February 2017

Interview: Mr. Gurvinder Singh Grewal – Proprietor of Diamond Roadlines & VP of Bombay Goods Transport Association

By VIKRAM SURYAVANSHI

PRE-BUYING: But at a cost

In the light of a change in emission norms, and expectations of strong pre-buying in the MHCV segment, GV talked with Mr. Gurvinder Singh Grewal, Proprietor of Diamond Roadlines, and Vice President of Bombay Goods Transport Association. He shared his insights on the industry’s current status, pre-buying and discounting trends, fleet profitability, demand, and challenges that the Indian transportation sector faces.

Q. Can you give a brief about your firm, Diamond Roadlines (DRL), and the role of the Bombay Goods Transport Association (BGTA)?

A. DRL is a large transport company that specialises in FTL (full truckload), ODC (over dimensional consignment), and warehousing. It operates through 100 owned trucks and other attached fleets. BGTA is a premier association of goods transporters based out of western India. The association has over 2,000 members, and each member owns an average of over 60 trucks. The association’s prime objective is to encourage and promote goods transport and protect its members.

Q. The transportation sector took quite a downturn due to demonetisation; what is the current situation?

A. November and December saw sharp dips in goods transport, but things have recovered and are normalising. Small operators (1-2 trucks) were washed out after demonetisation and organised players are seeing healthy demand now. However, the industry is still on its path to normalcy.

Q. What is the average age of the fleet of BGTA members? How have freight rates and fleet profitability moved recently?

A. BGTA members together own over 120,000 MHCVs, and currently the average fleet age is about 5.5 years. Freight rates have been largely mimicking fuel prices. The government’s recent directive of a 0.5% cash-back discount on fuel helped profitability.

Q. In the light of emission norms change and price hikes from April, have we seen fleet operators pre-buying MHCVs in order to save costs?

A. Yes, from February, fleet operators have started pre-buying trucks as an opportunity to lower their average fleet size while saving in terms of additional costs. The incremental cost of a 20-tonne BS4 truck vs. a BS3 one would be about Rs 250,000; hence, pre-buying does lead to savings. OEMs have resorted to aggressive discounts to push BS3 inventory – both Tata Motors and Ashok Leyland are offering discounts to the tune of Rs 500,000 for a 20-tonne truck (MRP Rs 2.2mn) vs. Rs 250,000-300,000 in the previous quarter. The demand is currently so high that Tata Motors has a waiting period of up to a month, as it is not able to ramp up production. Tata Motors did not see any major inventory build up in demand anticipation unlike its competition.

Q. If demand is strong why are OEMs offering such high discounts?

A. Discounts are bloated as January didn’t see any pre-buying; RTO is adamant that it will not allow BS3 trucks to register from April. Hence, OEMs are in a flux – they are pushing discount-led sales to clear BS3 inventory.

Q. Why is the RTO not allowing registration of BS3 trucks from April – we believed only production will not be allowed?

A. RTO has maintained that until it receives a written mandate from the government it won’t allow BS3 registration; hence, OEMs are also pushing sales for now.

Q. What could the quantum of pre-buying be? Are fleet owners adding new fleets or only replacing?

A. Fleet owners are not increasing size; they are taking this as an opportunity to reduce average fleet age due to bloated discounts and cost savings on MRP. Our rough calculations suggest that BGTA members could end up replacing 5-10% of total fleet, which means ~8000 MHCVs could be bought by BGTA members themselves.

Q. Owners are looking at fleet replacement – does this mean that the used vehicle market has improved?

A. No. Used truck sales have totally slumped and haven’t seen any recovery yet. Used truck prices are down 30-50% and still transactions are not taking place. Fleet operators are buying new vehicles from a cost-benefit perspective and would sell off their old vehicles once the market improves.

Q. Which OEMs do you prefer and why?

A. We have an over two-decade-old association with Tata Motors, which form 100% of our fleets. We had given Ashok Leyand a try, but it didn’t go well for us. Tata Motors has really improved in terms of post-sales service in the last two years. They have launched loyalty cards and discounts for servicing, started providing free medi-claim for drivers. M&M, with its recent Blazo series, is also getting good response.

Q. Your views on the scrappage policy?

A. We are dissatisfied that scrappage policy is being framed without consulting any of the transport associations. Voluntary scrappage (that was mentioned), aims to scrap about 11mn vehicles through incentives (up to 15% by providing lower taxes). We do not see this materially leading to replacement of old vehicles as benefits are not big enough to compel a small trucker to voluntarily replace his vehicle. Additionally, India doesn’t have large enough scrappage capacities to handle big volumes.

Q. What are the other challenges that fleet operators face?

A. The biggest challenge that we face as an industry is the availability of drivers. We have started benefit programs for drivers to lure them and stick with us. Second big problem is bribery – while this had decreased 30-40% after demonetisation, it is rising again. Also, while emission norms have been made stringent and truck prices have risen, the industry is looking for relief by way of increasing the operational life of a truck to compensate for higher costs due to better and frugal engines.