Federation of Automobile Dealers Association (FADA) has recently released the sales report for the fiscal year 2020-21. On a Year-on-Year basis, the medium and high commercial vehicle retails were dipped 8 percent.
The sales were affected due to high-interest rates, inconsistent supply chain distribution, fuel price hikes, accelerating input costs, and an economic slowdown following the second wave of the COVID-19 pandemic.
For instance, taking the retail truck sales into account, every commercial vehicle owner has posted a YoY growth except for Mahindra. Total CV sales stood at 56,732 units, up from 44,865 units sold in October 2020, but a stark decline in sales from October 2019 where the total CV sales stood at whopping 110,258 units. Let’s understand the factors that drive the truck sales in the Indian Market, and how the truck companies and shippers make the most from it –
Road Transport – Industry Structure
Here are the following factors that affect the sales and distribution of commercial vehicles –
Road Transport: Due to the inability of the Rail transport to provide the required capacity or respond=d with the expected end-to-end customer service, the road transport offers door-to-door services.
During the past two decades, the road infrastructure expanded rapidly on account of public policies and investment.
However, road transport may witness a steep decline in the years to come as the National Transport Development Policy Committee (NTDPC) projects rail transport to grow from 35% to 50% in a move to reduce the carbon footprints. Add to that, the coastal shipping would increase its modal share, thus reducing the road transport sector down to 30%.
GDP Share
Commercial vehicles are usually seen as the indicator of the economic activity fell to about 5.33 lakh units in the year 2020-21 compared to 6.46 lakh units in the previous fiscal year, as the CV sales data released by SIAM.
The contribution of the transport industry to India’s GDP has seen a decline from 6% in 2010-11 to 4.7% in 2020-21. Also, the same decade saw a decline in truck sales due to automobile recessions which started in 2013 and that is fueled further post-pandemic. Since 2013, there is a steel fall decline in the retail sales of heavy commercial vehicles.
Capping The Truck Vehicle Life
As per the data released by FADA, the truck vehicles in India accounted for 13.1 million and are growing at the rate of 7% per annum Year-on-Year (Y-o-Y) basis. Of these, over 40% of the truck on the Indian roads are less than 6 years old, while 34% are older than 10 years old.
There is an attempt by the government in India to cap the life of commercial vehicles, from a pollution perspective, as the average operation life of a truck is nearly about 20 years.
Structure of Truck Industry
Customers/clients prefer to move their goods through third-party vendors, rather than procuring their own fleet. Hence, the commercial aspect of the commercial vehicle industry is highly dynamic. The truck industry is served by several core actors, that shape the supply and demand of the supply chain and logistics sector. These core actors are further supported by four entities providing the tangible elements for trucking – manufacturers, spare parts manufactures, drivers, and fuel suppliers.
Core Actors – Logistics Service Providers/Vendor Companies, Brokers/Agents, Pure Truck Owners
Logistics Service Providers/Vendor Companies
These are the principal solicitors of freight who are responsible for the delivery of goods from the customers’ loading point to the unloading location. The logistics service providers are also accountable for cargo loss and damage claims and perform various other customer support and address all sorts of grievances.
Brokers
They are primarily the intermediaries acting on the behalf of pure truck owners and customers or offering the fleet directly to the truck companies. They play a vital role in shaping the commercial ecosystem of the transportation industry, as they are the principal means of providing business opportunities to trucking companies. Also, the said vendors have limited means of assessing the truck owner’s performance, as these freight brokers help in assessing the owner’s performance.
Pure Truck Owners
Such entity accounts for the largest share of truck sales in India. These truck owners largely depend upon the brokers/agents to get the business. Some of them ‘attach’ themselves to specific trucking companies (shown as a dotted line in Figure 3). The rates they get are as per the market which reflects the supply-demand situation on specific origin-destination segments.
Tangible Elements That Drive The Sales of The Truck Industry
Manufacturers
The Indian truck manufacturing sector is characterized by a large organized sector primarily making the chassis, with the truck owners having bodies built on the chassis as per the market needs. There is always an emerging demand for the body-built trucks supply directly from the manufacturers. The annual truck sales have witnessed a decline fallen in recent years, both from the sluggish economy due to the COVID-19 pandemic and enhancing utilization of trucks.
Truck bodybuilders
The Indian truck building industry is yet another segment that is understandably huge that operates largely in the unorganized sector. The sector has an edge primarily due to its offerings at the lower cost, and the customized solutions. However, this industry is losing its sheen as there are always concerns related to safety and quality.
Drivers
Truck drivers are also among the major critical players, and are the backbone of the truck industry. Given the unpredictable weather and the driving schedule, long period driving, long distance from the family members, perceived harassment by the police and the road authority makes the role of a truck driver very challenging and also creates a huge impact on the truck sales.
Add to that, there is always a status and skill gap among drivers which has also created a manpower crisis in the transport industry. This looming crisis along with the slump in truck sales is also fueled by the poor design and the maintenance of the Indian roads that also ads the problem of health and safety. These factors are fragmented and thus need more focussed attention.
Fuel Suppliers
The major issue of contention in truck sales is the hike of the fuel prices which is directly increasing the cost to businesses making the freight fares expensive day by day. The hike in the diesel prices in the past two years have also affected the retail sales of Truck and other heavy commercial vehicles.
Conclusions
To conclude we draw upon the five factors that drive the sales of the truck segments which are also the key priorities of the transport sectors –
Speed – The most driving force of the truck industry is speed. As more and more technological disruption is moving in the direction, while infrastructure and regulatory bottleneck remain. Add to that, the push from the infrastructure sector has also slowed down. On a regulatory note, a lot needs to happen to streamline the speed and accessibility of the truck industry that helps drive the sales of the industry.
Sustainability – While rail and coastal shipping are a threat to road transport as they leave fewer carbon footprints. However, the truck industry can combat this with better technologies, fuel alternatives, maintenances, and driving practices. These factors can directly impact the sales of trucks and other light and heavy commercial vehicles.
Laravel Developer at Bharat Software Solutions.