International Transport Assessment - Case Study Example

INTERNATIONAL TRANSPORT ASSESSMENT Introduction In keeping with the basic principles of industry, the fundamental laws of business economics find application in every level of the transport sector. Demand of the customer is met by the supply of service by the provider, and in ideal scenarios, the supply rises or falls in accordance with the increase or decrease in demand. However, in comparison with some other scenarios we refer to by the same terms, the transport industry, although not alone in this regard, does exhibit a few basic differences. Although transport systems follow the same supply and demand theory as other industries, the complications of network effects and choices between non-similar goods (e.g. car and bus travel) make estimating the demand for transportation facilities difficult (Wikipedia 2007). This can also reflect on the essential characteristics of the development of models which are to be utilized in estimations of consumer behavior in case of predicting the likely choices between the many non-similar goods available in the market involved in the industry. Daniel McFadden was awarded a Nobel Prize for his work in the development of an important branch of econometrics. Taking into account this marked difference in the general structure of this industry, subtle modifications of existing definitions, for the terms forming the basis of an economics oriented perspective are in order. For instance, the demand can be measured in terms of the number of journeys made or in total distance traveled. This type of an approach also results in an ambiguity, since the demand will vary as the points between which the journeys are undertaken are considered. However, for all practical issues, this will be sufficient. The units of measurement may be ‘passenger-kilometer for public transport or vehicle-kilometer of travel for private transport’ (Wikipedia 2007). Supply on the other hand may be calculated from the capacity of the various supply channels (modes of transport). The price of the goods is measured by the cost of travel, which includes money spent as well as the time expenditure. Here too, the details pertaining to the two points between which travel is carried out, i.e., the departure point and the destination is neglected, or generalized for uniformity. The study undertaken here takes into account the cases of two noted transport industries. 2. Case Study 2.1 Case 1- The Indian Railways The first is one of the most widely noted success stories in the history of the transport industry in recent times. The Indian Railway is the largest commercial employer in the world, having an employee base of over 1.6 million (Government of India estimates, 2006), in a wide array of capacities. It is governed by a dedicated Ministry of Railways headed by a Cabinet rank minister in the Government of India. The Indian Railways has a total state monopoly on Indias rail transport. It is one of the largest and busiest rail networks in the world, transporting fourteen million passengers and more than one million tonnes of freight daily.(Salient features 2007) Indian Railways (IR), which was declared to be heading towards bankruptcy as per the Expert Group on Indian Railways in 2001, is today the second largest profit making Public Sector Undertaking after ONGC. The fund balance crossed Rs.12,000 crores in 2005-06, which had reached a low of just Rs.149 crores in 1990-2000. The total investment being planning for the eight-year time frame (2007-2015) is tentatively in the order of Rs.350,000 crores. This confidence is not only due to the rising trend of performance, but also due to the significant growth in the past two years. These two years coincided with Mr. Lalu Prasad being at the helm of affairs of the IR, having moved into his position on 23rd May, 2004.(G.Raghuram,2007) This was in a time often considered as the age of a transport revolution in India, with the introduction of a number of low cost carriers making their entry into the Air travel market, which was so far considered the doyen of the business classes. Yet, the Indian Railways succeeded in uplifting its waning fortunes in the face of this competition. This may be considered as an ideal example of having conquered the competitive advantage in a market by effective planning and implementation of cost control measures. This drastic turnaround in the fiscal state of the entity which was so far considered as a white elephant was primarily brought about by a series of steps taken up by the Ministry. These may be roughly enumerated as follows 1) Capacity augmentation, especially dedicated freight corridors such as Delhi-Mumbai and Delhi-Howrah made the logistics more cost effective. Being an agriculture based economy, the primary load carried by goods trains in India are agricultural products. Price of transport is paramount in the mind of the average cost-conscious Indian farming class individual. 