A PRECISE STUDY ON THE TRUCK INDUSTRY IN INDIA by Mithun Abraham Alexander

A PRECISE STUDY ON THE

TRUCK INDUSTRY IN INDIA








ASSIGN MENT -1




Submitted To
Prof. Jayamohan Nair



Submitted By
Mithun Abraham Alexander
1st Semester MBA





Institute of Co-operative Management
Poojappura



CONTENTS
Page No.
Chapter 1 Introduction 03
Chapter 2 Major Truck Manufactures of India 05
Chapter 3 Career growth and Opportunities of Truck Industry 10
Chapter 4 Challenges of Truck Industry 20
Chapter 5 Summary of Recommendations 23
Chapter 6 Future of Truck Industry 27
ANNEXURE
Annexure Bibliography 29



Chapter – 1
INTRODUCTION

A truck (American English) or lorry (British English) is a motor vehicle commonly used for carrying goods and materials. Some light trucks/lorries are similar in size to a passenger automobile. Commercial transportation trucks/lorries or fire trucks can be large and can also serve as a platform for specialized equipment. The word "truck" possibly derives from the Greek "trochos" (wheel). In North America, certain kinds of big wheels were called trucks. When the gasoline-engine driven trucks came into fashion, these were called "motor trucks."

Transport engineers, planners and economists have long realized that future increases in surface transportation capacity would result less from the construction of physical transportation infrastructure than from the development of techniques and tools aimed at improving the efficient use of existing infrastructure. An efficient freight transportation system is the backbone of a successful economy. Both businesses and consumers rely every day on inexpensive and efficient goods movement. However, goods movement, particularly in urban areas, comes at a high cost to society. Large trucks mixing with congested urban passenger and pedestrian traffic are responsible for significant safety and environmental hazards and can make driving and walking very unpleasant for urban residents.

The trucking industry in India is entirely in the private domain and is dominated by small road transport operators, majority of whom own a single truck. The industry is a major contributor to the economy. It has been increasing its share in the movement of goods within the country vis-à-vis other modes of transport, up from less than 20 per cent in 1951 to 70 per cent now. It has also, in the process, acquired significant political influence. Given the large number of truck owners, the industry appears to be competitive; the fact, however, is that around 5000 cargo operators handle the entire cargo. According to industry sources, in about 2-3% of cases, do customers directly access the truck owners and book their goods. The cargo operators cartelize and decide the freight and there is hardly any competition at their level. This is the most important feature of the trucking industry in India and it has a critical bearing on the quality of its service and the policy design to deal with the issue. The regulatory provisions governing the industry have been liberalized but a lot more is required to be done.

Road traffic has overtaken the railways in both the passenger and freight segments. Currently, road transport accounts for 85 per cent and 70 per cent of the total passenger and freight transport respectively. Most of the remaining traffic is accounted for by the railways, with a small percentage share going to the air transport sector. The road transport sector has witnessed a growth rate of 7 to 10 per cent every year since 1960-61. It is estimated that total freight transport output will double every 10 to 13 years. A rise in the long-term trend line of GDP growth will imply correspondingly rapid growth in transport output.

The number of goods vehicles has grown from 1.7 lakh in 1961 to 30 lakh in 2001-02, making a growth of 8% annually. The industry has a two-tier structure. Tier consists of freight aggregators who account for the bulk of the freight traffic because of their access to information about freight and fleet availability. They control the business and are recognised by banks. The other tier comprises small operators with 1-5 trucks and practically no market power.

Indian truck industry has developed with the passage of time and has involved significant companies of the Indian automobile industry in truck production such as Hindustan Motors, Volvo, Mahindra and Mahindra, Eicher, Ashok Leyland, Tata Motors, Swaraj Mazda, and Force Motors.

Truck Categories in Indian truck industry

The India truck industry comprises of varied categories of trucks suited for the performance of specific jobs and these trucks are also designed to be fuel efficient. The list of the prominent category of trucks needs the mention of:

