Tatas plan umbrella logistics firm3 min read . Updated: 30 Dec 2010, 11:43 PM IST
Tatas plan umbrella logistics firm
Mumbai: The Rs3.2 trillion Tata group, with 90 firms spread across businesses ranging from salt to software and tea to telecom, plans to consolidate all its logistics arms into one unit, a move that would enable it to service companies that are increasingly farming out functions such as transportation.
“The process has started and it will take a while (to take shape)," one of the two senior officials familiar with the development said. Both requested anonymity pending a formal announcement.
Amitabh Panda, group director (shipping and logistics operations) at Tata Steel Ltd, is steering the consolidation project. Mint could not contact Panda.
Sanjay Choudhry, chief of corporate communications at Tata Steel, denied any such move, saying: “There is no plan for any consolidation of logistic assets or management in the Tata group or in Tata Steel."
But the second of the two senior Tata group officials mentioned above said a series of meetings on the move towards consolidating logistics entities had already taken place and the group was serious about it.
Conglomerates such as Reliance Industries Ltd and Mahindra and Mahindra Ltd have separate logistics divisions to cater to captive requirements and both have plans to spin off these divisions into separate companies and service third parties.
The Tata group has several logistics companies and divisions for freight forwarding, chartering, ports, terminals, trucking and shipping, and only one such company, Drive India Enterprise Solutions Ltd (Diesl), an associate of Tata Industries and Tata International, offers services to firms outside the group, the so-called third parties. The rest are all captive units catering to in-house needs.
Diesl is a leading supply chain management organization that offers warehousing and distribution services besides value-added services in accounting, tax management and business advisory.
The consolidation exercise will start at Tata Steel. At least six logistics divisions of Tata Steel, headquartered at Jamshedpur in Jharkhand, will be merged into one and brought under the brand Nibam Logistics. Currently, Nibam Logistics is a division of Tata Steel Europe, the erstwhile Corus Group that Tata Steel acquired in 2007 for $13.65 billion.
Tata Steel’s subsidiaries include port-based logistics and freight forwarding company TM International Logistics and Tata NYK Shipping—a 50:50 joint venture with Japanese marine transporter Nippon Yusen Kabushiki Kaisha—that handles dry-bulk and break-bulk cargo.
Under its fold, Tata Steel also has Dhamra Port Co. Ltd, a joint venture with Larsen and Toubro Ltd, to build a deep-draft and all-weather port in Orissa.
The objective of the proposed consolidation is to create a large logistics organization that will seamlessly integrate transport functions of Tata Steel initially and bring other logistics divisions of group firms under a single brand.
“In the long run, the group plans to offer services to third parties," said the group official cited in the first instance.
According to the second person, the initiative to consolidate logistics assets is aimed at giving those companies a fresh lease of life and cash in on the trend of outsourcing transport operations.
On average, companies in India outsource an estimated 52% of their overall transportation and logistics activities. Many more firms are leaning towards outsourcing and third-party logistics models as they seek to optimize costs and focus on their core businesses.
Logistics experts said consolidation of such assets makes sense in terms of coordinating transportation activities, besides gaining access to third-party business. A stand-alone logistics company would have a higher valuation, they said.
But a senior logistics consultant, who did not want to be named, said it will be “a Himalayan task" to bring all group logistics companies under one umbrella.
“Tata group has created several logistics companies for facilitating transport functions of various group firms. It will be tough to bring all functions, assets and systems under one roof. Many of them are inefficient; legacy and politics will come on the way," he said. This person advises large Indian and international logistics companies.
Many manufacturing companies in India have in-house logistics set-ups that have historically been perceived as performing a support function and, as a result, have grown unwieldy and cost-inefficient over time, wrote Gagan Seksaria, associate director, and Chandan Choubey, senior analyst, at consulting firm KPMG in a logistics report released in December.
According to KPMG, this trend is catalyzing consolidation in the highly fragmented transportation and logistics industry.
“Also, as companies seek to focus on their core businesses, improve customer satisfaction levels and become more nimble in managing their supply chains, they are realizing that partnering with third- or even fourth-party logistics experts is often the best or the only way to achieve these objectives," Saskeria and Choubey wrote.