Transportation India Market Intelligence

Industry Outlook & Drivers

Regional Market Outlook on Transportation India 

Trucking industry is mostly driven by agriculture goods and core sector shipments, such as manufacturing, construction, consumer goods, electronics and automotive

Road freight carries about 65 percent of the overall freight in India and contributes more than 6 percent to the country's GDP in terms of logistics cost

State of Trucking Market in India

• The trucking market in India is highly fragmented, with large number of operators of different size, ranging from owner–operators to large trucking companies, with truck fleet of more than 100 trucks
• Only 10 percent of the service providers own more than 20 trucks while companies with less than 5 trucks contribute 75 percent, highlighting the fragmented market

Truck Characteristics in India

• Generally, 40% of the trucks operating in India are less than 6-year old, and about 34% of the trucks are more than 10-year old
• The average age of the trucks is set to go down in the coming years with the government planning to ban trucks that age more than 15 years

Transition to Fuel- efficient Trucks

• Fuel-efficient trucks in major trunk routes (NH 7, 8, 9, 4) are expected to increase by about 30–40% in the next 2–3 years, which will reduce the fuel cost per Km in these routes
• Smoke-spewing trucks mainly used for long haul are in for a total makeover with government clearing norms for LNG refuelling stations in order to reduce pollution

Supply Demand Scenario – India

About 110 new logistics parks are expected to be operational with a approximate cost of USD 1 Billion, road freight is expected grow with huge opportunities and developments

Indian freight transport market is expected to grow at a CAGR of 13.35% by 2020 with manufacturing, retail, FMCG and e-commerce sectors expected to remain as the major contributors.

Seasonality can impact the trucking industry:

• In general, sourcing of trucks during May–June incurs additional cost, due to high demand from mango harvest. Hauling of mango is preferred by the truck operators, as the haul is transactional with immediate cash-in-hand for all the shipments
• The average freight rates are higher by ~8–10% in summer and monsoon months, compared to winter and spring months for all the major routes

Macroeconomic Factors - Its impact on Trucking Industry

• The daily revision of fuel prices has impacted road freight on a large scale with fuel cost being the major operating cost as the price volatility has made it difficult to decide on the operating cost
• GDP growth for 2018 is estimated to be around 7% with a slight increase from 2017. With the consistent GDP growth, the demand for trucking is expected to be healthy due to consistent demand from all industries
• GST is expected to cut logistics cost by more than 40 percent by removing double taxation and reduce hours wasted on checkpoints en route to major cities in India

Trucking Cost Structure and Related Cost Drivers

Truck driver shortage has been on the rise due to insufficient salary despite the consistent demand for road freight and the industry could face shortage of supply in the near future unless truck driver wages are standardized

Fuel prices are revised on a daily basis in order to pass on the price variations in global crude oil prices which has made it difficult for trucking service providers to decide on the operational cost

• Fuel Cost: Fuel cost contribute almost half of the overall operating cost and they have increased by more than 7 rupees since August 2017 which is a 7 percent increase in the fuel prices and ~4 percent increase in the overall operating cost
• Driver Wages: Driver wages in the country are not regulated and the average monthly wages of a truck driver is ~20,000 rupees.Truck driver shortage has been on the rise and was around 20 percent by end of 2016 as they opt for driving cabs where they earn thrice the salary
• Toll and Maintenance: : Higher average age of trucks and condition of roads results in higher maintenance cost for trucks while state tolls play a major part in influencing the operational cost

Road Freight Index and Diesel Price Correlation

Road freight prices are expected to be on the upward trend due to the expected increase in global crude oil prices as well as increasing demand from the manufacturing sector but trucking capacity should not be a concern for shippers

Road freight prices have maintained a high level since Q2, 2017 which is attributed the overall increase in trucking demand as well as increasing freight rates

• Diesel prices have been the major contributing factor in the trucking cost and have been highlighted by the fact that they are direct correlation with road freight index
• Road freight prices are generally high during summer due to high demand while during monsoon the prices remain the same despite dip in demand, driven by the fact that the roads are tough for driving

India - Porter's Five Forces Analysis

Large shippers like FMCG companies have strong buyer power due to a highly fragmented industry.

Supplier Power

• Availability of service providers in abundance and short term cargo movement on a large scale means the suppliers have lower bargaining power
• Oversized cargoes and project cargoes are the industries that provide suppliers with higher bargaining power

Barriers to New Entrants

• Trucking business is easy for small time entrepreneurs in India due to easy financing with down payments of only 10 to 15 percent
• The regulations for setting up a trucking company is minimal with driving license, basic skills and qualifications enough for truck drivers

Intensity of Rivalry

• Competition is high as the market is unintegrated as well as fragmented, with companies owning less than 5 trucks forming 75 percent of the industry
• Differentiation is done mainly in pricing which makes the industry highly competitive

Threat of Substitutes

• Rail freight is the only major substitute that can really challenge road freight but lags behind on a large scale due to limited accessibility, so the threat is between low and medium
• Real time tracking of fleet and capability to reach interior India nullifies the threat of substitutes

Buyer Power

• High volume and regular consignment shippers have strong bargaining power as compared with the service providers
• The country's size and limited availability of national service providers, reduces the buyers bargaining power on long distance cargo movement