• Tippers
• Delivery Vans
• Trailers
• Haulage
• Cabs
• Rigid Trucks

Chapter - 2
Major Truck Manufactures of India

The significant truck manufacturing companies of the India truck industry are engaged in the manufacture of almost all types of trucks. Ashok Leyland is engaged in the manufacture Haulage trucks, cabs, rigid and tipper trucks. The hippo haulage category includes models like Artik 30.14 Tractor, 4018 Tractor and Tusker Turbo Tractor3516, and the other haulage vehicles of Ashok Leyland includes Comet Gold 1613, Tusker Super 1616, 1612 H, Bison Haulage, 1613 H II. It’s rigid and tipper truck category includes Ecomet 912 and Ecomet 1112 and Comet Coal Carrier, Bison Tipper, Taurus 2516-6x4 Tipper respectively. Mahindra & Mahindra Ltd. is engaged exclusively in the production of Hard Top Range, LCV Range and Pic-Up Range of cabs and delivery vans as well. Hindustan Motors Ltd. produces MASCOT T-480 FC and Swaraj Mazda offers Sartaj WV26-S and Swaraj 4, models in their respective rigid truck category. Force Motors produces rigid trucks, trailers, and delivery vans. Rigid trucks are the specialty of Eicher Ltd.
Trucks by Company
Ashok Leyland
Haulage
4x2 Haulage Models
• 1613 H
• 1612 H
• Comet 1611
• 1613H/2 (12M Goods)
• 4/51GS
• 1613 S
• 1616 H
• 1616H - BS III
Multiaxle Vehicles
• 2214 (6X2)
• 2516 H (6X2)
• 2514 H (6X2)
• 2516 H (6X 4)
• 2516H/4C

Hippo Haulage
Beaver Haulage

Tippers
Hippo Tipper
Stallion Mk III Tipper

4x2 and Multixled Tippers
• CT 1613 H/1 (4X2)
• Taurus 2516/2 (6x4)
• 1613 ST (4x2)
• Taurus HD 2516MT/1 (6x4)
• CT 1613 H/2 (4x2)

Rigid Trucks
Beaver Tractor
Hippo Tractor



Pic-Up Range
• Mahindra Utilty
• Mahindra Pik-up
• Mahindra NC640DP
• Pik-Up CBC
Hard Top Range
• Mahindra Economy
• Mahindra Marshal DI
• Mahindra 775 XDB
• Mahindra 3door Hard Top
• Mahindra 5door Hard Top

LCV Range
• Mahindra CabKing 576
• Mahindra DI 3200
• Mahindra Cab King 576 DI
• Mahindra Load King DI
• Maxx Maxi Truck

Delivery Van
Mahindra Voyager Delivery Van


Swaraj Mazda
Rigid Trucks
Sartaj V W 26-S
Premium Truck
Swaraj 4 Wheel Drive

Applications
Super ZT54
Swaraj Mazda Water Tank


Tata Motors
Rigid Trucks
Tata Motors' Range of
'World Trucks'
Tata Ace

Rigid Trucks
• LPT 1109 Turbo Truck
• LP 1109 Turbo Truck
• TL 4x4
• SFC 407 Ex Turbo Truck
• SFC 407 Turbo Truck
• LPT 709 E Truck
• LPT 407 Turbo Truck
• SFC 709 E Aerial Lift Turbo Truck
Tata Novus

Pic-Up
• Tata Xenon XT

Volvo

Rigid Trucks
Volvo FM
Volvo FH

Tippers
Volvo FM9 Tippers
• FM400 8x4 Tipper
• FM340 6x4 Tipper

























Largest manufacturers in the world as of 2007
Pos. Make Units
1 Isuzu 478,535
2 Daimler AG (Mercedes-Benz, Freightliner Trucks, Sterling Trucks,
Unimog, Western Star, Fuso) 438,954
3 Volvo Group (Volvo, Mack, Renault, UD Nissan Diesel) 210,446
4 Hyundai Group (Hyundai) 159,237
5 Tata Group (Tata Motors, Daewoo Commercial Vehicle) 157,781
6 UD Nissan Diesel 131,429
7 Hino Motors (Toyota Group) 129,107
8 Fiat Group (Iveco, Magirus, Astra, Seddon Atkinson,
Yuejin)127,542
9 PACCAR (DAF Trucks, Kenworth, Peterbilt, Leyland Trucks) 126,960
10 MAN 92,485









Chapter - 3
Career growth and Opportunities of Truck Industry

There is so much more to the trucking industry than you probably realize. Sure, we understand that drivers are the face of the industry, but the truth is that there is a whole team of people behind them making sure everything reaches its destination. That's why, when you look into the trucking industry, one thing becomes real clear: there are many opportunities in a variety of different areas, including driving, operations, cargo, maintenance and the Allied Trades. Each of these areas provides an excellent opportunity to earn a good living, and plenty of potential for you to progress through the industry.

Positions that are open in the truck industry

There is a wide range of occupations and positions that make up the trucking industry and each has its own rewards. The following list will provide you with a global view of all the occupations and positions that are available within the industry.

