In an industry dominated by unorganised brokers and cash leakages, FleetXChange, the logistics and supply chain provider, has found its niche in the spot market and specialises in managing spill overs for clients
For Kaushik Somanathan and Rajan Ramnarayan, the founders of FleetXChange, the idea of entering the Indian logistics and supply chain industry struck in 2008, during a discussion with professor Raghunath of IIM-Bangalore. “If you look at the trucking segment in India, there are eight million trucks that operate with a national permit and about 95 per cent of them are owned by people who own less than five trucks. This indicates that the ownership is fragmented. Any such industry will become a broker’s arbitrage,” explains Somanathan.
In 2009, in an attempt to streamline the fragmented market, decided to create a technology platform where buyers and sellers can come together and transact at fair value. However, they soon realised that the vendors and truck owners did not have the expertise to adapt to the technology and that the broker dominated market was not ready for the company to operate as per initial plans. This led to a change in the company’s business model from being a mere platform to becoming a full-fledged intermediary business, where FleetXChange is involved through the entire transaction, from identifying the asset owner as per the logistics company’s requirement, to tracking and monitoring the vehicle until the load is delivered at the destination.
Today, Mumbai-based FleetXChange operates across nine cities and works with 1,300 vehicle owners dealing with 15,000 trucks. While Somanathan, carrying prior experience in companies such as Novire Technologies and Ethiopian Customers and Revenue Authority, handles customer and vendor acquisition, Ramnarayan, who earlier worked with companies such as ICICI securities and KPMG, handles the financial operations. Apart from the duo, 12 employees work on the technology front, nine employees in operations (call centre), four in back-end documentation and four in the sales team (with each operating from one zone). The company’s client base comprises FedEx, Blue Dart, DHL, TNT and the like and it has recorded revenues of Rs. 54 crore in FY12 and is cash positive.
While thus far FleetXChange has been self-funded, the founders now plan on approaching venture capitalists to raise funding for its second phase of growth. “We have always believed in increasing goodwill with our own capital. It is just now that we are looking for an external investor as for the next phase of growth, we need a lot of financial backing,” says Somanathan.
Getting past notions
Prior to FleetXChange, several companies attempted to make a breakthrough in the Indian logistics and supply chain industry and few saw success. This prompted Somanathan and Ramnarayan to hold several meetings at the grassroots level, with vendors, truck owners and transporters, to change their pre-conceived notion that a fair play in this industry is a mere delusion. “On the bright side, the sale was pretty easy because we were offering our services at a menial price. On an average, most of our customers reported savings of 10 per cent to 14 per cent as compared to the previous benchmark prices,” shares Somanathan.
Survival in this industry is not difficult. It is all about optimisation and management. It is an operations game, not a sales game.
Moreover, the company was incubated and backed by IIM-B, which proved very advantageous for it. “Though IIM-B incubates only first time entrepreneurs, they liked the social cause attached to our business model. We were guided by several management experts associated with the business school, to develop our business. Also, associating with the IIM-B brand name created credibility and established neutrality in the entire process when we approached clients,” states Somanathan.
Building a clean image
At present, FleetXChange operates in the spot market and is specialised in container movement and in the express cargo industry. “Most of the transport companies like Blue Dart, FedEx and TNT, who are in the express cargo space, become our customers. We specialise in doing, what is called, spill over management,” says Somanathan. He explains further with the example of FedEx. If the company is faced with a spill over or excess load, it considers the spot market to fulfil its additional load requirement. This is where FleetXChange comes into play. FleetXChange acquires the client’s transportation requirements and feeds it into its system, which in turn shortlists a list of vendors who possess the type of asset required for the transaction. Following this, an SMS is sent to the shortlisted candidates and whoever has an asset available at that point of time is recognised by FleetXChange. The company’s call centre then takes the price quote and other information from the asset owner and transfers it to FedEx for decision making. Post approval, FleetXChange traces and monitors the vehicle until it reaches the destination and the transaction is complete. The company operates on a fixed fee basis. It charges the logistics company as well as the vendor, a fee of Rs. 500 to Rs. 1100, depending on the nature of the transaction.
In a highly fragmented and broker dominated market, one strong network during the inception phase and the support of senior industry experts helped FleetXChange establish a strong customer-vendor network. “In 2009, a known source that was well-equipped in this segment found our venture interesting and put us in touch with a few of his clients. Once we were well accustomed to this business, I went out searching for vendors who could fulfil the order requirements for our company. That is how we started building the foundation,” says Somanathan. From then on, there has been no looking back for FleetXchange. The company’s clean image helped and once the word spread that it was not a part of the cash leakage or bribery system, vendors began approaching it and the trust-network began to expand. “Everybody looks at this market as an opportunity to make fast money. We made the system very clean and promised that we will not do what a typical broker does. Today, every operator in our network is linked back to the first operator in some way or the other,” says Somanathan.
However, intruding into a broker’s cash flow system and cutting off business did prove risky for FleetXChange. “Even though vendors were using our products on a large scale, there was always a stiff resistance from people at the ground level because it was directly hitting the broker’s vested interest area. Thankfully, in the past four years, we have worked with very good clients in the top management who neutralised these constraints to an extent,” explains Somanathan.
In order to generate additional revenues for the company, FleetXChange also offers vendors insurance and hardware tools such as tyres and lubricants.
Looking to the future
FleetXChange is in the process of building an SME exchange, a platform where small and medium business can negotiate rates and hold reverse bidding for transportation contracts. Moreover, the company is also looking to move beyond the express cargo industry and work with companies in other sectors. For instance, a company like Godrej adopts planned and unplanned operations to transport its goods. Planned operations are where the contract is in place and the company knows that this transaction will take place for sure, whereas an unplanned operation is where the transaction is not foreseen as a contract finalisation. In this case, Godrej will enter a spot market and work with an asset owner. And FleetXChange is trying to build a platform to tap these transactions.
For Somanathan, the implementation of GST will be the golden ticket to a successful future of the Indian logistics and supply chain industry. “Logistics accounts for 13 per cent of the business, which is fairly high. However, once GST comes in, you are going to see new people coming in to streamline the business, consolidations are going to be happening at various levels and opportunities are going to be there in plenty,” he concludes.
Founders: Kaushik Somanathan and Rajan Ramnarayan
Future Innovations: SME Exchange, tapping unplanned operations market in other sectors