Moderate Hike in Petroleum Prices Not to Dent Goods Transport Business
October 2007 - Truck Rentals shoot up, Truck Sales marginally down
An IFTRT Report
5%a6% jump in truck rentals due to peak festival season and spiraling international crude oil prices a Marginal 1.2% drop in truck (5 ton a 49 ton capacity) sales in Oct'07 as excess trucking capacity tapering off a Diesel price increase up to Rs. 2 per litre should not adversely impact truck transport business.
Interestingly, the robust economic growth in India reflected through its GDP growth has been taking place concurrently with steeply rising crude oil prices in the international markets. GDP growth rate has gone up from 5% to over 9% in last 5 years, while the crude oil price has gone up from $22 per barrel (Apr-May'02) to $95.50 per barrel (Oct-Nov'07). Crude price increase notwithstanding, transport sector has clocked compounded growth of almost 10% per annum. Similarly, Indian Economy has weathered the storm generated by rising crude oil and other commodity prices, achieving 8%+ economic growth. Now, the question rankling most of minds is "How Indian economy will cope up with continuously rising petroleum prices, if the crude oil touches $100 per barrel mark in next 3-4 months?" Whether crude price rise will derail the growth momentum.
No doubt, that despite so called dismantling of administrative pricing mechanism for petroleum products, the Central Government has been regulating the pricing of public sector oil companies for last 5 years due to political considerations. As a result, the diesel and petrol prices have been kept under leash by artificial mechanism by sacrificing the free play of market forces. Last year in June 2006, the diesel prices were revised upward by Rs. 2 per litre i.e. raised to Rs. 32.45 per litre from Rs. 30.45 per litre (ex-Delhi), but the diesel prices were reduced later in 2 instalments of Re.1 each and are now prevailing at Rs. 30.45 per litre. Hence, the diesel prices are prevailing at November 2005 level. On the contrary, the truck rentals during this period have remained pretty robust despite Railways maintaining / reducing its freight rate at a 3-year low. Only, in the recent past during Apr-Aug'07, the truck rentals dropped by 6%-13%, but have made a recovery of 5%-7% in Sep'07 and 5%-6% in Oct'07 on the back of festival season.
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Truck rentals shot-up by 5%a6% on trunk routes in Oct'07 after Sep'07 increase by 5%-7.5% in the back drop of declining truck rentals during Apr-Aug'07 period by7%-13%.
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Crude Oil price at $95.50 per barrel as against $82.50 last month leading to 18% increase in four weeks and has firmed up freight rates in domestic, market in anticipation of increase in diesel price in coming weeks. |
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Effectively, as on date, the truck rental and retail freight rate enjoy 8%-10% extra cushion in their pricing /rates and hence, any increase in diesel price to the extent of Rs. 2 per litre will not adversely impact truck transport sector. |
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Current Truck Rental Trend
After almost two years of buoyant truck rental market, the truck rentals had declined by 6% - 13% on various trunk routes during Apr-Aug'07 period because of continued decline in automotive manufacturing sector and sluggishness in small and medium scale manufacturing sector. Besides, reduce arrival of fruit and vegetables, poultry and livestock and less wheat procurement offered cargo in lesser degree. These factors adversely impacted the truck rentals. However, with the advent of annual festival season and the improvement in market sentiments leading to availability of additional cargo in different parts of the country, the truck rentals have recovered by 5%-7% in Sep'07 and subsequently by 5%-6% in Oct'07. Import - export cargo too is maintaining its robust flow by ignoring the volatility in Rupee - Dollar disparity in the currency market. The Table-1 gives the overall truck rental monthly trend for the month of Oct'07 over Sep'07.
