How do you see the Russia-Ukraine war impacting the logistics sector?
The way I look at it, we are witnessing a major disruption. But this is not only because of the Russia-Ukraine war, there are many other reasons that are leading to this disruption. Currently, the whole of Europe, the US and South America, are facing the challenge of high inflation and their buying power has gone down drastically. Thus, exports are less. Meanwhile, in China, on one hand it is still facing the challenge of resurgence of the Covid-19 pandemic, while on the other, their policies are not supportive to the trade. This is the main reason why the exports out of China have drastically reduced.
I, however, tend to look at the positive side arising out of this situation. Since China is not able to keep up with their exports, there is a possibility that India can fill up some gaps. While the China trade is 10-15 times higher than what India is doing, but we can definitely fill up some gaps. This will benefit our exports community. That said, until the economies revive, the exports are going to be affected.
In the last few years, especially after the Covid-19 pandemic, many large FCL players are looking at venturing into the LCL space either organically or inorganically. How do you look at this changing scenario?
Unlike the full container load model (FCL), the less than container load (LCL) business is not affected much due to the disruptions. When the economy is doing well, the LCL business goes up, and when the economy is not doing well, it still maintains the momentum. This is because during the slowdown, large exporters tend to reduce their exports and so prefer to take the LCL route. When the demand picks up, even small businesses look at increasing their exports and thus take the LCL route.
Since the LCL business has a marginal share in the complete freight, it does not have too many ups and downs and is more static in nature. Some of the challenges in this model are lower margins and uncertainty over finding good agents on the other side of the continent. For e.g., it becomes very difficult for players in India or China to find good agents in Europe, US or South America. Overall, I see the competition in this space going down.
The government has announced a slew of programmes to improve infrastructure and reduce logistics costs. What is your take on the same? Also, do you feel the target of bringing down the logistics cost to almost 8-10 per cent of GDP is realistic?
The government has been bringing out a lot of policies and undertaking a lot of infrastructure projects, which are helping us. But there’s still a lot of time for these projects to really start showing results. This could even take another 10 years. On one hand the approval processes have picked up pace, but on the other hand, due to lack of adequate infrastructure and even non-availability of proper storages for our food grains and other perishables, we are losing nearly 30-32 per cent of our agricultural produce.
Talking about transport, road is the most expensive mode followed by rail and sea/ water transport. However, despite having a fantastic coastline, we have not been able to use it to its full potential. I feel that if our exporters have to get advantage in the global market, we need to have a very solid waterways network, which is the cheapest. Expecting the freight forwarders to reduce freight rates is not going to help. What we need to is create a robust infrastructure to reduce the costs.
Today, out of the several inland container depots (ICDs) across the country, there are hardly two locations where there is a connectivity of all three mode of transport including rail, water and road. Germany on the other hand, has 78 locations having all the three connectivities. So, when we compare ourselves with these developed economies, we need to see where we are today. We still have a long way to go. The policies are in place and the infrastructure is being developed, but for us to see sizable results, it will still take some time.
Talking about the target of reducing logistics cost to 8-10 per cent, I feel it is realistic. However, there are certain areas that the government needs to focus on apart from improving the infrastructure. Today, while transportation is allowed between inland container depots, transportation between ports is not allowed. For example, in LCL, if an export cargo has to be move from Chennai it goes to Colombo or to Singapore or to Dubai, for connection, instead of coming to Mumbai port. If we had the permission to move it from Chennai port to Mumbai port, we could have saved a lot of foreign exchange than losing it to the neighbouring countries.
We believe that the government needs to look into this seriously and open up the routes as unnecessary regulations are not of any use.
Amid these challenging times, how do you see the growth for Total Transport in the next two years?
In our core business, which is LCL, we are seeing a growth of 10-12 per cent, while in our FCL vertical, we may grow by around 50-70 per cent by 2024. For our last mile delivery business, which is under the recently launched ‘Abhilaya’ brand, we are hoping to see a 100 per cent growth. Similarly, we are focusing on the project logistics vertical, where we see a growth of nearly 3-4 times. Overall, by 2024, we are looking at a topline of Rs 1000 crore.
