India’s road freight market expected to cross INR 9,500 bn by 2024, says Ken Research

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Analysts at Ken Research in their latest publication “India Road Freight Market Outlook to 2024 – Driven by BS VI Norms, revision in Existing Axle Norms by the Government and Technological Advancements” believe that the road freight market in India is expected to grow due to rising competition, increase in digital aggregator start ups for trucking and e-commerce market, introduction of GST, e-Way Bill system, FASTags, along with technological advancements, crossing INR 9,500 bn mark by 2024.

Additionally, the report says that change in regulations such as revision in GST norms to increase transparency, phasing out older and polluting vehicles that are over 15 years old, and revision in axle load norms to increase maximum possible payload reducing freight rates and to bring gross vehicle weight rating (GVWR) at par with global markets, will impact the country’s road freight market.

The government is also investing 20-30 trillion (15 per cent via PPP) in transport infrastructure with focus on rural and last-mile connectivity, and increase in outlay of 39 per cent to Pradhan Mantri Gram Sadak Yojana (PMGSY) will drive the sector forward.

India’s logistics market

India’s logistics sector has witnessed a robust compound annual growth rate (CAGR) with highest share to freight forwarding market followed by warehousing, courier parcel and express market and value added services (VAS) market. Road freight is the dominant mode with transportation to domestic flow corridors and international neighboring countries. Many real estate developers such as Indospace, Logos India, ESR and many more are making constant investments in the warehousing market of Gurgaon, Chennai and Mumbai. E-commerce sector is becoming extremely popular with introduction of online payments such as Amazon Pay, Paytm, GPay, and other popular delivery apps.

India’s road freight market

Small fleet owners dominates the country’s road freight sector. 70% of all fleet operates at a margin of 8-12% and average transaction days of 12-15 per month. Small fleet operators (SFOs) primarily operating on spot bookings while medium fleet operators (MFOs) and large fleet operators (LFOs) working on LHAs. India’s road freight sector has witnessed an average CAGR during 2014-19 due to the government’s revision in BF VI Norms, scrappage policy, GST and new axle norms from the with rise in average highway construction of Roads. The developments of Bhratamala Pariyojana and the Sagarmala projects and the Eastern and Western Dedicated Freight Corridors, developments of ports along with public private partnership projects has stimulated the growth in the market. On the assessing seasonality fluctuations in demand front, freight rates are usually high during festive seasons (September-December and February-April) with WAFC being Rs 2.58/tonnes/km in 2019.

Competitive landscape amongst major players

The trucking industry in India is extremely fragmented in nature, dominated by local domestic players who have large number of fleets and provide competitive prices. Big companies such as Mahindra and Allcargo are moving towards asset light model, subcontracting with local transport vendors and providing VAS such as kitting, assembling, labeling, packing, etc. which are very essential. Many companies have started adoption of new technologies such as TMS, GPS for real time tracking assuring transparency to their clients. Major players in the country’s road freight market include GATI, VRL logistics, TCI, Om Express Logistics, DGFC, Varuna, Express Logistics, and many more. Further, digital freight brokerage platforms such as Blackbuck, TruckOla, Rivigo, Trucksuvidh are already disrupting the logistics space and used by many companies for short and long hauls solving the problem of empty returns and maintaining their margins.

Market segmentation

LTL and FTL

The Road freight market is dominated by full-truckload (FTL) by revenues and volume. The average freight cost charged forless-than-truckload (LTL) is higher than FTL due to additional risk in carrying multiple loads, higher insurance cost and more.

Type of trucks

There are 12 million+ trucks in India, with net additions of over 6 lakh trucks in the market annually, and there exist 40+ variants of trucks in the market. The country is dominated by light goods carrier vehicles (LCGV) in comparison to high goods carrier vehicles (HGCV). The ratio of LCGV to HGCV is around 6:5. The LCGVs are expected to remain the dominant category in the Indian trucking market.

Present outlook and future projections

During the lockdown phase, imports and exports have fallen from major trading partners such as China, USA and UAE, affecting the road freight volumes transported from ports to other parts of the country. Majority of the truckers are SFOs who are the worst hit as they need to maintain 90 per cent capacity utilisation in order to bear additional expenses such as equated monthly installment (EMI), insurance premium and permits.

LFOs and MFOs, although being more inclined towards asset light model are also affected due to shortage of drivers and labourers.

The truckers who have bought trucks with 50-100 per cent institutional finance will see a tough time due to COVID-19 and have to maintain 90 per cent capacity utilisation for upcoming EMIs, insurance premiums and permit with same freight cost in spite of high diesel cost. This is due to disturbed production– consumption cycle with only 30% of trucks operating with cut throat competition for loads. Increasing demand of e-commerce products, growing reefer trucks, technical innovations such as electric vehicles (EVs), fleet management software, and more are disrupting the competition space.

Overall, the trucking will see negative growth rate in the current year due to complete lockdown and transportation of only essential commodities, but is expected to revive back in 2021.

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