‘Pick-up in road freight not fully demand-driven'

N. K. Kurup | Updated on March 12, 2018

Mr Vineet Agarwal, Executive Director, Transport Corporation of India Limited. - Photo : Bijoy Ghosh   -  BL

Road freight rates have gone up, not so much due to the increase in demand but because of the rise in fuel price and other operational costs. Rates have moved only marginally.

Road freight rates have seen an increase in the recent past despite the economic slowdown hurting growth in the overall logistics sector. Mr Vineet Agarwal, Joint Managing Director, Transport Corporation of India, a leading player in the logistics sector (operating 7,000 trucks), explains why the freight rates have gone up. In an interaction with Business Line, he also touched upon other issues concerning the logistics sector.

Excerpts from the interview:

Do you see signs of a slowdown in the logistics sector?

There is some slowdown in the economy. One, we have a high base effect from the last year. Then, the overall sentiment is low because of high inflation and higher interest rates. People are slowing down their discretionary purchases and consumption is not growing. Financial closures are delayed. Capital goods expenditure is not growing.

The slowdown has resulted in an increase in the credit cycles. Companies that used to pay on time are delaying their payments.

As growth in the manufacturing sector slows down, it impacts the logistics sector in many ways.

But road freight rates have gone up recently…?

Freight rates have gone up, not so much because of the increase in demand but because of the rise in fuel price and other operational costs. Rates have moved only marginally. There is still a lot of capacity in the system.

Do you think this trend will continue?

There will be some pick-up in demand (already seen) during the festival season. But we do think that the full year is going to be a challenge.

You mentioned the increase in operational costs. Besides fuel costs, what is it that is pinching the bottomlines of transport operators?

Besides fuel, prices of tyres, lubricants and even chassis have gone up. Drivers' wages are up. All these will impact our margins.

The efficiency of a truck is seen by how fast it can deliver (goods) and how fast it can come back — that is, turnaround time. And the turnaround is affected by a lot things, including congestion on the roads. It also affects the productivity and efficiency of trucks.

What about your own operations?

At TCI, we don't own a lot of the trucks. We use vendors' trucks or we hire the trucks. (TCI owns only 15 per cent of the fleet it operates). In such a situation, our direct exposure on account of the hike in fuel price and operational costs is less. We also have a diesel price escalation clause with all our clients. So, if the diesel price goes up, then we will increase our rates as well.

Will you be revising your projection for TCI in the current fiscal?

We have projected 15-20 per cent growth in top-line and 20 per cent for the bottom line in the current fiscal. As of now, we are sticking to it.

Freight constitutes about 46 per cent of your revenue. Will that component come down?

Yes, it is going to come down. It used to be 100 per cent 10-12 years ago. It will come down to 35 per cent in the next 3-4 years. Other businesses are expected to grow and contribute to the same level. (TCI has about 9 million sq feet of warehouse space; a shipping division, operates coastal services; has an express cargo service; a real estate subsidiary and a couple of joint ventures.)

What are the issues hurting growth in the logistics sector?

Actually the infrastructure issues are quite huge, which affect us directly. For example, when you are moving across States — each State is like a different country virtually — there are a lot of issues, related to documentation, taxes and toll systems. The toll is not uniform. There is no smart card system that can be used at all the toll plazas on the highways. All these increase the transit time. The logistics sector does not have industry status. So we cannot raise money through the ECB route and banks will not fund warehousing projects because they think warehouses are real estate projects. Again, there are not enough truck terminals or warehousing parks available.

We have been advocating with the government that any industrial park or manufacturing zone should have at least 5-10 per cent space for warehousing or for logistics, because no manufacturing zone can exist without logistics (facilities).

When there is no truck terminal, trucks are parked on the highways, this creates problems.

Globally, the trend is to encourage transport of more goods by railways, rather than roads. Is anything like that is happening in India?

In India, there's not much capacity available on the railway network. There is always the issue of delays and capacity constraints in terms of availability of rakes and transit time. Ideally, we should move a lot more cargo by rail. It is more efficient, more economical and environment-friendly. But because of the inability of railways to cope, it has become difficult.

What would be ideal road-rail mix for our country?

It should be a combination. It cannot be done in isolation, because there are certain products that require very fast movement as their inventory cost is very high. Then there are certain products which are commodity-based, where the cost has to come down substantially. So, depending on the type of product and transit time, we have to work out the optimal rail-road mix.

Today, I think railways account for 30 per cent of the cargo and road about 55-60 per cent. I think if there is equal share (say, 40-45 per cent each) in the long term, it will be better for the country as a whole.

In terms of costs, from the manufacturers' point of view, what mode would be ideal?

Above 1,000 km, rail freight is cheaper from a door-to-door perspective, not from a terminal to terminal, because, no factory-owner wants the goods to be delivered just at the terminal. They want it at their doorstep.

Published on October 09, 2011

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