 13.
“Earlier, farmers here were limited only to a small area,” said Kalpana Prakash Khapade, the headwoman of Kainad. “Now, the entire world is open to them.”
Mangal Ramji Dhinde, 36, saw another way to make money. With savings from his work as a tailor, he bought a Tempo, a four-wheeled truck made by Mahindra & Mahindra Ltd. (MM) Soon he was hauling crops to Dahanu, which has five times as many people.
“Now farmers don’t use ox carts -- a majority of them call me to ferry their farm produce,” Dhinde said, adding that his sons took over the tailoring shop. “It’s a win-win situation.”

Singh Base

Many in Kainad lauded Singh for the changes and said they plan to support his Congress party in elections due by May, counting themselves among the rural voters that form its base.
The opposition Bharatiya Janata Party, which advocates fewer government giveaways, says it deserves credit for the rural makeover. Opinion polls show the BJP will win the most seats in the elections while falling short of a majority.
In 2000, BJP leader and then-Prime Minister Atal Bihari Vajpayee started a program to connect villages with at least 250 people with all-weather roads. After winning office in 2004, Singh’s coalition government adapted the program and folded it into a wider anti-poverty effort.
“Our policies laid the foundation for deepening rural telephonic penetration and cutting rural poverty,” Prakash Javadekar, a BJP spokesman, said by phone.

Poverty Falls

India, home to the most poor people on earth, has seen the number of rural people living on less than 816 rupees ($13) per month -- the official poverty line -- fall by about a third during Singh’s tenure to 217 million people in March 2012, according to Planning Commission estimates. Rural wages after inflation rose 6.8 percent per year on average in the five years through March 2012, after falling 1.8 percent in the previous five years, a Ministry of Agriculture report showed.
Singh more than doubled the guaranteed support prices for wheat to 1,350 rupees per 100 kilograms in the year ended June 30 from 2005-2006, and boosted rice paddy prices to 1,250 rupees from 570 rupees in the period. He started a program to employ one adult in every poor rural household for a minimum of 100 days a year, and enacted a law that will provide cheaper food to about two-thirds of the country’s 1.2 billion people.

Inflation Surge

Critics say the measures are unsustainable, and India is now paying for them in the form of slower growth and rising prices of onions, potatoes and other staples.
“The problem is that policy makers focused too much on stoking demand,” said D.H. Pai Panandiker, president of the RPG Foundation, a New Delhi-based economic research group. “The result is imbalances in the economy, now showing up in very high inflation and current-account deficit.”
India’s consumer-price inflation accelerated past 11 percent in November, the fastest in a basket of 17 Asia-Pacific economies tracked by Bloomberg. The current-account deficit widened to $88 billion, or 4.8 percent of GDP, in the 12 months to March 2013, from $78 billion in 2011-2012.
The currency has weakened about 12 percent versus the dollar in the past year, the third-most in Asia after Indonesia’s rupiah and Japan’s yen. The economy has grown at a rate below 5 percent for the past four quarters, after peaking at 11.4 percent in the three months ending March 31, 2010.

Television Sets

“The issues are complex, and it is much easier to blame the government than to understand them,” Singh said at a party meeting on Dec. 18, according to a transcript on CNN-IBN’s website. “The worry about inflation is legitimate, but we should recognize that incomes for most people have increased faster than inflation.”
In Kainad, villagers have been struck by the jump in land prices. An acre now goes for 1.5 million rupees, about seven times more than before the road’s construction three years ago, according to Dilip Choradia, a 58-year-old farmer.
So far, the higher food prices haven’t deterred farmers from spending their new-found cash on consumer goods. Many houses have television sets, and youngsters aspire to buy motorcycles.
“When you have production throughout the year, you get a much better price and much more money,” Choradia said. “This road has become our lifeline.”
(Source: Bloomberg)

Monday, December 30, 2013

No hands on deck: Dawn of the crewless ship

Remote-controlled ships used to come wrapped up as presents under the Christmas tree, but if European researchers and one of the world’s best-known engineering groups have their way, full-size versions will start replacing much of the tonnage afloat on the high seas in the coming years.
There are plenty of compelling reasons to switch to crewless ships. But the main driver for Oskar Levander, head of marine innovation at Rolls-Royce, is cost.
A ship that does not have to accommodate a crew for weeks on end can dispense with many if not all the life-support systems needed by humans, from the galley to the sewage treatment system, the accommodation area and the deck house.
Removing these would not only leave more space for cargo but would also mean lighter ships, holding out the prospect of big savings on fuel bills, which account for about half of a ships total operating cost. Mr Levander says crew expenses vary but can range between 10 and 30 per cent of operating costs.
He envisages a shore-based team of qualified captains working in a replica 3D bridge, similar to the simulators used for training today, that could operate a fleet of a dozen ships at the same time.
A European Commission-financed academic research project, dubbed Munin also suggests an autonomous ship would be safer.
It found that 75 per cent of maritime accidents can be attributed to human error and “a significant proportion of these are caused by fatigue and attention deficit”. Technology could readily take over tedious and repetitive human tasks such as watchkeeping at sea.
The technology to design such a vessel already exists, argues Mr Levander. Global communications satellites have the power to provide enough bandwidth to navigate the vessels remotely using feed from onboard radar and cameras. Ships already navigate automatically using GPS technology and onboard cameras are used to enhance human vision in poor visibility and to spot objects in the water, far beyond the range of the human eye.
Piracy, a constant threat to crews in many parts of the world, could also be more effectively countered. Mr Levander says with no crew to take hostage the vessel would be less attractive. But more importantly, without any people onboard, a ship could be fitted with countermeasures, such as flooding the ship with a gas that incapacitates anyone who boards without authorisation.
But Peter Hinchliffe, secretary-general of the International Chamber of Shipping is more circumspect. He says the highly complex collision avoidance rules would have to be rewritten to allow autonomous ships to operate in the same environment with crewed ships, a change that could take decades to implement.
He is also sceptical about whether the bandwidth is available to remotely operate the vessels, given how much would be consumed by video and radar feeds alone. And even if it is possible he questions whether the costs would make it prohibitive.
Mr Hinchliffe also argues that extra redundancy and back-up systems that would be needed, in case something fails at sea, raise questions about the promised weight savings.
“I’m not convinced you can remove all the crew because a ship is a complex beast, which can be away from land for weeks at a time.”
But one thing he does agree with Mr Levander on is that it is becoming increasingly difficult to find people to go to sea. The romance has gone out of life on the ocean wave, it appears.
“In the 1950s and 1960s people used to go to sea to see the world. It is not that easy to find young people to go to sea today. They would rather be at home with their friends and travel for leisure instead,” says Mr Levander.

