BL Interview. ‘Govt’s thrust on improving infrastructure worked in our favour’

Avvashya CCI Logistics, an end-to-end logistics, contract logistics and supply chain management company is a joint venture between three entities — the warehousing & CCFF division of CCI Logistics, the Contract Logistics Division of Allcargo Logistics and Hindustan Cargo. The combined entity creates technology-enabled solutions with 1.5 million sqft of operating warehousing space across over 20 strategic locations in India. In an interview to BusinessLine , V Balaji, CEO — Contract Logistics at Avvashya CCI, explains how GST is becoming a landmark reform for the logistics business and how the company foresees its impact.

What is the logic for the merger of the three entities — the warehousing & CCFF (custom clearing & freight forwarding) division of CCI Logistics, the Contract Logistics Division of Allcargo Logistics and Hindustan Cargo Ltd?

In India, logistics is largely fragmented. Allcargo Logistics is among the few integrated logistics solutions providers in the country. A bunch of services under one umbrella saves cost for the customer. We have been leveraging this strength since many years. The government’s thrust on improving infrastructure and launching of a slew of initiatives such as Make in India, has worked in our favour.

As India moves on the path of becoming a manufacturing hub for the world, and initiatives such as Make in India will require logistics support into and out of India along with warehousing, Allcargo felt the need to integrate FF, CC and contract logistics under an umbrella. This has resulted in consolidation and better coordination.

The strategic decision has been taken to offer customers a robust end-to-end logistics partner. As a combined force, Avvashya CCI now has the expertise in contract logistics, warehouse management and other value-added services. The amalgamation has been timed in an effort to better leverage the benefits from rising domestic consumption and the implementation of the Goods and Services Tax.

What has been the impact of GST on the logistics sector? How has Avvashya CCI’s business environment changed post GST?

The roll-out of GST improved the movement of goods across the country. Several industries such as FMCG are already realigning their supply chain to a hub-and-spoke model of warehouse operation. Post GST, truck utilisation has improved as most of the check-post are eliminated now. The distance travelled by trucks has increased.

Vehicles, which earlier travelled 300 km with check-posts, are now able to travel 75-100 km more a day in a 24-hour format. This improvement has been 15-20 per cent and it can go as high as 25 per cent, provided the toll nakas and other conditions are further simplified. This has resulted in reduction of overall operational cost.

With GST, the warehousing space is expected to double from the current 600 million sqft, all centred around the major consumption areas, primarily comprising the four metros and mini-metros — Mumbai, Delhi, Kolkata, Chennai, Ahmedabad, Bengaluru, Hyderabad and Pune. The rental rates of compliant warehouses have gone up by 10 to 12 per cent. This poses a huge opportunity for organised and regulatory-compliant players such as Avvashya CCI. However, it would take at least a year to fully realise the true merits of GST.

At Avvashya CCI, we are fully aligned from business operations and technology perspectives. We have been conducting GST training for employees, vendors and product heads on bill processing, vendor management and software integration, among others. We have hired domain specialists at key positions to aggressively grow in favourable business conditions.

Experts say, GST will bring down cost by almost 20 per cent. Your thoughts on this statement. How is it panning out for Avvashya CCI?

India is currently ranked at 130 in the ‘Ease of Doing Business. GST will be one of the key factors for India to be able to climb to rank 30 in this index by 2020. With implementation of GST, logistics cost to GDP will come down to around 10 per cent from current levels of 13-14 per cent. This is a very significant contribution as logistics is a part of every business.

Delivery time from manufacturers to consumers, which earlier took 10-15 days due to multiple check posts, has gone down to three to five days. That’s around a week worth of costs saved. Over time this figure should improve. Supply chain cost across customer organisations and industry at large is expected to see significant savings.

ACCI is creating state-of-the-art, compliant warehouses at strategic locations. In a year’s time, ACCI has scaled up from 1.5 million sqft (msqft) in 2016 to 3 msqft currently and plans to aggressively scale up to 10 msqft of operating warehousing space by 2020. We are creating logistics parks for EXIM and DTA businesses. This will facilitate customers to consolidate their requirements and choose an end-to-end compliant logistics partner like us.

What modifications did you bring to the business post GST? Do you see any effect on the scale of business and revenue?

GST will enable organised operators to consolidate and deliver value. With an increase in demand for large format warehouses, organised players’ market share and CAGR would almost double during the course of the year even as customers continue to realign their GST-led supply chain formats.

Opportunities do not only exist in providing storage solutions, but it has also now opened up avenues of offering products and services which otherwise were fragmented and managed through multiple entities. Overall, a robust structure would emerge in the coming years. Integrated solutions will come to the fore and organised players such as Avvashya CCI will reap the benefits of it.

Tell us about Avvashya CCI’s expansion plans?

Our vision is to be one of the top three players in contract logistics by 2020. The contract logistics business is growing aggressively at 40-45 per cent. In line with that, we have grown significantly to currently operate three mn sq ft of warehousing space

We are coming up with a warehouse specifically for chemical, food and pharma sector in Chennai and Bengaluru. The facility will be global standards compliant and would measure five lakh sqft in phases.

The warehouses we come up with will be of the built-to-suit (BTS) model where technology and automated processes will play a major role. We have earmarked an investment of around ₹250-300 crore in warehouse automation in an endeavour to offer world-class services to customers and bring in cost and operational efficiency.

What is your outlook for the business?

We are aiming to be a ₹1,500-crore contract logistics company by 2020-21. With increased emphasis on infrastructure development and an enabling environment post GST, we are well placed to achieve this goal.

Technology will be a key enabler in our business to offer better and customised solutions. Our aim is to be the industry leader in the warehousing of chemicals and to be among the top two in automotive and engineering solutions.

Overall, the outlook for business is positive and the sector is expected to get a boost with the consumption-driven Indian economy and increased emphasis on logistics and infrastructure development.

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