Heavy duty trucks on a roll after long hibernation

Vinod Aggarwal has every reason to be pleased. The heavy duty truck segment is booming, which clearly indicates that all the cylinders are firing within the country. After all, the wheels of the trucking sector drive economic prosperity.

“From my point of view, this industry has finally come out of hibernation after six years,” says the MD & CEO of VE Commercial Vehicles, the joint venture of Swedish truck maker Volvo, and Eicher Motors. The segment he is referring to are 16-49 tonne trucks, which reported sales of 2.67 lakh units in 2017-18.

Not only was this tally higher than the 2.4 lakh units registered in 2011-12, considered a buoyant year for heavy truck sales, but the momentum is continuing into the first quarter of this fiscal too. Between April and June, sales of 16-49 tonne trucks totalled a little over 69,000 units and growing strongly. Aggarwal is confident that this year will see a 10 per cent growth over FY18 in this product category which means that sales could end closer to the three lakh unit mark. He is not making any predictions for the period beyond this (2019-20) though industry experts believe growth could be even brisker at 15 per cent.

This is because Bharat Stage VI emission norms come into effect from April 2020 and automakers are investing big bucks on new technology. These costs will have to be passed on to end-users and will result in vehicles becoming more expensive.

In the case of trucks, fleet owners would rather go in for affordable options like the present BS IV range to ensure that they recover investments more quickly. After all, unlike cars, trucks are meant to generate business for the fleet owner.

Aggarwal is understandably guarded about sticking his neck out and predicting trends for 2019-20 since there is no telling what could happen in the future. After all, the country is heading for national elections in 2019, which means a fair degree of political uncertainty is inevitable. In addition, there are global headwinds to contend with in terms of high commodity and crude oil prices.

For now, though, there is cause for cheer since heavy duty trucks are truly on the fast lane. It is a welcome turnaround after a long lull which began in 2012 and had manufacturers extremely worried as inventories piled up in their plants and stockyards.

Clearly, one of the key triggers for this turnaround has been the introduction of the Goods and Services Tax last July. As physical barriers like octroi bowed out of the landscape, truck speeds have increased, which has led to better productivity. Yet, 2017-18 had its share of obstacles to overcome with the transition to BS IV emission norms from April. Naturally, sales were tepid to begin with for some months but then once GST was in place and its impact began to be felt, it was a liberating moment for trucks sometime from Diwali onwards.

It is also very clear that infrastructure activity has picked up pace for over a year now in terms of road building, construction and so on. Heavy trucks are needed to cart material and fleet owners have never had it so good for a while now. No wonder then that manufacturers like Tata Motors, Ashok Leyland and VE Commercial Vehicles are upbeat about business prospects. “When infrastructure improves, productivity also goes up, along with speed, modernisation and technology,” explains Aggarwal. He also sees some interesting shifts happening within the 16-49 tonne range. For instance, sales of 37-tonne trucks are on the rise and this has been particularly evident during the preceding two fiscals. Numbers jumped nearly three-fold, from 25,360 units in 2016-17 to 70,152 units in 2017-18. For the first quarter of this fiscal (April-June), total sales of this product category are at nearly 18,500 units, which means that growth has not abated. “I now think there will be a further transition to 41 tonnes and this augurs well for our company, which just launched a truck in this range,” says Aggarwal.

Logical evolution

His confidence stems from the fact that this is only a logical evolution going back to the time when 25 tonnes were the starting point and moved on to 31 tonnes and thereon to 37 tonnes. “The shift to 41 tonnes is inevitable and will happen soon,” adds Aggarwal.

Regulations have also prompted this change. Overloading in trucks, which was rampant till sometime ago, has now stopped which means that more tonnage will be required. In the process, the 49-tonne category will also gain ground though this could still be a little while away. Present usage patterns show that sales of 16-tonne trucks are slowly dipping as evident from nearly 35,448 units in 2016-17 to 27,973 units in the following fiscal. For the April-June quarter of this year, sales are at 5,710 units, which only reflects the declining trend.

Likewise, sales in the 25-tonne segment have fallen to 15,635 units last fiscal from 23,261 in 2016-17. This quarter has netted a tally of 4,434 units which, like the 16-tonne space, shows a distinct dip. The 31-tonne is holding steady, though sales were down to 34,835 units last fiscal (40,653 in 2016-17) and totalled 7,290 units in this year’s quarterly period.

While haulage trucks have been doing better than the tipper segment, Aggarwal is confident that this could change in the future. He is upbeat about tippers, which have the potential to do much better than the 61,423units sold last fiscal against haulage trucks’ tally of 2.06 lakh units. The April-June quarter of this year is already seeing an upsurge for tippers whose sales totalled 19,489 units (8,579 units in Q1 of 2017-18) to haulage’s 49,524 (27,505) units. It will be interesting to see if tippers eventually outpace the haulage segment. Either way, there is little reason to complain as heavy duty truck sales are literally soaring. Yet, it is quite natural for Aggarwal not to get too carried away with this buoyancy. After all, he has seen the grim side too in the not-so-distant past when it truly seemed as if the truck segment was going to be stuck in an abyss for eternity. Likewise, the scenario in the BS VI era will be challenging as truck prices will increase with more expensive technology fitments and users will need time to get familiar with them.

The silver lining in the cloud is that the scrappage policy will also come into effect from the same date (April 2020), which means decades-old trucks will also be yanked off the roads. Of course, this will not happen at one go but the removal of these obsolete vehicles will create space in the market to offer an opportunity for new, though expensive, alternatives. Eventually, it is up to manufacturers to take on the challenge of costs and manage to woo fleet owners successfully.

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