Hyderabad: Come September and there is every possibility that India’s long and medium haul trucking sector will be greeted by chaos and shakeouts. The trailing impact will be felt by lenders and automobile industry.
The loan restructuring opportunity offered by RBI is unlikely to have much impact in this segment. Hectic lobbying is on to convince the government for a bailout package, so as to avert these eventualities. However, the government might do well to stay clear of it.
The sector was suffering from poor fundamentals due to unbridled competition, often at the compromise of legalities including labour laws. Pandemic created an opportunity to clear the mess. Any bailout will only delay the inevitable and invite wider problems.
Wrong Fundamentals
The basic problem is, taking advantage of lax implementation of rules and regulations, the sector is crowded out by too many small players, who lack scale and survive on undercutting, thereby dragging rentals to unreasonably low.
The industry bottom-line has been suffering for quite some time, as was reflected in infirm rentals vis-à-vis cost push.
According to Indian Foundation of Transport Research and Training (IFTRT), India has 52 lakh trucks. Of the total, 14 lakh trucks undertake long and medium-haul journeys on national permit. Twenty lakh trucks ply between any two states. The rest move within the State.
The sector is unorganized with small fleet owners, owning one to three trucks each, who contribute 75 per cent on the fleet, ruling the roost. In the name of competition and employment, these truckers essentially flout rules.
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As against the prescribed minimum wage of Rs 14,500-16,500 a month; drivers are offered barely Rs 5000-7000 a month, in fixed wage. Their total earnings can go up to Rs 12,000-13,000 a month depending on overloading and other such illegalities.
The whole environment is a disincentive for large organized players. Unlike in the city cab segment, uberization is low in the trucking segment because the small truck owners deny to be regulated or accountable.
Illegalities in the trucking segment impact the overall logistics efficiency of India. One of the reasons why the land border trade with Bangladesh or Nepal is dominated by road transports vis-à-vis rail, is the overloading opportunity.
Road was the prime vehicle for sales tax evasion in the pre-GST days. The benefits were accrued largely by the MSME sector that account for 70 percent of the industrial cargo in India. That’s a principal reason why both the sectors were so vocal against the restructuring.
Pandemic pains
Given this background, the trucking sector ran into trouble in the last year as the economy slowed down, particularly in the second half of the year.
As in January-February, before COVID struck India, the fleet utilization of long and medium-haul segments – that is the backbone of the trucking sector - was around 65 per cent. The ratios are now estimated to be hovering around 45 percent.
When compared to last monsoon, fleet utilization is 20-25 per cent lower. Since mining and construction remains subdued in monsoon and agricultural cargos will come back only in the harvesting season; the drop is solely due to lower manufacturing.
Railways, which carry only 30 percent of the nation’s cargo are relatively unaffected as they cater mostly to sectors like steel, cement, fertilizer etc coal; which are either less affected or are doing well (fertilizer).
But truck loading is suffering as majority sectors expect food and FMCG are impacted. Repeated imposition of lockdowns to prevent spread of the virus to rural areas, is causing havoc. Many smaller industries in Odisha, Jharkhand, Andhra Pradesh and Karnataka are closed.
The uncertainty is also impacting demand. But most importantly, the predictability of cargo movement on national trunk routes is suffering. A truck from Delhi is waiting in Kolkata for a week or more, for 'return cargo'.
The net impact is, trucks are not earning enough to pay EMIs ranging between Rs 40,000-55,000 a vehicle. The moratorium kept them ticking so far but no more. Beginning next month many will be forced to wind up.
Consolidation on the cards
Small truck-owners are particularly in for trouble. Many in the industry expect truck population in national routes to shrink upto 40 percent. The restructuring is set to trigger formalization of the market and viable rentals.
The consolidation process has already set in. Some large fleet owners, with 200-300 trucks each, are reportedly active in the second hand market to replace older models by newer (BS-VI) variants. The discounts are deep as new models are costly and have even fewer takers.
It means lenders are in for trouble and automakers have to wait for revival of demand in the heavy commercial segment. The only thing that can brighten up their prospects is a V-shaped recovery from September-October.
However, that looks improbable at this juncture. Demand is unlikely to be back for all categories, particularly for merit goods, at full swing till uncertainty over income removes. Also, the long lockdown seems to have changed consumer behaviour and everyone has to wait to know how it pans out.
(Pratim Ranjan Bose is a Kolkata-based senior journalist. Views are personal.)