| Table-1: Truck (16.2 Ton GVW) Rentals (Rs. per round trip as on 2nd Nov'07 over 2nd Oct'07 |
| Trunk Route |
Quarterly Rental
Movement
(per Round Trip)
|
Truck Rental
Increase
(per Round Trip)
Period
2nd Oct - 2nd Nov
2007
|
Diesel Price
(per round trip)
as on November
2007 |
Round Trip/
9-ton payload |
Freightage
2nd Oct'07
|
Freightage
2nd Nov'07 |
Rs. |
% |
| Delhi-Mumbai-Delhi |
38,500 |
40,810 |
(+)2300 |
(+) 6.0% |
No Change |
| Delhi-Nagpur-Delhi |
38,000 |
40,280 |
(+)2300 |
(+) 6.0% |
No Change |
| Delhi-Kolkata-Delhi |
42,000 |
44,520 |
(+)2500 |
(+) 6.00% |
No Change |
| Delhi-Guwahati-Delhi |
85,200 |
89,460 |
(+)4300 |
(+) 5.00% |
No Change |
| Delhi-Hyderabad-Delhi |
55,000 |
58,300 |
(+)3300 |
(+) 6.00% |
No Change |
| Delhi-Chennai-Delhi |
72,500 |
76,125 |
(+)3600 |
(+) 5.00% |
No Change |
| Delhi-Bangalore-Delhi |
60,000 |
63,000 |
(+)3000 |
(+) 5.00% |
No Change |
| Delhi-Ranchi-Delhi |
40,600 |
43,036 |
(+)2400 |
(+) 6.0% |
No Change |
| Delhi-Raipur-Delhi |
37,200 |
39,432 |
(+)2200 |
(+) 6.00% |
No Change |
| Delhi-Kandla-Delhi |
26,100 |
27,666 |
(+)1600 |
(+) 6.00% |
No Change |
| Delhi-Bilaspur-Delhi |
36,700 |
38,902 |
(+)2200 |
(+) 6.00% |
No Change |
Truck rentals continue to remain buoyant due to arrival of Apple fruit season and improvement in sales of FMCG and various white goods in coming months. The Kharif sowing for the current season has gone up, in acreage terms, by over 10% and it will lead to extra movement of paddy, coarse grains, cotton and other cash crops and will sustain adequate availability of cargo from Agri Sector. Besides, the major investment in capacity creation and expansion in manufacturing sector, expansion and induction of new projects in construction and infrastructure sector are giving strength to trucking industry.
Marginal decline in Truck Sales in Oct'07
The last four/five fiscals witnessed an unprecedented growth in commercial vehicle sales with explosion in high tonnage multi-axle trucks / trailers (25.2 ton - 49 ton capacity) population. The year 2006-07 saw over 75% growth in 25.2-ton multi-axle trucks and 107% growth in 30 - 49-ton capacity multi-axle trailers in the industry.
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Truck sales drop has been contained in Oct'07 with sharp jump in sales of Tipper/ Dumper trucks engaged in construction and infrastructure sector.
The Tipper truck sales touched 4,660 units in Oct'07 as against 3,656 units in Oct'06, while cargo truck sales dropped by 6.2%. |
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Introduction of new 3-1ton GVW rigid body 4-axle truck with 24`, 28` and 52` cargo deck length option by heavy vehicle manufacture may eat into the market of 25.2-ton GVW – 49-ton GVW category. |
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After witnessing acute slowdown, the overall truck sales (5 ton - 49 ton capacity) had marginal 1.2% decline during Oct'07 as against Oct'06. The following table shows segmentwise sales trends:
| Table-2: Truck & Trailer Sales - A Comparative Trend (Month - Oct'06 & Oct'07) |
Sr.
