An auto-industry recovery appears far away. Vehicle-carrier companies are drastically scaling down. – ET Prime

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The fate of an entire industry is hanging by a thread. With losses and debt woes mounting, automobile-carrier companies, big and small, are drastically scaling down operations. Many are even selling a large part of their fleet, as business volumes have fallen off a cliff to about 20% of the pre-pandemic levels.

These automobile transporters, a key pillar of the automobile supply chain, have a chilling assessment of the ground realities. An auto recovery is far, far away. Even the festival season may well be a washout, they say. If this assessment is anything to go by, fiscal 2021 may well be much worse than what even Society of Indian Automobiles Manufacturers (SIAM) has projected.

All this talk doesn’t appear to be scare-mongering. Vehicle manufacturers do give an indication of likely demand in the future to these transporters, which, if anything, is sometimes inflated, say the carriers.

Consider the plight of the industry leaders in the automobile-carrier business.

Chetak Group plans to sell at least 400 of its 2,400-owned vehicles – trailers and trucks – and park about 70% of the remaining fleet in yards. “We don’t hope to get more than 25% of the business before December,” says Mukesh Haritash, the 44-year-old joint managing director at the Delhi-based logistics company.

KM Trans Logistics has six business divisions, including car transportation, container movement from ports to various locations, and tractor transportation. While it had 600 car trailers in the pre-Covid-19 time, it has come down to 140 now.

“Last year, the company had sold 200 vehicles. This year we will sell 250 vehicles. That is one of the ways out. We want to reduce some of the debt burden and generate urgently needed cash,” says Amit Chandwar, director, KM Trans.

And the smaller industry players are already in a shambles. Insiders say many small fleet owners with 50 to 100 vehicles will be wiped out in the next six months. They won’t be able to manage the pressure of spiralling costs and debts.

Every company in the automobile-carrier business has a similar story. The business of car and two-wheeler transportation is badly hit. It possibly couldn’t get any worse. A small fleet owner who transports bikes for Hero MotoCorp says it all, ” Hum road par kaam karte the. Ab road par aa gaye hain.” (We used to work on the roads. We have now been thrown on the roads).

It will be difficult for car trailers to find other use cases. but many two-wheeler transporters are trying to use their trucks to carry consumer durables and FMCG goods.

The long duration of recovery in the auto sector will stall India’s overall economic revival, particularly in the labour-intensive manufacturing sector. It’ll also add to the simmering jobs crisis in the country. According to a recent statement by Rajan Wadhera, president, SIAM at ETAuto fireside chat, the automobile industry can see a decline of about 25%-45%, which is like going back a decade.

Sitting idle as business disappears
Answering a call from ET Prime, Haritash of Chetak Group says, “We just finished a webinar. And what else do we have to do (chuckles). There is no business. The last two months have been good for family time but now everyone is just fed up,” he says.

Haritash is a second-generation entrepreneur. His father set up the logistics business 40 years ago in 1979. Chetak Group is one of the large companies in the business of automobile transportation and owns a combination of trailers and trucks to transport cars, two-wheelers, small commercial vehicles, and farm and construction equipment.

While some bit of demand for farm equipment such as combines and harvesters is still intact, the business of cars and two-wheelers is badly hit. Chetak Group also works for Tata Motors transporting truck chassis on trailers (commonly called truck-on-truck shipments). That business has almost become zero, resulting in major losses.

Chetak is selling at least 15% of its fleet. “Vehicles which have been sold at INR6 lakh in pre-Covid-19 days are now selling at INR3 lakh to INR4 lakh. Much of the buyers are in Punjab and Himachal Pradesh and are largely single-owner buyers who have got a good deal since the vehicles are in good condition. They are using them to ferry fruits and vegetables from farms to the mandis,” says Haritash.

An identical story is playing out across the automobile-transportation business as ET Prime discovered.

The hardest hit in the USD160 billion logistics universe
The survival and growth of the vehicle-transportation business tightly hinges on the growth of the automobile industry. The figures pretty much sum up the plight. According to SIAM, in 2019-20, the industry produced over 26 million vehicles, including passenger vehicles, commercial vehicles, three-wheelers, two-wheelers, and quadricycles. It’s an 18% decline over the same period last year.

