Indian truck market likely to remain in red till March
Dec 16 2012 , Chennai
“The multiple adverse impact of lower cargo offerings, dropping truck rentals, slowdown in manufacturing sector has led to drop in sale of new trucks and continuous usage of old trucks in the freight market as truckers are not able to dissolve their existing fleet. There is strong possibility that if the situation does not improve by way of government actions, the truck rentals may face a further slide in the coming weeks,” pointed out S P Singh of IFTRT, an independent body that has been tracking commercial goods transport and the commercial vehicle industry.
Despite truck manufacturers offering discounts on purchase of new vehicles and financiers offering low interest rates, there seems to be no substantial improvement in volumes. Goods truck segment (5-49 tonnes) declined by 19 per cent at 174,889 units during April-November period compared with 216,714 units in the same period previous year. In November alone, sales fell 33 per cent, with tractor-trailer sales declining by 26.6 per cent for the month.
“The huge drop in truck sales during November led by 50 per cent fall in sales of multi-axle truck (MAV) and 5-6 per cent decline in truck freight during festival season has badly hit the growth of road transport industry, generally reflecting the economic development and growth of the country. The domestic industry has not reflected the benefit of decline in base metal prices, raw material prices and truck rentals and therefore finished products continue to remain high price thereby stifling demand,” said Singh.
“Without government action to boost expenditure and demand, the scenario is likely to be gloomy in medium and heavy truck (MHCV) segment till March. The segment would degrow by 14-16 per cent in FY13E, given the drop in freight availability and softening of truck rentals,” said Surjit Arora of Prabhudas Lilladher, a leading broking firm.
The most significant negative development in the truck market has been the saddling of transport centres with huge inventory of over 2.5 lakh heavy trucks, which are awaiting resale. The realisations or resale rates for various categories are lower by 30-40 per cent due to weak market scenario. This has led to crisis in the trucking industry and truckers are not able to generate working capital from sale of old trucks. Moreover, truckers are also postponing purchase of new trucks and fleet expansion despite heavy inducements by manufacturers. According to estimates, heavy discounts were expected be close to Rs 1 lakh per truck.
“There is an overall pessimistic outlook for the near term. It primarily stems from weak visibility on cargo availability, a key factor that continued to support fleet operators’ viability in 2011-12 despite almost flat freight rates and rising operating cost. From transporter’s viability standpoint, the current phase is marked by reduced cargo volumes, stiff competition owing to surplus capacities and rising operating costs, especially in wake of the recent hike in diesel prices,” the industry said.
Although the freight rates have inched upwards following the hike in diesel rates, the extent of rise has not been adequate (on an aggregate basis) as it continues to be influenced by demand-supply dynamics in each market. As a result, capacity deferment and implementation of cost rationalisation measures have been at the forefront for even the organised fleet transporters. However, sustainability of the demand would however continue to remain dependent on the improvement in macroeconomic environment and investment sentiment, the report pointed out.