Commercial vehicle industry hit by higher operating costs, subdued rates: report

Though new regulations resulted in efficiency gains for the commercial vehicle industry, three major factors led to the continuing slump in demand for new trucks.

“The viability of fleet operators came under pressure in the recent quarters due to subdued freight rates, low cargo availability and increased operating costs. This has also contributed to lower demand for commercial vehicles,” according to Shamsher Dewan, Vice President & Sector Head - Corporate Ratings, ICRA.

The upward revision in axle load norms for trucks (above 16-tonne gross vehicle weight), from July 2018, resulted in almost 15-20 per cent increase in the load-carrying capacity of fleet operators and exerted pressure on freight rates.

Thus, despite a rise in operating cost on the back of higher fuel cost, EMIs and other overheads, the rates had remained flat till September 2018 and started declining from November 2018 onwards owing to low freight availability and surplus capacity, in addition to the softening of fuel prices.

Small fleet operators appear to have borne the brunt of the pressure, while the performance of larger players indicates expansion in volumes, thereby implying a loss for smaller operators. This has also been driven partially by the implementation of GST and e-way bill, wherein smaller operators found it more difficult to pass on the increased compliance costs to its customers.

Implementation of Goods and Services Tax (GST) from July 1, 2017, had a significant positive impact on fleet owners’ operations. With the new tax regime doing away with the requirement of state-level VAT check posts, it resulted in faster turn around time for trucks and thereby efficiencies.

“As per our estimates, there has been about 15-20 per cent improvement in turnaround time because of GST. The impact has been more pronounced in a few states such as Kerala, West Bengal, Maharashtra, Madhya Pradesh and Bihar, which were earlier known for high waiting time spent at their inter-state borders,” said Dewan.

Also, e-way bill implementation has streamlined operations to some extent for the transporter community, with savings in time and paperwork reduction due to the digitisation of processes. While this has been positive for the truck operator, the resultant efficiency gain has contributed to an increase in capacity for the existing CV players, leading to lower demand for new trucks, pointed out an ICRA report.

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