Bolt from the blue for logistics industry

The journey of a truck on Indian roads symbolises the ride of the Indian logistic sector in more than one way. There can be bottlenecks at toll booths, bumps and potholes any time ahead, along with stormy weather, winding roads and hairpin curves.

Indian logistics players felt relieved — like driving past a logjam at a border check post — when the GST Constitutional Amendment Bill was passed in August, after a decade-long stalemate.

The GST rekindled the hopes of a probable smooth ride for the logistics players, prompting them to plan strategies for the future. But, the demonetisation move has come as an unexpected hump, waking them up from the daydreaming.

The people of India are generally used to bumpy rides, perhaps every day, in one or the other way. But the initiative to replace ₹14.18 lakh crore — which existed in the form of 500 and 1000 currency bills till November 8 and formed 86 per cent of the total money in circulation — has proved to be a jolt.

The resultant disruption due to the liquidity crunch has triggered shockwaves across the spectrum, as we are a cash-driven economy and 45 per cent of the gross domestic product comes from the informal sector.

Among all the sectors, logistics is one of the worst hit, at least in the short-term.

Early estimates suggest that cash shortage has led to four lakh trucks being stranded in the very first week itself.

The business volume has come down by up to 40 per cent. across the country. The capacity utilisation of the fleet has come down by 60 per cent.

A truck takes 7-8 days on a single trip on an average and at least 10 per cent of the expenses throughout the route are borne by the drivers and the support crew, for whom hard cash is the most convenient and practical option.

While 55-66 per cent of the total trip costs are on account of fuel, another 25-40 per cent account for heads such as tolls, octroi (on goods entering particular areas), speedy clearance at check posts, and so on. The country has 177 inter-State check posts and 268 toll barriers on National Highways alone.

This gives an idea about the amount of hard cash required and the concerns due to restrictions on cash withdrawal. These are cases of direct impact.

But there is a stronger ripple effect on the sector in the medium term when the total demand comes down across the sectors such as construction, consumer durables, steel and cement.

That means after the bump, we should be prepared for speed tables for a longer period of time, as demonetisation has made a huge impact on the entire supply chain.

It was reported that the demand for food, fertilisers and other daily needs have come down drastically, almost 60 per cent compared to last month.

The excess supply in the market and contraction in demand keep the logistics players off the roads. Tier-II and Tier-III cities have borne the brunt more in the last couple of weeks.

Another immediate impact for the logistics sector came from e-commerce.

All these instances show that the top lines of the companies are going to be affected in the next quarter.

One of the main motives behind the demonetisation move is to transform India into cashless society. But if the authorities thought it would happen overnight and so easily, through such an ill-conceived plan, a few stark facts of the logistic sector alone will prove them wrong.

At least 70 per cent truck drivers come from the villages and are without Paytm (a cash management application that runs on smartphones) or credit cards.

How are these drivers going to pay at the dhabas ? How will they give money to their families? Should the trucks remain off the roads till each driver and his wife are empowered with a credit/debit card or mobile wallet?

But there is also a brighter side to the picture, like in the case of the e-commerce sector which is bound to pick up once people get more adjusted to plastic money and mobile wallets. There are some positive takeaways for the move in the long-term.

With the shift to online payments and fuel cards, the working capital requirement at least in the case of established logistics players can come down.

There has also been a drastic drop in costs, such as tolls and other miscellaneous expenses borne by drivers en route their journey.

Unorganised players account for 80 per cent in the sector and they predominantly deal in liquid cash. The demonetisation will drive them to move to the organised sector and which in turn can help the Indian logistics industry evolve.

The move also comes as stimulus for the players to adopt technology more than ever before. GST coupled with the demonetisation can give a positive guidance for the industry.

But, the logistics industry needs time to evolve on its own, given its complexity and traditional baggage. The industry may be inured to speed barriers and headwinds, but such ill-timed and ill-planned roadblocks can stymie the growth of the sector at least in the short-term.

The writer is the vice-chairman of Patel Integrated Logistics

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