abhishreshthaa
Abhijeet S
Courier Industry
The courier industry has been the single largest beneficiary of a pick up in the economy. Volumes of shipments have been on an upward trend and so have the yields. This is in complete contrast to the situation a couple of years ago when the industry's volumes were hampered on account of slowdown in industrial and export demand.
The financial performance of Blue Dart and Elbee two of the leading courier companies in India during Q3FY2000 aptly tells the story. While Blue Dart managed to post a robust growth of 125% in net profits on account of the low base of the previous year, Elbee's operations were back in the black.
Margins at the operating level have also expanded, which is in line with the cost structure of courier firms. Says Mr Yogesh Dhingra CFO Blue Dart Express Ltd " Nearly 90% of our operating costs are fixed in nature. Hence even though the break even levels are high revenues above this point directly adds to our bottomline". According to industry officials the performance in Q4 is expected to be even better than the previous quarter. This should get translated into healthy gains at the net level.
The growth story in the industry is expected to continue into the future. On a conservative basis the courier industry is Margins at the operating level have also expanded, which is in line with the cost structure of courier firms. Says Mr Yogesh Dhingra CFO Blue Dart Express Ltd " Nearly 90% of our operating costs are fixed in nature. Hence even though the break even levels are high revenues above this point directly adds to our bottomline". According to industry officials the performance in Q4 is expected to be even better than the previous quarter. This should get translated into healthy gains at the net level.
expected to grow at between 25-30% over the next three years according Ashis Nain Chief Operating Officer of Elbee Ltd. He also expects bigger courier companies to grow at a faster pace than the industry average due to the inherent strengths of the larger courier companies especially with regard to reach and technology. Currently both Elbee and Blue Dart service over 1100+ destinations in the country.
The above growth rate also does not factor in the potential from E-commerce and third party supply chain management. We will address these issues in the ensuing paragraphs.
Business to Business (B2B) and Business to Consumer (B2C) models has created a new revenue stream for online as well as brick and mortar companies in the US. Even though this model is in the nascent stage of development it provides companies with huge benefits in terms of cost savings and inventory management. Currently in most traditional businesses primary and secondary distribution channel comprises between 20-25% of the total product cost. E-commerce through B2B and B2C sales could eliminate a major chunk of the costs involved in the distribution chain thus translating into healthy bottomline gains for courier companies. Internationally United Parcel Services handles 55% of all the goods ordered over the Internet.
In the domestic market also, courier companies are gearing up for logistics business through E-commerce trade by making huge investments in information technology and distribution systems. According to Nasscom E-commerce business in India is expected to touch Rs100bn by 2002. In this regard, Elbee has been the first company is India that has developed a special product catering to this business segment. The product christened elbeenet.com, would provide end to end solutions for e-business for both B2B and B2C transactions with the ability to track packages online. Adds Sunil Rai Vice President Marketing of Elbee" We wish to capture 55% Rs5bn e-commerce logistics market". The company has already tied up with ICICI, India Infoline.com Vasool.com and India Info.com on an exclusive basis for logistics solutions. Given the lucrative business opportunity we expect other courier companies to also follow suit.
Another potential business opportunity for express service companies is managing supply chain of manufacturers. Courier companies have the expertise in inventory optimization and warehouse management. This not only will result in cost savings but also will help improve lead-time resulting in better service to the end user.
It is difficult to quantify revenues from the above businesses. However one thing is clear that opportunities do exists and this is getting reflected in the valuations of courier companies both at home and abroad
The reason for dismal performance of courier industry
Historically, the growth of the Courier Industry has been dependent upon various factors such as general growth of the Industry, growth in export-import and general health of the economy. In the early nineties, the industry was able to grow at an above average rate of between 30-35%
primarily on account of higher industrial growth. However, in the past two years the recessionary conditions in the economy and the slow down in export and import adversely affected the express industry.
You must remember that the industry has a very high level of operating leverage. Hence performance of the courier industry is inextricably linked to the volume of business generated.
