Business Outlook 2013
After witnessing a flat 2012 in terms of growth and profitability, the cargo and logistics industry in India is hoping for better results in 2013, thanks to the recent developments in the Indian economy and positive initiatives from the government. Cargot
According to Anil Gupta, 2012 has certainly been a bad year for both EXIM and domestic business for the logistics industry. In EXIM, primarily it is linked to the performance of export sector in which the shipments have shrunk by around 6 per cent to 189 billion USD in first 8 months of the current financial year. This has created heavy mismatch between containerised imports and exports, leading to a situation where lines are beginning to take the hard option of destuffing the imports at the ports itself. Resultantly, hinterland penetration of containers is going down. However, Gupta felt that the domestic cargo movement would get a fillip considering the healthy growth in the Index of Industrial Production (IIP) which has risen to a 16 months high of 8.2 per cent in October 2012.
Rajiv Kochhar - For World Window Infrastructure and Logistics (WWIL), the year 2012 started with good overall business followed by a little downfall in imports in the subsequent months. That time, the export volumes were on a higher side. In last few months, when the imports have picked up, the export volumes were facing a little down side. “Such deviations in category specific volumes are a part of supply chain logistics business and we take them as a challenge and are striving for growth in business. Over all, at ICD Loni, 2012 has been good in terms of business and service levels. We have attained more volumes in comparison to last year and our monthly average volumes have also increased,” said Kochhar.
According to Shantanu Bhadkamkar, 2012 was flat in terms of growth. “We saw decline in air cargo but overall we experienced nominal decline or only a nominal growth in each vertical,” he said. In his opinion, the challenges about maintaining the profit level were more serious than volumes as yields are under pressure. In addition, the timely recovery of dues at the contractual date was even a more serious problem.
Vishal Sharma - For Gateway Rail Freight, 2012 was a tough year, especially Q2 & the 1st half of Q3 when demand slumped across all categories, for both imports and exports. This, combined with structural imbalance at ports, aggravated the problem for CTOs like it. According to Ravi Kannan, “The year 2012 was tough for the Indian economy as a whole, but we have crossed important milestones as projected in the beginning of the year. In the coming year, we wish to fight and spear ahead of what we have achieved so far.” According to Suresh Bansal, logistics and transport industry has suffered the most in 2012. While business grew for most of the companies, the real hit was bottomline. Due to tremendous and repeated increase in fuel surcharge by the airlines, followed by petrol and diesel hike, operating costs for the industry shot up. “It is almost impossible to go to customers again and again and ask for price revisions. This has resulted in fall of profits for most companies in 2012,” he said.
S Krishnan, however, stated that the express logistics industry witnessed growth of over 20 per cent in terms of volume, while the revenue numbers should close at 15 per cent. Indiaontime is investing USD 1.5 million in 2012-13 keeping in mind the expected positive trends in the third quarter of 2013.
Pankaj Dogra informs that for Wallenius Wilhelmsen Logistics India, 2012 has been a good year overall with a steady growth in both its ocean and inland segments. “Major challenges we faced in the year have been in the inland distribution segment, wherein we faced a severe shortage of trailer capacity for distribution of cars for Renault and Nissan. The capacity shortage resulted from the production disruption at Maruti, and further due to the imbalance / production variance between North and South zones,” Dogra informed. According to Chander Agarwal, 2012 was a challenging year for the Indian logistics sector as there was demand moderation and decline in utilisation levels. Availability of credit at a very high cost and no major provision for the infrastructure sector in the budget forced logistics firms to re-visit their business models and cut capital expenditure plans.
Amit Bajaj thinks that the depreciation of the rupee combined with the arbitrary increased of fuel surcharges by the airlines has made existence in domestic air cargo market tough. “We hope the fuel surcharges stabilise in 2013. This would help the industry to absorb and create a platform for future growth. The fuel surcharges of the airlines should be indexed to the ATF rates rather than the arbitrary increases,” he demanded.
Optimism runs high for 2013
Gupta was optimistic about the revival of Indian economy in 2013 as is being forecasted by many economists and trade analysts. “The healthy growth will certainly have a positive impact on the cargo industry specially if the growth is there in agriculture and manufacturing sectors both of which yield good volume of cargo and have good business potentials for logistics industry.
“The economy of India is set to accelerate to 6.5 percent in 2013 backed by favourable external sector demand outlook and a pick-up in domestic reforms, and the economy is further likely to grow at 7.2 per cent in 2014, compared with 5.4 per cent in 2012. The pickup is expected on the basis of reforms which include allowing FDI in multi-brand retail, aviation, etc.” observed
Kochhar. He also pointed out that the effect of increase in India’s GDP growth is expected to affect positively to the growth of container business. Indian government is also putting in significant investment in logistics sector.
