Four Factors Contributing To Logistics Sector Facing The Slowdown Blues

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Four factors contributing to logistics sector facing the slowdown blues

By Sonal Bhutra | Sep 17, 2019, 11:52 AM IST (Updated)

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CNBC-TV18 spoke to a number of road transporters and the dip stick survey indicates that there is a capacity-demand mismatch in logistics sector. While the capacity has increased by 7-8 percent, demand has increased only by 5 percent in last couple of months. The trucking segment has recorded a flat growth owing to a number of factors and the worst impacted are the smaller players.

Four factors contributing to logistics sector facing the slowdown blues

“Slowdown” is a word that is repeated ad nauseam but let’s face it, it is a reality. So far we have been talking about the slowdown in automobiles, real estate and infrastructure. One sector that has been surreptitiously facing the brunt of slowdown is the logistics sector especially small players in the road transportation.

CNBC-TV18 spoke to a number of road transporters and the dip stick survey indicates that there is a capacity-demand mismatch. While the capacity has increased by 7-8 percent, demand has increased only by 5 percent in last couple of months. The trucking segment has recorded a flat growth owing to a number of factors and the worst impacted are the smaller players.

Transition to BS IV

According to some small logistic players, transition to BS IV from BS III led to some cost spike in the logistic sector. Post GST they did start getting input tax credit as the new laws under Section 17(5) of the CGST act allowed input tax credit for vehicles used to transport goods. However, the impact was set off as they purchase cost was higher due to change in norms.

For example, if a BS III vehicle was costing Rs 28 lakh, then post the input tax credit the same would cost around Rs 22-23 lakh. But this did not really help as post implementation of BS VI, the costs were higher by around Rs 4-5 lakh ultimately negating the positive impact of GST transition.

Additionally, the transition to BS VI might add to further costs for these players.

Axle Load Norms

Axle load norms were not only negative for the automobile industry but it also impacted the logistics players for two reasons: first their competitiveness reduced as efficiency gains from being able to carry more rated load per trip had to be passed on through lower spot rates. Also, higher load required more consumption of fuel and also higher maintenance costs.

Other Costs

Post the implication of GST, the sector did see higher turnaround of trucks and lesser travel time for them due to lesser checks and e-way bills. However, this did reduce the life cycle of those trucks and led to higher depreciation and higher maintenance costs. Not only that, there has been increase in road taxes across states, thereby crunching margins further for these players.

Lower Freight Rates

Amidst all the hullabaloo regarding higher costs, the bigger disappointment for these guys has been the fact that freight has not really gone up. In fact, for truckers, “core rentals” (i.e. nominal freight rates less fuel costs) has recently fallen to lowest level since demonetisation. And net cash flow for past all expenses has turned negative for truckers since March 2019, hurting small truckers more than large fleets. While nominal rates have fallen, core rentals have fallen even more sharply.

However, discussions with organised players suggested that they are not much impacted by the above issues. Organised large fleets are relatively better off (low single-digit tonnage growth) due to higher utilization and are gaining at the cost of small truckers.

First Published: Sep 16, 2019, 05:48 PM IST