TRUCKING: What the industry says

To understand the pulse of the trucking industry in India, INDIAN TRANSPORT & LOGISTICS NEWS (ITLN) brings together two leading truckers to answer and share their thoughts about the state of the Indian trucking industry today. Ashok L Goyal, MD, BLR Logistiks and Akash Agarwal, MD, Crystal Logistics Cool Chain, sit across the table answering a few questions from V Ramanujam. Excerpts from the interaction. ITLN: From 7.2 percent per annum in the 1970s and 80s, trucking in India is expected to cross 15 percent per annum currently. Thus, the growth of Indian trucking exceeds world trend to reach 2,000 trucks per million population, and the use of trucks is now around 10 million km per year. As a leading trucker, what do you think are the main drivers for this exploding growth? Ashok Goyal: I can attribute it to two main reasons: One, the rail and water modes are not very efficient in India whereas road transport provides efficient door-to-door services and in some sectors at cheaper cost than the railways. Second, easy availability of funds. Since vehicle finance is easily available and there is no entry barrier, a lot of people enter this trade. Akash Agarwal: The most important mode of transport is road and this dominance arises from decades of poor infrastructure development on the rail, coastal, and air transportation. Despite having one of the world’s largest rail networks, India’s share of cargo transported by rail has declined sharply over the years. It is due to the poor quality of service (including last mile access solutions) driven largely by the historic monopoly of the government and the resultant overbearing focus on passenger services as well as massive investments in road highways projects over the past decades that have helped position roads as the most significant, even in sub-optimal, means of transportation. Share of road transportation currently accounts for over 65 percent followed by rail, which is in the range of 30 percent.

ITLN: In spite of the high growth level of trucking service, the industry still remains unorganised and highly fragmented. In your view, what is the reason for this, and do you think that this is a healthy trend? Goyal: As I mentioned earlier, since there is no entry barrier or efficient laws to regulate the trade, large number of businessmen enter the road transport trade and that is the reason it is highly unorganised. And, this is not a very healthy trend as due to the unorganised nature, the profit margins are very low and organised players are unable to provide world class services to their clients as they are unwilling to pay for value-added services like track-and-trace, etc. Agarwal: First, road is the most expensive mode of transportation, yet a majority of freight movement involves this mode. This mode is highly fragmented with very low presence of organised players. The inefficiency in the modal mix is expected to get more intense with the expected modal split of investment. This is likely to result in much higher share of road freight in the next decades. Second, the expansion in GDP in transport sector translates directly into growth in the transportation and logistics sector. Domestic sectors focused on the resilient Indian middle class such as retail, auto and manufacturing are expected to drive volume growth. The GDP growth stood at 14.3 percent in transport sector during 2010–11 and started declining in subsequent years and stood at six percent as against overall GDP of 4.5 percent in 2012-13. And next, this is definitely not a healthy trend as such a trend leads to uncontrolled inflation in the economy arising due to increase in cost of goods and services. The investment in rolling stock beyond a point has a negative impact on Indian economy.

ITLN: Being a key service provider in the last-mile delivery, do you think that the frequent hikes in fuel price will affect the growth of the industry in the future? Do you also believe that fuel price hikes will give a chance to customers to divert the cargo from road to rail? Being a key service provider in the last-mile delivery, do you think that the frequent hikes in fuel price will affect the growth of the industry in the future? Do you also believe that fuel price hikes will give a chance to customers to divert the cargo from road to rail? Goyal: The frequent diesel price hikes are killing the industry as the price hike is not being passed by operators on to the customer. Yes, in the long run, the road freight rates will definitely go up and customers may shift to rail due to the high road transportation cost. However, I don’t see that happening until the rail services are improved and dedicated rail corridor is in place.

Agarwal: Dependence on road transportation is increasing by leaps and bounds, particularly for movement of consumer products due to the fact that this mode of transport is more reliable, flexible and cost-effective too. On the other hand, industries are focusing on total logistics cost which also includes warehousing, interest cost on pipeline stock. In India’s context, transportation cost accounts for 35 percent while warehousing, inventories, etc. work out to 65 percent of total logistics cost. Road transport will ensure door-to-door, damage-free delivery with minimum handling guaranteeing quality transportation. Fuel cost contributes to 35 to 40 percent of truck operating cost on one hand and on the other; the user industry is not prepared to compensate the entire burden of increased fuel cost. Secondly, the road transport freight cost is not cost-based but governed by demand-and-supply of cargo movement. The current fuel hike policy upsets customer’s budgetary system where frequent changes cannot be adjusted. Arising out of the above, the service provider is exposed to uncertainties in terms of compensating the additional burden against frequent fuel hike. Consequently, margin of service provider is under pressure all the time. The service provider absorbs such losses to retain customers. Finally, it can be said that because of inherent limitations in rail transportation for last-mile delivery, the rail transport mode is not used. On the other hand, demand for road transportation is increasing and organised sector is less interested in taking advantage of the growth of the industry due to foregoing reasons allowing unhealthy modal split of investment.