Amazon reviews shippers after hold-ups

Amazon is looking at the performance of delivery companies handling its orders after packages were left stranded in distribution centres instead of being placed under Christmas trees.
The online retailer pointed the finger at others for the failure, saying it had processed orders in time and was “reviewing the performance of the delivery carriers”.
It added that it had limited the number of new customers for Prime, its service that provides free shipping and other benefits in return for a $79 annual membership fee. The move came before reports spread of a rash of delays to ecommerce deliveries in the US in the run-up to Christmas.
UPS, which is estimated to handle around 45 per cent of package deliveries in the US, blamed severe weather in parts of the country and a surge in ecommerce for a backlog that overwhelmed its air delivery network, leaving an unspecified number of packages stuck in its logistics centres this week.
Amazon said it had held back the growth of its Prime service “during peak periods to ensure service to current members was not impacted by the surge in new membership”.
Despite that, it said that it had signed up more than 1m new customers during the third week of December, leaving it with “tens of millions” of customers for the service.
The comment, pointing to a Prime membership of more than 20m, was the closest Amazon has come to revealing how many people use the service, which provides free two-day delivery as well as access to Amazon’s streaming video and ebook lending services.
Amazon said it had given $20 gift cards to its own customers who had failed to get gifts they ordered.
UPS said that an unexpected flood of packages had left it struggling to keep up in the final days before Christmas. “The volume we received was more than forecast,” a spokeswoman said on Thursday.
The holiday shopping season was compressed by Thanksgiving falling later in November than usual, the delivery company said, while ice storms in the western US had caused backlogs at Dallas/Fort Worth airport that reverberated through its system.
The shift towards online shopping this year was also bigger than some forecasts had projected, with IBM reporting that online sales jumped by 21 per cent on Cyber Monday, traditionally the busiest day in the US ecommerce calendar

Sunday, December 29, 2013

3D printing reshapes factory floor

For all the hype surrounding 3D printers and the potential for a new industrial revolution, their physical appearance is somewhat underwhelming. From the outside, the machines look more like large, American-style fridge freezers than props from a science fiction film.
However, it is the technology inside these bulky machines that has got industrial companies excited. At the press of a button, complex shapes are built up in layers from particles of plastics or metal. The result: a cheaper and faster way to produce complex products, some of which would be almost impossible to make with traditional manufacturing processes

To date, companies have mainly used 3D printing, also called additive manufacturing, to make prototype parts and products for testing. But several of the world’s biggest manufacturers, such as General Electric, EADS and Siemens, are now leading the way in moving the technology from the design shop to the factory floor.
From January, Siemens, the German electronics and engineering group, will use 3D printing to make spare parts and other components of gas turbines within its power generation service and maintenance division. It can produce more than 100 different individual parts this way. As a result, some repairs can be done in a tenth of the usual time.
“High-temperature turbine parts are probably one of the most challenging applications for 3D printing,” says Nicolas Vortmeyer, chief technology officer at Siemens’ power generation division. “It’s not the easiest application of 3D printing because in turbo machinery you have some of the highest temperatures and stress and strains.”
Siemens believes 3D printing could “revolutionise” the supply of spare parts. Today, spare parts are mass produced, stored and sent out individually as required. Soon they will be able to be printed exactly where they are needed – close to the customer.
For the aerospace industry, 3D printing is particularly attractive as it can produce lighter parts. In addition, the technology can also help reduce material wastage – important for an industry that uses high-cost metals such as titanium. As a result, products that have a poor “buy-to-fly” ratio are likely to be at the top of companies’ lists for 3D printing.
“For some of our components you can throw away 90 per cent of the material that you buy,” says Rich Oldfield, technical director of GKN Aerospace. “If you look at the bill of material on an aircraft, anything that has got a buy-to-fly ratio in that 70 to 90 per cent space is a candidate. That’s a huge opportunity.”


