Accuracy Shipping Ltd Management Discussions

GLOBAL ECONOMIC OVERVIEW

Transportation and logistics are essential for economic growth and development, enabling businesses to access new markets, reduce costs, and improve efficiency. The movement of goods and people creates new opportunities for trade and investment, connecting producers with consumers and facilitating the exchange of ideas and information. For example, the development of global supply chains has allowed manufacturers to access raw materials and components from around the world, reducing costs and improving quality.

The importance of transportation and logistics is particularly evident in the growth of international trade. According to the World Trade Organization, the value of world merchandise exports was $19.48 trillion in 2018, up from $16.0 trillion in 2010. This growth has been driven by advances in transportation technology, such as containerization and air freight, which have made it easier and more cost-effective to move goods across borders. As a result, businesses have been able to access new markets and take advantage of comparative advantages in different regions.

Advancements in digital technologies, changing consumer preferences due to e-commerce, government reforms, and shift in service sourcing strategies are expected to lead the transformation of the Indian logistics ecosystem. Digitalization will improve the efficiency and performance in freight management and port operations. Warehouse automation will help achieve operational efficiencies to counter supply-chain cost pressures in the industry. Increased investment in infrastructure, last-mile connectivity, and emerging technologies are streamlining the logistics landscape in India.

As per India Brand Equity Foundation report on Warehousing and Logistcs sector in India, The logistics sector represents five percent of Indias Gross Domestic Product and is predicted to account for 14.4% of the GDP. Adding to the growth are the new policies that are set to give the industry a much-needed push. Improving efficiency of the logistics sector is of high importance for the countrys economy as it boosts economic growth, grows exports through global supply chains and generates employment. Logistics are fundamental part of business infrastructure and one of the key enablers in the global supply chain.

The impetus given by the government to build the infrastructure in the recent budget is the biggest positive for the logistics sector. Increase in infrastructure investment provides a critical push to the potential growth of the economy. The government, in recent years, provided an increased impetus for infrastructure development and investment through the enhancement of capital expenditure. This push has happened at a time of crisis when the capital expenditure by the private sector has been subdued. The outlay (target) for capital expenditure in 2022-23 (BE) was increased sharply by 35.4 per cent from ? 5.5 lakh crore in the previous year (2021-22) to ? 7.5 lakh crore, of which approximately 67 per cent has been spent from April to December 2022.

Central Government has sharply increased Capital Expenditure in the last two consecutive years*

* All figures are representative of Budgeted Estimates for the respective Financial Year Source: Union Budget of India

The result of the efforts is visible in Ministries/ Departments Capex spending till December 2022, which has been ^5 lakh crore (around 67 per cent has been achieved against the Budgeted Capex of 7.5 lakh crore) as against ^3.9 lakh crore for the same period in FY22 (i.e., till December 2021). The actual expenditure in FY23 is also 28 per cent higher than the expenditure in FY22 for the corresponding period

As per Summary of Economic survey 2022-23, issued by the Ministry of Finance, The Indian economy is expected to grow over 7 per cent in the current financial year 2023-24. Strong growth supported by government reforms, transportation sector development plans, growing retail sales, and e-commerce sector are likely to be the key drivers of the logistics industry in India. Manufacturing in India holds the potential to contribute up to 25%-30% of the GDP by 2025 which will drive the growth of the transportation segment in India.

GLOBAL CONTAINER SHIPPING

Container spot rates return close to pre-pandemic levels

The composite container index CCFI continued to slide in the first half of 2023 with prepandemic levels close. Corrected for inflation, spot rates on the Shanghai-Europe route are trading at lower real levels in June than pre-pandemic. Spot rates are still somewhat higher than they were four years ago, but the general price level in 2023 has gone up by more than 15% in Europe, meaning $2,000 per 40ft container is now close to $1,700 in real terms. This is also the case for Shanghai-US spot rates, although East Coast rates were stimulated by a shift from West to East Coast ports and restrictions on the Panama Canal. Rates from China to other parts of the world (such as South America) also show more resilience.

