The Indian Road Goods Transport Industry
The Road Goods Transport Industry (RGTI) has played a pivotal role in trade and commerce in India especially in the past few decades. Its rising share in relation to the railways is an indication of its popularity. A recent study (Deloitte) observed that the share of the road made in total freight movement has been increasing over the past 3 decades – the share having been estimated to have increased from 34.5 per cent in 1970-71 to around 63 per cent in 2001-02. During the period 1991- 92 to 1998-99, road freight is supposed to have grown at a compounded annual growth rate of 11.9 per cent while rail freight movement grew only at about 1.5 per cent. However, in the past few years, the shift to road transport has been slower with the road share having only increased gradually from 59 per cent in 1995-96 to 63 per cent in 2001- 02- indicating a slowdown in the growth of road transport market share over the rail share. However, it is expected that this share would go up, albeit gradually, to stabilize around 85 per cent.
Though emerging as a dominant mode, the industry has not been able to emerge out of the traditional unorganized framework, being as it is (still) dispersed in terms of a large number of small operators. In other words, the dominant feature even today is that a significant part of the vehicle fleet is under Small Road Transport Operators (SRTOs). According to a study conducted in the late 1990s, almost 77 per cent of the fleet was under operators who owned up to a maximum of 5 trucks while about 10 per cent was under those who owned between 6 to 10 trucks. Further, 4 per cent were under those owning 11 and 15 vehicles while 3 per cent belonged to truckers with 16 to 20 trucks. Only about 6 per cent of the vehicles were with operators owning more than 20 trucks. The situation has apparently changed when we compare the situation in the late 1980s when it was claimed that 95 per cent of the vehicles belonged to those operators who had less than 5 vehicles (UN Mission). The large number of operators constituting a fairly large unorganized proportion of the trucking industry (in terms of supply) has traditionally been the result of lower capital requirements, ease of obtaining truck driving licenses and permits, low mental skills as compared to physical abilities and easy availability of freight.
The organised component of the industry consisting of the fleet operators is small in number and has a fleet with varying payloads. The fleet is primarily used for general goods transportation with the operators working on the basis of a hub and spoke distribution model. The unique ownership profile in the industry has created middlemen who act as liaison agents for small trucking operators who do not have the geographical reach to tap business on a continuous basis and hence are forced to rely on these middlemen. With transportation companies (big fleet operators) gradually moving from an asset based to a non-asset based model, it is widely recognized that dependence of small fleet operators and small operators on brokers is expected continue to have an impact on the physical as well as the financial performance of these operators.
Profitability of truck operations depends on the following factors:
a) Capacity utilisation
b) Number of trips made
c) Fuel Prices
d) Other operating costs
In order to maximize their profitability, truck operators can:
1. Increase their revenue by overloading the vehicles, in general, and
2. Maintain a suitable vehicle mix according to payload capacity of the vehicles based on the freight availability, type of freight carried and long term contracts with customers.
However, it has been noted that profitability has been declining in the past decade due to a variety of factors including falling capacity utilisation, rising price of diesel etc. On the other hand, freight rates have gone up very gradually.
Freight Management System for India.
A bundle of economic benefits for transporters and logistics operators
# Technology – FMS had a distributed three tier architecture for local and remote branch connectivity that worked on low bandwidth (128 kbps)
# Product updates – Regular updates protected the client with regulatory changes and technology obsolescence.
# Document management – Manual documents have to be retained for 10 years at the head office. The documents included invoices, proof of delivery, lorry receipts, contracts and a maze of documents. Typical document retrieval took 10 – 20 minutes for a clerk.
# SMSbenefit – A two way SMS gateway that talks to the database for enquiries. Effective communications saved at least two clerks for head office. Calls from customers and branches flood the office from morning till evening. Sometimes the queries are pertaining to a year old consignment took hours to fetch. Here all the user had to do was to SMS the waybill number to the designated mobile ID.
Direct cost of back office clerk
# Claims. Effective tracking of consignments from various locations would reduce the current claims by 50%. Typical transport companies pay 2 – 3% of revenues on claim settlement.
# Billing – Monthly billing for regular customers is cumbersome. POD (Proof of Delivery) is mandatory for all consignments and one missing would mean the entire payment being held up.
Each customer had different format for submitting billing. Some clients for example had mandatory SAP interface for submitting invoices. The billing team had 3 full time accountants and if FMS were to be implemented, two of them could be used for productive jobs such as account management and payment recovery.
# Route optimization – FIFO method of loading and route management helped faster dispatches. A wrong dispatch would result in re-routing the consignment with higher transaction cost. Each branch had a traffic controller who spent 2 – 3 hours tracking wrong dispatches.
# Statutory needs – Each truck had to copy multiple documents including sales tax declarations, vehicle manifests, octroi statements and loading and unloading sheets.
# Vehicle tracking – Provision for integrating FMS to GPS (Global Positioning System)