Car manufacturers are extensively using 3D printing technology to make design samples and prototypes, but are a long way behind their aerospace counterparts in using it for mass production.
Though the car industry is the second-biggest user of 3D printing after consumer products, according to consultancy Wohlers Associates – ahead of both medical and aerospace – for most car manufacturers the economics of using 3D printing for high volume mass production do not make sense.
GKN, the British car parts and aerospace engineer, is developing a 3D-printed titanium bracket in Bristol with EADS, Europe’s biggest defence and aerospace company by sales. This bracket can reduce machining time from four hours to 40 minutes and cut material use by 30 per cent. EADS is also looking at the potential to make larger, 3D-printed titanium parts, several metres in length.
GE Aviation of the US has also seen the potential benefits. From 2016, it will start producing its first additive component – fuel nozzles for the new Leap engine in the Boeing 737 MAX and Airbus A320neo aircraft. Each engine will contain 19 fuel nozzles. GE expects to make about 30,000 to 35,000 fuel nozzles a year by 2020, which will require between 60 to 80 3D printers.
According to Greg Morris of GE Aviation’s additive development centre, a fuel nozzle currently consists of 20 different components that have to be machined, cast and welded. With 3D printing, it can be made in one metal piece, have five times the lifespan and weigh about 75 per cent lighter.
Mr Morris adds that there are a number of other 3D-printed engine parts that could start be mass produced around 2016.
Rival UK aerospace company Rolls-Royce has also signalled plans to use 3D printing to produce components for its jet engines, although it is a few years from entering production.
Even the companies actively using the technology admit the excitement about 3D printing has to be put in context.
A recent Morgan Stanley report downplayed 3D printing as a threat to traditional manufacturing. It found that the technology was mainly viewed by industrial companies as a prototyping tool, with 73 per cent using it for design compared with just 23 per cent for production.
“I think part of the problem is there’s an impression that additive manufacturing is the answer for almost everything – [that] it’s going to be less expensive et cetera,” says Mr Morris. “That’s really not true. It will be years until companies leverage additive in any substantial or significant way.”
Terry Wohlers of the Wohlers Associates consultancy agrees that additive manufacturing will not usurp the current techniques. “You’ve got to look at 3D printing as another tool in your toolbox,” he says. “If a new tool is invented it doesn’t mean all your other tools go away.”
Some of the main factors holding back mass 3D printing are the costs involved. Machines and the cost of the metal materials are high. In some instances, materials can be 50 to 100 times more expensive than traditional manufacturing materials, says Mr Wohlers.
Another problem is machine capability. Jon Meyer of EADS Innovation Works, the research arm, says: “Right now productivity is one of the biggest factors, the speed of the machines, to how wide the scope of adoption is.
“If I had a choice of doing one thing and waving a magic wand it would be to make the machines 10 times faster and suddenly you would have a huge market opportunity.

Gold miners braced for cuts in reserves after plunge in prices

The gold mining sector is braced for asset writedowns and a fall in the amount of reserves in the ground after the precipitous drop in the price of the metal this year.
Some of the world’s largest gold miners face having to tell investors that their growth has gone into reverse because the falling price has made it uneconomic to mine some of the areas previously classed as reserves.

Miners’ reserves are vital to their prospects and valuations, since companies would quickly shrink if they did not replace what they dug from the ground each year. Rising price expectations have until now helped gold miners be more optimistic about their reserves and to include ounces that they would previously not have been able to mine profitably.
“Gold has been going up for 12 of the last 13 years and reserves have gone up with the price. This [2014] is definitely the year we will see reserves falling across much of the sector,” said Jorge Beristain, an analyst with Deutsche Bank. “Reserve calculations have been based on a series of suppositions that in the present environment are no longer tenable.”
Gold miners including Barrick Gold and Newmont Mining, the world’s largest by ounces of annual production, have had a difficult year in 2013 because of the effect of the gold price on some of their most important projects.
Miners usually update their reserve statements early each year, and do not all assume the same price. Barrick’s last reserve statement assumed a gold price of $1,500 per ounce for most of its 140m oz of reserves, while Newmont based its statements on a $1,400/oz price.
Gold started the year at about $1,600/oz but fell sharply in April and has been hovering at about $1,200/oz in recent days.
Newmont, whose 99m oz of reserves are the industry’s second-largest, said early this year that a $100 fall in the gold price would cut reserves by 7.6 per cent. Barrick has previously said a $300/oz change in the assumed gold price would see its reserves fall less than 10 per cent, with a lower impact at its larger, more important mines.
“I would guess some miners might have to use $1,100 as the price for their reserves,” says a senior executive at one UK-listed company. “Or they might take the view that the gold market is in a very strange place in terms of volatile behaviour at the moment, which they might use to justify using a higher price.”
Some miners use lower gold prices in reserve calculations. Kinross Gold, a large Canadian miner, based its latest reserves on a $1,200 price.
Barrick and a number of other gold miners including Newcrest Mining, Australia’s largest, have already made billions of dollars of writedowns during 2013 as the gold price fell.
However, some miners face having to acknowledge further impairments connected to goodwill held on their balance sheets or the carrying value of projects.
“The writedowns of the past quarters in 2013 have tended to be connected with the costs of projects. What we are talking about now is cuts to the value of companies’ land holdings and the gold that they hope is in the ground,” Mr Beristain said.
Silver miners also face writedowns and reserve cuts because their price assumptions are well above current spot prices, he added.

US farmers face difficult 2014 after reaping record year

US farmers are becoming gripped by anxiety even as they close the books on their best financial year.
A twin threat of sagging grain prices and a retreat on biofuels policy in Washington has prompted warnings that some farm operations could struggle to break even in 2014, a stark shift from the nominal record $131bn they earned this year.
A weakening farm economy would hurt sales of equipment makers such as John Deere and Agco and could also cap a stunning rise in farmland prices.
Lower crop prices could also force Washington to pay billions of dollars worth of new subsidies outlined in the farm bill under negotiation in Congress, even as other subsidies are cut.

