Mumbai: Allcargo Logistics Ltd on Friday said it acquired US-based logistics company Econocaribe Consolidators Inc.
Director (finance) at Allcargo Logistics, S. Suryanarayanan, said the value of acquisition is close to $50 million.
Econocaribe, set up in 1968, is the third-largest non-vessel operating common carrier in the US. Such companies do not own ships but own slots or space in shipping companies to ship cargo. It has nine offices in the US and 22 container freight terminals in the US and Canada.
“Econocaribe has been our partner in the US and we have worked very closely with them,” said Shashi Kiran Shetty, founder and executive chairman at Allcargo, a port-based logistics firm from the Avvashya group, adding that Econocaribe is a zero-debt company.
Allcargo acquired Econocaribe through its Belgium-based subsidiary ECU Line, which collects small cargo and aggregates these into a full container load, known as an LCL (less than a container load) company. Shetty said the acquisition has been fully funded through loans from Belgium banks at 3% and through internal accruals of ECU Line.
Shetty added his company is in process of making acquisitions in Australia and Europe.
He said many their customers were not willing to work with his company as it doesn’t have a big presence in the US. “With this acquisition, we will be able to offer services to the US,” Shetty said.
Allcargo, initially a Delhi and Mumbai agent for ECU, bought a 33.8% stake in the Belgium firm in 2005-06 and acquired the remaining shares in the following year for €23 million. The takeover of ECU, which had five times the acquirer’s revenue in 2006, made Allcargo the world’s second largest LCL firm, after OTS Logistics Group of the US.
ECU Line in recent years has been engaging Econocaribe as its agent in the US. The acquisition now enables ECU Line to increase its foothold in North America.
In a 19 September note, senior analyst Amit Agarwal at domestic brokerage Kotak Securities Ltd wrote that Allcargo Logistics had developed a strong presence in the mutli-modal transport operating (MTO) business through the wide network of ECU Line and had gained a strong hold on the domestic MTO business.
Agarwal said Allcargo as a LCL consolidator won’t be much impacted by the current weakness in the container market as LCL volumes are more immune to such sluggishness as a large part of full container load volumes during tough times gets converted into LCL volumes.
“Allcargo depends on shipping lines for its CFS (container freight station) business and in return it gives these shipping lines container volumes of its MTO business. Both the parties are interdependent on each other for some part of their business,” Agarwal wrote. “So it’s a self-sustaining interdependent business model for both the entities which we believe works more favourably during bad times. This is one of the reasons why Allcargo is expected to outperform most of its peers.”
Shares of Allcargo closed 11.42% higher at Rs.100 apiece on BSE on Friday, while the Sensex lost 0.84%, or 166.58 points, to 19,727.27.