As part of the Avvashya Group, Allcargo Logistics is an integrated logistics multinational, headquartered in India. Its services comprise global Multimodal Transport Operations (NVOCC, LCL & FCL), pan India CFS/ICD operations, Project and Engineering Solutions (Project Logistics & Equipment Hiring Solutions), Ship Owning & Chartering and 3PL & Warehousing services.
Armin D. Kalyaniwalla, Chief Executive Officer – Projects Division, Allcargo Logistics told Sandeep Menezes that GST will make the whole of India a single market, thus reducing drastically the wastage of time, fuel and investment.
Excerpts from the interview:
India spends around 13% of its GDP on logistics; this is higher than USA (10%), Europe (11%) and Japan (10%). Inefficient practices have inflated the industry size, how can we improve supply chain efficiencies?
For India to improve its ranking as an economy in globally recognized indices such as Logistics Performance Index, Ease of Doing Business rankings and Cost of Business Transaction and others, we need to take a more macro overview of the challenges rather than just looking at a particular service or a transaction in isolation.
To start with, we need to understand which countries we can benchmark for evaluating our performance or scope of improvements. It could be Singapore, Dubai, China or even US or European countries for that matter. Now we need to identify and highlight the variables which make us spend over 13-14 per cent of GDP on logistics, whereas these economies spend on an average between 9-11 per cent.
What we understand from this proactive evaluation that there are many variables in terms of lack of infrastructure at ports, roads or rail lines connecting ports, state as well as central level taxation policies, multiple check points across states between the union of our country, procedures, single window clearance, lack of transparent guidelines and implementation of business policies, are the reason why we are faring far behind than others. Thus if we plan to bring efficiency in logistics and supply chain in our economy, this can only happen if all these variables are taken collectively as a single set to develop a seamless mechanism of policies, taxation and infrastructure for EXIM trade to and from India.
What is the current size of project logistics industry in India? Tell us about the estimated future growth rate of the industry?
With India estimated to invest over USD 500 billion in infrastructure alone in the next decade, the overall project logistics market especially for core projects like power plant, refineries, solar plants, urban transportation, manufacturing plants, bridges, new rail lines etc are directly proportional to the segment growth. To build this capacity, at each level movement of mega sized heavy cargo or equipments will drive project logistics cargo to a new level of growth.
The trends we have seen till now are just the tip of the iceberg in terms of opportunities. We see a double digit growth being realized in this industry in the horizon of the next five years for sure, given the present course of economic reforms by the government.
India’s warehousing infrastructure both qualitatively and quantitatively is highly inadequate. Going forward, how do you foresee the scenario evolving?
The reason why there is a huge demand supply gap between warehousing infrastructure in India has to do more with the evolution of our economy. Lack of attention to this specific need from both private as well as government entities is also one of the primary reasons. India has grown more rapidly over the last decade and its growth has not matched hard infrastructure development in all its forms. Be it roads, rail connectivity, ports, alternate mode of surface transportation, power plants, transmission lines, grids and others. So is true for warehousing of critical products including food grains, vegetables, fruits and also raw materials coming into India. Till date private enterprises are way ahead in terms of setting up requisite warehousing for sustaining their demands or event providing it as a third party services. But we are at the cusp of witnessing a sea change in this trend.
With India’s renewed focus on making our country a manufacturing hub, implement GST, streamline procedures and decision making we will see a surge of warehousing infrastructure coming into the economy. As manufacturing will require raw material to be brought into India from global destinations, warehoused near ports, transported to manufacturing units & then finished goods warehoused at factories or even at ports while exporting out of the country. Thus the potential for warehousing was never lucrative than what it is today and what it is going to be in neat future from business perspective.
India is unique because transportation costs are high by virtue of the way the supply chains are designed against tax optimization and not transport optimization. Comment.
Unlike Singapore, Dubai or event many European countries, India’s demographic scale is far wide and vastly spread. In addition to land we have over 7,000 kms of coastline. Thus making a supply chain design catering to such a large geography in itself is a challenge. This becomes more difficult given our state level and central level taxation systems, procedures and approvals. Adding to this variable is the lack of adequate infrastructure not only for movement of goods within country but also for facilitating EXIM trade. Thus this region makes it difficult to rely only on one or other kind of surface or water transportation medium.
Thus typical to India’s demography efficient supply chain design needs a combination of road, rail, coastal shipping as well as strategically located hubs. This drives our costs of supply chain or more importantly overall cost of logistics of our country, higher. The only way to decrease these interlinked demographically dependent costs is to make it seamless as a one country without states kind of logistics transportation. This is the only way to compete with the likes of more productive and efficient Dubai & Singapore of the worlds. China as compared to others is also relatively placed in the same bracket as India, but rapid & timely infrastructure development, complemented with best in the world economic growth makes it a more efficient economy then India.
With the government’s renewed push towards GST implementation, tell us about the expectations from the logistics industry?
The biggest benefit that we foresee with GST to an economy like India is manifold. At the moment majority of India’s logistics challenges are related to wastage in time, fuel and investments, due to multi level taxation, regulations, policies & approval mechanism between different states of our union. Today from a business perspective each state is a difference country when it comes to moving EXIM cargo or any other product within India. GST will remove this major hurdle by making the whole of India a single market, thus reducing drastically the wastage of time, fuel and investment. More companies will be able to reach more number of consumers faster therefore increasing their business, creating the space for them to expand, bringing in new investments and thus leading to new employment.
With this efficiency Indian products will be more competitive in terms of costs and lead to creation of international markets for our manufacturers thus boosting exports. Globally GST has played an important role in driving economic growth. Countries like Singapore, China, European member nations and other have GST in place through their country. It’s about time such an important variable is introduced in the world’s second largest developing economy, India. As the economy moves into a faster gear with GST, the backbone of the economy i.e. logistics will directly benefit from its implementation.
With the new government having taken charge and policy issues getting sorted out, tell us about Allcargo’s long term growth strategy?
We have renewed our focus as a global organisation to focus on our business across international as well as domestic market. We would be soon crossing the one billion dollar revenue mark by this financial year end. Our integrated services are better placed for servicing not only Indian companies planning to leverage the growth in the economy, but with our presence in over 90 countries with 200 offices globally we are one of the leaders in NVOCC services especially in LCL and FCL through ECU-LINE, providing international companies a gateway to India as a market.
We are one of the leaders in India’s project logistics segment as well as coastal shipping services. Our contract logistics services are one of the growing services in our portfolio. Thus Allcargo as part of the Avvashya group conglomerate is well placed to create new benchmarks for the industry as well as surpass our achievements over the last three decades.
Global shipping business is under pressure right now resulting in low freight rates. Since Allcargo is into the freight business, its arbitrage has gone down. Going forward, how do you foresee the situation?
We are expecting the business to pick up in the longer run as the global economy is witnessing a revival across USA, BRICS countries. Although Europe is slight down but it is expected to catch up with its demographic counterparts. And the most important we are headquartered in India with a neighbouring market of China, two of the biggest economies in the world. Thus overall the prospects are positive in the near future.
Allcargo’s Project & Engineering Solutions segment witnessed 19% revenue increase in recent quarter. Tell us about the main growth drivers?
The main growth drivers for us have been a positive revival across India in the core sectors, at the same time many of our projects have seen implementation and execution. At the same time especially in our equipment division we have seen long term contract engagements for many of our existing as well as new customers.