“In 2013, going by 2012 experience, most companies will focus more on diligence and greater business prudence. This includes structural changes to ensure strict compliance of KYC norms and various initiatives for secured supply chain,” felt Bhadkamkar. He also added that since investments in infrastructure will be to the tune of US $ 1 trillion, it will help growth in logistics sector and make it more efficient.
Ramesh Agarwal highlighted over 11 per cent rise in budgetary allocation on road transport and highways in FY12. It is an encouragement to the transportation and logistics sector in India which will start showing its result by the second quarter of 2013. “Also the contribution of 3PL in the overall logistics market is likely to increase from 1.5 - 2.0 per cent in 2008-09 to 3.5–4 per cent by 2013-14,” said Agarwal.
“We expect 2013 to be a better year vis-à-vis 2012. From trade perspective, the demand has already started recovering and is expected to increase at a healthy rate going forward,” said Sharma.
Siddharth Jairaj expects the first quarter of 2013 will be slow but thereafter it will grow each quarter. “The overall markets are expected to be sluggish for 2013. But we expect a better 2013 when compared to 2012,” he said.
During 2013, DTDC sees some bright spots. “We are seeing that manufacturing activity has picked up recently. If it maintains its momentum, we can see a good growth for the logistics industry,” Bansal pointed out. He was of the view that FDI should bring further cheer to the market as the industry will start seeing some action towards second half of the year. “We are also hoping that the government will work its way around and introduce GST which will be game changer for the entire industry,” he added.
Shesh Kulkarni appeared to be positive about 2013, “I do think the prevailing trend will change in the first quarter and lay a good ground for 2013.” Industrial production has already seen a marginal increase in November-December 2012. “2013 will be a significant year in the working of UFM. We are doing many things for the first time,” he informed. According to Samir J Shah, the tough times will continue. “However, we have all undergone a lot and come out quite knowledgeable and survived. We shall continue the same. The desire to excel and grow will still remain and whether one will be able to do so will be known only at the end of the first quarter,” Shah commented.
Ashish Mahajan is expecting 2013 even tougher since targets will increase in 2013 comparatively to 2012. Interestingly, the year 2012 was considered as a tough year Perfect Cargo is going to close this calendar year with higher volumes and turnover. “We will carry forward 2013 with our positive approach towards growth and success,” he emphasised.
Sunil Kumar Jain is expecting a significant jump in the manufacturing sector and the economy as a whole. The GDP will also see good improvement in 2013. “As 65 per cent of the logistic spent is shared by the transportation sector it has further capability to do well. Further GST on implementation will become a major game changer and would improve the general environment for logistics players. Though, initially there may be some problems but in the long-run there would be a major boost to the industrial environment,” Jain explained.
He believes that the government is focussed and inclined to brave out major decisions to boost the economic growth. “The good thing about Indian economy is that it is transitioning from service base to manufacturing base. The future would see more scope in warehousing, cold chain, and 3PL functions,” said Jain.
In 2013, Dogra expects some pain in the first six months in terms of inventory build-up at the dealer side and reducing demand. However, the trends have already started shaping up especially in the high and heavy segment. “We also foresee an increase in auto exports as the domestic sales in India may not see very high growth. The improvement in infrastructure and Power generation will further lead to a positive impact in the overall improvement of outbound logistics in India,” he observed.
Prashant Popat expects a steady progress in light of the recent government policies and he sees no further deviations or any U-turns with the proposed policies. “We have been witnessing positive market growth viz GDP and our stock markets. In a nutshell, we should be optimistic for a seamless growth in 2013,” he said.
Dushyant Arya maintained that the New Year Brings in promises of changes in transportation and warehouse business strategy with use of bigger capacity trucks for long haul and more mechanised warehouses. “We are planning bigger warehouses which will help our customer get better access to consolidation. Retail focussed secondary movement is also in the 2013 plan,” informed Arya.
Chander Agarwal expects logistics sector to perform better in 2013 if the policy reforms that are in the pipeline are introduced successfully. “One of the key policy decisions that may impact the economy and the sector is FDI in retail as it will lead to outsourcing of functions like warehousing, primary and secondary transportation, international logistics and other value-added activities to logistics firms,” he pointed out.
Ajay Bamel felt that the year 2013 would be very promising for the logistics industry as FDI in retail and GST roll out commitment by government will be the game changers. “Both will help new investment and technology in Indian logistics industry and there will be a dynamic change in understanding and execution of logistics business and companies with required skill set will reap the benefits,” he said.
