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MGT204 Supply Chain Management : International Mining Company

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You are a Logistics/Supply Chain specialist providing advice to an international mining company needs to Transport thermal coal on a soon-to-be built 500 km railway between the townships of Alpha in Central Western Queensland to Abbot Point port in Northeast Queensland. 40 standard gauge locomotives (100 tons each) and 600 coal wagons are to be transported from an inland regional setting in Germany (point-of-origin) to Abbot Point port (final destination).

Task

Mining company.

The report must include the following:

A critical analysis of the logistics challenges in transporting the locomotives and wagons from the point-of-origin to the final destination.

The analysis must include inland and sea freight details, port activities and Australian Quarantine and Inspection Services (AQIS) requirements.

It is required that arguments are supported by academic journals, professional literature and practical examples relevant to the logistics activities and the scenario.

Answer:

Introduction:

The background of the paper is set in against the logistics issues and challenges the logistics and mining companies face while importing goods from abroad. The entire assignment has been treated from the point of view of a supply chain specialist advising an international mining company who is importing wagons and locomotives into Australia from Germany. Since, the case study states that the locomotives and wagons are to be imported to the coal logistics port of Abbot Point, Australia, the owner of the port Adani Australia, the Australian arm of Indian business conglomerate has been taken as the international mining company (Adani. 2017).  

Aim:


The aim of the paper is to recognise two key logistics challenges Adani has to face while importing the locomotives and wagons. They are freight and customs issues and the crucial roles bilateral trade agreements between countries play in case international logistics.

Scope:

The assignment as pointed out encompasses vast areas like customs issues and political bilateral trade agreements between countries. The case presents a situation where Adani Australia, the Australian arm of Indian business conglomerate Adani Group is importing commodities from Germany, a member of the European Union. Hence, the international logistics company, Adani would be facing two issues covering vast scope of discussions. The customs issue would include customs laws of the two countries namely, Germany and Australia. The political issue would have a broader scope as it incorporate bilateral ties among India, Germany and Australia.

Logistics issues or challenges:

Adani Australia faced several logistics issues while transporting 40 standard gauge locomotives and 600 coal wagons from point of origin, Germany to Abbot Point in Australia. The logistics services encompasses between two countries namely, Germany, which is in Europe and Abbot Point, in, coal mine in Queensland, Australia. This shows that the logistics comes under purview of freight issues, bilateral trade agreements, exim policies of these two countries namely, Australia and Germany. The challenges Adani would face while moving wagons and locomotives from Germany and Australia are as follows:

Inland and freight details, port activities and AQIS:

The first challenge or issue that Adani Australia would face while transporting locomotives, wagons inland, freight laws and rules. The transporting coal to Abbot may require Adani to use inland waterways like lakes and rives. The government of Queensland necessitate all the companies, including mining companies use the inland water resources without causing degeneration and hampering their environmental balance (soe.environment.gov.au 2017). This shows that Adani Group requires transporting the wagons and the coal to the Abbot by abiding by the inland waterways laws of Queensland and Australia.

The freight in Queensland comes under the purview of Department of Transport and main Roads. The port of Abbot Point where comes under the control of North Queensland Bulks Ports Cooperation (Tmr.qld.gov.au. 2017). Adani would be importing the wagons from Germany which would require it to abide by Customs Tariff Act 1995. The Government of Australia in its budget 2014-2015 introduced excise rates and excise-equivalent rates applicable to fuel based on Consumer Price Index in Australia. This policy of considering CPI while calculating excise rate gained the Royal assent and the Customs Tariff Amendment (Fuel Indexation) Act 2015 came to force as an amendment of Customs Tariff Act 1995. The Australian Customs and Border Protection Services require the importers to assess the commodities and make declarations to the former (border.gov.au 2017). The Australian Quarantine and Inspection Service (AQIS) mandates the sea travellers arriving to Australia to give declaration about themselves and the items with them like cash to the customs department. Adani is importing the wagons and locomotives from Germany (Australia.gov.au. 2017). This means that it would require to move people from German company supplying the locomotives to Australia. This would require the representative of the German suppliers and logistics company to disclose particulars as per the customs laws of Australia. Similarly while exporting goods from Germany, the  exporters have to comply to the article 161 under the German Customs Code. Germany is a member the European Union. This means that Adani Group while importing the wagons from Germany has to comply with the exports laws and procedures laid by the Government of Germany and the European Union (Entering-europe.eu. 2017).

The above discussion shows that importing commodities into Australia from foreign countries comes under the purview of several laws and regulations. Similarly, the logistics company will be coming under the purview of the export laws of Germany and the European Union. It is also be pointed out that the laws are subject to amendments and the exporters are required to have thorough knowledge about the previous laws and the amended ones. This presents the first issue of Adani Australia would face which is the complexity in the export laws and the inland waterways laws. This multiplicity of laws and provisions pertaining to export and import of goods require the multinational Indian conglomerate to incur huge legal and compliance expenditure.

