Container Prices Won't Drop To Pre-Pandemic Levels, Says TCI's Vineet Agarwal

Vineet Agarwal: Yes and no. I mean availability of containers is better than what it was earlier. But challenges remain because it still hasn't come to that equilibrium before the pandemic where enough containers were available in different parts of the world.

So, that means that today, we are still facing challenges in certain locations, certain geographies where the overall container shortage is still there, and rates are still quite high.

And we don't expect this to really normalise, if that is the right word, or perhaps, we are moving to this new normal, which is essentially saying that these will be the new prices or there could be some reduction when things improve a little bit, but it will not go back to the pre-pandemic level is our understanding.

Vineet Agarwal: If you look at it from the country’s perspective, there are certain benefits due to disruptions in supply chains. It has meant that a lot of companies have started to look at sourcing from India and helping in the growth of companies domestically—whether it is larger companies or MSMEs. It also means that India can attract more companies who want to come to India. The China Plus One strategy is also helping.

But impact on companies is mixed. It will take longer for companies to come to a certain level of stability.

Let's say, from a company perspective... they are talking about is instead of just-in-time, let us do just-in-case for the goods they need. They don't want to miss out on any sales, so additional inventory is better than optimising the timing of goods they receive from vendors.

There are companies that are saying that I do not know where the supplier is based, can I bring that supplier closer to me? And hence, nearshoring. The supply chain is as strong as your weakest link. So, if that link is weak, then everyone is weak. So, from a company's perspective, that kind of stability is yet to be seen.

Vineet Agarwal: I think any kind of infrastructure project definitely helps the growth of logistics in the country. Whether it is the multimodal logistics parks or the DFC or now under the PM Gati Shakti programme, we will see a lot of integrated development of many logistics assets. Those will also definitely assist in the growth of the sector.

And we are partners to that growth in the sense that if you need to invest into certain terminals, warehouses and related infrastructure—whether it is rakes or containers—as a sector, we will continuously do that.

I am very confident that the next 10 years has a high degree of potential. Under the Gati Shakti programme, we will be able to see everything that's happening and there's no repetition of the same aspects.

As things move faster in terms of development, we are very confident that this infrastructure growth is going to be extremely useful.

Vineet Agarwal: The biggest tenet of the National Logistics Policy is how to reduce logistics cost. Now, this is very critical for the competitiveness of businesses and industry, given the prices also remain under control.

Key focus is on how to increase the multimodal share of cargo transportation. Today, 60-65% of cargo moves by road and about 25% by rail.

How can this number change more towards rail or even coastal shipping, which is only 6% of the overall movement? You need to have the right terminals and containerisation, so that there is a seamless intermodal movement that happens between one mode of transport to the other mode of transport.

Today, we as a company move cargo from, let's say, North India via rail, bring it to a port in Gujarat, put it onto a ship, take it to Kerala and put it onto a truck and deliver it. So, (we are) using all three modes of transport. That kind of activity is increasing slowly and steadily, and it is highlighted in the National Logistics Policy as to how it can be increased with proper regulations and proper supporting (of) that kind of movement.

The other aspect that is also in the policy is standardisation. Because today, a lot of movement is happening through non-standardised means—you've seen trucks that are open body trucks, they're not containerised trucks. There's no use of pallets. So, all of these things, standardisation of trucks and regulation of packaging and other aspects of the logistics assets will mean that you're able to seamlessly move between different industries quite easily, reduce the wastage and damages to ultimately bring down the logistics cost.

Vineet Agarwal: I know that I've heard comments by various ministries talking about a certain amount of shift that will happen. And that is also based on the premise that the DFC (dedicated freight corridor) will get fully operational on the western corridor and the eastern corridor in the next two-three years. So, that should help to push the shift.

What might happen is that in the next two to three years, the market share gain of roads will possibly stop. And it will possibly remain at the same level and then we'll see market share gains of rail starting. So, perhaps in the next three to five years, the gains will be higher on the rail side than the road side.

Vineet Agarwal: It's not very high, at about 10% of the current revenue. But I think other than joint venture—which is specific to container logistics—we also do a lot of movement of automobiles via rakes, and this number should keep increasing.

Again, I don't have specific idea about the exact number. But every few years, we are doubling the share of multimodal logistics in our business. So, today if it is, let's say, you take the shipping and the rail business, maybe all of that is about 25% odd share, and every three years, we'll probably grow that by a few more percentage points.

Vineet Agarwal: Inflation impacts directly in the form of cost of fuel. Because fuel is the largest single input cost for the logistics sector. In many cases, we are able to pass it on to our consumers. Overall, inflationary environment does start to have an impact on demand. If prices are going up, then people might say, I want to defer the purchase that I'm trying to do. So, that can have an impact on demand.

We've not seen too much of that yet in the economy, because due to the pent-up demand post-Covid, people have been wanting to buy products. We do expect the upcoming festive season to be decent as well.

So, overall, the inflationary impact is there, but not too significant yet. Of course, specific products, you will see things going up and down. But otherwise, not too much.

Vineet Agarwal: No, our business is predominantly domestic. Occasionally, we'll do these international voyages, a little bit more opportunistic rather than a definitive plan to do it.

We think that the domestic market has a massive potential for the next few years. We talked about multimodal, how the growth will happen. So, there's clearly a very large demand that is there.

We'll continuously invest into essentially our local capacity. Once in a while, if we need to go to Myanmar or to other neighbouring countries, we can definitely do that.

Vineet Agarwal: Yes. Commercial vehicle addition has been lower during Covid-19. There were two-three things that happened. One was Covid; and the second was this move from BS-IV to BS-VI, and that meant that the prices of trucks also went up.

So, people automatically reduced their buying. Now, with freight rates going up due to higher fuel prices, we are seeing that there is a renewed demand for purchase of new commercial vehicles for augmenting existing capacity and also to replace older vehicles. People are phasing that out as well.

In our understanding, we should see a good positive growth for the commercial vehicle industry. Rate hikes has not been that much, to affect the demand. So, market tends to sort of bring this to an equilibrium when we see that there is not enough capacity, then capacity starts flowing in. Although, there could be some lag, but that sort of gets balanced over time. So, this year should be decent for the commercial vehicle industry.

Vineet Agarwal: No. We've not been able to because we've not been able to find the right kind of ship yet. We've been trying very hard to get the right ship, but the pricing has not been great. So, maybe in a few months, when things stabilise a little bit—perhaps in quarter four—we should hopefully get some ship that we can acquire.

Vineet Agarwal: We do work in all segments including automotive, engineering, FMCG, e-commerce, retail, apparel, building products, chemicals and pharmaceuticals.

The reason behind being present in so many segments is that if an industry is not doing too well, the other one picks up. But if you take the very large industries, we're seeing huge growth in the auto sector.

Auto, for us, means not just four-wheelers, but two-wheelers, three-wheelers, commercial vehicles, tractors, earth-moving equipment, cranes; all of these fall under the larger gambit of automobiles or mobility sector. So, all of these are high growth areas.

There’s also pent-up demand because of the semiconductor shortage earlier. Now, we’re seeing that demand coming or rather supply improving to fulfill that demand.

So, we're quite bullish on the auto sector and generally, we're seeing some other sectors such as retail slowly picking up. They have their ups and downs, but are still doing reasonably fine.