Auto logistics holds potential

SMART TALK: Ashit Desai

Logistics service provider Allcargo Global Logistics is aggressively expanding its container freight station (CFS) and inland container depot (ICD) business. Allcargo, which operates in two segments""CFS/ICD and cargo transport--is planning to invest a significant chunk of the Rs 300-crore that it plans to raise from the markets in creating transport hubs. Allcargo acquired Belgium-based ECU Line, the world's second largest non-vessel operating container carrier (NVOCC), last year.

ECU buys bulk space from shipping companies and sells to importers and exporters in smaller units. While Allcargo has gained size with this acquisition its revenues for the September quarter, however, are not too inspiring. Volumes have climbed up 10 per cent but declining freight rates in certain trade routes dragged down revenues by 10 per cent in cargo consolidation services.

Its CFS business saw a decline in volumes as well as realisation per TEU (twenty foot equivalent) due to a decrease in dwell time at Nhava Sheva and relatively lower rates at Chennai and Mundra. At 18.6 times estimated CY08 EPS of Rs 50, the stock is trading at a slight premium to its peers.

Global presence gives the company an edge over its rivals but to get the operational benefits it has to quickly ramp up its container volumes, integrate its worldwide operations and improve its single-digit operating margins over the next one year. Ashit Desai, director, Allcargo, shares his views on plans to expand the network and cater to new business segments with Ram Prasad Sahu

How are you planning to improve net margins at ECU Line, which is just three per cent?

We have identified and adapted robust procedures and processes at ECU Line. Allcargo is in the process of transferring ECU Line's back office activities to India. We have already appointed WNS to handle BPO operations, which would support the ECU Line team and enhance margins over the medium term.

Additionally, we are evaluating consolidation of activities to achieve scale in terms of leveraging on the independent brands of ECU Line and Allcargo with shipping lines and other vendors.

What steps are you taking to expand ECU Line's reach across the world?

ECU Line operates in over 60 countries across the world with its own offices. In countries where ECU Line does not have its own office, it operates through a network of agents.

As a growth strategy, ECU is steadily expanding its reach with own offices, based on potential and strength of existing agents at those locations. Last year, ECU opened its own office in Vietnam and this year in Argentina. We will continue to look for such opportunities to expand our office network across the world.

The CFS/ICD business contributes just seven per cent of your consolidated revenues. How do you plan to increase this?

We have a CFS each at JNPT (Mumbai), Chennai and Mundra. Apart from this, we are continuously evaluating investment proposals in other regions.

We are in various stages of setting up ICDs in diverse locations such as Indore, Bangalore, Hyderabad and Nagpur over the next two years. We have bought land to address our growth plans in the CFS/ICD business and with the implementation of these projects, we expect to increase our share of CFS/ICD business.

How do you plan to counter the oversupply at JNPT with 13 new players?

Allcargo has a long-standing relationship with shipping lines through its presence in the NVOCC business. Owning and operating a fleet of trucks, trailers and equipment further aids Allcargo in early evacuation of cargo from ports' designated area, bring in time efficiency and improve turnaround time.

Allcargo's presence in the entire logistics value spectrum helps in effectively controlling movement of cargo from port to CFS. We have been able to achieve movement of containers within 24 hours of vessel arrival, resulting in better turnaround time and cost savings for shipping lines. Hence, it is performance based on efficiency.

There was oversupply at JNPT even when we had started our CFS, but we have been able to counter this with the quality of our infrastructure, service levels and relationships with our customers. At JNPT, we are already operating at close to full capacity.

How do you intend increasing the throughput at Chennai and Mundra?

At Mundra and Chennai there are continuing efforts to increase volumes which is again based on performance efficiency. We are looking at value-added services to enhance our volumes as well.

Multimodal transport and cargo consolidation have been your strengths. Would the asset-heavy logistics businesses (ICD/CFS) form the core revenue stream in the future?

We are present in the asset heavy business of CFS/ICDs. We have opportunities to expand in India and abroad in our current lines of business and new verticals and we would see a well balanced growth and investment in all segments of our business.

Has there been any progress on your foray into the cold chain business?

Allcargo has evaluated diverse proposals regularly on various strategies going forward. These opportunities are currently under study and we shall announce our plans going forward.

What is the rationale behind venturing into vehicle exports segment?

We foresee this as a potential growth area. India is becoming a manufacturing and outsourcing hub for the automobile industry. Our research shows that transportation and logistics of car exports has a huge upside potential. Allcargo is planning to offer end-to-end logistics for car manufacturers in exports as well as domestic distribution.

These would include inland storage facilities, road and rail haulage, terminal facilities and alternative options on sea. We are also developing specific equipment to manage car exports, which will bring about efficiency and enormous cost savings in this sector.

We are working with leading automobile majors on this. The organised retail business is also exploding in India and it is throwing up huge opportunities for logistics companies. We are currently evaluating various options to enter the retail distribution logistics business.