Crisil Sme Tracker: For small fleet operators, time to hit mainstream road

Small and medium road transporters will need to quickly re-engineer their business processes, improve tax compliance and scale up in order to compete with their larger, and organised, peers under the Goods and Services Tax (GST) regime.
 
According to a report by the National Transport Development Policy Committee, about 75 per cent of transport operators in India own less than five trucks (small fleet operators or SFOs), while about 14 per cent own less than 20 trucks (medium fleet operators or MFOs), and 11 per cent own more than 20 trucks (large fleet operators or LFOs).
 

SFOs form a chunk of the unorganised segment, where tax avoidance and non-compliance with the Motor Vehicles Act are rampant. Cutting corners in this way helped SFOs keep their freight prices lower, and they enjoy significant competitive advantages over their larger peers. An analysis of 150 MSME road freight operators (having a turnover of above Rs 1 crore) rated by CRISIL shows SFOs enjoyed higher operating margins than their peers because of lower pricing and higher fleet utilisation through overloading.
 
But after GST kicked in, prior electronic or e-way bills have become mandatory for consignments valued at over Rs 50,000. Now these have to be got through the GST Network portal, which would spawn greater compliance and transparencies. Moreover, the abolition of central and state taxes to usher in GST will lead to the emergence of key hubs in major locations, leading to increased freight load. These changes will erase the cost advantage that the unorganised SFOs have enjoyed over their organised peers, and bring down their market share, unless these players adapt to the new regime, and quickly.