India’s Truckers Battle Much More Than A Consumption Slowdown

Commercial vehicle sales have been erratic in the last year. Along with a decline in demand for cars and softening volumes of consumer goods makers because of a rural slump, they point to the slowdown in the economy that grew at the slowest pace in 20 quarters in three months ended March.

But transporters are also battling overcapacity after rules changed last year allowed trucks to ferry more weight. Freight prices haven’t recovered and smaller players that dominate the industry face financing problems, making things worse. Sales of heavy and light goods carriers, according to numbers shared by Crisil, shrank for two straight months in April and May after remaining volatile for much of the past year.

Makers of tempos to tippers expect a revival on new infrastructure orders, a jump in rural incomes after the monsoon and pre-buying ahead of stricter emission standards that will make them costlier. But nine truck operators BloombergQuint spoke with in six cities suggest the stress is much acute.

“We handle over 4 lakh tonnes of cargo every year and own 300 trucks (of Tata Motors Ltd. and Eicher Motors Ltd.),” said Hiren Shethia, owner of Mumbai-based cargo movers Lalji Mulji Transport Co. “Given the slowdown in business, cost overruns due to weak freight rates and falling cargo volumes, forget buying new trucks, we are planning to sell a third of our fleet.”

Commercial vehicle sales have been poor since the Diwali festival season last year. And they declined about 11 percent in May—for the second straight month—on the back of 22 percent contraction in demand for medium and heavy trucks and 5 percent decline in light goods carrier volumes, according to Crisil. One of the biggest contributing factors has been an increase in load limits.

Axle Load Norms, Freight Woes

The new axle load norms of last year increased the maximum weight heavy trucks can carry, the first such relief in 35 years that took pressure of truckers facing a crackdown on overloading.

“It added 20 percent more capacity for fleet operators,” Naveen Kumar Gupta, secretary-general of All India Motor Transport Congress, told BloombergQuint. “More importantly, the freight rates for the last two-three years have remained more or less stagnant. These conditions have impacted our new truck addition plans adversely.”

Freight prices haven’t recovered after falling from their November 2017 peak, barring a brief spurt when demand rose as dealers restocked after the Goods and Service Tax disruption. Increase in toll taxes, third-party insurance and general overheads significantly impacted profitability, Gupta said.

Financing Woes

Financing has been a problem, especially for small transporters, as non-bank lenders faced a credit crunch after defaults by Infrastructure Leasing & Financial Services Ltd. turned made market borrowing costlier and difficult.

Jeevan Kumar, owner of VST Motors, an Ashok Leyland dealer in Chennai, told BloombergQuint there has been some tightening in finance as NBFCs became selective.

The bottom 15-20 percent high-risk buyers were impacted due to stricter lending requirements, according to Sundeep Kumar Bafna, managing director at Fortpoint Group, a Mumbai-based commercial vehicle dealer. But there is no big financing crunch for large operators, he said.

Agreed Ashok Goyal, vice president (west zone), All India Transporters Welfare Association. The problem is the longer breakeven period, said Goyal, managing director of trucking firm BLR Logistiks. “A person buying a truck on loans used to clear debt typically in five. That now takes eight years given low profitability.”

GST Savings Not Big Enough

GST, which subsumed a web of state and central levies, was expected to boost the trucking industry by reducing the travel time as octroi check-posts have been abolished.

Goyal said transporters save an average 8-10 hours in a four-day trip. But the 10-15 percent efficiency gained because of GST, he said, has been more or less offset by lower return fares and higher costs.

Moreover, according to him, 90 percent of transporters can’t avail 28 percent input credit available for buying new trucks because they are small and work in the informal economy. More than 80 percent of them have less than 10 trucks and have highly sensitive cost structures, he said.

Truckmakers, Dealers Optimistic

India’s new emission standards—Bharat Stage VI—rollout from April next year. The price of a goods carrier will rise by 10 percent on an average, said Vinod Aggarwal, managing director and chief executive officer at Volvo Eicher Commercial Vehicles Pvt. Ltd. Makers of trucks and dealers expect that to drive buying ahead of the rollout.

“In the second half, we will hopefully see pre-buying due to the expected price rise on account of BS-VI,” Rajan Wadhera, president of automotive sector at Mahindra & Mahindra Ltd., told BloombergQuint. The Society of Indian Automobile Manufacturers is in talks with the government to lower GST from 28 percent to 18 percent so that the impact of the new norms can be reduced at a time when demand is weak, he said.

Reiterating the hope of a GST rate cut, Aggarwal said tipper and heavy truck sales fell as infrastructure orders were deferred in the run up to the election. He expects demand to revive with the new government in power.

Dealers, too, are banking on volumes ahead of the new emission standards. There hasn’t been any pickup, said Kumar, but he expects demand to gain momentum by August and September onward.

Bafna said small fleet operators do not make decisions based on price rise or emission standards. “Only large operators plan out their purchases and the orders there are seen picking up.”

The majority of the truck operators BloombergQuint spoke to don’t share this optimism. Buying from here on will depend on increase in freight volumes and economic growth, according to them, and will pick up only when the idle capacity is exhausted.