Domestic CV industry victim of economic slowdown and overcapacity: ICRA
Published On Sep 17, 2019
The ongoing downturn in the Indian commercial vehicle industry, mainly through recent quarters has been a worrying sign for all involved. Now, as per the corporate rating agency, ICRA, much to blame on this slowdown in Commercial vehicle sales and demand is the economic slowdown that finds its roots elsewhere. Another major reason for the slow CV market is said to be the surplus capacity despite efficiency gains as well.
One of the major boosts for the Indian commercial vehicle industry has been the introduction of the E-Way bill system that has increased efficiency in the system. This digitization of the processes on one hand has brought in many positives in streamlining the work flow for transporters. But on the other hand, it has translated into an increased capacity for the current existing commercial vehicle Volume directly affecting the new truck sales.
As per ICRA, the recent new rule implementations like increased axle load, a rather tight liquidity crunch across all sectors especially in the NBFC ecosystem and the overall economic slowdown has resulted into further lower freight demand in the industry. The IAL or Increased Axle Load norm came into effect since July 2018. It saw an overall increase of 15-20 percent in load capacity of all fleet operators and Single vehicle owners alike. This has put pressure on the freight rates across the board.
The IAL is set to transform our local Commercial Vehicle industry and bring it on par with international standards but it has sadly matched itself with a downturn that has spanned across far too many quarters. Thus, on one hand there has been a rise in operating costs for the operators due to higher fuel costs and lower freight demand in the market along with other serious overheads like EMI’s and salaries.
These same concerns were mirrored by Shamsher Dewan, Vice President & Sector Head - Corporate Ratings, ICRA, who said, “Given the subdued freight rates, low freight availability and increased operating costs, the viability of fleet operators have come under pressure over recent quarters, which has also contributed to lower demand for CVs.” As per ICRA, it is the small fleet operators (SFOs) who have borne most brunt of the pressure due to this larger issue. However, larger, bigger and more well-funded organized fleet operators have shown better resistance towards this downturn. They, in fact have shown a slight increase in volumes, further proving the woes of smaller players in the market. The negative effect of the implementation of GST and E-way bill can be understood to be a major reason behind the SFO’s turning in bleak reports since they have found it harder to pass on the increased compliance costs to its customers.