1 min read.Updated: 22 Aug 2018, 09:20 AM ISTR. Sree Ram
Competition and the shift to ground logistics is exerting pricing pressure, reflecting in the weak quarterly earnings performance of Blue Dart
The growing prevalence of e-commerce is strengthening the business outlook for road express transporters. Consumers in tier- II and tier-III cities are increasingly ordering bigger products, necessitating surface logistics.
“This is a marked shift from the prevalence of mobile phone shipments until a couple of years ago. The management believes that this trend should gain momentum and thus ground delivery will continue to gain more share," Mohit Khanna, an analyst at Nirmal Bang institutional equities wrote in a note after meeting Blue Dart Express Ltd management.
The note also points to a growing preference for surface transport vis-à-vis other modes. “Five years ago, only 5% of the e-commerce payload was transported through ground as air transport took the lead. Today, 20% of the e-commerce payload is delivered through ground transport," says the note from Nirmal Bang.
This is a mixed blessing for Blue Dart. The company has a strong presence in air logistics. However, competition and the shift to ground logistics is exerting pricing pressure, reflecting in the weak quarterly earnings performance of the company.
To align with the changing market preference, Blue Dart is building capacities and expanding footprint. But as with most investments, the results will take time to fructify.
Though difficult to quantify immediately, companies focused on surface express transportation should benefit from this transition. Thanks to the goods and services tax and push towards formalization, companies such as TCI Express Ltd, which largely focuses on business-to-business services, are already seeing good growth.
Chander Agarwal, managing director of TCI Express, acknowledges that there is a major shift from air cargo to surface express transportation. But subdued consumer sentiment means volumes are yet to take off in a big way, says Agarwal.
Even so, the trends do show that the incremental volumes are increasingly being captured by the surface express transporters.
That said, the varied financial performances of Blue Dart and TCI Express show that all stakeholders are not benefitting equally from this shift yet.
Blue Dart’s earnings underperformance can be partly attributed to intense competition in the business-to-consumer segment, accentuated by the entry of new firms.
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