Team Lobb
March 2, 2022

In early September, one of the largest Commercial Vehicle (CV) players in India, Ashok Leyland announced a shutdown schedule. This announcement preceded the news of the 59% drop in the production of medium and heavy commercial vehicles (M&HCVs). There are various speculations with the story, and some believe it is due to urban and rural consumption. According to a report by Kotak Securities, rural consumption is weak because of almost stagnated income from farming. The urban consumption is low because of less saving rate and worse financial conditions with lesser salary increments, especially for government employees.

Similarly, the infrastructure sector showed a sharp decline for the first time in four years in August. Industries including coal, crude oil, cement and electricity all had negative growth, making the sector decline overall at 0.5%.

Further adding to the worry, the factor outputs have shrunk 1.1% opposite to the prediction of the economists who predicted that it would grow to 1.86%. This sharp decline in capital production of goods and customer durables is the weakest in seven years.

More decline in production means lesser loads amid excess capacity and reduced freight rates for the truckers. Many truckers are unable to use their vehicles due to the absence of cargo. If this situation persists, the livelihood will be in question.

The truck industry primarily works on supply and demand. With excess capacity in the market and decline in cargo transport, the owners do not have much say at the freight prices hence showcasing a reduction the monthly revenue for the trucker. In July 2018, the government had increased the axle limit, allowing a truck to carry 20-25% more than the stipulated norms, depriving others of cargo. While some consider the axle limit capacity as a reason for the demand decline, the overall supply decline is alarming.

It is devastating to see the situation of people dependent on the trucking industry. The truckers are finding it difficult to pay their EMIs, picking-up loads at any and lower freight rates. There is a higher chance of their vehicles getting seized by the finance companies if the trucker is unable to pay the EMIs. Many truckers are carrying goods at a loss just to keep their vehicle running to combat the economic slowdown.

Echoing the issue greatly, the Indian Foundation of Transport Research and Training observes a decline of 15-17% on truck rental in truck routes in the last ten months. Even during the global economic slowdown of 2008-09, the drop was 12-13%. Considering the 4% rise in diesel prices since January this year, the truckers are still not able to use the benefits from the cost reduction.

Reports show that as many as 60% of the one crore trucks in India have been idle due to non-availability of cargo. This statistic is in line with the manufacturing decline of 70% shown by Ashok Leyland and 58% shown by Tata Motors in August. Truckers have put off their purchases exacting with the drop.

While the truck industry is hoping for better demands during the festive season and good agricultural produce which may boost the market and help with more movement of cargos, the spiral of an economic slowdown may further drop the economy.

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