Truck rental business slumps 10% on poor cargo availability

Truck rental business slumps 10% on poor cargo availability

The truck rental business has been severely impacted due to the pandemic. After a brief revival during the festive season, the sector has again slumped due to a combination of factors.

During the two-month-long countrywide Covid-19 lockdown, the nationwide truck movement in India was severely impacted. However, from the historic low in April 2020, with the gradual reopening of factories and businesses, truck rentals and movement was improved, especially during the festive season. But, post the festive season, in December 2020, truck rentals in India have witnessed a slump by up to 10%, claims the Indian Foundation of Transport Research and Training (IFTRT).

A combination of several factors played a key role in this slump in truck rentals. These include the poor cargo availability from factories, lower cargo movement, sky-rocketing diesel price, etc.

Availability of cargo from the factories across industries, dipped by 8-10% in the last month of 2020 due to dampened demand, resulting in lower truck fleet utilization. The MSMEs have adopted the strategy of lower production due to a drop in demand in the post-festival season.

On the other hand, diesel prices shot up by around Rs 2 per litre, impacting the truck movement severely. The pricing of truck rentals too has been impacted due to these. However, food item movement across India remained steady during this period, as the IFTRT research claimed.

truck rental
Source: IFTRT

Truck movement drops 3-4% on key routes

There are several important truck routes across India that play a key role in cargo movement. The data by IFTRT shows that the main route like Delhi-Mumbai-Delhi registered around a 3% drop in truck movement. Other key routes like Delhi-Hyderabad-Delhi, Delhi-Kandla-Delhi also witnessed a drop of 4% in cargo truck movement.

According to SP Singh, Senior Fellow at IFTRT, the slowdown in the truck rental would continue for at least the next two quarters, unless the government pours in additional investment into the infrastructure segment.

Almost all the automakers in the country have increased pricing of their vehicles across segments, between 2.5-10% from January 2021, citing the rising input cost due to higher commodity prices as a reason. This would upset the demand for the trucks further and delay the recovery in the segment as well among others.

truck fleet truck rental

Impact on CV sales

The dampening demand resulting in lower truck rental activity will eventually impact commercial vehicle sales as well. The CV segment is yet to recover from the Covid-19 shock, which the passenger vehicle and two-wheeler segments have already recovered. The key reason behind the lackluster performance of the commercial vehicle segment is the dearth of truck rental and road cargo movement activity.

Fleet operators are bulk buyers of medium and heavy commercial vehicles (MHCV). With the low truck rental activity due to lack of fleet utilization, the fleet operators are unable to replace their existing trucks as their profitability has been impacted severely. Instead of buying new BS-VI trucks, they are opting towards retaining the existing BS-IV trucks for another 3-4 quarters.

Currently, the truck industry ecosystem in India attributes more than 75% to the small fleet operators who own less than 5 trucks. On the other hand, less than 11% are large fleet operators owning more than 20 trucks.

Around 70-80% of the demand in the commercial vehicle segment is attributed to the replacement market. In December 2020, the MHCV retail was down by around 35-40%, as compared to the same month a year ago. The overall decline in the heavy truck segment is expected to be between 35-50% in FY21. However, the tipper trucks could see a revival in demand as the construction activities have been witnessing gradual resumption.

Also, the mini trucks, pick-up vans, and other light commercial vehicles are showing an uptick on the back of massive growth in the online goods delivery sector during and after the lockdown, as people avoided outdoors. This surge in the activity has resulted in increasing demand for the last mile delivery logistics system, leading to sales of light commercial vehicles.

As per data revealed by CV giants like Tata Motors, Ashok Leyland, Mahindra & Mahindra, and Volvo Eicher Commercial Vehicle, the LCV segment was the fastest growing in November 2020.

The e-commerce sales during the last festive season starting mid-October witnessed a 65% growth, as the companies registered a record $8.3 billion in order volumes. This was even higher than the industry forecast of $7 billion.

In the first half (April-September) of FY21, during the most impactful timing of the nationwide lockdown due to the Covid-19 pandemic the Indian commercial vehicle industry volumes went down by approximately 56% as compared to the same period FY20.

According to industry experts, the YoY demand and growth recovery in the CV segment, especially in the medium and heavy truck (MHCV) segment, is expected only in FY22, which too depends on several factors. The pickup in factory activities and goods movement will aid in the growth of truck rental activity, which will result in demand and sales revival in the commercial vehicle segment.

Also Read: Successful mindsets: A witness account

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: