Economic slowdown might dampen growth of the Indian Logistics sector

The economic growth of a country has a very close relationship with its logistics business. Any trend in the logistics sector is considered as crucial indicators of economic situation.

India is passing through a phase of an economic slowdown. GDP is expected to grow at 5% as per revised estimates, which is almost 200 BPS lesser than the prediction made in previous years.

Till 2018-19, the logistics growth rate was hovering approximate 10-11%, which is expected to come down in the year 2019-20. So far, growth in volume is not good in the current year. Till August, freight volumes carried by Indian Railways is down by 2.17%. Container movement on the rail network is almost the same as last year.

If we see volumes of ports, it has grown by 1.85% over last year till August. All ports have cumulatively handled 293.8 million tons of cargo vs 288.5 Mn tons in last year. Growth in container traffic is better and is grown by 7.5% till August.

Air cargo is definitely in poor shape, traffic has gone down by 4.6% till July 2019 over last year. Out of which major dip is contributed from the international sector, which has shown a negative growth of 6.2%. Surface transportation is the largest mode of transportation contributing about 60% of overall pie.

Sentiments in surface transportation segments are more negative than any other segments. Average truck freight registered reduction of 2%-3% in August than that of last year. But we don’t feel that economic slowdown is the sole reason for such a negative outlook.

IIP is still positive and has registered growth rate between 1%-4% in every month compared to the same period of last year. Actually, in the last few years, excess capacity has been created in the market due to two major factors. The first reason is the change in axle load capacity, which resulted in an increase of 15-20% payload with the same fleet.

The rule is applicable to existing fleet also subject to updation in transportation authority registration. Second reason is reduced transit time due to removal of check posts after GST implementation. Combined impact of all these factors is creating more concern in the industry.

We don’t see any major correction in the current financial year. The indication for key drivers indicating mix positives and negatives. On one side Government is pushing hard to bring back economic growth with major steps like reduction in corporate tax. While on the other side, private consumption which contributes approx 55-60% to GDP has been slowing down.

The private final consumption expenditure has slumped to 3.1% in Q1 of the current year. Macro-level initiatives taken by the union government will not change anything overnight, also there will be impetus in rural demand due to good monsoon this year. We expect that the current year will be sluggish with logistics growth at around 5-7%, but will bounce back in the next financial year to the level of 10-11% again.

The article is authored by Mr Vikash Khatri, Founder, Aviral Consulting

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