Truck rentals refuse to match diesel price fall

Commercial vehicle sector has retained most of the benefit of lower fuel cost to cover the rise in other costs

Diesel prices have fallen a steep 22 per cent from their peak levels in September-end last year. However, on an average, truck rentals have only fallen 5-10 per cent during this period. In fact, rentals have risen on some busy routes.

That’s because the commercial vehicle sector has retained most of the benefit of lower fuel costs, making good the rise in other costs, including higher salaries for drivers, toll taxes and labour costs.

Malkit Singh Bal, former president of the All India Motor Transport Congress, said half the truck transport business was running on term contracts, with large companies and truckers passing on the fall in diesel prices to customers in this segment. But for the non-contract transport business, the pass-through has been limited, as several other operational costs have increased in the past few quarters.

Industry estimates suggest 78 per cent of trucks are in the unorganised sector, in which transporters own one to five each. During an economic slowdown, small truckers charge rentals just enough to cover operating expenses. “However, now that demand has increased, these operators are doing business at their prices,” said Ashok Shah, chairman of V-Trans, one of the largest road transport companies.

He argues a shortage of drivers has resulted in a steep rise in salaries, adding the number of trucks that remain unused for want of drivers is about 32,000.

Shah says demand is higher on shorter routes, for which rentals have not fallen, despite the fall in diesel prices. “The cost of tyres, expenses on drivers, the cover for empty tours on thin-traffic routes and a steep toll tax (19 per cent in total cost of inter-state transport), apart from other operational costs, do not give transporters the flexibility to pass on the fall in diesel prices,” he added.

Transporters say demand for commercial vehicles has significantly improved since September last year (e-commerce companies have added to this), as evident from the rise in vehicle sales. In December 2013, total sales stood at 180,000 units, according to the Society of Indian Automobile Manufacturers. That rose to 213,000 in December 2014.

G S Sundararajan, director, Shriram Group, said in the light and medium commercial vehicle segments, demand for finance was more on the retail side (truckers who own one to five new or used vehicles).

“We are yet to see a significant increase in demand from large-fleet operators,” he said.