Mumbai: When Shashi Kiran Shetty moved to the country’s commercial capital from Mangalore in 1978, he was clear about one thing.
“I came to Mumbai to do something big in life,” he says, not unlike many other migrants to the metropolis before him. Today, Shetty is on his way to achieving his ambition.
Growth appetite: Shashi Kiran Shetty of Allcargo Global says Indian logistics sector will experience significant growth in the coming years.
In 1995, Belgium-based ECU Line NV, the world’s second largest LCL firm, appointed Shetty’s Allcargo Global Logistics Ltd, which he set up in 1993, as its agent for Mumbai and New Delhi. LCL (less than a container load) firms collect small cargo and aggregate them into a full container load.
Ten years later, Allcargo took a 33.8% stake in ECU and the following year, acquired the remaining shares. The takeover of ECU, which had five times the acquirer’s revenue in 2006, for €23 million (Rs160 crore today), made Allcargo the world’s No. 2 LCL firm, after OTS Logistics Group of the US. “I want to grow my company as the top in the world in LCL consolidation and India’s leading company in other areas that we are into,” says Shetty.
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While absorbing ECU, Allcargo made sure that it would have a direct presence in containerized cargo versus being a mere freight-forwarding firm. It has started container freight stations, inland container depots and enhanced its presence in equipment leasing.
“Be it oil exploration rigs or windmills or (freight) trains, Allcargo is capable of offering end-to-end logistics for companies from any part of the world,” says a senior Allcargo executive who doesn’t want to be named. Thanks to ECU, Allcargo is in 63 countries with 140 offices, with LCL contributing at least 82% of its overall revenue.
This global footprint persuaded private equity firm Blackstone Group to invest an additional $23 million in Allcargo, taking its total commitment to $75 million over two phases in the last two years.
“This is a successful culmination of our partnership. We are confident that the Indian logistics sector will experience significant growth in the coming years,” said Akhil Gupta, chairman and managing director of Blackstone Advisors India Pvt. Ltd. “Shetty has created a strong logistics company with an enviable market position and we have also been impressed by both the breadth and depth of Allcargo’s management team and look forward to partnering with the company through its critical growth phase.”
“The interesting fact is there is no major competitor in India. Shetty competes with international freight forwarders,” said an executive with a rival shipping firm. He didn’t want to be named.
Shetty entered the logistics industry with TransIndia Freight Services in 1982, which moved general cargo and containers both within Mumbai port and across India. He established Allcargo about a decade later, identifying a niche he could build into a global business.
Container traffic at major ports in India has increased from 3.4 million twenty-foot equivalent units (TEU) in fiscal 2003 to 6.6 million TEU in fiscal 2009, Param Desai of Angel Broking Ltd said in a recent note.
A TEU is a standard measure of cargo in the container business.
“As a result, the share of container traffic (in total cargo) in the current decade has increased from 11.5% in FY2003 to 17.6% in FY2009, with an increase in private participation in handling container terminals and customer preference in transporting cargo in containerized form as it reduces handling costs,” he wrote. Shetty has moved rapidly to tap this potential, building hubs at key points.
Allcargo has set up three container freight stations, or CFS, adjacent to the Jawaharlal Nehru Port Trust near Mumbai, Chennai port and Mundra Port in Gujarat. It has also set up five inland container depots, or ICDs, at Dadri, Pithampur, Nagpur, Hyderabad and Bangalore.
“Allcargo Global has built critical infrastructure where container cargo is transported the most. JN Port, Mundra port and Chennai port handle at least 95% of containerized cargo in the country,” said the Allcargo executive cited earlier. “With joint ventures, we have created a string of ICDs where we will ensure leadership with 35-55% market share.”
For instance, Shetty tied up with Hind Terminals Pvt. Ltd, the Indian subsidiary of the UAE-based Sharaf Group, for the Pithampur ICD.
He also chose to ignore the auction for freight train permits and focus on purchasing land for transshipment hubs. “It was a conscious decision that we took years ago not to bid for a container train licence,” the Allcargo official said. “When everybody was bidding for container train licences, we were busy buying land at cheaper prices at prime locations near the rail network.”
Allcargo now plans to set up warehouses across the country to boost its LCL business.
Shetty, a fitness and golfing enthusiast, says he has always wanted to be an end-to-end logistics player and “warehousing is very much a critical part of it while we continue to consolidate our LCL business.”
The focus on LCL, he says, saved the firm in the slump. “During the recession, when companies decided to reduce inventories, many FCLs (full container loads) turned into LCLs, which indirectly helped us.”
Typically, LCL accounts for 5% of a cargo firm’s business and FCL the remaining 95%. In Allcargo, LCL accounts for 15% and FCL the rest.
Angel Broking’s Desai says the slump has taken a toll of the container business owing to weak demand and tight credit. The hardest hit were Europe and the US, where Allcargo has 50% of its exposure through ECU.
Allcargo may be facing another handicap as it expands. The rival executive mentioned earlier says Allcargo lacks the “management depth that will give the company a direction to go to the next level.”
Shetty says his management team has a huge appetite for growth and has delivery capabilities of a high quality. “From the outside, it may look simple. But there is a huge thought process behind by a strong management team. We will only get into an area where there is a strategic fit and it’s viable.”