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V. K. Varadarajan

There has been a recent dramatic change in the trucking industry's fleet character from heavy commercial vehicles to light and intermediate commercial vehicles because of the latter's operational cost advantage.

SALES of commercial vehicles is one of the barometers of the economy. In a strange twist, though CV sales rose 35.7 per cent in the April-June quarter over the corresponding previous period, attributed to good rains, larger buying capacity in rural India, relaxation in grain movement rule and a modest 3.7 per cent growth in the manufacturing sector, it cannot be related to economic recovery.

"The jump in the sale of commercial vehicles has very little to do with general economic recovery," says a study by the Indian Foundation of Transport Research and Training (IFTRT). The reason was the quiet but definite shift towards fleet rationalisation at the national level as well as strategic moves towards redefining the relationship with the cargo-carrying capacity of a truck. Though the transport sector had to contend with the double whammy of continued recessionary trends and a sharp rise in diesel prices, switching to new modified payload versions of trucks which, with a lower operational cost and better fuel efficiency, could mean larger haulage at lower rates.

Tracing the developments in the CV industry vis-à-vis the economic slowdown, the IFTRT study said that, interestingly, it was the latter that had led to rationalisation as fleet owners and truck operators were forced to reduce the interest burden on loans contracted for the higher tonnage trucks which had little `run on the road'.

The process of truck fleet rationalisation and the jump in CV sales happened from mid-2001-02 on, though there was not even a hint of economic recovery then. A shake out in the trucking industry saw the weeding out of inefficient and unviable vehicles, which led to a dramatic change in the fleet character from heavy commercial vehicles to light and intermediate commercial vehicles (ICVs). Demand picked up in the latter categories, ironically with the slowdown in economy mainly because of their operational cost advantage, which gave them an edge over the heavy gross weight (25.2 tonnes), three-axle vehicles.

An equally impressive performance of the LCV manufacturers during the period was testimony to the shifting focus of the truckers who saw better returns on comparative better operational costs. Eicher Motors and Swaraj Mazda, that mainly form the LCV segment, registered an encouraging sales growth of 44.1 per cent and 33.9 per cent respectively in the first quarter of this fiscal.

The commercial vehicles industry saw a virtual boom between 1995 and 1997, when the economy recorded a phenomenal 7 per cent growth resulting in a surge in demand for vehicles. This period also saw various models of medium and heavy vehicles commanding a premium. But as the downtrend set in, the CV sector was pushed into gloom, forcing it to offer huge discounts. Re-sale of vehicles also dropped 40 per cent and default on repayment on loans also mounted to 20 per cent against the acceptable 5 per cent.

This had a great bearing on the standard fleet replacement cycle as the huge debt burden forced fleet owners to rationalise their asset holding in the face of the depressing demand situation. There was a dramatic drop in round-trips on trunk routes which had a severe impact on feeder routes. The tonnage hauled also dropped 10-20 per cent per truck in the last three-four years. This put pressure on the bottomline of the truckers as their operational cost per tonne became unviable.

Since 1991 — the beginning of economic reforms — large fleet owners had been curtailing their fleet, and small operators or truckers came to occupy the space with the advantage of operational cost advantage. However, the period did not witness any large-scale fleet expansion and fleet replacements in the medium and heavy commercial vehicles.

Thus, the LCV and ICV segments continued to grow, filling the space vacated left by their larger cousins. With the advantage of 50 per cent lower freight cost for the same route, the intermediate commercial vehicles with 5-7-tonne capacity grabbed some of the market from the LCV with 3.5-tonne capacity. Similarly, 9-tonne medium commercial vehicles lost out to the ICVs which enjoyed a definite operational cost advantage.

The indiscriminate rise in the CV population in the mid-1990s, with large number of new entrants in the trucking business, and the subsequent economic slowdown had lowered the productivity levels of a truck and its freight realisation due to inconsistent availability of cargo across sectors and regions.

The reason for the 5-7-tonne intermediate commercial vehicle emerging the favourite product for the replacement market was not just because of the higher load carrying capacity at lower operational cost, but also due to lesser capital investment and the lower maintenance cost giving it an edge also in faster turnaround capability.

"In an oligopolistic commercial vehicles market, the technological and pricing distortions are normal events and a hapless customer has to put up with the given situation.

The high profits at lower volumes and lower capacity utilisations by LCV makers is an example of indiscriminate product pricing and the same requires close scrutiny," said the IFTRT analysis.

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