No. |
Category /
Segment
|
Sales
Fig. in
(Oct'06)
|
Sales
Fig. in
(Oct'07)
|
Difference
in nos. |
%
Difference
|
| a) |
Light Commercial
Vehicle (LCV)
(5-7.5 ton capacity) |
2,890 |
2,814 |
(-) 76 |
(-) 2.63% |
| b) |
Intermediate
Comm. Vehicle (ICV)
(8-12 ton capacity)
|
3,509 |
3,972 |
(+) 463 |
(+) 13.19% |
| c) |
Medium Commercial
Vehicle (MCV)
(15-16.2 ton capacity)
|
5,499 |
5,324 |
(-) 175 |
(-) 3.18% |
| d) |
Multi Axle Vehicle (MAV)
(25.2 ton capacity) |
9,073 |
8,962 |
(-) 111 |
(-) 1.22% |
| e) |
Multi Axle Trailer/
Vehicle (MAT)
(30-49 ton capacity)
|
2,136 |
1,759 |
(-) 377 |
(-) 17.65% |
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Gross Total: a) + b)
+ c) + d) + e) |
23,107 |
22,831 |
(-) 276 |
(-) 1.20% |
Massive investment in creation of new capacity and expansion in manufacturing sector and continuous investment in construction and infrastructure projects has primarily helped the truck sales recover in comparison to none-too-good H1 performance, with overall sales volume declining marginally by 1.2% y-o-y. The 13.19% jump in ICV sales is due largely to migration in truckers' preference towards ICVs from LCVs and MCVs, because new range of ICVs provide bigger loading span and have lower per ton / km capital cost and operating expanses. Sharp drop of 17.65% in MAT is, by and large, the result of shift towards MAV, as vehicle manufacturers in last three months have introduced rigid body trucks with 30ft - 32ft loading span as against earlier 22 ft - 24 ft loading span in MAV category. The majority of MAT category has loading span / loading platform in its trailers of 20 ft. - 30 ft. category (30-ton capacity). MAT vehicles have higher capital and operating cost as against new range of 30 ft - 32 ft loading span (31-ton capacity) MAV.
Apr-Sep'07 Truck Sales Trends
Negative growth of 13.35% in H1 truck sales during current fiscal betrayed the forecast of industry experts that commercial vehicle sales would grow at 15% - 20% during the year, as could be seen from the Table-3.
| Table-3: Truck & Trailer Sales - A Comparative Trend (Apr-Sep'06 & 07) |
Sr.
No. |
Category /
Segment |
Sales
Fig. in
(Apr-Sep'06) |
Sales
Fig. in
(Apr-Sep'06) |
Difference
in nos. |
%
Difference |
| a) |
Light Commercial
Vehicle (LCV)
(5-7.5 ton capacity) |
15,418 |
13,494 |
(-) 1,924 |
(-) 12.47% |
| b) |
Intermediate
Comm. Vehicle (ICV)
(8-12 ton capacity) |
17,270 |
17,892 |
(+) 622 |
(+) 3.60% |
| c) |
Medium Commercial
Vehicle (MCV)
(15-16.2 ton capacity) |
26,762* |
24,593* |
(-) 2,169 |
(-) 8.10% |
| d) |
Multi Axle Vehicle (MAV)
(25.2 ton capacity) |
55,206** |
44,121** |
(-) 11,085 |
(-) 20.08% |
| e) |
Multi Axle Trailer/
Vehicle (MAT)
(30-49 ton capacity) |
12,058 |
10,699 |
(-) 1,359 |
(-) 11.27% |
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Gross Total: a) + b)
+ c) + d) + e) |
126,714 |
110,799 |
15,915 |
(-) 12.60% |
* The Tipper truck sales in MCV category have gone up to 10,836 during
Apr-Sep'07 as against 9,362 in the same period last year i.e. (+) 15.74%.
** The Tipper truck sales in MAV category have risen to 11,002 during
Apr-Sep'07 as against 8,085 in the same period last year - up 36.08%.
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The last six months of this fiscal have, by and large, thrown ample light that there are some serious problems in availability of general cargo for truckers in the trucking industry which involves almost 3.5 million trucks and 2.5 lakh goods booking transport companies/contractors. It has to be understood that apart from expansion of Tipper truck sales to a specific sector like construction industry, the demand for general cargo vehicles is declining and existing fleet is not getting adequate business to operate viably in the present scenario in comparison to last 4-5 years, which saw excellent growth in cargo availability and demand for high tonnage goods carriages. However, Oct'07 has seen some reversal in trends of H 1 '07, as various sectors of economy are displaying robust growth on the back of massive investment in new projects and expansion in capacities in manufacturing sector.
Note: Indian Foundation of Transport Research and Training (IFTRT), based in Delhi, is engaged in research and analysis in the field of transportation and automotive sector. IFTRT through its network of over 40 resource persons in various parts of the country gathers regular information to bring out various reports / analysis at regular intervals. |
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