The Risk-taker At Allcargo

THE KEY JOB OF Shashi Kiran Shetty — the man at the helm of Allcargo Logistics, the country’s top integrated global logistics service provider — is to ensure a smooth movement of freight across the world to the satisfaction of a wide array of stakeholders such as consignors, consignees, and a network of vendors and freight forwarders.

However, for Shetty, vagaries of the macroeconomic tempest following the Russia-Ukraine war, which led to falling container volumes and a dent in global consumption, were only one aspect of the challenges he faced in the last three years.

His problems had begun much before the war. As soon as the company was coming out of the initial onslaught of the pandemic in February 2021, Allcargo Logistics faced a cyber attack with hackers threatening to release the company’s data on the dark web. The massive ransomware assault forced the company to shut down its website and online transactions for more than two weeks.

It was an ordeal for the company, recalls Shetty. “We did not negotiate with them. We did restore the systems, but they took out a lot of data and were threatening to release them on the Darknet. It was a big struggle for us. The U.S. was badly impacted. It was global and our entire systems were shut down for almost 15 days,” says the founder and executive chairman.

The company reached out to stakeholders informing them about the cyber attack, and turned to its staff for help. Shetty says the staff got together to work completely manually for a couple of weeks before back-ups were finally mobilised. “Our insurance company roped in EY to negotiate with attackers. We also got in a company to help with data restoration. After 16 days, all the systems were up and running in most of the countries, except the U.S., South Africa, and Australia.”

The company, however, did not succumb to ransom demands of the attackers, though some data was compromised. “We did not pay a penny to these people. We kept on negotiating. We clearly said we will not pay. They released some data on the Darknet. We had taken legal opinions from our insurance company-appointed lawyers to make sure we are not non-compliant on GDPR (General Data Protection Regulation). It is a big concern for us as we have almost 600 people working in Europe and a similar number in the U.S. Confidentiality matters a lot there. But there was no consequence of the data release,” says Shetty.

Despite this, Allcargo’s growth story has continued unabated. Profit after tax (PAT) rose to ₹630 crore in FY23, from ₹196 crore in FY20. Net sales grew to ₹18,051 crore from ₹7,346 crore.

Shetty says the challenges in the wake of the war came as “a perfect storm”. Having already taken the services of global management consulting firm McKinsey for a transformation plan during the pandemic and having successfully navigated the crisis, Allcargo was confident it would be able to handle the situation even if the market dynamics turned upside down.

“Following the war, the market changed dramatically for us. Volumes went down, and with commodity prices going up, inflation and interest rates, too, went up, affecting consumption. People started spending less,” says Shetty.

“The first two quarters of FY23 were very difficult. Impact was hard as volumes went down, forcing us to send containers without optimum utilisation. They are still down significantly, in the range of 8-10%,” adds Shetty, pointing out that the situation was in stark contrast to Covid, when containers would go at full capacity, as businesses ordered material in bulk fearing supply disruptions.

Once the war began, volumes dropped 18-20%, affecting both top line and bottom line. FY23 PAT was down 31% compared with FY22. Net sales, too, went down 5% year-on-year.

The challenge at hand for the Allcargo management is to ensure growth amid the current macroeconomic environment, especially with a global recession on the anvil. The company, meanwhile, has not lost sight of the exercise done with McKinsey and has been working on it. Shetty calls it a “three lever” approach involving sales acceleration, automation and digital push.

“We implemented the transformation programme (suggested by McKinsey). The entire organisation has been redesigned. We hired 60-70 professionals in senior positions in various divisions in the last two years. The idea was to grow. We had this clear path to growth in the entire transformation programme, through a three-lever approach,” says Shetty.

“The first lever was sales acceleration focusing on the top 15 countries where most volumes are,” he adds. The company saw a volume growth of 17-18% during Covid, which it thinks is sustainable in the long-term. “The decline has been significant for the market, but our fall is roughly around 10%. If you talk to customers or competitors, some people have witnessed 25-30% dip in volumes,” he adds.

“The second lever was streamlining our entire operations in terms of automation, elimination of waste, and enhancing productivity,” adds Shetty. The third lever, the company’s digital transformation plan, focuses on value-added services to customers such as visibility of shipments and offering global services at the click of a button. “We have built a digital platform, ECU 360, for instant cargo booking on 2,500 direct trade lanes across the world and about 4,000 trade lanes via our transhipment centre. It could be from China to Brazil, or from Japan to the U.S., or say, from the U.S. to New Zealand, Australia, or India,” says Shetty.

Another major digitisation initiative in the works is a single financial platform across the world by March next year. “We appointed KPMG to help roll-out a single financial platform across the globe. We are in 21 countries with one single system. By the end of March, we will have it at all locations, including companies in India. That gives us a lot of power,” points out Shetty. A common payment system will help real-time reconciliation and cut down on the number of banks the company is dealing with.

Shetty believes mergers and acquisitions done in the last couple of years will pave the way for future growth. Just before the pandemic, the company acquired Gati Express in India, as well as a Scandinavian and a German firm. However, due to Covid, Gati Express turned out to be a very tough acquisition. It also recently acquired a China-based firm and formed a JV in South Korea. “These are five major inorganic expansions in the last three years,” says Shetty, adding, the company has managed to turn around Gati.

Allcargo has unlocked value of its subsidiaries as well. It recently demerged Allcargo Terminals and Transindia Real Estate, with plans to list both in the future.

Shetty, who leads a team of 8,500 members over 300 offices across 160 countries, has his eyes set on growth. The past three years have been challenging for him as well as the company on many counts. But Shetty has managed to navigate them all, drawing strength from his core belief that success is a mix of sustainability of the financial health and culture of the company, and building scale.