Defaults and idle trucks abound as auto slump bites logistics sector

Production cuts by Maruti Suzuki India Ltd, India’s largest passenger vehicle maker, have left truck drivers such as Yadav without any work as there has been a decline in demand for trailer trucks, used to transport finished vehicles across the country.

The Suzuki Motor Corp. unit has in recent months announced production cuts at its factories in Gurugram and Manesar in Haryana. Others such as Tata Motors Ltd, Mahindra and Mahindra Ltd and Renault have taken similar measures at their factories across India.

The fortunes of India’s logistics industry are closely tied with those of the automobile sector. With the auto sector in the midst of a slowdown for the past 10 months, the logistics sector is facing the heat. There has been an increase in loan defaults by fleet operators, who have bought new trucks.

The automobile sector is not the only one to fault. With the Indian economy in the midst of a downturn, overall demand for other types of freight has also fallen, severely impacting the financial health of transporters and truck drivers.

Those who had planned orders for new heavy-duty trailer trucks have deferred them. This has impacted sales at commercial vehicle makers such as Tata Motors, Ashok Leyland Ltd and Volvo Eicher Commercial Vehicles Ltd, as well as their parts suppliers.

Like several others, the transport company where Yadav works as a driver has defaulted on its truck loans.

“I have been staying in my village for more than 15 days now and I don’t know when they will call me back. My company used to operate 30-50 trucks in Maruti’s plant in a month, depending on the demand but now hardly 20 trucks are plying. Salary was reduced to ₹8,000 from ₹12,000 and the long-distance driving allowance that I used to get has been stopped since there are no trips," said Yadav.

Fleet owners usually have contracts with vehicle manufacturers on purchasing new trucks. With new truck orders falling to a trickle, the dire situation has become a double whammy for commercial vehicle manufacturers, already reeling under the impact of the new axle load norms, which have also affected demand.

The new norms have increased the capacity of commercial vehicles by 15% on an average. The decision of automobile companies to transport vehicles via railways has also impacted business.

Kuldeep Yadav, another truck driver, is thinking of leaving for his native village near Manesar in the next few days, as the trucks owned by the company he works for are lying in the yard for almost a month now. Falling demand for small cars from the northern and eastern parts of India is another reason behind his plans.

“I used to earn around ₹30,000-35,000 in a month since I used to go on long trips to places such as Siliguri and Guwahati. With the production cuts and the auto company deciding to transport vehicles by train, we have nothing to do right now as demand in other parts of the country is also not great," said Yadav.

A passenger vehicle maker can send up to 200 cars on a train, while by roadways it would have to deploy 50 trailer trucks.

Financing options have dried up for fleet owners amid the shadow banking crisis in India that emerged in late 2018, leading the shadow banks, or non-banking financial companies, to drastically cut their loan disbursals and tighten lending norms.

A senior official of VRL Logistics Ltd, who did not wish to be named, said automobile freight has declined more than 20%, resulting in fewer number of trips by car carriers. “Most automotive logistics service providers have sized their fleet according to the market load and the number of trips they make in their respective regions or pan-India. Since a car carrier is a tailor-made solution to transport vehicles, it cannot be used to transport any other cargo if vehicle transportation is cut down. This leads to idling of these vehicles," he said. The official did not disclose the number of car carriers currently idle at VRL Logistics.

As the automobile sector shows little signs of a revival, some fleet owners, who are buying automobile carriers, are choosing used vehicles to rein in cost.

Umesh Revankar, managing director of Shriram Transport Finance Co., said new commercial vehicles are not selling due to excess capacity created by the new axle load norms, but he expects demand to rebound by September due to higher freight from agricultural produce and the festival period.

“The number of trips by a particular truck has come down but the good thing is freight carrying capacity has increased revenue per trip. Our loan portfolio has grown by 6% year-on-year in the April-June quarter," said Revankar.

Umesh Bhanot, managing director of APL Logistics Vascor Automotive Pvt. Ltd, a third-party logistics specialist, said that although more than 90% of all vehicles produced are transported to regional markets through roadways, the slowdown is felt also by the railway carriers.

“When the cargo volumes drop, it is natural that you have to park some of your assets," Bhanot said, adding that his five-year old company, which is a joint venture between APL Logistics and Vascor, deploys 16 double-decker rail wagons to transport vehicles. Each of these wagons can carry up to 300 cars at a time.