Prime source of concern is that farmers will collect an average $4.40 per bushel for corn for the marketing year that started on September 1, down 36 per cent from the prior year, the Department of Agriculture estimates. Corn for March delivery traded at just over $4.27 at the end of last week on the Chicago Board of Trade.
“There’s concern now that prices could drop considerably,” said Mark Recker, who farms corn and soyabeans on 1,400 acres in Iowa state.
Farmers in Illinois, the heart of the corn belt, need $4.31 a bushel corn next year to make a profit, according to a University of Illinois estimate.
“There are good possibilities of prices being below break-even prices over the next several years,” wrote Gary Schnitney, a professor at the university.
US farmers grew a record 14bn bushels of corn on 95m acres this year. Land values in states such as Illinois and Iowa have increased 77 per cent in the past four years but economists say cheaper grain will slow, or reverse, the trend.
Adding to farmers’ worries is a proposed cut in a US mandate for ethanol use, which has been a critical pillar of corn demand in the past five years. Farm groups are lobbying the White House to reconsider the proposal.
Iowa State University estimates corn prices would fall 25 cents a bushel under the reduced mandate. The state’s governor, Terry Branstad, travelled to Washington this month to warn of a 1980s-style “farm crisis,” when bankruptcies and land foreclosures haunted the Midwest, if regulators finalise the proposal.
“Right now is not the best time to be shedding demand for the corn market,” said Matt Erickson, economist at the American Farm Bureau Federation. The ethanol industry will consume 35 per cent of the domestic crop this year, USDA estimated. Corn averaged only $2 a bushel before the ethanol mandate.
As corn prices come down and soyabean comes down, more and more people are starting to question the wisdom of these high support prices
- Bruce Babcock, Iowa State University
Prospects for lower grain prices come as Congress is poised to hash out final details of the farm bill. The bill would end “direct payments” – cash subsidies paid to farmers regardless of whether they actually grow a crop.
But it would establish another benefit called “price-loss coverage,” where taxpayers compensate farmers when crop prices fall below legislated thresholds. Coverage would start below $3.70 a bushel for corn and $8.40 a bushel for soyabeans under a version of a bill advanced by the House of Representatives.
“As corn prices come down and soyabean comes down, more and more people are starting to question the wisdom of these high support prices because it looks like they’re going to cost a lot of money,” said Bruce Babcock, economics professor at Iowa State University.
Price-loss coverage could push US agriculture policy into a so-called “amber box” under World Trade Organisation rules, meaning it would be considered a distortion to trade. “This is re-coupling farm subsidies to actual production decisions,” said Craig Cox of the Environmental Working Group think-tank, which opposes the scheme.
As farm revenues have increased, so have expenses such as land rentals, fertiliser, fuel and seed. Mitch Morehart, a USDA economist, said it was too soon to estimate next year’s income as lower prices may spur farmers to change some fields to crops that offer better returns, or to leave them fallow.
After adjustment for inflation, net farm income this year will be the highest since 1973. Of the $131bn, government payments will comprise $11.4bn of farmer receipts

Road opens up for CNG vehicles in US

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There is little obvious to distinguish the vans that roll into and out of the AT&T depot in Palmdale, California, from the millions of other commercial vehicles carrying ladders, workers and equipment along roads throughout the US. But a sign on the sides of many of the telecoms company’s vehicles reveals a significant difference. “Green technology,” it proclaims. “Natural gas-powered vehicle.”
AT&T – which operates thousands of Ford and General Motors vehicles converted to run on compressed natural gas – is typical of the customers who have turned to the fuel to power their fleets. The vans are large enough to accommodate bulky gas canisters hidden beneath the floor.

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They cover enough miles for the low cost of natural gas to justify CNG-powered vehicles’ higher purchase costs. The depots also host CNG fuelling stations, freeing the vans from reliance on the sparse network of public fuelling sites.
The question is whether the technology can, in contrast to other alternatives to traditional petrol and diesel, establish itself as economically viable.
That is likely to present a significant challenge, says John O’Dell, green-car editor of Edmunds.com, the car information site.
“The gasoline engine has been pretty much perfected,” Mr O’Dell says. “It’s a rough path to hoe to try to replace it.”
Yet CNG has better tools with which to tackle the path than many other alternatives. The glut of gas that has flooded the US market after the widespread adoption of new drilling techniques has sent the product’s price plummeting. Manufacturers estimate the natural gas equivalent of a gallon of petrol costs about $1.25, against at least $3.40 for petrol in much of the US.
Just as importantly, gas prices are now so stable that suppliers are willing to sign fixed-price contracts for as long as a decade.
“The removal of volatility is really what is attracting customers,” Jon Coleman, sustainability manager for fleet sales at Ford, says.
The natural gas can run in normal engines “hardened” to cope with it. Natural gas produces higher temperatures than liquid fuels and also provides less natural lubrication to engine parts.
Some Asian and European countries – Italy in particular – have long records of using CNG successfully to power some road vehicles, although with European gas prices now far higher than in the US, interest there is muted.
“[Hardened petrol engines] can well not have any base engine durability issues when converted to CNG,” says Mark Maher, chief engineer for power train integration at General Motors.
Alongside the fuel savings, operators of CNG vehicles produce about 30 per cent fewer greenhouse gas emissions than conventionally fuelled vehicles and rely on a domestic rather than imported product.
Those factors together make CNG’s economics far more “straightforward” than those for pure electric cars, according to Mr Coleman.
“A fuel that reduces your carbon footprint, reduces your dependence on foreign oil and reduces your costs becomes very, very attractive,” Mr Coleman says.
Nevertheless, a glance at Chrysler’s Ram 2500 CNG-equipped pick-up truck illustrates one big challenge. Even stored at 3,600 pounds per square inch, the gas takes up five times the space of a similar-range petrol tank. Gas cylinders fill nearly half the truck’s cargo-carrying rear bed.
The canisters’ size favours large commercial vehicles, according to Paul Nahra, a senior technical specialist for BorgWarner, a supplier of power train components.
“They have the size to accommodate these large tanks,” he says.
One way to reduce the size of tanks for vehicles running on natural gas is to use the same technique that allows ships to carry natural gas between continents – to chill it into liquefied natural gas. The insulated tanks are quicker to fill than most CNG tanks and carry gas compressed to one-600th of the volume it takes up unpressurised at normal temperatures. Read more
Heavy commercial users also tend to record the mileages necessary to pay for CNG equipment. Conversion costs about $6,000 for a Ford F150, according to Mr Coleman, and operating costs are about 10 cents a mile cheaper.
“You need to run 60,000 miles on natural gas to recover the investment,” Mr Coleman says. “We have customer fleets where vehicles do that in two years or less.”
Most significantly, the shortage of CNG filling stations in much of the US means that operators are wary of running vehicles that follow unpredictable routes or stray long distances from home depots on CNG.
There are slightly more than 400 public CNG stations in the whole US, against 850 in Italy.
“If CNG were readily available without constraint, I think that that would have a big positive influence on demand,” Mr Maher says.
Even though CNG vehicle demand is rising fast, overall numbers remain small. Ford expects to sell 15,000 CNG-ready vehicles this year, Mr Coleman says. The figure is five times the number sold in 2010 – but only a tiny fraction of the 2.4m vehicles the company will sell this year in the US.
The numbers are, nevertheless, growing fast. Mr Nahra and many other observers expect the technology to account for 10 per cent of US commercial vehicle sales by the end of this decade.
“The attraction is for those that can really take advantage of the cost savings,” Mr Nahra says.

Online showrooms and digital dealerships revolutionise car buying

At first glance, Audi’s flagship car showroom on London’s Piccadilly could do with a few more cars.
In the shadow of the Ritz Hotel, and across Green Park from the gates of Buckingham Palace, a single two-seater R8 Spyder sports car, the brand’s most exclusive model, sits alone in the shop’s window.

But instead of half a dozen other cars wedged in around the store as would be typical in a dealership, there are giant television screens controlled by touchpads on the floor where the carmaker’s complete range of models can be customised, viewed, repainted and accessorised.
Audi thinks this shop marks a new future for car retailing. There are no mechanics in overalls, just salespeople in suits. Miles from the nearest warehouse, on one of London’s most sought-after streets, customers can browse and interact with the premium brand’s range digitally, and buy the car without ever getting in it.
Online sales direct from manufacturers, plus stores such as Audi’s and the entry of groups such as Google, are changing the way carmakers interact with customers and drivers choose their new cars.
The changes come as margins and profits slump at the traditional dealership model and a new generation of buyers look to shop for vehicles in the same way they purchase music, clothes and gadgets.
Global online car sales will increase eightfold between 2011 and 2025 to almost $4.5bn, according to research by consultants Frost & Sullivan, to account for just under one in every five new car purchases.
In more advanced economies such as the UK and US, online sales will swallow a quarter of the market by 2025, according to the research.
“Digital showrooms and online retailing is the big shift that is coming to the car industry, and it is coming fast,” says Sarwant Singh, a partner at Frost & Sullivan. “This is going to completely change the way people choose and buy their cars.”
Brick and mortar dealerships are expensive. Margins for dealers on new car sales in Europe are typically less than 1 per cent of the price of the vehicle, as tough competition and heavy discounting drive down prices.
And gone are the days where families would spend a weekend trekking between half a dozen showrooms on the outskirts of a city to choose their new car. A few clicks on the internet can show customers the products on offer.
Buying cars directly from manufacturers via the web is only going to gather momentum
- Damian Long, director at GfK Automotive
Traditional car buyers may lament the lack of bargaining with the dealer or the deployment of faux nonchalance in order to win a last-minute discount.
But websites packed full of details and with clear prices mean in the digital age, the buyer is in a better position, and the dealer has less opportunity to increase the price with added extras.
And for manufacturers, direct online sales can cut out a large amount of overhead costs and boost their margins. European carmakers have seen profitability slump over the past decade amid the worst car market in the region for two decades.
According to a study by market researchers GfK Automotive, roughly a third of British under-35 year-olds would buy a car online, while 80 per cent have researched the car model they want to buy before they even set foot in a dealership.

Comparison sites spur competition

Buying and selling cars in the same way that Amazon sells books appears to be a possible long-term future for manufacturers, but online retail is already a big part of the second-hand car market, writes Henry Foy.
Used car sales were once the sole domain of independent dealers and manufacturer-branded showrooms looking for an additional stream of income.
That shifted with the arrival of magazines such as Auto Trader, published by Trader Media, which allowed owners to sell direct to potential customers, and changed further still with the advent of the internet and online sales portals.
“Buying cars directly from manufacturers via the web is only going to gather momentum,” says Damian Long, director at GfK Automotive. “The next place you buy a car may soon be Google.”
The world’s largest search engine has quietly rolled out a price-comparison site that aggregates dealership prices for new cars for local areas in the US, a platform that could completely overhaul the way dealerships – which have previously been shielded from direct competition with each other – have to attract buyers.
Meanwhile, social media websites such as Facebook have built dedicated motor teams to work with manufacturers to tailor their advertising to users, specifically targeting a generation of younger people that have become used to buying online expensive items such as laptops or televisions without having tested the product first.
“It is clear that the old-style model of dealerships just is not sustainable any more,” says a senior executive at the UK sales unit of a global carmaker. “Everyone is finding there is no way to make money from it.”
Manufacturers are taking the hint. Nissan, Jaguar Land-Rover, Mini and Mercedes-Benz have all opened digital stores similar to Audi’s across Europe, while Ford, Peugeot Citroën, Fiat and Renault have launched websites for customers to buy cars from them directly.
US electric car manufacturer Tesla Motors , as well as setting benchmarks for emission-free engines and batteries, has been a trailblazer for online car sales, launching its retail operations through its website only. Renault’s entry-level Dacia brand has made online purchases a centrepiece of its budget, low-cost image.
Renault itself closed down a third of its UK dealership network in 2012. Other mainstream brands such as Ford and Peugeot have cut the number of sales points.
But the typical dealership model may well live on, in a smaller role, as a place to bring cars for repairs and regular services – typically higher-earning business operations than new sales.
That allows for premises to be moved into less costly areas, while the single flagship digital store can be situated in more expensive city centres where footfall is higher.
In Audi’s store on Piccadilly, customers are engaging with the new approach.
In its first 10 months of operation as a digital-first store, Audi reported a 60 per cent increase in new car sales, and a higher average sales price than the company’s UK dealership average.
“Fifty per cent of their customers are buying cars without a test drive,” says Frost & Sullivan’s Mr Singh. “You know what you want before you even get there.”

Ssangyong revs up for fresh growth drive

Four years ago, as South Korean carmaker Ssangyong Motor teetered on the brink of insolvency, a court asked Lee Yoo-il – a former top executive at rival Hyundai – to take charge.
Mr Lee spent 10 days agonising over whether to take on the role of joint administrator at the jeep and SUV maker, which had suffered falling sales of its increasingly outdated models.

I spoke to my friends, and former colleagues from Hyundai Motor, and they said to try it,” recalls Mr Lee, now Ssangyong’s chief executive. “The worst scenario was bankruptcy – but the company was already bankrupt.”
Now, with several former Hyundai colleagues in senior positions, Mr Lee is focusing not on survival but on growth in the thriving global market for large passenger vehicles – nibbling at Hyundai’s grip on the domestic market, and aiming for a 250 per cent sales increase, from a low base, in China next year.
In the second quarter, Ssangyong recorded its first quarterly net profit for six years, and it expects to finish this year in the black for the first time since 2007. It now holds 6 per cent of the overall Korean market, compared with nearly 70 per cent for Hyundai and its affiliate Kia, and sells 16 per cent of all SUVs sold in the country.
Ssangyong’s return to health, under Indian parent Mahindra & Mahindra, is an unusual example of a successful foreign acquisition in South Korea, where takeovers by companies including General Motors and Standard Chartered have been hampered by volatile labour relations.
Unlike previous owner Shanghai Automotive Industry Corporation – which later denied claims by Ssangyong of intellectual property theft – Mahindra has invested heavily since taking a majority stake in Ssangyong in 2011, earmarking $900m for product development over the next four years.
This has given the Ssangyong the resources to develop a new fleet of large passenger vehicles that has helped to restore the company’s battered reputation at home. Ssangyong sold 15,358 vehicles in South Korea in the third quarter of this year, a 55 per cent rise from two years earlier.
But the export market already accounts for 56 per cent of Ssangyong’s sales, and the company is targeting big increases in sales to emerging markets including Russia, China, and Latin America where an affluent upper-middle class and poor road quality results in a strong market for SUVs. “This year we’ll sell about 7,000-8,000 cars in China, and next year our distributor has committed to 20,000,” Mr Lee says.
The SUV market is also buoyant in the US, where the burgeoning shale gas industry has set the country on course to becoming nearly self-sufficient in oil products, encouraging demand for fuel-hungry vehicles, and Ssangyong intends to enter that market within the next few years. It will do so under a new name, Mr Lee confirms for the first time: the Ssangyong brand will be abandoned within the next two years in an effort to “exit from the bad reputation” that clings to it.
Ssangyong is fortunate to find itself a niche player in one of the fastest growing parts of the automotive sector: global SUV sales are set to increase by an annual 6 per cent to reach $414bn by 2017, estimates the consultancy Lucintel.
But growing demand for Ssangyong’s vehicles has been driven largely by a strategy of undercutting rivals on price, notes Angela Hong, an analyst at Nomura – a business model that means margins will remain slim. And while it is working to develop more parts in-house, Ssangyong’s small production capacity means it has none of the economies of scale enjoyed by larger groups including Hyundai and Kia.
Yet while those two domestic rivals, as well as the South Korean subsidiaries of GM and Renault, have struggled with a recent succession of debilitating labour strikes, Ssangyong has gone the past four years without industrial action in spite of an exceptionally ugly labour dispute even by the standards of the Korean automotive sector.
Mr Lee regards his culling of excess manpower as one of the keys to Ssangyong’s turnround: the workforce now stands at 4,500, down from 7,400 when he joined.
But his restructuring efforts prompted a wildcat strike that shut down production for three months, after which Ssangyong promised to try to re-hire laid-off workers when business conditions improved – a commitment that has cast a shadow over the subsequent turnround.
While it has taken 450 of the former employees back on, critics accuse Ssangyong of moving too slowly, and domestic media gave heavy publicity to a spate of suicides among the redundant workers over the past four years.
Nonetheless, staff morale has improved under the new management, says a spokesman for Ssangyong’s union, adding that the company’s decision to be more open with its staff has helped to offset frustration with the slow pace of pay increases.
“Before I came here, I was not interested in Ssangyong,” says Mr Lee. “But the company has been changed. The credibility has been growing.”

Thursday, December 26, 2013

Foreign money floods big telecom operators

Top players had a good run with foreign investment this year. More than Rs 17,000 crore of foreign money came into the sector.

The top telecom company,
, sold five per cent stake in its company to Doha-based Qatar Foundation Endowment for $1.18 billion (Rs 7,080 crore). British telecom major , the parent company of Vodafone India, invested Rs 10,141 crore by buying out its Indian partners.

This came after foreign direct investment (
) limit rules for telecom were eased. Idea, too, had conducted roadshows for its qualified institutional placement this year, to raise as much as Rs 3,750 crore. Its existing partner, Malaysian telecom company, Axiata has already said that it will invest in the company to keep up its stake.

Industry expects this will spur investments from large players. While the top three players have to invest in the upcoming spectrum auction early next year, they will also spruce up their networks to make themselves ready for the next wave of telecom growth.

“The time is right for telecom companies to make investments if they have to stay ahead. Telecom companies have to be prepared because the No 1 and 2 places are severely contested by other challengers,” said Alok Shende, principal analyst and co-founder of Ascentius Consulting. Airtel, which already launched its 4G services in four circles, is also spending on enhancing its network.

The money raised can also help big players consolidate as merger and acquisition norms were relaxed by the government. “Incumbents are doing well but all the other players are suffering. The time is right for big companies to take them over and push out the fringe players,” said Mahantesh Marilinga, senior research analyst at Finquest.

Analysts feel the price has to be right for acquisitions as operators that would come up for sale would be stressed assets with piling debts. Late entrants into the sector had come in at huge premia and might even have to exit at a loss.

Shende says increased interest of foreign players is also because a lot of issues surrounding the telecom sector have been resolved. Many of 2008 entrants into the sector exited the race after the Supreme Court cancelled licences. The few who remained by winning licences back, have ceased being pan-India players like Uninor, MTS and Videocon.

Vodafone has already talked about increasing rates, indicating that pricing power has come back to top players. “The spectrum pricing that has come in is also in favour of the top players,” said Shende. The government approved the floor prices of spectrum which were greatly reduced from the auctions in 2012. Newer opportunities have also started opening up for the sector, especially as many are seeing data growth. “3G started growing as the uptake has been good. Enterprise market is growing, which is good for both Vodafone and Idea,” adds Shende.
(Source: Business Standard)

M&M syncs sourcing with SsangYong

For the last couple of years, South Korean makers of automobile components have seen a surge in demand not just from neighbouring Japan but also from Europe and America. While, on the one hand, they have been undercutting Japanese rivals who are struggling with an appreciating yen, on the other they are increasingly being recognised as high-tech manufacturers with low labour costs. With the global automobile market in slowdown, car makers have lost all pricing power; the only way they can sustain their profits is through rigorous cost management. This is driving purchase managers to Korea. The - Purchasing Organisation, the source of many a benchmark in automobile component sourcing, has shown a keen interest in Korean component suppliers.

Renault's erstwhile Indian partner, Mahindra & Mahindra, too has been quietly working at sourcing more and more components from Korea. Its acquisition of
(for $463 million, or Rs 2,100 crore then, in 2010) opened the doors for this opportunity. The exercise has even won it the Procurement Leaders award for excellence in 2013 organised by the global network serving the supply chain community and major corporations. All eyes are now on the results of this initiative: the two new platforms being jointly developed by the two companies which will go into production early next year. If successful, others will certainly choose to replicate this business model. The first of these, a SsangYong car, will be launched in January 2015. For Mahindra, which entered the premium segment of the sports utility vehicle, or SUV, market in India with the SsangYong Rexton, the new platforms are integral to growth. While Renault (with the Duster) and Ford (the Ecosport) have attacked it from the bottom with compact SUVs, its arch Indian rival, Tata Motors, is readying to launch new platforms by 2015.

Setting the rules
Mahindra started rationalizing its vendor base about a decade back. The list of empanelled vendors came down from 1,000 to 400. Out of these, about 100 are its core suppliers. SsangYong, on its part, has around 400 suppliers. The game plan is to leverage each other's vendor base to cut costs as well as go-to-market time. Mahindra and SsangYong have already developed six engines with the help of common sourcing. Mahindra claims to have shaved off 7-15 per cent costs on engine components in the process. In the next phase of cross-sourcing, Mahindra could save around 8 per cent in the automatic transmission system it is developing with SsangYong. Also, the synergies in tooling and moulding from common sourcing are likely to save crores of rupees, according to senior company executives. Clearly, this is big for Mahindra and the company attaches the utmost importance to it. "If the auto industry learnt manufacturing from Ford, then we have learnt sourcing from the Renault-Nissan partnership," says Mahindra & Mahindra Executive Director & President (automotive & farm equipment sectors) Pawan Goenka. "Their processes are very strong, though we have not copied them."

The cross-sourcing plan is comprehensive. Mahindra & Mahindra Chief Purchase Officer (automotive and farm sectors) Hemant Sikka says: "There are three ways to go about cross-sourcing. One is getting a Korean supplier to make components for Mahindra vehicles. Another would be using standard parts made by Korean suppliers, earlier made for SsangYong vehicles, to be used in our existing cars as well. And the third would be to source components for the platforms that SsangYong and we are jointly developing. For that, engines are already done." Thus, the sourcing for automatic transmission will see SsangYong as the lead customer with Mahindra going to the same suppliers. The transmission will be used in both SsangYong and Mahindra vehicles. "Only the application will be different; the system will remain the same. The Japanese supplier is common," says Sikka.

