Amid global slowdown: Logistics sector looks at new solutions

A weak economic outlook and a bad year for the manufacturing and service sectors portend a bleak 2009 for the logistics industry. While capital expenditure faces curbs, the solution could lie in coming out with innovative products, feel industry insiders.

Volume growth has been affected and freight rates have declined steadily in the last few months. Revision in diesel prices, and a rise in aviation turbine fuel costs have also affected the operations of players in India.

This has forced companies to cut costs and innovate in terms of new product offerings catering to key sectors.

Transport Corporation of India (TCI) has decided to go slow on its expansion plans. Industry major Blue Dart is looking at increasing its portfolio of offerings.

The highly unorganised nature of the industry and lack of both surface and air infrastructure, continue to pose a big challenge. Excise duties, throughput fees charged by airport operators, State taxes, and so on, result in a cost structure that cannot support a competitive industry, says Blue Dart.

Slower growth

Coupled with persistent problems, the prevailing hostile global economic environment is hurting the companies further. “Since FDI inflows will be limited in the automotive, capital goods, retail and telecom markets, this has clearly added to logistics companies’ woes. Since TCI services companies from all these sectors, the slowdown has an indirect effect on us. However, the consumption-driven sectors are not that badly hit,” Mr Vineet Agarwal, Executive Director, TCI, told Business Line.

Blue Dart has similar story to tell. “If from some verticals we were growing at 20 per cent earlier, now the growth has come down. Our services to some of the major industry verticals, like telecom, automobile and IT hardware, have been critically affected. Pharmaceuticals and FMCG remain less affected. We also see a downward trend in our volumes from banking, financial services and insurance segments after the crisis witnessed in the overseas financial sector,” says Mr Ketan Kulkarni, Head, Marketing, Corporate Communications & Sustainability, Blue Dart.

Specific solutions

This provides for a window of opportunity for logistics companies, and Blue Dart said it is committed to designing specific industry solutions to meet the logistics requirements for spare-parts makers. This would feature among the 25 new products catering to various sectors and set to be launched this year, said Blue Dart.

Among specific sectors, automobile is one where movement of goods and products plays an important source of revenue for the logistics industry. While the slowdown is gripping the auto sector too, spare parts movement is growing due to a reduction in new purchases, according to Mr Agarwal.

Transport Corporation of India has already decided to bring down its Rs 100-crore expansion plan by 25 per cent, “considering the current market turmoil”. However, it is using this period to consolidate business operations across all the existing segments, said Mr Agarwal.

“The company was planning to spend Rs 30-50 crore on the trucking business, but it will be substantially lower this fiscal to combat the prevailing liquidity crunch. In the first half of the current financial year, we had a sales growth rate of 15 per cent. We expect to maintain 15-20 per cent growth for the full year, against the earlier estimated 20-25 per cent annual growth while keeping the working capital cycle under control,” he said.

Domestic consumption

There are expectations of demand picking up towards the end of the year, but the challenges of 2008 will continue to haunt the industry through a major part of 2009. “The economic slump is expected to remain till mid-2010. Around Diwali and the festive season in 2009, it should pick up,” said Mr Agarwal.

Mr Kulkarni from Blue Dart, however, feels otherwise. “Domestic consumption is still driving the Indian economy, creating a wide span of opportunities in distribution — from mobile phones to credit cards, and auto components to pharmaceuticals. The Indian logistics industry is, therefore, poised for a significant leap forward in the coming years. With the recent dips in diesel as well as ATF prices, things look a bit more stable from the logistics point of view.” Blue Dart is expecting to achieve double-digit growth in 2009, he says.