Flood of new capacity is making waves in a low tide

The prosperous years in container shipping sparked a surge in orders for new (large) container vessels.

Capacity on order is much lower than during peak levels before the financial crisis in 2008, but the fleet itself is also much bigger now. Given that the trend of the ongoing globalisation of supply chains is over, it may still be more challenging this time.

On the other hand, the container sector is more consolidated than it was 20 years ago. The three alliances of container liners are allowed to operate in Europe, at least until the expiry of the current block exemption in Europe and the UK on 25 April 2024 (2M will be dissolved in 2025, Ocean Alliance and The Alliance plan to continue to 2027).

Container trade in contraction in 2023 but will pick up moderately in the run up to 2024

It highly correlates with global trade. But container traffic has been more extreme recently. The empty container boom over the course of 2022 was already a signal of deteriorating market circumstances after a surge in consumers of goods and early ordering to secure deliveries. A combination of logical normalising of consumption and de-stocking led to declining volumes. European ports also faced a setback because of sanctions on Russia. Europes largest container ports of Rotterdam, Antwerp-Bruges and Hamburg - transhipment ports to Russia - have also seen a decline in container volume and figures since the first half of 2023.

The process of normalisation is still ongoing and will leave the full year, on average, in mild contraction despite a rebound at the worlds largest port, Shanghai, in the second quarter of 2023. Although the economic slowdown continues to weigh on perspectives, we do expect container trade demand to improve mildly from the second half of the year and return to growth in 2024.

LOGISTICS INDUSTRY IN INDIA

The logistics industry in India, 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. The Indian logistics sector provides livelihood to more than 22 million people. The logistics industry is highly fragmented and consists of multiple active players which include large scale domestic players, leading global players and emerging start-ups specializing in e-commerce deliveries.

The logistics sector in India was valued at US$ 250 billion in 2021, with the market predicted to increase to an astounding US$ 380 billion by 2025, at a healthy 10%-12% year-on-year growth rate. Moreover, the government is planning to reduce the logistics and supply chain cost in India from 13-14% to 10% of the GDP as per industry standards.

India is the worlds fifth-largest economy by nominal GDP and is one of the fastest-growing economies globally. Efficient logistics is the bedrock for a growing economy like India. During the financial year, the logistics industry continued to provide exceptional support to the nation not only as its trade facilitator but also as an essential service, ferrying in a wide range of shipments

The role of the logistics sector has never been more crucial than in the year 2022. Going forward, the growth of the logistics industry will be centered around the adoption of technology; be it tactical or operational decision making, routing, fleet optimization, data analysis, or strategic planning, technology will be all-pervasive, the NIP and the NMP would provide the much-needed impetus for stepping up infrastructure investment, the NLP will address the gaps in services, digital infrastructure and skills in the logistics workforce. PM GatiShakti, with a multimodal approach, is designed to fill the gaps in physical infrastructure and to integrate existing and proposed infrastructure development initiatives of different agencies. As physical infrastructure requires continuous support over its long gestation period, the government has also set up National Bank for Financing Infrastructure and Development (NaBFID) as development financial institution to set in motion a virtuous investment cycle. An institutional mechanism to fast-track investments has been put in place, in the form of Project Development Cells (PDCs) in all concerned Ministries/Departments of Government of India

INDIAN SHIPPING INDUSTRY

According to the Ministry of Shipping, around 95% of Indias trading volume is transacted through maritime transport. Indias coastline stretches over 7,517 kilometers, passing through nine states and four union territories. The mainland coastline is separated into two sections, each measuring approximately 2,933 kilometers from west to east and 3,214 kilometers from south to north. Solid cargo contributes the largest share to all traffic handled at major ports in India followed by liquid cargo and containers.

