The Indian logistics sector accounts for 14% of the GDP. 70% of this is from the Indian road freight industry. The estimates state that the market value of road freight India is approximately $160 billion. Out of this, up to $140 billion is the market value of the FTL or the full-truck load market in India. Beroe states that there are many cost elements that contribute. These costs include diesel costs, maintenance costs, tire costs, and labor costs. For example, in the year 2018, there was an increase in diesel, labor, and maintenance costs while the tire and lending rates were lower in the first quarter of the year.
The road freight India industry is a highly competitive market when it comes to pricing. The duration of the contract can be anywhere between one to two years. The bidding takes place where the service provider who quotes the lowest freight charge wins the contract from large companies. Long contracts do not always mean that the service providers will be safe from the increase in costs such as fuel which are not stable. For example, larger consignments are cheaper for the service provider rather than smaller consignments. This is because each trip’s individual cost is high. This helps service providers cover costs that have hiked such as fuel cost.
In order to predict the future, it is important to go back to the freight market analysis of the past. The Indian truck market performed poorly when trucking regulations and economic reforms were introduced. This was the case for the first two months of 2018. However, from the third month onwards, the demand increased and the freight market saw a ray of hope. This is because the demand from the industrial industry, retail industry, and agriculture industry increased. This caused the overall freight rates to increase due to a hike in fuel prices and the sudden demand growth. In the future, Beroe states that a hike in any of the cost components will result in higher freight costs.
The industrial sector saw a growth of 6% in 2018 and this might be the case in the coming years too because of an increase in demand for construction among other factors. A high retail volume can push the demand for India’s road freight industry as it had done in the past. When it comes to supply, Beroe states that the truck market saw an increase in sales of up to 20%. This is because the new trucks that have been introduced are cost-efficient since they can take a higher payload and they meet the compliance standards. Generally, the transporters added trucks with over 30 MT payload. This trend is likely to continue as the demand increases.
Rivigo is a logistics company that introduced NFI or National Freight Index in India. The purpose of the NFI is to provide freight rates for the numerous vehicles and lanes that are present in the country. India’s road freight industry can possibly see a gain from this because earlier the transparency of freight costs was an issue and constraint. The basis of the NFI is Rivigo rate exchange. This can help boost the market and provide a freight rate benchmark. In addition, it will help streamline the market. The NFI uses historical insights and current rates to show how the price is changing in the industry. The rate updates take place in real-time.
One of the constraints that can put a brake on the industry or that can slow down the growth is truck placement issues. This is especially the case during the peak season. If transporters are able to address this issue then the increase in the supply of trucks won’t pose a problem if the demand increases further. However, there is another problem that might cause a slump in the growth of the industry. Beroe predicts that by 2023, there might be a shortage of truck drivers and this will have an impact on the Indian road freight industry. This is because of the working conditions which are less than favorable.
According to the 2020 market intelligence report by Beroe, the Indian road freight industry will see an increase in prices if any of the cost components see a price increase. As the demand peaks, the road freight sector will see further growth. This will help meet the growing demand that can increase in the near future too as India continues to develop. However, the constraints can pose a problem for the industry’s growth. If these issues are dealt with at the earliest, then the Indian road freight industry will be able to grow at a steady rate in the future.