Bilateral relationships between India, Australia, Germany and the European Union:

The next issue Adani Australia would have to face is bilateral ties between India, Australia, Germany and the European Union. Adani Australia is the Australian arm of the Indian mining, logistics, infrastructure and energy conglomerate, Adani Group. This means that the company has to follow the laws of India pertaining to Australia while function in the latter country. It must be noted that Australia-India Comprehensive Economic Cooperation Agreement has given a boost to the trade relationships between the two countries. The two countries renewed their relationship towards the development of energy sector, which includes coal (Mattoo 2017). This shows that Adani can take advantage of expanding and strengthening its position in Queensland.

Figure 1. Figure showing bilateral ties between India and the European Union

(Source: Ec.europa.eu. 2017)

The above figure shows that India has healthy trade relationships with the European Union and the two parties are further strengthening their strategic ties. The bilateral ties between the two parties enable them to have free trade between themselves. The European Union is the biggest trading partner of India and the value of trade between them was worth € 37.8 billion in 2016. This means that India has strategic trade relationship with Germany since the latter is an EU member.

Australia and the European Union share a strategic relationship as well. The two parties collaborate in areas like sustainability, which applies to the mining sector as well. There are five EU centres functioning in Australia, which again signifies the strong bilateral relationship between the two parties.

The above analysis of the bilateral relationship presents the second issue or challenge Adani has to face while importing wagons from Germany-the fluctuating bilateral relationships between countries and its impact on the business of multinational companies based in one country and operating in the other country. Adani Australia is the subsidiary of Indian multinational company Adani Group and it is importing wagons from Germany. This means the logistics company would be coming under the purview of the bilateral relationships between India, Australia, Germany and the European Union.

Transport mode:

Adani requires to use both road and sea route to transport the standard gauge locomotives and coal wagons. The company has to import the wagons across the Atlantic Ocean and the Indian Ocean. This would bring Adani under the purview of two international agreements while transporting the wagons from Germany to Australia. The first is the Transatlantic Ocean Research Alliance, which embraces all the EU nations including Germany. The logistic company can then enter the waters of the Indian Ocean and take the advantage of the Indian-Ocean Rim Association (IORA) to import the wagons from Germany to Australia (iora.net 2017). This is because Australia is an active member of IORA and Adani Australia can make of this member status of Australia. It can avail the free trade facility to import the wagons from Germany across the Indian Ocean to the port of Abbot. Adani can use the roadways to transport the wagons and locomotives to the respective car shades or warehouses. The company can use roadways to transport the thermal coal from Alpha to Abbot (Appendix 1).

Australian Custom Issues-AQIS:

The findings from the logistics issues bring into light two main custom issues, which importers like Adani Australia face.  They are complexity in the customs laws and impact of fluctuating bilateral relationships on the business of the multinational companies like Adani Group.

Complex EXIM laws:

The first issue international logistics companies like Adani Australia faces is the complexity of laws pertaining to customs and tariffs. The findings of the logistics issue section show that Customs Tariff Act 1995 is the main act governing import of goods into Australia. The act was amended and the tariffs rates was linked to CPI of Australia by the Customs Tariff Amendment (Fuel Indexation) Act 2015 (border.gov.au 2017). This discussion shows that Adani Australia has to abide by several acts and their amended versions while importing the wagons from Germany. This often leads to delays in import of commodities, which causes huge business losses to the important logistics companies like loss of important clients.

Australian Quarantine Inspection Services (AQIS):

The Australian Quarantine Inspection Services (AQIS) is an important customs issue, which the importers have to encounter in Australia. The AQIS is overseen by the Department of Agriculture, Government of Australia. The AQIS inspects the humans, animals and pets upon arrival at the ports of Australia to ensure that they do not spread diseases among the residents of Australia. This restriction and inspections apply to the sailors as well which creates a issue. Adani is importing wagons into Australia from Germany using the sea route. The logistics vessels are likely to have sailors and workers from Germany. This makes them vessels of Adani subject to the quarantine period imposed by AQIS, which often delays imports of precious commodities like coal. The delay in allowance of precious commodities lead to increase in the warehousing costs the importers and the logistics companies bear.

