Logistics firms eye express freight sector

Logistics firms eye express freight sector

Mumbai: At least a dozen logistics firms are lining up to enter the Rs8,000 crore mail and small cargo carrier industry in India, attracted by the premium it commands over the state-run postal system in an economy powered by expanding domestic consumption.

The Indian unit of the $34 billion (Rs1.6 trillion) global logistics firm FedEx Corp. has already started domestic services. Low-cost aviation pioneer G.R. Gopinath’s Deccan Cargo and Express Logistics Pvt. Ltd entered the segment in November, using Nagpur as hub.

Kishore Biyani’s Future Logistics Solutions Ltd, Bangalore-based VRL Logistics Ltd, DRS Logistics Ltd of Hyderabad and some other firms are waiting to enter the market.

“At least two big players are talking to us for entering express (freight) industry and they are looking for funds, too," said Mohit Khullar, vice-president, Equirus Capital Pvt. Ltd, a boutique investment bank, adding that the main attraction of the segment is the premium it commands for time-sensitive documents. He didn’t name the companies.

A senior executive at Future Logistics, who declined to be named because he is not authorized to speak to the media, said his company will shortly enter the express freight segment as it has the transport infrastructure of Future Group’s Big Bazaar chain in place for support across 70 cities.

The express freight sector has been growing at around 20% annually since 2005, and employs close to one million people, according to a report released by a five-member team of professors and researchers at the Indian Institute of Management, Calcutta, in May. While the sector is fragmented, with at least 2,500 firms, a few large ones including Blue Dart Express Ltd and First Flight Couriers Ltd control almost 80% of the market.

New entrants will have to compete with Blue Dart, in which Germany’s courier and logistics firm DHL Express has an 80% stake; Gati Ltd; DTDC Ltd, in which Reliance-Anil Dhirubhai Ambani Group has a strategic equity stake; First Flight; Safexpress Pvt. Ltd; Transport Corp. of India Ltd; and state-owned India Post.

Dedicated freight carriers such as Aryan Cargo Express Pvt. Ltd and Quikjet Cargo Airlines Pvt. Ltd, in which the Tata group has a stake, have similar plans.

Other global players are also in India: Dutch firm TNT NV acquired Secunderabad-based Associated Road Carriers Ltd (known as Speedage) in September 2006, while Georgia, US-based United Parcel Service Inc., or UPS, has a tie-up with AFL Pvt. Ltd.

“India is very important for us because the country’s economic growth is also driven by strong domestic consumption," said Indranil Sen, managing director for marketing (West Asia, Indian subcontinent and Africa) at FedEx. “Also, we could catch the next level of economic action in India being present here."

To facilitate its entry into the domestic market, FedEx acquired Indian express freight firm Prakash Air Freight Pvt. Ltd in November 2006. FedEx India now connects 50 major Indian cities and offers real-time online tracking, on-call pickup and is backed by the FedEx money-back guarantee if a package is not delivered on time.

Deccan Cargo also connects an equal number of cities. “With cargo airplanes and other logistics infrastructure which is controlled by common IT link, I am not creating a new market, not taking away somebody’s else market," Gopinath told Mint.

Anil Khanna, managing director of Blue Dart, which is the market leader, said competition was welcome as it would keep his company on its toes.

“Consolidation is inevitable as companies would need scale, transport infrastructure and aircraft to deliver high-value documents even at night," said Khullar, predicting consolidation among small firms in 2010.

Tushar Jani, chairman of freight forwarding and logistics firm SCA group and a former promoter of Blue Dart, said the capital intensive infrastructure and nationwide network required for express freight firms would make it difficult for new entrants to carve out market share. “For even international players that have deep pockets, it will be difficult," he said.