Cargo movers look at ways to weather global financial crisis

Cargo movers look at ways to weather global financial crisis

Bangalore / Mumbai: Stock prices of India’s top logistics firms have eroded by 15% to as much as 87% since January as the global financial crisis put a drag on demand for goods from the country, forcing these companies to consider collaborations and whittle costs.

Before the economic tsunami hit, the local logistics sector was poised for a leap, investing heavily in infrastructure such as warehousing zones and railway wagons to handle growing volumes.

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Chennai-based Sical Logistics Ltd’s scrip has fallen nearly 87%, Gati Ltd lost 80% and Transport Corp. of India Ltd dropped 72% from the beginning of the year, while the Bombay Stock Exchange’s benchmark index, the Sensex, declined 47.84%.

Container Corp. of India Ltd, the country’s largest logistics firm, declined 26% and Allcargo Global Logistics Ltd fell 19% in the same period.

Some industry insiders said the crisis would change the way logistics firms do business, while others reckoned the situation would look up in a few months.

“The financial crisis is having a deep impact on all business. Logistics is no exception," said Sudhir S. Rangnekar, managing director and group chief executive of Sical Logistics.

“We feel that what is happening now (on stock price) is largely driven by a bearish market sentiment," said Ajay S. Mittal, chairman and managing director of Mumbai-based logistics firm Arshiya International Ltd, whose share price has fallen 65.45% since January.

“Eventually, fundamentals of economy and companies will prevail," he said.

“India is sitting on a very small base. There is bound to be growth," said Gagan Seksaria, principal (investments) at India-focused private equity firm Tuscan Ventures Pvt. Ltd.

The government has fixed an ambitious target of $150 billion (about Rs7.34 trillion) for exports by 2009, to double India’s share in global exports from 0.8% currently to 1.5%.

This target requires exports from the country to grow at an annual rate of at least 15%, giving business to firms that move cargo from factories to warehouses and onward to ports and airports.

“From a demand and operational perspective, long-term prospects for logistics sector are extremely strong," said Mittal of Arshiya.

Sical’s Rangnekar, however, expects the logistics industry to be subdued for some time and the focus to shift to cost control and integration rather than big investments for expansion.

“Purses will be tightened as far as investments are concerned because getting funds for expansion projects has become increasingly difficult," he said.

This would force firms to either scale back or put on hold investment plans and it won’t be long before rivals join hands to make best use of resources, Rangnekar added.

“This is the only way to increase revenues and profits," he said.

The Indian logistics industry is slated to grow at a compounded annual growth rate of 16% and reach a market size of more than $125 billion in 2010, according to research firm Frost and Sullivan.

“Trade must and will go on and products must be exported and imported into India," said Mittal.

“India is in a place in time where even marginal slowdowns in percentages in overall growth rates will still mean incremental, absolute increases in value," he added.

“More than ever, now the focus is on ensuring that the cargo movement happens efficiently and under tight budgets," he said.