lancer containers lines ltd Management discussions

Industry Structure & Developments

Indias logistics market is expected to expand at an annual CAGR of 8% over the next five years, reaching USD 330 billion by 2025. This expansion will be supported by several factors, including the fast-developing Ecommerce industry, impending technical advancements, and an expanding retail sales market.

The Indian logistics industry has been gaining traction in the last few years and plays a very important role in facilitating trade and thereby propelling the growth of the Indian economy. Several factors such as - improving infrastructure nationwide, opportunities in emerging markets & channel alliances, urbanization, faster adoption of newer technologies & digitalization, increased consumer preference for the reduced delivery time, and deployment of innovative techniques for a fast delivery of products are all playing the role of a catalyst in fueling the growth of the logistics industry in India.

As of now, the logistics sector is dominated by transportation which has over 85% share in value terms- its share is set to remain high for the next few years. The rest 15% share is borne by storage (Warehouse). The sector is employment intensive, absorbing 22 million people.

The Indian logistics industry is highly fragmented and unorganized. It remains fragmented, with the organized players accounting for approximately 10% of the total market share.

The logistics theme revolves around formalization of the Indian economy, with GST being a big driver. Traditional logistics chain involved customers approaching transporters who would coordinate with truckers through brokers to transport goods and services. Brokerage charges tend to be 3-8% of rates booked for the cargo. Organized players have eliminated the broker and they are directly reaching out to truckers, leading to improved margins. The overall direct logistics cost should see the organized share rise to 19%, from 10%, implying a 20% CAGR, similar to the past five-year trend.

Logistics costs is 7-9% of GDP in developed countries like US and Germany. Good infrastructure and efficient paperwork keep indirect logistics costs like inventory carrying, pilferage and wastages at a low. Minister of Commerce and Industry Piyush Goyal stated India targets dropping logistics costs to less than 10% of GDP from the current 14-15% in the next five years.

Container Market:

Container shipping companies performance to remain strong in 2022 as container freight rates stay exceptionally high - despite some moderation since February 2022, due to port congestion stemming from the prolonged Covid-19-related operational disruptions. The contracts which are already signed to secure capacity for 2022, which were likely at higher freight rates than in 2021, will support container-shipping performance. New vessel deliveries will not be large enough to reduce freight rates until 2023 at the earliest.

Freight Forwarding Market in India:

Growth in international trade is providing huge impetus to the demand for freight forwarding in India. Furthermore, Intercontinental trade is expected to witness considerable growth in next five years. Freight forwarding sector in India has witnessed a significant growth due to robust economic growth. Key economic indicators including 100% FDI in logistics shows a healthy economic outlook for India. Post global slowdown freight forwarding companies have started to venture out into high end logistics solutions. Freight companies will benefit from the considerable planned investments in transportation infrastructure in India. Indian freight forwarding companies are now becoming competitive like their foreign counterparts.

Turnaround story of NVOCC (Non-Vessel Operating Common Carrier):

The shift in the shipping & logistics industry towards automation and digitization like application of AI, IoT, cloud computing in the operational line will be the key driving factor that will revive the NVOCC from its current allied state. With the application of modern tech, transparency and accountability will come into play, and with it the trust and reliance of the clients on the NVOCC firms is expected to drive the market.

The logistics industry, considered to be the lifeline of the country, holds unprecedented importance as it connects various markets, suppliers and customers dotted across the country, and has now been firmly embedded as an integral part of the national GDP value chain.

Going forward, constant technological advancements, integration of biometrics, GPS and drone delivery are highly anticipated to become the new normal for the logistics industry. Further, the amalgamation of supply and demand-side and the rapid proliferation of trade agreements will significantly drive growth in the near future.

