Demonetisation - A year later. After initial slowdown, logistics sector back on the fast track

After hitting a major speed-breaker in the form of demonetisation last year, the logistics industry appears to be getting back on the recovery track. There has been a spurt in the use of digital payments and electronic transactions, and this has, in fact, benefited some logistics companies substantially.

However, now that the pressure of demonetisation has eased, cash is back as the preferred mode of transaction in an industry where over three-fourths of business is in the unorganised sector.

Industry experts say that if mainstreaming digital payments was the main aim, then demonetisation could have been better planned.

As Prime Minister Narendra Modi made the demonetisation announcement on the night of November 8 last year, truckers on the road were stumped — they couldn’t pay toll fees, buy food, or get repairs done. The government responded by waiving toll charges for about a month.

“Truck rentals also went down due to a drop in toll charges and shrinkage in overall business. But, despite the drop in business, the margins were not much affected because the retail rentals for SMEs did not go down,” says SP Singh, Senior Fellow, Indian Foundation of Transport Research and Training (IFTRT).

The National Highways Authority of India (NHAI) reportsa 50 per cent growth in digital payments between January and September 2017. The number of Fastags — or RFID tags — touched 6 lakh in September this year, from about 2 lakh in December 2016.

KK Kapila, Chairman, International Road Federation, says that while the intent behind the note-ban was good, there was a need to better prepare for the move. A large part of the labour force did not have bank accounts into which their wages could be paid. “This impacted the lives of labourers,” said Kapila.

The organised logistics sector was affected too, but has recovered to a large extent. Listed firms in the sector, such as Concor and BlueDart, were hit for the first eight-nine weeks but recovered, according to analyst reports. Company executives BusinessLine contacted refused to comment.

The Concor management had said in an analyst call last year that a gradual improvement in liquidity should lead to a shift in cargo from roads to railways, where business is largely on a non-cash basis. According to IIFL, Concor’s CMD Kalyan Rama said in an analyst call this year that a pushback in volumes due to demonetisation lasted three-four weeks; volume growth recovered in December 2016 and reached pre-demonetisation levels in January 2017.

Also, brokerage reports of ICICIDirect and IIFL point out that the margins of BlueDart were hit in the quarter ending March 2017, as the high-margin cash-on-delivery e-commerce business was hit. As a plus, non-e-commerce business shot up for BlueDart — a large number of credit cards and POS (point-of-sales) machines where shipped, thanks to the note-ban.

On its part, IRCTC waived service charges to make e-payment more attractive for train ticket buyers. Several bus operators, however, found the rapid shift to e-payments rather difficult.

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