The last two months have been the worst. According to Federation of Automobile Dealers Associations, “For the first time in history, April witnessed zero retails. Vehicle registration for the month of May plummeted by -88.87%. (See graphic above) The first ten days of June saw extremely low demand, though most dealerships across the country were open for business.”

Why is automobile logistics important?
In 2018, India became the fourth-largest auto market in the world with sales clocking four million units. The logistics from the manufacturing plants to about 15,000 auto dealers across the country is taken care of by myriad companies that specialise in four-wheeler and two-wheeler transportation.

According to industry sources, there are about 120 companies owning 15,000 specialised trailers used for transporting cars and small commercial vehicles. On the other hand, there are about 200-odd companies specialising in transporting only two-wheelers. Together they own 20,000 such trucks – 32 feet trucks, specifically designed to carry as many as 40 scooters or bikes.

Some companies also use the truck-on-truck concept to transport truck chassis (the basic truck body) over trailers. Many large companies ferry everything – scooters, cars, bikes, trucks and tractors or small commercial vehicles.

The large companies own about 500 to 800 trailers. Medium-sized companies such as Mercurio Pallia have about 300 trailers while smaller ones have less than 100 trailers.

The vehicle-carrier business is more stable than other segments of the logistics business. This is because most companies work via auto renewal contracts with the vehicle manufacturers that may range from one year to five years – contracts are renewed automatically unless something horribly goes wrong. Although some vehicle manufacturers accommodate the increase in diesel cost, some don’t.

Vehicle transportation is tailor-made for automakers
Those moving cars invest in highly specialised vehicles as per the automakers’ requirements. It all started in 1983 when Maruti Udyog came in, say industry old-timers. Legally there was no ‘car carrier’ mentioned in the Central Motor Vehicle Act until 2016 when the Ministry of Road Transportation and Highways legalised car carriers.

Trailers make up for more than 80% of the car transportation in the country.

For some context, a trailer can carry eight small cars or six sedans. Trucks can carry five small cars or four sedans. The preference of trailers over trucks comes from the shortage of drivers – companies can transport larger volumes with trailers.

Trailers are also safer for car transportation since they run at a slower speed and the car wheels can be latched to the vehicle to prevent damages even in situations such as trucks overturning.

Automakers mandate GPS tracking and live visibility of truck location, besides being fitted with reverse gear camera since these are long vehicles. There is a lot of focus on driver training. The truck body is partitioned into two halves to ferry about 40 bikes in a single truck.

The capital-intensive nature of the industry is hurting logistics companies the most. Car trailers and two-wheeler trucks are costly (at about INR35 lakh and INR20 lakh, respectively) and most vehicle manufacturers don’t allow sub-contracting of trailers. So, they have to be necessarily owned by the logistics company. If these vehicles are not working at their optimum levels, companies can pile up losses.

Imagine the plight of all large and small transporters, who on one hand are riddled with a heavy debt burden, and, on the other, capacity utilisation has dropped to less than 20%. Even in the pre-pandemic period, the ground reality was sombre. By January this year, transporters were at 80% of their capacity.

Railways eat into the pie
“2015 to 2017 was a golden time for us,” reminisces Haritash of Chetak Group. “In 2018, automakers told us to add 400 to 500 new trucks because they expected the market to grow bigger in 2019. We had to prepare at least six to nine months in advance to handle increased volumes. And we did. But it (demand) actually contracted leaving a large part of our fleet idle,” he says. The calculation went wrong for a majority of transporters.

“At our peak in 2017, we were transporting three million cars a year,” says Vipul Nanda, founder and board member at Mercurio Pallia Logistics. He is also the president of Car Carrier Association. “So, most companies invested in their fleet accordingly. But in 2018 because of the GST, sales came down by about 10%. Another 6%7% was taken away by the railways. The NBFC crisis also hit car financing,” he says.

Initially, logistics companies thought railways would not cannibalise their share because the market was growing. “We anticipated growth in volumes by 10% to 15% which could easily accommodate the entry of the railways. So, there was no need to worry. But that did not happen. Volumes actually started to fall and we started feeling the pinch,” says a promoter of a logistics company.