India has 12 major and 200+ notified minor and intermediate ports. Under the National Perspective Plan for Sagarmala, six new mega ports will be developed in the country. The Indian ports and shipping industry play a vital role in sustaining growth in the countrys trade and commerce. India is the sixteenth-largest maritime country in the world with a coastline of 7,516.6 kms

Indias key ports had a capacity of 646.10 million tonnes per annum (MTPA) during April- January 2023. From April-October 2022, all key ports in India handled 446.50 million tonnes (MT) of cargo traffic. Indias merchandise exports in FY22 were at US$ 417.8 billion, up 40% from the previous year. In FY23 (until September 2022), merchandise exports reached US$ 231.88 billion.

The Indian Government undertook various initiatives to improvise operational efficiencies of the segment. A considerable shift in commodities shipping on Indias coastal lines is aiding shippers in cost-optimisation while also lowering pollution and traffic congestion. Following this, the Indian Government plans to open 23 domestic waterways by 2030. The overall budget for the Ministry of Ports, Shipping, and Waterways in the Union Budget 2022-23 was Rs. 1,709.50 crore (USD 223.31 million). It further proposed the formation of public-private partnerships (PPP) for major port trusts channel deepening and maintenance work. The Government further inaugurated the ‘Direct Port Entry Facility at the V.O. Chidambaranar port which will enable factories to move containers directly to the ports, eliminating intermediaries. The addition of a terminal in the south-eastern coast of India will further help prevent losses in the container shipping business to Sri Lanka and alleviate concerns of container shortage thereby securing stronger demand for containerization over the next few years. The economic turmoil in Colombo and the recent development of shipping lines to skip the Port of Colombo have opened up new opportunities for the ports of South India to grow at a faster pace

RISKS AND CONCERNS

The Companys ability to foresee and manage business risks is crucial in achieving favourable results. Company operates in an environment which is affected by various risks, some of which are identifiable and controllable. Some others are unexpected and cannot be controlled. Under these conditions, proper identification and management of risks is very important in determining the ability of the organization to sustain value creation for its stakeholders. The impact of the key risks, which are potentially significant are listed below have been identified through a formal process by the management. Your Company recognizes that every business has its inherent risks and the Company has been taking proactive approach to identify and mitigate them on a continuous basis.

. Continued Economic Growth: Demand of our Logistics services are dependent on economic growth and / or infrastructure development. Any slowdown in the economic growth affects our growth.

. Risks from Competition: Aggressive focus on infrastructural development has created opportunities and increased competition in the logistics businesses more from unorganized players in the Industry.

. Ability to pass on increasing cost: Ability to pass on increasing cost in a timely manner depends upon the demand supply situation and competitive activities and there has been a general reluctance as seen in the past, to make significant price hikes.

Internal Controls Systems and their adequacy

The Company has an Internal Control System, commensurate with the size, scale and the nature of its operations. The Internal Control function emanates at the Board level and its scope and authority of the Internal Audit function is well defined. To maintain objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee of the Board & to the executive Chairman and the Managing Director. The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies across the Company. Based on the report of internal audit function, process owners undertake remedial action in their respective areas and thereby strengthen the controls. Significant audit observations and recommendations along with corrective actions thereon are presented to the Audit Committee of the Board.

As regards the operation of internal controls, majority of these have been inbuilt in the internal procedures established by the organization which are also documented internally. These include in details the methodology to be adopted right from transacting bookings, effecting consignment deliveries, etc. and also describes the practices to be followed for the smooth operation of business. Inspection teams are formed at the head office level as well as at the transhipment level and cover the entire branch network of the Company periodically for exhaustive inspection for adherence to the set procedure. Deviation from the laid down procedure is escalated to the Functional heads as also directly to the Executive Directors

Development in Human Resources

At Accuracy Shipping Limited, our relentless focus is on attracting, retaining and nurturing the best of talents to lead the organization towards achieving its strategic goals. We ensure a work culture free of discrimination and bias and provide equal opportunity to all.