Learning and Strategies
Concor’s main thrust during the next year would be on strengthening its infrastructure and developing new terminals/facilities with a view to take advantage of the PFT policy announced by Railways sometime back. “We are very eager to grow into the area of bulk cargo handling in addition to the traditional area of container handling and transportation which would be made possible by such a strategic thrust,” informed Gupta.
“I would like to consider 2012 as a special case when demand across all categories went down at the same time. The best option to safeguard against such scenarios is to keep your eggs in multiple baskets so that you can rely on at least a few categories/segments at all times. according to this philosophy, we would want to increase our customer base, our trading categories, our operating business segments etc. In addition, cost optimisation within the existing businesses could help you drive through the tough times,” shared Sharma.
Snowman’s expansion plan is on the move and we have reached 27,820 MT capacity. The company has planned for new warehouses in Surat, Bhubaneshwar, Bihar and Chandigarh to serve tier 2 cities as well.
“We will focus financial prudence. We will be compelled to weed out unsustainable (sustainability in terms of payment cycles, profitability and penalising contractual conditions) customers, not withstanding their future potential. This is the right time to review the business models and revenue models,” emphasised Bhadkamkar.
ATC Clearing and Shipping will open more offices and will have more sales initiatives, including international sales. “Equally, we will be very serious about retaining only such customers, who are sustainable in terms of profitability, fund flow and fair contractual terms,” added Bhadkamkar.
“We can no longer focus on only one
area or one market, we have to be present in various verticals and in multiple markets,” supplemented Jiaraj.
DTDC is bringing new state- of- theart services to meet logistic needs of the E-commerce industry and start warehousing and distribution business in 2013.
“We have always felt that, it is important to keep reinventing yourself and sometimes such acts are driven by self-discipline or by market conditions. For us, it is both. We took some tough steps, particularly saying no to clients who only wanted large credits. We have walked away from many such businesses and it was a huge learning under tough conditions, particularly when we are a start up,” shared Kulkarni.
“We need to work for ourselves. Stop in- fighting because the same benefits only the exporters and importers who take undue advantage of our competitive spirit. We need to also rearrange our offices especially to deal with taxation and the complex issues that are cropping up. The Associations will have to be more vigilant and assist their members on a war footing.
NECC is planning to expand its network in 2013. The company is also investing in its warehousing projects and fleets. “We would be strengthening our client spectrum and would be strategically associating with good companies in the FMCG, Auto Industry, Retail, Pharma and other major industries. Key concentration will also be on technical upgradation and qualitative improvement with focus on consumer interest,” informed Jain.
According to Ramesh Agarwal, the required pace of efficiency and quality improvement will demand rapid development of capabilities of logistics service providers in the months to come. “This industry provides lesser pay and progression incentives compare to other industries. The logistics being a service oriented sector, skill development will emerge as a main capability,” he elaborated.
Dogra, on the other hand, emphasised on cost control. “This is the key mantra which we have learnt and implemented in 2012 and we would like to carry this forward to 2013 and beyond,” he stressed.
“Tough economic conditions in 2012 prompted us to re-visit our business model and reduce our exposure to high credit freight business that doesn’t guarantee returns. TCI saw opportunity in adversity as it worked closely with clients to reduce cost by optimising supply chains and introducing innovative new services,” asserted Chander Agarwal. TCI has also invested in ‘ technology’ especially IT systems, freight software and logistics management software during the lean period.
Perfect Cargo is planning to start off bonded trucking by early 2013. Besides that the company will expand its number of branches in north and southern part of India.
G Balaraju is hoping that the current crisis would settle down and the industry will be able to perform better during 2013. “During 2012, we have learnt how to organise ourselves and manage during the economy crisis where both business and liquidity is a challenge. This experience would take us forward when the whole situation eases out,” he concluded.
VP (ICD Business), WWIL
CEO, Gateway Rail Freight
MD, ATC Clearing and Shipping
Chander Agarwal Executive director, Transport
Corporation of India
Pankaj Dogra GM, commercial, Wallenius Wilhelmsen Logistics India
Ramesh Agarwal Chairman & managing worker,
Agarwal Movers Group
Siddharth Jairaj Director, TVS Dynamic Global
Director, Mituj Marketing
Sunil Kumar Jain
MD, North Eastern Carrying Corporation
Samir J Shah Partner, JBS Group of
President & CEO, UFM
Director, Perfect Cargo Movers
Director, Velji Dosabhai & Sons
Director, Indo Arya
Ajay Bamel CEO, Transocean Express
MD, Sindhu Cargo Services