Allcargo deal poised to reshape India logistics play

Allcargo deal poised to reshape India logistics play

Allcargo’s acquisition of a controlling stake in Gati Ltd. give it access to a pan-India network covering some 19,000 delivery points, a fleet of more than 5,000 trucks, and some 2,500 last-mile e-commerce delivery assets. Illustration credit: Shutterstock.com.

Once a niche player in the freight forwarding world, Allcargo Logistics Ltd. has transformed itself into a formidable multimodal logistics solutions provider in India by adopting an aggressive, targeted-acquisition investment strategy in little more than a decade. And it’s not stopping at that.

Allcargo, the parent of global non-vessel-operating common carrier (NVO) ECU Worldwide, on Thursday announced the purchase of a controlling stake in domestic express logistics leader Gati Ltd., a move industry pundits say will not only be a game changer for the group, but also for the Indian logistics industry as a whole.

The 44.6 percent buy of the Hyderabad-based Gati, reportedly for Rs. 416 crore (about $58 million), opens a window for Allcargo to diversify beyond its mainstay ocean transportation business to the express parcel space, a first step toward embracing the shoes of DHL, UPS, or FedEx.

Established in 1989, Gati boasts a pan-India network covering some 19,000 delivery points, along with a fleet of more than 5,000 trucks, including temperature-controlled vehicles, and around 2,500 last-mile e-commerce delivery assets. In addition, the company owns about 3 million square feet of warehousing space at various locations in India and has offices in several overseas locations. 

“The exponential rise in cross-border and domestic e-commerce has opened up new markets for traditional express players such as Gati. With Allcargo’s existing strength in the ocean transportation business and Gati’s expertise in land and air transportation, we are now in a unique position to offer our customers a suite of truly multimodal solutions,” Shashi Kiran Shetty, chairman of Allcargo Group, said in a statement.

Currently, NVO offerings, through global arm ECU, represent nearly 90 percent of Allcargo’s revenue earnings. In the July-September quarter, that activity handled 184,500 TEU, up 5.9 percent year over year, contributing Rs. 1,697 crore in revenue out of a combined group quarterly income of Rs. 1,873 crore. On the landside, the Mumbai-based group owns parcels of land at several port and inland locations on which it operates container freight stations (CFSs) and rail-linked inland container depots (ICDs).

Besides helping expand its product portfolio and market reach, one factor that could drive significant growth potential for Allcargo is a strategic joint venture Gati has in place with Japanese international freight forwarder Kintetsu World Express (KWE) for less-than-containerload (LCL) ocean transportation. Established in 2012, the Gati-Kintetsu Express is 70 percent owned by Gati and 30 percent by KWE. KWE, touted as the 10th-largest airfreight broker in the world, stole considerable freight industry headlines when it acquired APL Logistics for $1.2 billion in 2015.

“This partnership will allow Allcargo and KWE to jointly explore and pursue further collaborations within and outside India,” Allcargo said.  That optimism is also rooted in KWE being a major existing customer of ECU for LCL shipments.

Logistics growth opportunities

With a unified indirect tax regime following the 2016 Goods and Service Tax (GST) rollout, burgeoning domestic consumption, rising cross-border e-commerce volumes, and anticipated demand growth from small and medium B2B [business-to-business] verticals, Allcargo believes express logistics verticals have the potential to provide lucrative growth opportunities, citing a 2018 study by Deloitte that estimated the express logistics industry at $7 billion by 2023.

“This important deal was done to align the group to the growing Indian transportation and logistics market which is expected to further consolidate owing to the digital push and continued reforms pursued by the Indian government,” Allcargo said. “This will help [the company] achieve sustained growth as a leader in the logistics industry and continually grow in the short, medium, and long run.”

Gati posted consolidated revenue of Rs. 1,879 crore last fiscal year, according to the company’s earnings statement.

“This alliance strengthens Gati with more management bandwidth, operational synergies, cross-selling opportunities, and financial strength,” Mahendra Agarwal, founder and CEO of Gati, said in a statement. “Gati+Allcargo [will] be the No. 1 logistics leader in the Indian subcontinent.”

In 2016, Allcargo combined all of its third-party logistics (3PL) businesses into a single entity to lay the ground to become a $2 billion enterprise by 2020, where the latest buy could pay good dividends.

On the NVO front, Allcargo, through ECU, has made a flurry of acquisitions in recent years, the latest being a 75 percent holding in Hong Kong-based PAK DA (HK) Logistics Ltd. and 41.25 percent of Singapore-based Spechem Supply Chain Management (Asia) Pte. Ltd.

India’s fragmented logistics industry — already in the midst of widespread reforms and digitization — is bracing for further structural changes, with the government due to release a robust national logistics policy.   

Bency Mathew can be contacted at bencyvmathew@gmail.com.