 Functional Positions

 Local Pick-up and Delivery Driver
 Short-haul Driver
 Domestic and International Long-haul Driver
 Owner-Operator
 Shunt Driver
 Forklift/Tow Motor Operator
 Dock Worker
 Truck and Transport Mechanic
 Truck and Trailer Technician
 Parts Technician
 Wheel and Tire Technician
 Maintenance Helper/Service Employee
 Auto Body Repairperson
 Welder
 Dispatcher
 Rate Clerk
 Licensing and Permitting Specialist
 Freight Claims Specialist
 Safety and Loss Prevention Specialist

 Supervisory/Management Positions

 Driver Trainer
 Driver Supervisor
 Dock Foreman/Supervisor
 Terminal Manager
 Operations Manager
 Fleet Manager
 Warehouse Manager
 Shop Supervisor/Foreman
 Maintenance Manager
 Traffic Manager

Career paths In this Industry

The trucking industry offers tremendous career growth. Many people in upper management today started their career working in one or more of the identified functional positions within the industry. The opportunities in this industry are limitless. As a result, career can be made up of a series of lateral moves from one functional position to another, or you may hone your skills within a functional area and move up the ladder into a supervisory or management position. The opportunity for career progression and growth is limitless, so explore the road you can travel starting with the position that interests you the most.



Opportunities

Smart trucking companies face several opportunities to emerge victorious amidst these turbulent times. Three options appear particularly compelling: go niche, combine with asset-light logistics providers, or seek scale.

Go Niche. Trucking companies that develop differentiated services in specialty services enjoy stronger profitability and growth. For instance, expedited ground transportation provider Panther II has prospered by focusing on same-day freight needs, which it provides on an asset-light basis. In June 2005, Panther sold its business to a private equity firm, Fenway Partners, for $142 million. In a marketplace where trucking companies typically get valued at four to six times operating profit, Panther received a valuation of nearly double that rate. Similarly, in an environment where truckers may get valued at 0.5-0.7 times sales, Panther received more than 1 times sales (with $138 million of revenues). This reflects the strong underlying performance niche carriers can achieve. It also highlights the superior valuations that asset-light trucking companies can receive.

Combine with Asset-Light Logistics Providers. Truckers that merge with other logistics service providers can generate more valuable combinations. Schneider’s acquisition of APS highlights one model. For smaller companies, it may be more practical to consider selling rather than buying. For example, one of the leading drayage and inter-modal trucking providers in the country, Comtrak, recently agreed to be acquired by the Hub Group, the inter-modal marketing company. The combination provides a tighter suite of inter-modal services for Hub customers.

Seek Scale. Small and mid-sized trucking companies can also seek to generate scale by merging with one another. In the inter-modal trucking arena, Road Link USA was formed by the simultaneous merger of six regional companies. On a more conventional one-to-one basis, Estes Express and GI Trucking joined forces. The companies decided that they would be more likely to cut costs, complete a national network, and provide superior marketing as a combined entity. As a result, they merged to add scale.


Employment growth related to industrial production. Trucking employment6 generally correlates with industrial production, declining in recessions and increasing during recoveries. The cyclical pattern of employment in trucking thus contrasts with that of the other private service-producing industries. For example, employment in the service-producing sector actually increased during the 1973–75 and 1980–1982 recessionary periods, while industrial production and trucking employment fell. Although employment trends in trucking appear to have been less cyclical in the 1990s, a large portion of industry sales continues to originate from the manufacturing sector. Therefore, the trucking industry, while classified among the service-producing industries, still tends to react quite strongly to changes in industrial production, as indicated in the following tabulation of recessionrelated peaks and troughs in trucking and warehousing employment (monthly data, seasonally adjusted):

While most job losses in trucking are related to economic contractions, developments between the 1980 and 1981–82 recessions are in need of explanation. Employment losses over this period may have been due to rapid restructuring in the industry that resulted from new legislation. (See next section.) The combined recessions and industry restructuring resulted in a net job loss of 183,000 between June of 1979, the prerecession peak of the employment series, and February of 1983, the series trough following the second of the back-to-back recessions. Employment losses were not quickly recovered, with the industry taking 2 years to hire up to prior employment levels. Growth was moderate from 1985 forward. Even the 1990– 91 recession had only a modest impact on employment compared to earlier downturns, with job losses measuring about one-third those posted over each of the prior three recessions. However, the subsequent recovery was slow, with almost no employment gains occurring through 1993. The following year was marked by especially strong growth in employment, although increased subcontracting of trucking services from other industries may have accounted for some of this. Thereafter, payroll employment plateaued in 1995 and through 1996.



Employment and legislation. Major legislation affected the trucking industry in the 1980s and 1990s. Industry restructuring occurred beginning in 1980, when air, rail, and trucking services were all deregulated to some extent. The Motor Carrier Act (MCA) of that year allowed for interstate competition in the for-hire trucking industry, