The Hindu Business Line : Goods carriers feel the heat of meltdown

According to industry experts, volumes for companies operating in the road logistics business have fallen by as much as 20-30 per cent in the last three months as movement of goods has slowed down.

Double whammy

“The bottomlines of transportation companies have suffered a double whammy because manufacturing has been hit and there has been hike in fuel prices as well,” Mr Narayanan Ramaswamy, Executive Director, KPMG Advisory Services, told Business Line.

Talking about certain verticals that supply chain management company, AFL, deals in, Mr Juzar Mustan, Chief Executive Officer, Logistics Division of AFL Pvt Ltd, said,

“Currently, volumes from consumer durables industry are down about 20 per cent and automotive parts would be down 15 per cent.”

While the industry is seeing a 20 per cent drop in volumes, he said, AFL would be witnessing about 22-25 per cent drop “since we have a larger dependency on consumer durables and office automation products.”

According to Mr Mustan, “In the current scenario, the challenge is to find volumes.”

Bigger challenge

Logistics companies create their network plan based on the assumption of certain volume forecasts projected by their clients.

“However, when we have fewer volumes we are left with a network which is underutilised and the bigger challenge is how to make this fixed network variable,” he said.

Currently, AFL is experiencing a 70 per cent utilisation of its vehicles against an expectation of 80 per cent, he said.

“Companies which used to operate three shifts reduced it to two and now to one,” said Mr Ramaswamy.

Network is made variable through cut in the frequency of truck movements, or by plying smaller capacity vehicles instead of larger ones. Through these measures the network remains responsive to the fall in demand, said Mr Mustan.

“But you can’t always do that because once you place a vehicle on a certain route, it has to be there for a few months at least. It’s not so easy to tweak it, which is a big challenge for us to deal with,” he added.

The impact of this meltdown is going to be felt more severely by the unorganised segment, which constitutes 85 per cent of the transportation industry.

Transportation accounts for 70-80 per cent of the overall cost depending on the industry, said Mr Ramaswamy from KPMG.

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