Truck Sales Rebound Masks Trifecta Of Troubles
Transporters are playing it safe even as multiple indicators now suggest freight demand is improving.
Sunil Agarwal, a Kolkata-based transporter, hasn’t bought a truck in 20 months. His fleet of 230 is shrinking even as demand for cargo movement is showing signs of revival. But he isn’t sure.
“Before making any purchase, I’m going to wait another six months to see if the recovery trend is sustainable,” said Agarwal, also the secretary of the Kolkata Goods Transport Association.
His caution underscores troubles that India’s trucking sector has faced. It started with an increase in axle load—or the weight that heavy trucks can ferry—in 2018. The stricter Bharat VI emission standards further dampened new purchases. While India’s complete freeze on the economy last year lasted less than three months, the nation's cargo arteries unclogged gradually during the pandemic. Multiple indicators now suggest freight demand is improving.
E-way bills, a measure of road freight movement, have shown an uptick in the last two to three months. Factory-gate shipments of commercial vehicles rose for the fourth straight month in September. Retail sales jumped, too, with overall registrations of medium and heavy commercial vehicles rising 5% above 2019 numbers, and nearly three times the 2020 level.
“We are experiencing green shoots,” Vinod Aggarwal, managing director and chief executive officer at Volvo Eicher Commercial Vehicles Ltd., said in an interview with BloombergQuint. “July onwards, we have started experiencing a pick-up in demand and there are a lot of overdue replacements in the market because.”
Nirmal Bang said the September volumes were driven by infrastructure and construction sectors, coupled with improving freight utilisation.
On the ground, transporters say it’s too early to commit.
“It might seem that month-on-month numbers are improving, and overall sales are going up in the commercial vehicle segment," Ashish Tekriwal, director of Delhi’s Shree Azad Transport Co., said over the phone. "But there isn’t enough demand yet.”
Rising fuel prices are hurting, too.
While diesel has turned nearly 44% costlier in the last 18 months, freight prices have lagged, Abhishek Gupta, joint secretary of All India Transporters Welfare Association, said over the phone. On top of that, vehicle prices are up by at least 20%, he said.
Transporters are unable to increase freight prices because of the competition in the market as there isn’t enough load to ferry, Tekriwal said. His fleet has come down to 300 from 400 prior to the pandemic as he hasn’t been able to replace scrapped vehicles.
According to Gupta, the pandemic has taken away whatever reserves people had and transporters are barely surviving.
Cash flows of retail customers or single and small-fleet operators have taken a huge hit because freight rates haven’t risen at the same pace as fuel prices, said Hemal Thakkar, director at Crisil Ltd.
“Whatever participation (replacement buying) we are seeing in the market is by large operators,” he said. “It is not that they (smaller firms) don’t want it, but they are not confident if the demand will sustain.”
Many of those who bought were not able to hold on to their vehicles.
At least 300 trucks have been re-possessed in the last few months by the banks as the fleet operators couldn’t sustain due to increasing gap between fuel prices and freight rates, Gupta of AITWA said.
One segment stood out.
Thakkar said intermediate commercial vehicles—light trucks but with higher capacity of 7.5-16.2 tonnes—have done better. About 47% of the fleet in this category, used for e-commerce and last-mile delivery, comprises vehicles fuelled by compressed natural gas—which is cheaper than diesel.
Thakkar is also optimistic that the replacement cycle will strengthen as trucks find more load to ferry after the festive season.
Agarwal, too, agrees that there is "some light" at the end of the tunnel. "If that fades, it will be bad."