The automobile industry in India has been facing major stagnation for the past four quarters but the commercial vehicle market has dropped colossally over the period. The transport industry especially has been facing excessive supply to cater to the decreasing freight demand.
We tried to analyze the complete scenario and the reasons behind this continuous downfall. Our research and discussions with few transporters brought out the below points.
Factors behind the decline in transport & commercial vehicle industry:
- Increased Axle Loading Norms
The revision in axle load norms earlier this year resulted in a 15-20% increase in official load carrying capacity of trucks, tippers and tractor-trailers. As a result, with the existing inventory of trucks plying on roads, transporters could cater to the increased demand of transporting goods with the current fleet strength. This has acted as a big impediment to the sale of new vehicles when the demand for increased capacity could be met with the current fleet.
- Freight rates
The weakening of the economy in the past few quarters and sluggish freight demand has led to a fall in freight rates. This has hit the truck operators’ hard and reduced profitability of fleet operators. All the truck manufacturers are offering huge discounts to woo customers, but with no real freight movement demand, all these offers are going down the drain unavailed.
- NBFC Crisis
The NBFC sector underwent a major credit crisis due to the issue of IL&FS last year. Shriram Transport Finance also stooped funding new vehicles for some time all this while. This affected new commercial vehicle sales extensively as NBFCs play a significant role in new vehicle finance for retail buyers.
- Online Aggregators eroding away profitability
Large fleet owners who buy trucks against fixed freight contracts from corporates are now facing indirect rate war from online aggregators. This has led to transporters lifting fixed contracts at lower freight rates just to keep the vehicles running. This further scrapped away their profitability completely, thus resulting in their inability to pay back EMIs, vehicle repossession by financiers and the vicious circle emerging thereafter.
- Cash withdrawal limits and increasing diesel prices
With increased restrictions and deductions on cash withdrawal above 2 Cr, the dwindling state of commercial vehicles took a further hit. And all these restrictions on top of the increasing diesel prices, which contribute to roughly half of the operating economics of any MHCV truck. These soaring diesel prices have eroded the transporter’s profitability completely.
The Indian auto industry will shift to the stricter BS-VI norms from April 1, 2020. Heavy trucks are likely to get dearer by as much as Rs 3 lakhs to 5 lakhs for switching to newer emissions norms. Truck makers are hoping that sales may boost on account of pre-buying to avoid a price hike. While the festival season did bring in higher footfalls into the showrooms but so many changes together, have left the transporters to take a pause to think over increasing the fleet size.