Supply chain manager Allcargo Logistics expects the government’s recently launched National Logistics Policy to start delivering benefits from next year, the company’s Chief Strategy Officer Ravi Jakhar said.
In an interview with Moneycontrol, Jakhar said execution will be key to the success of the NLP and that the logistics industry in India is ready to adopt digitisation to improve efficiencies.
Some steps taken by the government like reducing the leasing rate of railway land and coming up with a single-window clearance system for approvals will make cargo movement more efficient and cost-effective in India, he said.
Jakhar added that Allcargo Logistics is betting big on its export-import operations and its express cargo operations in India in the next few years.
According to a recent investors' presentation, the Allcargo group is aspiring to achieve Rs 25,000-30,000 crore of revenue by 2026 with as much as Rs 20,000-25,000-crore coming from its international supply-chain business, and Rs 2,700-3,500 crore from its express and contract logistics segment.
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Edited excerpts from the interview:
Q. What is the biggest change that you expect in the Indian logistics industry in the next few years because of the introduction of the National Logistics Policy?
It is very timely recognition from the government that logistics is the enabler of economic growth in the country.
There are multiple things that were announced under the National Logistics Policy and not everything will happen overnight, a few things will start showing impact in 12 to 18 months, a few may take five to seven years, nothing is going to change in the next three months.
However, the most immediate impact will be felt when we talk about clearances. There are several measures which have been done to make it easier for businesses to engage with government agencies wherever required for approvals.
When you're trying to set up a logistics park and you need railway connectivity, there are a number of clearances and files that need to be cleared by the government; the government, under the NLP, plans to make the process of getting clearances simpler and easier.
Another measure taken under the NLP is that Indian Railways is now talking about leasing land that they own for logistics activities.
The railway land lease fee has been cut to 1.5 percent of the market value of land per acre from the earlier 6 percent.
This measure will help logistics companies looking to set up logistic parks keep the costs under control, which makes the whole business viable.
There's lot of focus on creating digital platforms for information exchange, which can bring in efficiency, making assets visible, which is a core problem in the logistics industry, bringing all stakeholders together. This will help bring down cost and improve efficiency in the logistics industry in India.
Q. What are some of the biggest bottlenecks that you see that currently exist in the logistics industry in India that may be a challenge for the government in accomplishing the aims that it has set out in the NLP?
I think that one word defines everything: execution. Freight corridors will bring in a paradigm change in the way transport happens, but when freight corridors become operational is a big question.
When a Unified Logistics Platform comes into play, it would lead to transparency and visibility, but if it takes five years, then the impact will be that much later.
They can do something quickly and set it up in 12 months and start collaboration, so I think execution is always the key when it comes to policy implementation.
Q. Given that a large portion of the Indian logistics industry is made up of unorganised players, how difficult will be it for the government to integrate the logistics industry on its proposed digital platforms?
Despite the unorganized market, the way the whole country has picked up digitalization is amazing.
In many ways, logistics has already adopted digitisation across the country. E-WayBills, taxation post the adoption of the Good and Services Tax regime, the adoption of FASTag are all examples of digitisation in the logistics industry and enablers of making sure that your vehicles are not stopping and they're moving faster.
Even though the logistics industry is unorganized, if the Indian government standardizes processes in the industry, in the next two years we should see some significant progress in integrating the logistics industry on a digital platform.
The biggest challenge in my eyes for the success of the government’s proposed digital logistics platforms is that in the past private players have not been able to afford to build and maintain such platforms.
Since the government is taking lead in building the platform, I would say we're quite optimistic that the government will come up with a good platform to connect the whole logistics industry.
Q. The government is also looking to increase Indian Railways’ market share in the cargo industry in India. How do you think that will affect the logistic market in India, which is currently predominantly dominated by the road sector? How will it affect Allcargo Logistics?
I think Railways is an excellent push and it handles two things, it brings down the cost and makes transport more sustainable.
I don’t think logistics players in the road market will be majorly affected by the government’s plans to increase Indian Railways’ share in cargo movement as road players will always be important for last-mile connectivity.