But no sourcing from SsangYong's suppliers would be done if the import, logistics, inland transport and staff costs don't add up to less than the cost incurred while sourcing from an Indian supplier, insist both Goenka and Sikka. So, when sourcing for the engines, a part otherwise costing Mahindra Rs 100 would cost it anywhere between Rs 93 and Rs 85 if it is being imported from a Korean supplier. "On every such sourcing, and we have done many now, we have been able to reduce costs," says Sikka. But it is not just about costs - it is also about plugging capability gaps. Thus, after the Mahindra XUV 5OO's infotainment (Taiwanese) system drew flak from users, the company has identified a new system developed by Dijen, a supplier to SsangYong. This company will now supply to Mahindra in collaboration with

However, there is a limit to cross-sourcing because not all parts can be common for the vehicles manufactured by the two companies. But, says Sikka: "Suppliers will bend over backwards to win an order once we consolidate our volumes. If we jointly place orders with the same vendor, the volumes will go up from 50,000 to 300,000 a year."

Ernst & Young Partner Rakesh Batra says that leveraging volumes is one of the benefits that joint-sourcing brings with it. Goenka adds: "Even with a multinational vendor, when SsangYong and Mahindra's volumes are put in one sourcing decision, (our) negotiation power increases manifold." The exercise throws open enormous possibilities for Mahindra's local vendors. An Indian vendor landed the SsangYong contract for the bulky, and hence unlikely, component of steel wheels because of its competitive rates and expertise as Korean suppliers have graduated to alloy wheels.

Blazing a new trail
The Mahindra-SsangYong joint sourcing is perhaps the closest to the Renault-Nissan Purchasing Organisation. Volkswagen and Audi too leverage their common sourcing but that is more at the raw material level, says Batra. That is because their powertrains and most of the specifications are different. Closer home, Tata Motors cannot utilise its Jaguar and Land Rover vendor base because of the difference in the nature of the two brands - one a high-volume, low-cost brand and the other ultra-luxury. However, Sikka is clear that not all of Mahindra's purchases will be thrown open to suppliers from South Korea. "We cannot source bulky sheet metal parts which have inefficient logistics. But where a higher level of technology is required, we can think of cross-sourcing."

Mahindra did not fuse the two sourcing teams unlike the Renault-Nissan Purchasing Organisation. However, it deputed Sikka for one year as the sourcing head for SsangYong to ensure that the joint-development and sourcing could be put on auto-pilot once he returned. From drawing up a supplier panel for the engine development, setting benchmarks for both SsangYong and Mahindra to understanding the cultural nuances of both the teams and vendors - all of it was ironed out in the past one year. For example, Korean suppliers are used to discussing bids in front of each other but Indian vendors are more comfortable presenting bids separately to the buyer. The solution was to bring the two business cultures together. Some Indian vendors had to participate in open bids through tele-presence, while SsangYong's team heard some out individually, where the technological intellectual property was far advanced.

The vendors wouldn't mind such minor compromises.


Three years after it was acquired by Mahindra, there are signs that SsangYong is turning the corner. The company has registered a profit for the last two quarters, though it's not certain how soon it will report an annual profit - its loss for 2012 stood at 98.12 billion won (a little over Rs 500 crore) in 2012. It surpassed its sales target of 120,000 vehicles for 2012 by 717. In the first 11 months of 2013, it has sold 132,000 vehicles.

During Hemant Sikka's stint at SsangYong, he ensured the company localised most of its sourcing. Given its lineage which could be traced to Daimler, it had a lot of European suppliers and some in Japan. As the purchasing head, Sikka localised all the cylinder blocks and cylinder heads, leading to savings of 10-20 per cent for SsangYong. There was a lot of focus on material cost savings, which also saw aggressive negotiation with suppliers, taking volume discounts from suppliers (as a result of joint-sourcing), apart from the import substitution.

The rejuvenated products were well received in the market - so much so that this year, SsangYong is the only vehicle manufacturer to register growth in the South Korean market, albeit on a small base. Company executives note that the facelifts consisted of changes in exteriors as well as interiors, powertrain, and even new branding. So, while the Korando C got improved looks, it was also launched with a petrol engine and in a sports version. A re-branding exercise lifted the fortunes of the Rodius MPV, which was earlier clocking less than 100 a month - after its re-launch as the Turismo, it now sells nearly 800 a month.


Mahindra is no stranger to an integrated approach to business. A few years ago, the company's automotive and tractor businesses were brought together and placed under Pawan Goenka. The idea was to drive maximum synergies between the two. The development and sourcing functions were merged. The thinking was that the technical expertise required for both the product categories is the same, and when brought under one roof, there can be osmosis of ideas and innovation between the two. Also, more than half the 500-odd vendors for the two lines were the same; combined orders, it was felt, will help drive down prices. In overseas markets, one office was asked to drive tractor as well as SUV sales. Club Mahindra resorts were required to showcase the company's SUVs. Films made by the group sought to promote these vehicles. Its information technology companies - Tech
Satyam - were leveraged for software solutions. Mahindra Finance, of course, finances almost a third of all Mahindra vehicles sold in the country. All told, Goenka had told Business Standard a few years ago, the company could save up to 1.5 per cent of its costs through the various synergies - the money, of course, goes straight to the bottom line.
(Source: Business Standard)