The courier industry has been the single largest beneficiary of a pick up in the economy. Volumes of shipments have been on an upward trend and so have the yields. This is in complete contrast to the situation a couple of years ago when the industry's volumes were hampered on account of slowdown in industrial and export demand.
The financial performance of Blue Dart and Elbee two of the leading courier companies in India during Q3FY2000 aptly tells the story. While Blue Dart managed to post a robust growth of 125% in net profits on account of the low base of the previous year, Elbee's operations were back in the black.
Margins at the operating level have also expanded, which is in line with the cost structure of courier firms. Says Mr Yogesh Dhingra CFO Blue Dart Express Ltd " Nearly 90% of our operating costs are fixed in nature. Hence even though the break even levels are high revenues above this point directly adds to our bottomline". According to industry officials the performance in Q4 is expected to be even better than the previous quarter. This should get translated into healthy gains at the net level.
The growth story in the industry is expected to continue into the future. On a conservative basis the courier industry is Margins at the operating level have also expanded, which is in line with the cost structure of courier firms. Says Mr Yogesh Dhingra CFO Blue Dart Express Ltd " Nearly 90% of our operating costs are fixed in nature. Hence even though the break even levels are high revenues above this point directly adds to our bottomline". According to industry officials the performance in Q4 is expected to be even better than the previous quarter. This should get translated into healthy gains at the net level.
expected to grow at between 25-30% over the next three years according Ashis Nain Chief Operating Officer of Elbee Ltd. He also expects bigger courier companies to grow at a faster pace than the industry average due to the inherent strengths of the larger courier companies especially with regard to reach and technology. Currently both Elbee and Blue Dart service over 1100+ destinations in the country.
The above growth rate also does not factor in the potential from E-commerce and third party supply chain management. We will address these issues in the ensuing paragraphs.
Business to Business (B2B) and Business to Consumer (B2C) models has created a new revenue stream for online as well as brick and mortar companies in the US. Even though this model is in the nascent stage of development it provides companies with huge benefits in terms of cost savings and inventory management. Currently in most traditional businesses primary and secondary distribution channel comprises between 20-25% of the total product cost. E-commerce through B2B and B2C sales could eliminate a major chunk of the costs involved in the distribution chain thus translating into healthy bottomline gains for courier companies. Internationally United Parcel Services handles 55% of all the goods ordered over the Internet.
In the domestic market also, courier companies are gearing up for logistics business through E-commerce trade by making huge investments in information technology and distribution systems. According to Nasscom E-commerce business in India is expected to touch Rs100bn by 2002. In this regard, Elbee has been the first company is India that has developed a special product catering to this business segment. The product christened elbeenet.com, would provide end to end solutions for e-business for both B2B and B2C transactions with the ability to track packages online. Adds Sunil Rai Vice President Marketing of Elbee" We wish to capture 55% Rs5bn e-commerce logistics market". The company has already tied up with ICICI, India Infoline.com Vasool.com and India Info.com on an exclusive basis for logistics solutions. Given the lucrative business opportunity we expect other courier companies to also follow suit.
Another potential business opportunity for express service companies is managing supply chain of manufacturers. Courier companies have the expertise in inventory optimization and warehouse management. This not only will result in cost savings but also will help improve lead-time resulting in better service to the end user.
It is difficult to quantify revenues from the above businesses. However one thing is clear that opportunities do exists and this is getting reflected in the valuations of courier companies both at home and abroad
The reason for dismal performance of courier industry
Historically, the growth of the Courier Industry has been dependent upon various factors such as general growth of the Industry, growth in export-import and general health of the economy. In the early nineties, the industry was able to grow at an above average rate of between 30-35%
primarily on account of higher industrial growth. However, in the past two years the recessionary conditions in the economy and the slow down in export and import adversely affected the express industry.
You must remember that the industry has a very high level of operating leverage. Hence performance of the courier industry is inextricably linked to the volume of business generated.