Complex political relationship between countries and its impact on trade:

The bilateral relationship between the countries involved in the export and import of commodities have determining impact the business outcomes.  Adani Australia, the Australian arm of the Indian business conglomerate is importing wagons from Germany (Eckhardt and Poletti 2016). Hence, this involves four parties namely, India, Australia, the European Union and Germany. The discussion shows that these parties have strong business relationship between them and thus Adani can take advantage of this relationship to import wagons from Germany. Johnson and Noguera (2016) state that souring bilateral relationships among the nations have detrimental impact on the companies of these nations involved in international trade. This analysis shows that fluctuations in the bilateral relationship have devastating impacts on the business of multinational companies. They result in loss of important markets and causes loss of profits worth billions.

Complex and multiplicity of documents:

Fishman and Obidzinski (2015) state that international trade involved complex and multiplicity of documents, which is an issue for the logistics companies. As discussed, the import and export of goods to Australia bring logistics companies with purview of multiple laws. These complex laws require complex and multiple documentation by the logistics companies involved. This multiplicity of documents gives ways to fraud due to excessive dependence of the logistics companies on third party firms like exporters and legal firms (Peters 2015).

Conflict between trade union and custom officials:

A very important customs issue of Australia is the conflict between the customs officers and the union. This conflict leads to lack of collaboration among the customs employees, which leads to further delays in importing of goods. This in turn increases the expenditure importing logistics companies have to incur to import goods (Belot 2017).

Warehouse management:

According to Fichtinger et al. (2015) warehouse management, is an important function of the logistics companies. Adani Australia is importing wagons and locomotives from Germany by sea and transporting it into Abbot Point Port, Australia. This means the company has to conduct warehouse management and related expenditures. The company has to keep its goods in the customs warehouses at the importing port until the Australian customs department clears them. Vini and Henny (2013) point out that commodities warehoused in the customs warehouses are prone to hazards like fire and theft of parts or whole commodities. This shows that logistics companies like Adani Australia will have to spend high amount of expenditure to protect and secure these locomotives and wagons imported from Germany against thefts and fires. The company can then transport the locomotives and wagons to its own warehouses after the customs department of Australia clears them. Monczka et al.(2015) point out that warehouses play a very significant role in the supply chain management of the logistics companies and make the goods available to the clients. Adani Australia will maintain the locomotives and wagons in its warehouses until they are either sold to clients or are commissioned into the logistics fleet of the company.

Warehouse management system:

Warehouse management system (WMS) is software, which allows logistics companies to manage their warehouses. Warehouses play significant role in the logistics chain like making goods available to the clients on time, enabling the companies to time their order placing activities and production. Richards (2014) points out that warehouse management also help logistics companies like Adani to control their costs by optimising their ordering of raw materials and production of finished goods. This importance of warehouse management has made the multinational logistics companies to integrate and monitor their warehouse management with other activities like production, inventory control and staffing. Adani Australia can integrate its warehouse management operations with real-time inventory management system and decision support system (Battini, Person and Sgarbossa 2014, Park and Kim 2013). It can also be pointed out, that locomotives are bulky and expensive commodities consisting of expensive parts. Thus, theft or loss of a whole locomotive wagon or its parts would result in huge loss to the company. It can be inferred from the discussion that the company must apply WMS and use electronic theft detection to prevent loss of its expenditure locomotives, wagons and their parts (Appendix 2).

Risk management:

The discussion shows that Adani has to deal with several risks while importing the wagons to Port Abbot in Australia from Germany. The risks primarily stem from the dangers associated with importing goods across the ocean like; the vessels can capsize in the sea and lead to loss the wagons, incurring heavy loss for the company. The second risk the company can face is loss of goods from customs warehouse due to slackness of the customs department of Australia (Eckhardt and Poletti 2016). These two risks would lead to loss of  wagons which are very expensive and result in a huge financial loss to the company. The company must form efficient risk management to counteract the two risks. First, it must choose the best quality vessels and logistics to import the wagons from Germany and it ensure secure its own goods in the customs warehouses using its own security systems. Secondly, the company must create a contingency fund that would support this new risk management system and help in bearing the loss if the wagons are damaged or lost (Monczka et al.2015).

Conclusion:

The above discussion brings into light the two big issues logistics companies face while importing commodities especially bulky commodities like coal wagons. The first is customs issue and complexities while the second is the overwhelming effect political ties between countries have on the movement of goods by multinational companies. The following recommendations can be made to Adani Australia in the light of the above discussion:

  1. Adani Australia must try to acquire its supplies of wagons and locomotives from within Australia in order to avoid custom complications and delays involved in importing them from foreign countries. The company can also consider importing goods from India since it is a subsidiary of an Indian MNC and can take advantage of this identity to get trade concessions from the Government of India.
  2. Adani should concentrate on building logistics ties with supply chains with the countries of Asia, North America, South America and Africa. This will help the company to continue importing raw materials from these markets in case the bilateral treaty between Australia, India and the EU weakens. This would ensure steady flow of raw materials and uninterrupted business operations.

