Fuel Price Rise is GOOD for Logistics Industry

Over 90% of goods movement in India is carried out by the unorganized sector-the much awaited shakeout and consolidation have never materialized. But the latest fuel price raise ( and many more to come with oil likely to remain in $130-160 band) can actually be the proverbial "tipping point".

Transport rates are already up 15% plus and by end of 2008 will end up 25% above December 2007 levels. It is but natural that industry will lean hard on transporters to suppress prices as much as it can.

But that may work only in short term. The need of the hour is to have larger transport companies with all India fleet, modern management, superior use of technology and collaborative approach.

But this means heavy capital infusion into vehicles, talent and technology. This is beyond transporters with less than 20 vehicles, let alone single truck operators.

The higher fuel price will lay a premium on services such as load planning, reverse load management, route optimization, variable capacity in line with demand etc.

As regular transporters will fail to offer above, they will be able to compete only by reducing margins. This will lead to many downing shutters or merging to become larger entities.

Thus, fuel price can actually do some good by placing a premium on value added services that can save even a small percentage of fuel bill.

Get ready for the shakeout- no other way at $140 crude.

How deep is Internet uasge in India?

Internet is believed to be used by "English speaking urban middle class". That well may be but ground realities are changing fast and how.


During my recent client visit, I was checking with an operator how he is using our online software and what problems he faces. For those of you not so familiar with manpower quality in logistics industry- a data entry operator will be 12th pass, will have a basic knowledge of computers and knows just enough English to use the keyboard.

At this point his superior walked in and we got into a discussion. Using this break, the operator switched to an ICICI site. I noticed that he was actually using Net banking site. After checking his account, he proceeded to make an online payment to LIC !!

I got curious and tried to find more. He said he uses Net banking often and he has no time to visit the bank as he works for 12 hours a day. Thus, he also pays his bills and insurance payments online !!

This person was about 21-22 years old and his spoken English was atrocious. He is from a small town in UP and works in Delhi. He represents 300-400 mn Indians who form the layer below "English speaking elites".

Internet and its usage- even online payments- is growing fast in young India and it is evident that we have a work force ready for the future.

Ignore it at your own peril !!

When will be the "NSE moment" for Indian Logistics Industry?

In early 1990s, National Stock Exchange introduced ONLINE stock trading in India. This was where trading occurred by "Dhotiwallas" on the floor of Bombay Stock Exchange. NSE was dismissed as "not for India" given its infrastructure, lack of industry support, "first world" technology etc.


Today, ours is one of the most automated stock trading systems in the world with trading spread all across Indian towns and stock culture so deep that it dominates headlines of even vernacular TV channels.


Indian logistics industry today is where Indian stock exchanges were in early 1990s. Paper driven, highly labor intensive, no data connectivity between users and providers and a general lack of modern IT usage.


So what will jolt Indian logistics out of its slumber ? What will be logistics industry's NSE moment? And most importantly- WHEN??


We think entry of International Retail Chains will be the "inflection point". Just as FIIs changed the game, MNC retail chains will bring its own set of "ways of doing business" to a whole lot of suppliers.


Even today, if you want to be a supplier to a Wal-mart from India, you have to send documents electronically. And obviously so !! Think of each vendor of Wal-mart sending a paper invoice or a docket or dispatch advice. Wal mart will have a mountain as large as one of its super stores DAILY !!


Then why Indian retailers are happy with paper? For same reason has Kotak, DSP and KR Chokseys of India were happy with paper before NSE came in.


Once Wal-Mart or a Tesco are given a go ahead, the first thing they will insist upon will be Electronic Data Interchange with all partners- vendors, warehouses, transporters.


This will require all players in supply chain to adopt IT- especially transporters and that too the ONLINE variety. No XLS, no e-mail- Digitally Signed Automated Electronic Messages will be the norm.


When will this happen? Well, may be in 2009 after the General Elections. Thus, we are fast approaching the NSE moment for Logistics - be prepared !!

Better infrastructure=better supply chains (Have you been to Gurgaon of late?)

The common belief is that better infrastructure will result in better supply chains. Better infrastructure in India is defined by better roads, bigger airports, shiny bridges.

Really? If you have been to Gurgaon of late there is a classic case study on of infrastructure gone wrong, where toll collector actually lets traffic flow for free to ensure smaller queues !!

Similar case can be seen at new Shamshabad airport at Hyderabad or to be opened airport at Bangalore. You will never be able to have same day meeting at Hyderabad and Bangalore anymore as time to reach airports is 90-120 minutes one way !!

Thus, we are spending a lot of money shiny infrastructure to solve only part of the problem. This will only increase capital intensity of growth as it has happened in China without proportionate benefits to the economy.

More on this argument in future posts...