Overcapacity and Continuing Overloading Keep Truck Sales Down

An IFTRT Report

Truck Sales (> 5-tun capacity) drop by 7.40% in Dec'07 in comparison to December 2006 despite higher discounts and cut in auto finance interest rates on truck purchase, and truck rentals decline by 4%-6% due to less cargo offerings after the end of peak festival season. Trucker Unions/transport intermediaries in market are aggressively gearing up for steep increase in freight rates in case of increase in diesel price as international crude price nears $100 per barrel.

Since Dec'06, the international crude oil prices have gone up by almost 55% i.e. from $61.05 in Dec'06 to $95.00 per barrel in Dec'07. On the contrary, the public sector oil companies had reduced the diesel price by Rs.1/- per litre during this period when the oil prices softened a bit for a short time.

The advent of new year witnessed a sharp increase in international crude price to $100 per barrel. While the Government of India has given inkling time and again that the revision in petroleum prices cannot be avoided, it has not had the political courage to allow PSUs to increase the petroleum product prices in line with the steep increase in international crude prices.

The Government of India has also been toying with the other option to bring down tax burden on petroleum products and to convince State Governments to review Sales Tax / VAT on diesel and petrol prices. However, the truck markets all over the country are in a state of readiness for upward revision in truck rentals and general freight rates in anticipation of the petroleum price hike. These developments are expected to impact the truck sales in the last quarter of the current fiscal.

Truck Sales:

The truck sales (5 ton - 49 ton capacity) continued to remain sluggish for the ninth month running in the current fiscal with 7.4% decline in Dec'07 The moderation in manufacturing sector growth, particularly in the SME sector, is putting pressure on truckers to avoid fleet expansion. Table-1 gives the segment-wise truck sale trends.

The truck manufacturing industry had, during Feb / Mar'07, forecast that in the FY2007-08, the truck sales would witness a growth of 10%-15% as against 20%-25% growth during the previous 3 fiscals. However, the market response has been lukewarm, as the truckers have virtually clamped embargo on fleet expansion and have been buying new trucks only to replace their ageing fleet. The slump in small and medium manufacturing sector during Apr-Aug'08 and continuous overloading of trucks had put disincentive on fleet expansion. On top of it, the truck market is witnessing a severe shortage of skilled / trained drivers for heavy commercial vehicles. The following table explains that truck sales (5 ton - 49 ton capacity range), operating on intra-State, inter-State and on trunk routes, have dropped by double digit during Apr-Dec'07.

Table-1 : Truck & Trailer Sales - A Comparative Trend (Month - Dec'06 & Dec'07)

Sl. No.	Category/ Segment	Sales Fig. in Nos. (Dec'06)	Sales Fig. in Nos. (Dec'07)	Difference in Nos.	% Difference
a.)	Light Commercial Vehicle (LCV) (5-7.5 ton capacity)	2,938	2,746	(-) 192	(-) 6.53%
b.)	Intermediate Comm. Vehicle (ICV) (8-12 ton capacity)	3,542	3,610	(+) 68	(+) 1.92%
c.)	Medium Commercial Vehicle (MCV) (15-16.2 ton capacity)	6,040*	5,713*	(-) 309	(-) 5.12%
d.)	Multi Axle Vehicle (MAV) (25.2 ton capacity)	10,838**	9,313**	(-) 1,525	(-) 14.07%
e.)	Multi Axle Trailer/ Vehicle (MAT) (30-49 ton capacity)	1,887	1,976	(+) 89	(+) 4.71%
Gross Total : a.) + b.) +c.) + d.) + e.)		25,245	23,376	(-) 1,869	(-) 7.40%
* Although, the MCV sales were down by 5.12%, the tipper truck (used in construction activity) sales in this category remained virtually unchanged in Dec’07, the sales figure being 2853 units as against 2870 units in the same period last year. ** Similarly, in MAV sales were down by 14.07%, while the tipper trucks sales in this category were up 27.5% in Dec’07. However, the tipper sales month on month have been sliding during Q3 07-08.

 
Sales of trucks in the general cargo category have dropped steeply during the current fiscal as a result of overcapacity created during the previous couple of years in the trucking sector with overloading of trucks continuing in a blatant disregard of the Supreme Court orders. The main demand for trucks has been coming from construction industry and infrastructure building sector. The truck sales figures in the cargo segment would make a poor reading, if tipper truck sale figures are removed from overall truck sales.

Table-2 : Truck & Trailer Sales - A Comparative Trend (Apr - Dec'06 & 07)

Sl. No.	Category/ Segment	Sales Fig. in Nos. (Apr-Dec'06)	Sales Fig. in Nos. (Apr-Dec'07)	Difference in Nos.	% Difference
a.)	Light Commercial Vehicle (LCV) (5-7.5 ton capacity)	24,052	21,583	(-) 2,469	(-) 10.26%
b.)	Intermediate Comm. Vehicle (ICV) (8-12 ton capacity)	27,652	28,950	(+) 298	(+) 1.08%
c.)	Medium Commercial Vehicle (MCV) (15-16.2 ton capacity)	43,648*	40,325*	(-) 3,323	(-) 7.61%
d.)	Multi Axle Vehicle (MAV) (25.2 ton capacity)	85,306**	27,289**	(-) 15,017	(-) 17.60%
e.)	Multi Axle Trailer/ Vehicle (MAT) (30-49 ton capacity)	18,000	16,055	(-) 1,945	(-) 10.81%
Gross Total : a.) + b.) +c.) + d.) + e.)		198,658	177,202	(-) 21,456	(-) 10.80%
* The situation could have been worse for the MCV category but for the 12% growth of tipper sales in MCV category to 18,815 units during Apr-Dec'07 as against 16,757 units in the same period last year. ** Similarly, while MAV sales were down by 17.60%, tipper truck sales in this category were up 34.23% in Apr-Dec'07 (17,489 units as against 13,029).

 
Heavy discounts and cut in auto finance interest rate to 6% currently as against 7.5% in previous quarter (Jul-Sep'07) have failed to lift truck sales. Truck sales normally peak in the last quarter of every with transporters availing the Depreciation benefit under the Income Tax Act to minimise their annual tax burden. However, truck sales are expected to be below last year volume despite induction of new models in heavy truck category with lower introductory prices.

Current Truck Rental Trends:

The truck rentals during Dec'07 dropped 4% - 6% on account of decline in business activity associated with this period of a year. The truck rentals could have dropped by 8% - 10% in this period in relation to poor availability of cargo but for the expected increase in fuel price during Dec'07. Table-3 explains the monthly trend in truck rentals during Dec'07:

The failure of Centre Government to reign in the cement and tyre cartels in the country has emboldened the re-emergence of transporters cartels in various trucking/ trading centres. The Government of India and State Governments will have to keep a strict vigil to stop the cartelisation by truck unions in States like Punjab, Haryana, Himachal Pradesh, Uttarakhand, Bihar, Jharkhand, Chhattisgarh and parts of Western Uttar Pradesh, Rajasthan and West Bengal.

Table-3 : Truck (16.2 Ton GVW) Rentals (Rs. Per round trip as on 4th Jan'08 over 4th Dec'07

Trunk Route	Quarterly Rental Movement (per Round Trip)		Truck Rental Increase (per Round Trip) Period 4 Dec'07 - 4 Jan'08		Diesel Price (Per round trip)
Round Trip / 9-ton payload	Freightage 4th Dec'07	Freightage 4th Jan'08	Rs.	%
Delhi-Mumbai-Delhi	40,800	39200	(-) 1600	(-) 3.9%	No Change
Delhi-Nagpur-Delhi	40,300	38700	(-) 1600	(-) 4.0%	No Change
Delhi-Kolkata-Delhi	44,500	42500	(-) 2000	(-) 4.5%	No Change
Delhi-Guwahati-Delhi	89,500	84500	(-) 5000	(-) 5.00%	No Change
Delhi-Hyderabad-Delhi	58,300	55000	(-) 3300	(-) 5.58%	No Change
Delhi-Chennai-Delhi	76,100	72000	(-) 4100	(-) 5.38%	No Change
Delhi-Bangalore-Delhi	63,000	59000	(-) 4000	(-) 6.34%	No Change
Delhi-Ranchi-Delhi	43,000	41000	(-) 2000	(-) 4.65%	No Change
Delhi-Raipur-Delhi	39,400	37500	(-) 1900	(-) 4.82%	No Change
Delhi-Kandla-Delhi	27,700	26000	(-) 1700	(-) 6.13%	No Change
Delhi-Bilaspur-Delhi	38,900	37000	(-) 1900	(-) 4.88%	No Change

 
As for the cargo availability, it is expected to gather momentum from the 2nd half of February on the back of jump in manufacturing activity on account of annual financial closing on 31st March.