As the dedicated freight corridors become operational across India, they will help make Indian Railways the preferred mode to transport cargo across the country, but that will mostly be on long-haul routes.
From our perspective, we are very clear, we provide transport in all forms, we are fully aligned and prepared to benefit from and service the industry along the dedicated freight corridors.
We are already setting up an Inland Container Depot in Jhajjar, 55 km west of Delhi, which will connect to the dedicated freight corridor and provide services to exporters and importers.
As more and more development happens on the freight corridors, we will continue to build multimodal logistics parks and inland container terminals along the DFC, that's our strategy.
Q. What is AllCargo Logistics’ plan to expand its operations both in India and abroad?
We see a huge growth opportunity in Less than Container Load (LCL) segment in shipping, which is usually the fastest growing segment in ocean freight and our express cargo operations in India.
We will look to continue growing faster than the market in all the core businesses across the group, so we're gaining growth from the market tailwinds and we're also gaining market share, so these are the two key drivers for us in terms of growth.
Ecommerce will continue to be a key stakeholder in our planning for logistics parks and going forward there could be some emerging opportunities for data centre clients as well, but ecommerce will continue to be the mainstay clients in our logistics parks.
We have already set up about 5 million square feet of world-class logistics parks across India.
We recently opened our Malur Logistics Park in Karnataka and we have an equally big logistics park already in operation at Farrukh Nagar, near Delhi.
We also have other parks already operational in Hyderabad, Hosur and Goa, and there are more upcoming in and around Bengaluru, Pune, and Ahmedabad.
Q. Shipping container rates have been falling since the start of the year but are still higher when compared to pre-COVID levels. How have the high shipping containers rates affected EXIM volumes? By when do you expect container rates to fall?
Container freight rates had risen because of logistical challenges, port congestions, increased demand, and a lot of other factors, which have now gradually come under control.
The inventory challenges have, kind of, you know, been tackled and therefore the freight rates have already come down sharply.
The current container rates are higher than the pre-COVID levels, but we expect rates to stay at these levels.
The new rates are higher than pre-COVID levels because there has been increased cost of fuel, there has been increased cost of ship building, and there has been increased cost of compliance.
We don’t expect shipping lines to reduce freight rates any further, but there's been a huge decline already in the last six months.
Q. There has been a lot of talk about a recessionary environment in many western countries. How do you think this will affect global container freight rates going forward?
Typically, around August-September, cargo demand picks up sharply from Western countries because of the festive season.
But this year that sharp pickup has not happened, which has led to greater normalization of container freight rates.
I wouldn't use the word recession because if you look at the latest data, it points towards growth over last year, but yes the growth estimates have been reduced.
We are also noticing a trend that cargo traffic may end up being, more like flat for the next 12 to 18 months.
We expect that EXIM traffic to some western European countries, which are under more stress, like the UK, could see some contraction as well.
But largely, on global basis, there could be 12 to 18 months of recessionary environment, but not really degrowth; it is likely to be more like lower growth rates than anticipated earlier.
Having said that, at the same time, we continue to witness you know strong growth in select markets, be it from India to some extent and then on the Exim side from Vietnam and Indonesia.
Q. Do you see major shipping lines setting up such infrastructure in India?
Every shipping line that we have spoken to has clearly indicated that they are looking at India as one of the growth markets.
Shipping lines are talking about new trade lines to be launched, new direct trade lanes, which means that you may have more services being run from JNPT (Jawaharlal Nehru Port Trust, Navi Mumbai) or any other port to global ports across the world in the next few years.
Q. Is Allcargo Logistics planning bids to operate private cargo trains on the dedicated freight corridors?
From our perspective, Indian Railways will manage the actual operations of the private trains that will operate on the dedicated freight corridors.
This means effectively bidding to operate private cargo trains is a financing deal, and there is no way by which private players can improve operational efficiencies in train operations, which is why we are not keen.We believe that as a standard service provider, we would rather focus on the terminal facilities where things are in our control to make changes and facilitate industries.