Vineet Agarwal, the MD of the company, tells ET Digital in an email interview that the current thrust of the diversified entity is on offering customised solutions to its customers.
Economic Times (ET): The country spends around 13-14% of its GDP on supply chain and logistics whereas developed economies spend only 6-7%. A challenge in the country’s modal mix is also that 64-65% of goods go through roads, 30% through railways, and only a meagre 6% through waterways. How is TCI working towards addressing these structural anomalies?
Vineet Agarwal (VA): A balanced demand and supply ecosystem depends on the network and its infrastructure creation. Currently, the demand-supply is highly skewed due to numerous factors like consumption, seasonal produce, urbanisation, manufacturing presence and ports.
We, as a country, are working towards the creation of better logistics infrastructure for improved connectivity through all modes, but it will take time. The Gati Shakti master plan, Sagarmala project to unlock the potential of waterways, creation of Dedicated Freight Corridors (DFCs) are some steps towards it.
Talking about road freight, India’s surface transport network is stronger than other modes, making it the most extensively used one. Rail and coastal modes don’t offer a cost advantage beyond a point, across all scenarios. Hence, there remains a gap between the modes compared to Europe, China & the USA.
SFOs (small fleet operators) are logistics service providers with less than 5 trucks – owned or leased. So, according to the current situation, they are being benefited because trucks are being better used due to an increase in last-mile deliveries for e-commerce orders.ET: What’s TCI’s Budget’23 wishlist?
VA: We expect the forthcoming budget to provide a balance between the economic growth priorities and inflation concerns, in an all-encompassing manner. The momentum of growth at which India has come up post the pandemic cannot be weakened. We believe that the budget 2023 will be very carefully structured to sustain the growth momentum and continued infrastructure development, irrespective of the ups and downs.
The government’s vision to ease supply chain bottlenecks is quite evident in the scale of decisions and initiatives which have been undertaken in the recent past. The continued focus on execution of specific strategies will improve global competitiveness. Reducing logistics cost and creating a technology-enabled structure will help to achieve the target of positioning India among the top 25 countries in the Logistics Performance Index. In addition, emphasis on upskilling programs like Gati Shakti Vishwavidalya will help the logistics sector contribute its best in India leading the Industrial Revolution 4.0 & 5G era.
TCI has emerged as a key mover in the nation’s logistics landscape.
ET: Studies say SFOs account for over 75% of the domestic trucking industry. For a majority of such players, capex and opex remain a key bottleneck. How can this segment employ industry best practices and follow digital transformation?
VA: SFOs are benefiting due to the boom in e-commerce and D2C requirements. We believe they are having their best runs because most large and legacy players need SFOs as their vendor partners to meet the new-age demand. Because of such collaborations, SFOs get exposed to the best of SOPs (standard operating procedures), knowledge-sharing initiatives, training sessions, low-interest loans, financing support, tech-based systems and long-term contracts.
ET: India’s logistics landscape is fragmented. Some experts say we should follow the China template in many ways. What are your thoughts?
VA: The logistics landscape enables entrepreneurship. It helps startups to get support from large players in the industry. It is somewhat similar to the USA’s template, where the industry remains fragmented like in India.
ET: How does TCI aim to give strength to the government’s Gati Shakti initiative where significant focus is on multimodal systems?
VA: TCI has a strong multimodal network comprising 3 AFTO (automobile freight train operator) trains, 6 coastal cargo ships, 8,000 marine containers, 650 ISO tank containers and 12,000 trucks, 1,500 offices, 13 mn sqft of warehousing space, across India and SAARC-BBIN (South Asian Association for Regional Cooperation – Bangladesh, Bhutan, India, Nepal) nations. The PM’s Gati Shakti master plan gives a big push to rail multimodal and coastal logistics in the country. Infrastructure creation will help reduce the turnaround time and cut down overall logistics cost. TCI will look for opportunities to participate, considering appropriate investments.
ET: Do you think the domestic warehousing domain is on a solid footing compared with global markets? What could be its unaddressed areas?
VA: In the last 2-3 years, the warehousing industry has witnessed unprecedented demand. In 2021, India witnessed a 21% YoY growth in total stock in grade-A and -B warehousing space in the top eight cities. Growth in the supply of grade-A spaces over the years is due to the high demand for spaces with high specifications and the introduction of new players in the market. 3PL (third-party logistics) services has remained the largest segment based on warehousing space demand over the last 5 years. Space demand due to e-commerce has gained traction as e-commerce penetration has increased manifold, especially during the pandemic, turning warehouses and distribution centres into mega fulfilment centres.
TCI has 6 coastal cargo ships and 8,000 marine containers.
Though the industry has come a long way from having dilapidated buildings called godowns back then to now having well-built modern warehouses; there still are some pitfalls. Rental costs have gone up, putting pressure on developers’ profitability. Warehousing is not a demarcated area in a town plan. This makes most warehouses farther from the point of consumption, increasing the delivery cost as well.
ET: The transport sector is rapidly embracing sustainability-led green transport systems, electrification and alternative sources of fuel such as CNG, LNG and hydrogen. Do you think the next wave of growth in the domestic transport ecosystem will be driven by these trends?
VA: Currently in India, the adoption of alternative fuels is slow, especially in commercial vehicles. It will take 5-10 years for the ecosystem to be developed and for transport players to invest in such a fleet. As of now, adoption has been mostly for the middle mile and last mile. For long-haul adoption, lack of proper infrastructure, right pricing, and evolution of technologies remain to be a challenge.
Our extensive multimodal network and customized solutions help clients to unlock their business potential and meet ESG goals. We stay invested in digital transformation to boost efficiency. TCI is working towards the adoption of CNG and BS-VI vehicles. As far as EV (electric vehicle) is concerned, we are ready to adopt, provided the customer agrees to bear the cost of capex. Further, the delta in the cost between CNG and diesel as a fuel is not that much now. For sustainable and green logistics, we as a company are focusing on rail and coastal multimodal that helps to reduce the overall carbon footprint. In 2021-22, TCI enabled its customers to save 1.58 lakh tonnes of CO2 equivalent in terms of GHG emissions.
ET: What level of growth TCI is eying this financial year?
VA: We are eyeing a target of 10-15% growth this financial year, with key focus on multimodal, 3PL and value-added services. In the financial year 2023, the company is looking at a capital expenditure of around Rs 300 crore, and going forward planning to spend around 200-250 crore annually to boost capacity for the next four years. Most of the capital expenditure will be used to acquire new ships, containers and for the construction of the warehouse.
We have six vessels currently and are looking to increase our fleet by adding one ship every year for the next four years. Around one-third of our capital expenditure will be used to acquire ships every year, while the rest will be to buy other assets.