The ongoing lockdown has impacted many sectors. For the logistics industry, the lack of clarity on policies on transportation of essential and non-essential goods, lakhs of stranded vehicles on roads and the absence of migrant labourers, a key resource for warehousing and transportation segments, are big dampeners Talking to BusinessLine about the current challenges and the outlook for the logistics industry, Rampraveen Swaminathan, MD and CEO at Mahindra Logistics, said it will take several weeks for the industry to stabilise after the lockdown is lifted. Excerpts:

What are the current challenges the industry is facing?

There are about two to three specific challenges. Though transportation of both essential and non-essential goods are allowed, there is lack of clarity around what forms essential services.

It is unclear whether extended services that enable essential services is also considered essential.

Though the ministries are clarifying, State-level orders are opaque. Even the e-commerce market players, who have been allowed to operate from Day 1, are facing significant disruptions.

The other problem that really stands out is that vehicles are stuck on highways. During the initial part of the lockdown, many drivers went home, leaving the vehicles behind on the road. Today, probably 30-35 per cent of the vehicles do not have drivers.

The third challenge is movement of migrant labourers. This is despite the company taking enough safety precautions and assuring them of full salary during the lockdown period.

A lot of our warehouses need contract resources. So, absenteeism is another main problem.

These issues will have a larger impact once we start ramping up.

What is the current scale of operations in your transportation and warehousing segments?

There has been a big impact on the scale of operations, not just on our company but on the industry as whole.

On the supply-chain side, the scale of operations has come down significantly. The mobility segment is down as well.

On the warehousing side, 30-35 sites have been working on essential services and that too, not on full capacity. They now operate at around 40-50 per cent capacity utilisation against the usual run rate of about 90 per cent.

On a whole, about 20-25 per cent of the business is into serving essential services. So, that part of the business is still operating.

How many of your vehicles are stranded on highways? What is the risk of theft of goods from the vehicles ?

A considerable number of our vehicles are stranded but in our case, the risk of theft is almost nil because we have stockyards and vehicle yards across India.

We moved most of our stranded vehicles into these locations or to the dhabas with whom we have relations.

So, for now, our vehicles and customer assets are all secure.

Your business operates on an asset-light model? Has that helped?

Most of our costs are direct costs, variable to our business volumes. Costs that are longer-term and fixed in nature are basically three. One,general overheads, two, some part of our manpower cost, and lastly, warehouse lease payments.

On all these fronts, we have taken action to mitigate the impact.

Also, we are a zero-debt company. We have cash in the balance sheet and lines of credit available. At this stage, I believe, we do not have any problem in operating the company for about 70 days. Beyond that, we will have to see the nature of the lockdown and whether we have to infuse more capital. But at this stage, for 90-180 days, we are covered and secured.

And we will take steps to maintain liquidity in the business.

How does the steep fall in crude prices help road logistics players?

The drop in fuel costs will help a little bit, but, I think, it all depends on the type of contract the transporters have entered into.

In the case of short-term or one-time placement contracts, customers do not worry too much about fuel prices. But in large contracts, yes, the transporter benefits on account of drop in fuel prices. But typically, large contracts, which are for multiple years, and the segment which we work in for a large part, mostly carry a fuel clause. They protect us from escalation of fuel costs, but we also need to pass on the benefits to our customers if there is a reduction in fuel costs.

What challenges do you foresee once the lockdown is lifted?

The availability of resources will be challenging in the short run.

One, will be bringing back the drivers. Two, the availability of trucks (vehicles are at different destinations and stranded).

They have cargo which has to be dispatched. They have to reach their end-point before they take new cargo.

On account of all of this, there could be cost escalation. The customers have to endure some rise in costs as well in the short term.

It will take several weeks for operations to stabilise both in transportation and warehousing, depending on size, location, customers.

Further, we have to see what happens to demand after that.

What would be the new normal is the larger question.

What is your outlook for FY21 and FY22?

Every sector will have its own cycle of recovery.

We are a broad-based company. Half of our business is from automotive, while the other is from non-automotive. In the latter, we will try to focus on sectors such as e-commerce, consumer businesses and enterprise mobility that can recover soon.

So, we are confident that we will have a strong second half of FY21, and FY22 will be above normal.

Mahindra Logistics expects to add 30-40 clients every year? Will that number be revised now?

In difficult market conditions, when some sectors are not doing well, we try to increase our account additions in other sectors.

We are focussed on adding accounts in the consumer segment — FMCG/durables/retail. We also aim to increase accounts in e-commerce business, enterprise mobility and engineering and manufacturing spaces.

We have added 25-30 clients in FY20. And going ahead, we expect the same run rate to continue, or slightly more, in FY21. (The company has around 300 clients as on March 2020.)

How does the force majeure clause impact the company?

Either we can invoke force majeure on our inward supplies where we can cut our costs or expenses, or our customers can use force majeure on us. Thus far, we have been working with our customers and we have observed no major concern.

Our customers are also under pressure to obtain some rebates, and seek cost optimisation.

We cannot invoke force majeure randomly as we want the capacities to be retained.

We all understand that we have to get back to normal and ramp back quickly.

What measures are you expecting from the government?

The government must lay down clarity in the transportation of both essential and non-essential goods. Inter-State movement of goods has to be opened up in some regulated form.

Also, I think, the government has to come up with a larger stimulus package, given the size of our nation and the size of the informal sector, for the consumption to pick-up.

Also, maintaining liquidity while balancing the fiscal deficit is important.

Do you think there will be consolidation in the industry?

Possibly. With a huge impact on the scale of operations now, the smaller transporters may fade away.

Many private equity-funded transport entities, who were on the mode of acquiring clients by discounting the prices, will find these times challenging.

I think, there would be some consolidation which is good for the industry. It will bring in some price discipline.