Speed breakers may not deter spirit

Updated: Nov 18 2005, 05:30am hrs
The Rs 45,000-crore road truck freight industry in the country is at the crossroads. The highly disintegrated industry comprises 5 lakh fleet operators, 67% of whom are small operators who own between 1-5 trucks. This community of small operators resorts to wild rate cuts to woo cargo. Besides, frequent diesel price hikes have affected profitability and arch rival Indian Railways has upped the ante by cutting freight rates to woo back customers.

Explains Vineet Agarwal, executive director, Transport Corporation of India Ltd, one of the largest fleet operators in the country with over 1,500 vehicles : It is well known that railways are cheaper for distances over 1,000 km. But the railways deals the truckers a double whammy. Rail fares are not increased according to the rise in fuel costs and it doesnt have to pay a service tax which the truckers will now have to pay. We also have to contend with a similar situation with the postal department which does not levy service charges on parcel bookings,says Mr Agarwal.

Explains PV Subramani of Cargo Wings (Madras) Pvt Ltd, a group that owns a fleet of 325 vehicle carriers: We have not achieved any growth in the past few months because of the steep increase in fuel prices. There has been a hike of between Rs 7-8 per litre of diesel. In addition, because of the railways cutting prices very often, his fleet is stranded with lesser cargo as well.

Kartik, who runs a fleet of over 400 trucks from Namakkal in Tamil Nadu, maintains that every rupee added to the fuel price trims profits by at least 30-40 paise. With rising fuel cost, the cost of trucking has increased about 33% which has pushed cement companies to use railway freight corridors again.

But the competition comes not only from rivals like the railways but from within too. Kartik complains that smaller players with lower infrastructure costs frequently undercut to bag clients. Typically, those with 3-5 trucks engage in this practice. Kartik has now started focussing on specialised freight such as ready-mix concrete, the demand for which is increasing due to the frenzied pace of growth of real estate and infrastructure development.

Mr Subramanis fleet of vehicle carriers allowed him access to a special type of cargo. But he is facing stiff competition from the railways. Mr Agarwal says the biggest challenge from within the industry is the fact that there is still not enough professionalism. Many fleet operators still carry cargo without invoices. This offers the consumer lower prices. Till these illegal pratices stop, the bigger companies will have to struggle.

Does the improving highway infrastructure help The industry isnt cheering just yet. Mr Agarwal says that of the 60,000 km of national highways in the country, only 10% have been four-laned. There are pockets of improvement with states such as Gujarat, Rajasthan and Himachal boasting of better roads. However, with the current phase of development, in many instances, the trucks actually slow down as parts of the highways are still under development.

As a result, while the turnaround time is still to improve substantially, the outflow of cash by way of toll on the improved stretches of highway is already adding to the truckers woes. Of the total motorable road length of 3 million kilometres, national highways constitute only 1%. Therefore, it is not really a substantial growth either.

But thats just where the gloom in the industry ends. The trucking industry has a few things to cheer about as well. Trucking business always grows in direct proportion to the GDP growth. Therefore, a 7% growth in GDP also ensures a similar growth in trucking business. Also, some sectors such as the North-East have a huge consuming community. Therefore, there is a lot of freight movement to that sector. Since it is poorly serviced by the railways, it remains a captive sector.

But the biggest silver lining on the horizon is the opening up of the iron and mining sectors. We expect this to lead to a huge growth in road cargo, says Mr Agarwal. Specialised carriers such as cars and two-wheelers too are expected to continue fueling growth. In addition, Mr Agarwal foresees that in the next 2-5 years, cement and grain will not be carted in bags but in specalised silos and will be bagged at the point of discharge. This kind of specialised need will require a degree of professionalism that only the larger players would be able to afford.

Not that smaller fleet operators have to pack up business. With organised finance picking up, finance head of Tata Motors Finance Company Ltd Aubrey Rebello finds that almost 90% of vehicles today are financed though formal lenders. Even banks such as HDFC have opened more points of lending to the trucking business. Therefore, it is easier to acquire and own a fleet.

Large operators such as TCIL own only 15% of their fleet. The rest are outsourced to reliable small fleet owners. This ensures good marketing and operations by the large players and fleet management by the smaller owners. As the pie grows, more niches are developing. Therefore, even as consolidation is on the cards, so is a chance for all players to find their own area of operation and expertise.

Operators hope that the government too will introduce favourable policies so that they are not battling government departments such as the Indian Railways with both hands tied behind their backs.