2) Rationalization of freight structures 3) Increased use of IT enabled services including computerized reservations, payroll management, ticketing, and luggage booking helped maintaining effortless and error free documentation and record keeping. Labour cost was also reduced considerably, since a few skilled employees could replace a large number of employees from the older scenario. 4) World class quality passenger amenities sourced from localized sources such as the earthern cups which for some time replaced the plastic cups in the pantry department 5) Public-private partnerships for building and operation of rail infrastructure reduced the cost burden of the Government, who until now bore the entire weight of the entity 6) Design of high capacity wagons enabled carrying more passengers on one journey, thus resulting in heavy savings on fuel and other charges. The redundancy of staffing required on trains was thus reduced by a reduction in the number of trains itself, without compromising on the carriage capacities. 7) Restructuring of the corporate structure to focus on core activities enabled specialized analytical treatment of the inherent problems on a divisional basis. 8) Establishing a Rail Tariff Regulatory Authority A common problem prevalent in the Indian Railway over the years has been heavy demand for seats/berths in the lower classes coupled with a relatively low demand for higher classes. This resulted in turning away of a large number of passengers in the lower classes citing non availability, while the upper classes remained vacant. A recent initiative to counter this has been providing automatic upgrades to passengers in case of vacancy in a higher class. Also on the anvil are a range of initiatives focused on reducing passenger losses by increasing volumes by increasing the length and occupancy of trains, modifying train length and composition based on passenger profile management (analysis of the passenger reservation system data to understand class wise and season wise occupancy of trains), increasing average speeds of trains, providing affordable air-conditioned travel for the poor and improved design of coaches (G.Raghuram,2007). This administration model has been touted to be so successful in the cost cutting method of competition that premium management institutions in the country have included it in the course of study. 2.2 Case 2- The Shinkansen of Japan On the other end of the spectrum is an equally successful example of strategic management in the transport industry, also in the continent of Asia. Japan was the first country to build dedicated railway lines for high speed travel. Due to the largely mountainous nature of the country, the pre-existing network consisted of 3 ft 6 in gauge (1,067 mm) narrow gauge lines, which generally took indirect routes and could not be adapted to higher speeds. In consequence, Japan had a greater need for new high speed lines than countries where the existing standard gauge or broad gauge rail system had more upgrade potential.(Shinkansen, Japanese Life Style) This gave rise to the Shinkansen rail system. Construction of the first segment of the Tokaido Shinkansen between Tokyo and Osaka started in 1959. The line opened on 1 October 1964, just in time for the Tokyo Olympics. The line was an immediate success, reaching the 100 million passenger mark in less than three years on 13 July 1967 and one billion passengers in 1976.(Shinkansen, Japanese Life Style). The British Railway system of late has been prone to a series of accidents and mishaps, and as a result, the shinkansen has is often taken as an ideal model in terms of safety and quality of service in the European media. When the service started in 1964 overnight it cut the travel time between Tokyo and Osaka from six and a half to four hours. Today it can be done in a mere two and half hours(Christopher P. Hood, 2001). In 2003, JR Central reported that the Shinkansens average arrival time was within 0.1 minutes or 6 seconds of the scheduled time. This includes all natural and human accidents and errors and is calculated from all of about 160,000 trips Shinkansen made. The previous record was from 1997 and was 0.3 minutes or 18 seconds. On December 2, 2003, the 3 car maglev trainset reached a world speed record of 581 km/h. The first derailment of a Shinkansen train in passenger service occurred during the Chuetsu Earthquake on 23 October 2004. Eight of ten cars of the Toki No. 325 train on the Joetsu Shinkansen derailed near Nagaoka Station in Nagaoka, Niigata. However, there were no injuries or deaths among the 154 passengers(Shinkansen, Japanese Life Style). What is particularly significant about the shinkansen in this area is that unlike most other train services across the globe, they run near to top speed for much of their journey as there are no corners, inclines, and level crossings, owing to the approach taken to the design, which uses tunnels and viaducts to run through obstacles, rather than circumvent them. Moreover, they run on a dedicated line and so do not have to worry about other trains crossing over or joining the line. This allows the companies to run trains more frequently, and makes it easier to run them on time and safely. (Christopher P. Hood, 2001) A very interesting idea put to use in the Shinkansen system is the Dr Yellow, a special train that checks all aspects of the lines and of the overhead power cables, that conducts regular runs along the lines simulating different situations the “Bullet Trains” are expected to come across. This ensures that the risk factor drops considerably. Now that, along with the other factors ensures that the Shinkansen system maintains its competitive advantage by an unmatched quality of service. However, some scholars such as Christopher Hood believes that many younger Japanese do not accept the Shinkansen as the older generation does, and they may not feel it is a national symbol. Hood believes the bullet train can mirror and inspire society. The impact of the Shinkansen on the economic individuality of the country in which the shinkansen can represent trends is reflected in the relatively recent introduction of female drivers, no-smoking carriages and the closure of restaurant cars. He also points out the trend in which some towns which do not have a station on a bullet train line have actually experienced a decrease in population. This is evidently because people and businesses prefer to move to locations providing easier access to the bullet train. Critics often claim that the bullet train is a good example of pork-barrel politics, citing former Prime Minister Kakuei Tanaka`s involvement in the creation of the Joetsu Shinkansen Line from Tokyo to Niigata on the Sea of Japan coast, Tanaka`s home country. But in his book Hood says, "The example does not appear to be as valid as is usually assumed, being based on supposition rather than facts and logic"(Christopher Hood, 2006) 3. Conclusion and Suggestions for Cost Reduction Having considered two very different enterprises in the transport sector at an international level, both of which have discovered their own route to the same goal of a profitable existence, a sense of the right path is now in view. In a condensed form, thus, we can now take a look at how a transport business can lower costs without compromising on the quality of service and inventory. As with any industry, the basic parameters in any transporting industry would be the fuel consumption, electricity consumption, manpower required, machine efficiency, time and material wastages, viability of routes, presence of demand for the supplied service, etc. The main avenues for cost cutting also lie in these areas. The primary areas maybe enumerated as: 1) Competitive pricing – The lowered profits on each customer may be overcome by the increase in the overall number of customers. Liberally assuming the increase in customers to be greater than the unit decrease in prices, the multiplicative factor remains favourable to the industry 2) Procurement of fuel and other raw materials maybe judicially carried out by sourcing from financially favorable sources. Extended deals may prove profitable in the long run. 3) Timely energy audits will ensure less wastages 4) Human resource issues can largely be sorted out by measures such as out sourcing, timely training of employees, etc. Developments around the world such as increase in population, costs of materials, inflation, increased labor costs, etc have forced people to look for cost reduction strategies.  Industries which have introduced focused cost reduction methods and strategies have survived while those who neglected such necessary transformations in the industry structure have perished. References 1) Salient features of the Indian Railways (http://www.indianrail.gov.in/abir.html) Copyright © 2007 Indian Railways 2) G. Raghuram, “Turnaround’ of Indian Railways: A Critical Appraisal of Strategies and Processes”, W.P. No.2007-02-03 February 2007, Indian Institute of Management, Ahmedabad, India 3) “The Indian Railways”, “Bullet Trains”, “Shikansen”, Wikipedia, the Free Encyclopedia (http://en.wikipedia.org/wiki/) Retreived August 2007 4) Shinkansen, Japanese LifeStyle, Copyright 2001 - 2006 mi marketing Pty Ltd. ACN 098 375 145 (http://www.japaneselifestyle.com.au/travel/shinkansen.htm) 5) Christopher P. Hood, “Biting the Bullet: What we can learn from the Shinkansen” Electronic journal of contemporary Japanese studies, Discussion Paper 3 in 2001 First published in ejcjs, 23 May 2001 6) Christopher P. Hood, “Shinkansen: From Bullet Train to Symbol of Modern Japan” 2006, Social Science Japan Journal Table of Contents 1. Introduction 2. Case Study 2.1 The Indian Railways 2.2 The Shinkansen of Japan 3. Conclusion and Suggestions for Cost reduction 4. References 1 2 2 5 7 9 Read More