HEADLINES:
December 09 2018
Axle norms may not help lower tariff
18 July 2018

Transporters plying new trucks alone will benefit, says Crisil Research

The government’s decision to increase truck axle load by 20-25% will be beneficial for transporters and could reduce traffic in the long run, but it will not lead to immediate reduction in tariff, said analysts.

The Ministry of Road Transport and Highways has notified the changes following which the ceiling for gross vehicle weight of a two-axle truck has been increased to 18.5 tonnes from the existing 16.2 tonnes.

The gross vehicle weight of a three-axle truck has been raised to 28.5 tonnes from the exiting 25 tonnes and a five-axle truck can now carry 43.5 tonnes instead of the existing 37 tonnes.

The carrying capacity of a tractor trailer has been increased by 36%. This enhanced tonnage is allowed for new trucks only and not for an existing fleet.

“Efficiency benefit will only be realised by transporters plying new trucks. Crisil Research does not believe there will be any meaningful impact on freight rates. Freight rates are determined by the operating economics of the entire fleet of trucks,” said Hetal Gandhi, director, Crisil Research.

“While transporters with a higher proportion of new trucks or single fleet operators with new trucks can technically provide lower freight rates, we believe most of them will operate at higher freight rates thereby increasing their margins. On an average, a new truck operator can benefit 20% taking impact of higher revenues and a minimal increase in cost,” Ms. Gandhi said.

She said the new trucks would provide transporters better operating economics as compared to existing fleet of trucks. “Transporters would want to avail benefit from the new norms by bringing forward their replacement demand,” she said.

‘Higher growth’

More pre-purchases are expected in fiscals 2019 and 2020, she said. “We believe that commercial vehicle volumes in the higher tonnage segment (MHCVs) could see a further upside than the 7-9% growth expected earlier.

However, long term growth may subside given benefits from higher load capacity. The implementation of norms will also arrest the tonnage shift in the MHCV segment to a certain extent that was based on vehicle economics,” Ms Gandhi said.

Since new sales account for a small part of the existing fleet, analysts do not expect any meaningful impact of traffic. However, in the long run, when a major portion of the fleet will comprise new vehicles operating on a higher axle load, lesser number of vehicles will be required to move the same amount of load leading to reduction in traffic.

Logistics companies see efficiencies improving.

“The timing is perfect as now highways as well as arterial roads have improved considerably. Most trucks in the country are running with lower capacities. Their engines are equipped to carry much more. This move will help in capacity utilisation and will provide a huge fillip to the logistics sector. We and our business partners are looking forward to its successful implementation. This measure will undoubtedly reduce the cost of logistics and improve the overall Logistics Performance Index of India,” said Pirojshaw Sarkari, CEO, Mahindra Logistics.

Auto component makers are also eyeing benefits. “The replacement cycle will increase, which is good for the component market. It is a good way to control overloading, and the fleet replacement would start as everyone wants to be competitive. After 3 years as the demand plateaus the market will have another boost as BS VI will be implemented and scrapping norms will come into force,” Udit Sheth, vice chairman, Setco Automotive.

 

 

Related Stories