Get, Set, Gati

Allcargo Logistics’ recently concluded acquisition of Gati, a household name in India and one of the leaders in the express logistics space is set to help it become India’s largest private logistics company by revenue.

In early December 2019, Allcargo Logistics initiated a strategic decision to acquire Gati and in March 2020, the Open Offer saw overwhelming subscription from shareholders, as a result of which Allcargo will own ~47% of Gati, making it the Promoter and single largest shareholder. This move will catapult Allcargo into India’s largest logistics company, by revenue.

Two decades after it was set up to provide courier services between Chennai (then) Madras and Madurai, in Tamil Nadu, Gati has expanded into a household name in the Indian express logistics market, covering nearly every district—19,000 PIN codes—across the country.

In this time, the Hyderabad-based logistics leader has built an enviable roster of customers spanning e-commerce players, small businesses and industry leaders, along with developing unmatched expertise in land and air transportation. Recognising the potential to combine Gati’s strengths with its own expertise in ocean transportation and global network operating via more than 300 offices in over 160 countries, Allcargo acquired a majority stake in the company. With this deal, Allcargo is poised to offer global customers end-to-end multi-modal logistics solutions.

“Today, we can proudly claim to be the only Indian company that is in a position to provide a comprehensive suite of integrated logistics services including NVOCC, Container Freight Station (CFS)-Inland Container Depot (ICD), Contract Logistics, Warehousing, Project Logistics and now, with Gati, even Express Logistics and First and Last Mile Delivery,” says Mr. Shashi Kiran Shetty, Chairman, Allcargo Logistics. “We believe that Gati’s business model significantly extends—and strengthens—our portfolio,” he continues.

Gati has been a pioneer in door-to-door express logistics and operates an asset-light model with a distributed network of trucking companies providing vehicles as needed. Leveraging a hub-and-spoke model with the highest standards of safety and compliance, shipments are tracked using a state-of-the-art ERP and tracking system.

Serving customers across a wide range of industries, Gati provides a host of business services that include surface and air express distribution, supply chain solutions, e-commerce and e-fulfilment, cold chain solutions and inventory supply chain management. In addition, Gati has also devised a number of unique special services like Art Express, Student Express, Bike Express, and others to cater to the needs of specific customer segments.

In July 2017, the onset of the Goods and Services Tax (GST) changed the contours of India’s logistics market and immensely benefited the transportation sector. Gati was able to ride the tailwinds of this new unified tax code and customers, employees and business associates will experience vastly enhanced service delivery from the combined force.

With this acquisition, Allcargo has attained an enviable position in terms of market leadership with its No. 1 position in the global LCL consolidation business through its wholly-owned subsidiary ECU Worldwide and an extensive, far-reaching network into the hinterlands of India with Gati’s domestic express transportation segment.

While there is vast room for growth, much needs to be improved in India’s logistics industry. Logistics cost as a percentage of its GDP is around 14%, much higher than more efficient economies such as The USA (9.5%), Germany (8%) and Japan (11%). Nevertheless, the country’s administrators aim to bring down this cost to under 10% by 2022. Federation of Indian Export Organisations (FIEO), an industry lobby focused on India’s foreign trade, estimates that a 10% reduction in logistics cost could increase the country’s exports by about 5-8%.

Factors such as the onset of GST could drive real change in India’s logistics performance. Edelweiss Securities, a stockbroking firm, in its analysis estimates that a host of factors including GST tailwinds, reducing transit times, warehouse consolidation and rapid adoption of technology, could drive growth to 12-13% per year. Nearly a third of logistics cost is transport and storage-related inefficiencies and this will significantly reduce going forward, the broking firm’s report states.

By joining forces with Gati, Allcargo can be a key driver of this growth—and change—in India’s logistics industry and the broader economy. The express logistics industry is expected to reach INR 48,000 crore (USD 7 billion) by 2023, according to a study led by Deloitte in 2018. This growth will primarily be driven by domestic consumption, a shift from unorganised to organised, e-commerce (domestic and cross border) and significant demand from the small and medium B2B segment.

Allcargo’s experience in achieving global leadership in LCL consolidation with ECU Worldwide is sure to hold it in good stead while combining strengths with Gati. In the past decade or so, Allcargo has completed more than 10 acquisitions with a 100% success rate. This is because the organisation focuses on cultural integration and an alignment with core values and principles. Considering the common ground that Gati and Allcargo share in terms of having a glorious legacy of 25 years in the industry, having a thorough understanding of the business and being passionate about exceeding the expectation of customers, this acquisition sets the stage for many new success milestones in future. As an additional advantage, it also opens up avenues for the Avvashya Group’s combined workforce of over 10,000 team members (including that of Gati) to explore opportunities and grow across the organisation.