Rural consumption to drive truck rentals

While rentals have been stable and firm thus far in March, they had moved up six - eight per cent in January and three - four per cent in February

Truck rentals could rise further over the next couple of months owing to the movement of agricultural goods as well as general merchandise on the back of a spike in rural consumption. According to S P Singh of Indian Foundation of Transport Research and Training (IFTRT), there could be an upward bias in rentals for April and May given the higher procurement prices and spending in smaller cities and rural centres. This could perk up industry activity a bit, he believes. While rentals have been stable and firm thus far in March, those had moved up six to eight per cent in January and three to four per cent in February.

Given the rise in diesel prices, the cost push has been one of the reasons for the increase. According to Singh, the lack of fleet expansion and retention of older trucks have meant lower competition in the freight rental business and a moderation of supply. Higher utilisation of existing fleet without the additional cost of a new truck or monthly instalment has meant an improvement in truck operators’ profitability.

The rise in rentals in the first two months of the year was also boosted by a surge in demand for agricultural produce, fruits and other food items given the fall in prices and also movement of general merchandise. Thus, while the 20-25 per cent jump in despatches of fruits, vegetables and food items from production centres has led to higher demand for trucks, the past three months have also seen a four to five per cent increase in cargo from the manufacturing sector.

According to Singh, the improvement seen in the first two months might not last long given that the cargo availability from the manufacturing sector has not seen consistent improvement. This is why truck owners are not very keen to expand their fleet despite high discounts as well as subvention on their equated monthly instalments.

While truck rentals are moving up, analysts are not too bullish about the commercial vehicle makers in the near-term. According to them, recovery in the commercial vehicle segment could still be two quarters away. Volumes for the commercial vehicle sector are expected to fall 20-22 per cent in FY14.

“We maintain our negative view on the trucking industry (medium and heavy commercial vehicle segment) for the next six months. However, we believe, volumes have bottomed out,” says Surjit Arora of Prabhudas Lilladher.