The scope of Human Resource Development is not limited to the development of the organizational role of the employees but extends to the individuals inner feelings, genius and latent potentialities of those working in the organization. Individuals in the organization have unlimited potential for growth and development and this can be multiplied and channelized through systematic efforts.

OUTLOOK

The logistics industry isnt going anywhere. As long as there are businesses creating products for consumption, there will be a need to move those products. Not only that, but with the predicted growth of the global economies. A future outlook for the industry seems to be a space where faster results can be expected without compromising on quality. Technological leaps such as real-time ordering, end-to-end inventory visibility, autonomous warehouses and hubs, piloting drone delivery and a significant use of robotics are already becoming a reality. The idea would be to use manpower for more complex and rewarding tasks thereby increasing the efficiency and effectiveness of the entire manpower and tech combination.

(Figures in millions)

PARTICULARS	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
Operating Earnings	3319.15	3387.48	3439.7	3652.3	8180.92	8756.51
Other Income	14.41	47.75	9.99	9.49	18.7	14.45
Total Earnings	3333.57	3435.23	3449.69	3661.79	8199.61	8770.96
Operating Expenses	2914.52	2978.58	2944.51	3060.19	6372.539	5562.45
Purchase of stock in trade	-	-	-	72.97	1176.24	2668.59
Change in inventories	-	-	-	-4.25	-139.38	-165.98
Employee Benefit Expenses	36.38	51.33	69.87	61.89	90.6	139.95
inance Cost	33.98	46.97	73.76	55.16	88.17	117.54
Depreciation and amortisation expense	78.05	119.3	158.11	123.6	123.93	123.31
Other Expenses	117.42	117.3	152.28	169.95	221.91	208.88
Current Tax	47	35.9	18.2	36	80.7	35.96
Deferred Tax	2.56	5.59	-5.76	0.06	5.59	1.01
Total Expenses	3229.92	3354.97	3410.97	3575.57	8020.37	8691.71
Profit after Tax	103.65	80.26	38.72	86.22	179.24	79.25

 

	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
PPE	387.23	593.1	503.45	547.95	479.72	680.27
Capital WIP	53.71	-	31.85	-	45.48	-
Other Intangible Assets	0.68	1.97	1.58	4.02	64.65	56.61
Other Non Current Assets	11.23	12.93	12.19	6.39	11.9	19.29
Current Assets	477.37	1009.43	1235.37	1396.02	2352.72	2098.3
Total	930.23	1617.44	1784.45	1954.38	2954.47	2854.

 

	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
Long Term Borrowings	263.53	332.96	421.47	455.35	376.69	167.25
Provisions	-	-	-	1.48	3.92	7.54
Deferred tax liabilities	8.17	13.77	8	8.07	13.66	14.67
Non - Current Liabilities	-	-	-	-	54.4	51.97
Current Liabilities	407.13	575.65	603.2	671.22	1428.67	1464.25
Total	678.83	922.38	1032.5	1136.1	1877.34	1705.68

 

	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
Equity Share Capital	101.2	150.56	150.56	150.56	150.56	150.56
Other Equity	150.19	544.49	583.2	667.68	926.54	998.24
Total	251.4	695.06	733.76	818.24	1077.13	1148.8

 

Particulars	2020-21	2021-22	2022-23
Asset Turnover Ratio	1.87	2.76	3.07
Long Term Debt to Equity	0.56	0.35	0.14
Return on Net Worth	10.53%	16.64%	6.90%
Net Profit Margin	2.36%	2.19%	0.91%
Current Ratio	2.07	1.65	1.43

LIST OF SUBSIDIARIES AS ON MARCH 31, 2023

. M/s. Jayant Logistics Private Limited (U63020GJ2010PTC061181) having registered office at Plot No. 3, Ishan Ceramic Zone3rd Floor, Shop No. T-3, Wing A Morbi - 363642, Gujarat, India. - 100 % Shareholding of ASL (Wholly Owned Subsidiary)