With the rapid expansion of the e-commerce business, trade activities have expanded, necessitating the need for a systematic supply chain and logistics to provide smooth end-to-end transfer of goods has resulted in the expansion of the Freight Forwarding Market. Technological improvements like The Internet of Things (IoT) in freight forwarding systems have transformed the industry. As the freight forwarding market is growing steadily and there exists abundant opportunity, the players need to embrace technologies, become more digitized, and increase the scale and efficiency of their operations. The freight forwarding market is expected to record a CAGR of more than 3.6% during the forecast period (2022 - 2027).

The deeper penetration into Bharat (Tier II, III & IV towns), economy enhancing initiatives, GST implementation and other initiatives such as Make in India, Digital India and soon to be released National Logistics Policy, all hold a promise for an efficient and integrated logistics industry in the days ahead. The Indian logistics sector provides livelihood to more than 22 million people and improving the sector will facilitate 10% decrease in indirect logistics cost leading to the growth of 5 to 8% in exports.

Lancer Container operates in the NVOCC, Bulk Liner and Freight Forwarding industry which caters to multiple sectors as well as individual customers by providing time definite services. Logistics services are used for various products such as securitized documents, electronic products, automotive components, temperature-controlled shipments, trade samples, lifesaving drugs, mobile phones, etc.

Strengths and Opportunities

• As large corporations now prefer to focus on their core business activities, supply chain distribution gets outsourced to intermediaries. This has resulted in a demand for freight forwarders, who operate in a highly cost-effective manner.

• The E-commerce market is experiencing rapid growth. Along with deliveries, there are also innumerable returns required to be catered efficiently by E-commerce partners. Here, technology plays a crucial role in efficiently integrating the inventory management system with the E-commerce platforms. This area will be very critical for all industries because having a smooth returns/recycle logistics system will be necessary in order to comply with ESG norms.

• The consumer base of the sector, encompassing a wide range of industries including retail, automobile, telecom, pharmaceuticals, heavy industries, etc. attracts investments for the logistics industry.

• Lancer is committed to retaining its position as a key player through focused customer acquisition and enhancement of customer loyalty while continuing to expand to new markets. The strategy revolves around sector focus, emerging markets and MSMEs.

• Companys resilient business model with multiple drivers of profitable growth will drive the revenue.

• Company has penetrated into new geographies, mainly covering the European and Mediterranean region and in the same endeavor the company has set up a branch in the UK and Incorporated a Wholly Owned Subsidiary named LANCIA SHIPPING L.L.C in Dubai as it also seeks to explore these markets more aggressively and reducing dependence on local agents to garner the business.

• Companys key services include Projects, Break Bulk operations, Freight Forwarding services, Less than Container Load (LCL) and Full Container Load (FCL).

• Company is having an extensive network of agents throughout LATAM, and Lancer also holds an agreement with multiple South American freight Forwarders from Mexico to Argentina which in turn result to global outreach.

Risks and Threats

• Port congestion might continue to significantly slow the circulatory movement of ships, containers, and other transport assets including chassis which in turn removing capacity, lengthening transit times, and forcing shipping rates much higher.

• The cost of operating at major ports has significantly increased after their privatization without any improvement in services or differentiators. The problem of insufficient container parking bays, truck docking stations, limited space for terminals and clearance processes leading to a delay impacting operating costs persists.

• Any movement in the functional currency of operations of the Company against the major foreign currency may impact the Companys revenue in international business. Any weakening of the functional currency may impact Companys cost of imports and consequently the profit or loss.

CAUTIONARY STATEMENT

The statement forming part of this Report may contain certain forward looking remarks with the meaning of applicable Securities Law and Regulations. Many factors could cause the actual results, performances, or achievements of the Company to be materially different from any future results, performances, or achievements. Significant factors that could make a difference to the Companys operations include domestic and international economic conditions, changes in government regulations, tax regime and other statutes.

	For and on behalf of the Board of Directors
	Lancer Container Lines Limited
	Sd/-
	Abdul Khalik Chataiwala
	Chairman & Managing Director
	(DIN: - 01942246)
Place: Navi Mumbai
Date: 30thAugust 2022