So, while the size of the cake did not increase, Indian Railways continued to nibble into it with the aim of taking up at least 15% to 20% of the overall freight. According to an industry estimate, about 250,000 cars per annum are being transported by railways. Train transportation is fast picking up on long-haul routes such as Delhi- Bengaluru/Chennai, Delhi-northeast, Chennai- northeast, and Chennai- north India.

According to Chandwar of KM Trans Logistics, long-haul loads to the northeast have absolutely dried up, with railways taking over. “From the last two to three years, we are not getting any loads to the northeast, from any of the automakers. From Chennai to Guwahati, Bengaluru to Guwahati, Pune to Guwahati, Nasik to Guwahati, Ahmedabad to Guwahati,” he says. Automakers gain about 10%-12% in freight costs on these routes but railways are faster by about 24 hours because they don’t have to face any hindrances like traffic jams.

But there are challenges in rail transportation as well, say experts. Road transportation involves one-time car handling from factories to dealer points. [Transporting via] Railways involves three-tier handling. It entails movement from factory to the railway yard, from the railway yard to rakes. Then they unload from the rakes to railway yard, then railway yard to dealer point.

Nanda of Mercurio Pallia says, “There may be a temporary respite since in the current situation demand in urban consumption centres is badly hit and it is tough for railways to get bulk loads.”

Covid-19 skews load imbalances
The flow of cargo across different regions is not balanced, leading to revenue uncertainties. About 60% of the cargo movement is between north and south India and between north and west India. Popular hubs are Gurugram, Bengaluru, and Chennai and backwards. There is no return cargo available from the northeast.

The load imbalances have only risen because most plants are yet to restart production in full swing owing to challenges of labour and spare-parts availability. According to Chandwar, in the current circumstances, getting loads from north to south India and north to west India is a huge challenge.

“Generally, we pick up loads from Maruti factories in Gurugram, Manesar, and Gujarat and go south to Chennai and get return loads back from Hyundai and Ford. But we are not able to send our vehicles there because Maruti has very minimal loads at present,” he says. Generally, KM Trans gets loads from Maruti (Haryana), Hyundai and Ford (Chennai), Toyota (Bengaluru), Kia Motors (Anantapur), M&M (Zahirabad and Nasik), Tata Motors and M&M (Pune), MG Motors, Tata Motors, and Maruti (Gujarat).

Selling assets
Already in the grip of a slowdown, many transporters started selling their vehicles from March 2019 onwards.

Some of the overcapacity has to do with the indications of demand automakers pass on to the transporters. According to a member of Automobile Carriers Welfare Association (it has about 350 members), “Many times they (automakers) pass on an overestimate of vehicles required without giving as much loads to transporters,” he says. This fleet owner, who works with Hero MotoCorp and Honda, had 70 trucks in 2016-17 but has sold many to be left with 35 now. “Vehicle manufacturers must give loads to small and large transporters judiciously, so that everyone survives. That is my humble suggestion,” he says.

But those who managed to sell their assets last year are lucky. Selling is not easy in these turbulent times – simply, there aren’t many buyers.

Will the festival season bring hope?
Automobile sales, specially passenger car sales in India, are highly seasonal. The festival season beginning September is expected to give some indication on how the industry is going to behave. However, this will also be a month when the EMI moratorium ends and companies will be required to pay interest on loans piled up for six months. That, alongside a fixed cost of up to INR1 lakh per vehicle due to taxes, permits, and maintenance will be a huge cost to bear.

But companies don’t expect to reach even 50% to 55% capacity level by September or October, given muted demand.

The way forward
Most companies who hope to survive somehow are thinking hard in terms of a complete organisational restructuring. Some are digitising and automating processes to reduce dependence on manpower and increasing the output of the existing fleet. “Probably you will have to do more kilometres with the same trucks. Say, double drivers on the same trucks so that they can do extra trips,” says Nanda.

When those with about 800 trucks are reducing capacity by half to survive, what will happen to those with less than 100 trucks? It’s a grim outlook for auto transportation companies, and may even add to supply-side bottlenecks for the industry in the near to medium term.

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