References:

Adani. (2017). Adani. [online] Available at: https://www.adaniaustralia.com/ [Accessed 25 Oct. 2017].

Australia State of the Environment Report. 2017. Australia's water resources and use. [online] Available at: https://soe.environment.gov.au/theme/inland-water/topic/australias-water-resources-and-use [Accessed 24 Oct. 2017].

Australia.gov.au. 2017. Customs and quarantine | australia.gov.au. [online] Available at: https://www.australia.gov.au/information-and-services/passports-and-travel/customs-and-quarantine [Accessed 24 Oct. 2017].

Battini, D., Persona, A. and Sgarbossa, F., 2014. Innovative real-time system to integrate ergonomic evaluations into warehouse design and management. Computers & Industrial Engineering, 77, pp.1-10.

Belot, H. (2017). Slump in morale at Immigration Department blamed on management. [online] ABC News. Available at: https://www.abc.net.au/news/2017-06-20/immigration-department-blames-management-for-morale-slump/8632470 [Accessed 24 Oct. 2017].

border.gov.au. 2017. Tariff Updates. [online] Available at: https://www.border.gov.au/Busi/cargo-support-trade-and-goods/importing-goods/tariff-classification-of-goods/tariff-updates [Accessed 24 Oct. 2017].

Dynamicws.com.au. (2017). Your Warehouse Management System (WMS) – do you have one and if so, is it still working for you? | Dynamic Warehouse Solutions - Mezzanine Floor & Warehouse Storage Solutions. [online] Available at: https://dynamicws.com.au/2017/08/01/your-warehouse-management-system-wms-do-you-have-one-and-if-so-is-it-still-working-for-you [Accessed 28 Oct. 2017].

Ec.europa.eu. 2017. India - Trade - European Commission. [online] Available at: https://ec.europa.eu/trade/policy/countries-and-regions/countries/india/ [Accessed 24 Oct. 2017].

Eckhardt, J. and Poletti, A., 2016. The politics of global value chains: import-dependent firms and EU–Asia trade agreements. Journal of European public policy, 23(10), pp.1543-1562.

Entering-europe.eu. 2017. Germany: Import, Export - Entering Europe. [online] Available at: https://www.entering-europe.eu/germany/import-export-germany.php [Accessed 24 Oct. 2017].

Fichtinger, J., Ries, J.M., Grosse, E.H. and Baker, P., 2015. Assessing the environmental impact of integrated inventory and warehouse management. International Journal of Production Economics, 170, pp.717-729.

Fishman, A. and Obidzinski, K., 2015. Verified Legal? Ramifications of the EU Timber Regulation and Indonesia's Voluntary Partnership Agreement for the Legality of Indonesian Timber. international forestry review, 17(1), pp.10-19.

Iora.net. 2017. IORA - Indian Ocean Rim Association. [online] Available at: https://www.iora.net/ [Accessed 24 Oct. 2017].

Johnson, R.C. and Noguera, G., 2016. A portrait of trade in value added over four decades. Review of Economics and Statistics, (0).

Lee, C.K.H., Choy, K.L., Ho, G.T., Chin, K.S., Law, K.M.Y. and Tse, Y.K., 2013. A hybrid OLAP-association rule mining based quality management system for extracting defect patterns in the garment industry. Expert Systems with Applications, 40(7), pp.2435-2446.

Mattoo, A. 2017. The new promise of India-Australia relations. [online] Aljazeera.com. Available at: https://www.aljazeera.com/indepth/opinion/2014/09/new-promise-india-australia-rela-20149314139549494.html [Accessed 24 Oct. 2017].

Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., 2015. Purchasing and supply chain management. Cengage Learning.

News. (2017). Comment: Let's dump Great Barrier Reef dredging myths. [online] Available at: https://www.sbs.com.au/news/article/2014/03/03/comment-lets-dump-great-barrier-reef-dredging-myths [Accessed 28 Oct. 2017].

Park, T. and Kim, H., 2013. A data warehouse-based decision support system for sewer infrastructure management. Automation in Construction, 30, pp.37-49.

Peters, A., 2015. Constitutional Fragments–On the Interaction of Constitutionalization and Fragmentation in International Law.

Richards, G., 2014. Warehouse management: a complete guide to improving efficiency and minimizing costs in the modern warehouse. Kogan Page Publishers.

Tmr.qld.gov.au. 2017. Coal transport infrastructure development (Department of Transport and Main Roads). [online] Available at: https://www.tmr.qld.gov.au/business-industry/Transport-sectors/Coal-transport-infrastructure-development#abbot [Accessed 24 Oct. 2017].

Vini, M. and Henny, H., 2013. Evaluation information system delivery pt. Rst cargo international.

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