Logistics Sector hit hard by Oil Price hike
The beleaguered logistics sector has not had much to rejoice about over the past two years. However, the current scenario of rising crude prices, steep interest rates may just see their cup of woes run over, with final blow being intense competition from railways, as an upcoming low-cost option. Post the market fall in January, logistics stocks have retreated more or less to their all-time lows, squarely underperforming even the broader market. In fact, with the exception of Blue Dart and Allcargo Global, key players in this sector have given negative returns, ranging from 20% to 70%, over the past six months.
The impact of crude price hike would be severe with respect to logistic companies. The entire business is heavily dependent on the movement of vehicles. Fuel costs constitute 60% of net expenditure incurred by logistic companies. The diesel price hike alone has hit the bottom-lines of logistic companies by at least 6%. A surging inflation and increasing real estate costs will have strong collective impact on logistics companies, believe industry experts. Freight charges are expected to see a rise though it would be difficult to quantify the hike, given that freight rates are fixed as per the nature of contracts. Analysts say freight charges could be hiked to the extent of 10-15% by logistics companies.
If one sees logistics sector as a whole, express companies (cargo and parcel companies) have already raised charges by over 3%. Companies operating in the air-freight segment too may follow suit as they are bleeding profusely as a result of rising ATF costs. The end-sufferers of the price hike would surely be the consumers.
Essar Shipping enters 3rd-party logistics
With plans to become an integrated logistics provider, Essar Shipping Ports and Logistics (ESPLL), the Indian subsidiary of Cyprus-based Essar Shipping, plans to venture into third-party logistics services. The company is adding capacity and assets to scale up operations in all its verticals, namely shipping, ports, terminals and logistics. The ports, terminals and logistics divisions of ESPLL are currently used for captive requirements of group companies -- Essar Steel, Essar Oil and Essar Power.
This makes the logistics division confident of scaling up its operations to meet the demands of other clients, which would mainly be oil and power companies looking at similar transport facilities for their raw and finished materials. The company has lined up a Rs 10,000-crore expansion plan for the next 3-5 years. The ports and terminals division will raise capacity from 10.50 million metric tonnes per annum (mmtpa) to 34 mmtpa with an investment of Rs 4,354 crore. Besides, the company will invest $965 million to add bulk and tanker fleet. For inland transportation of steel and petroleum products, the company currently charters equipments. It now plans to add its own.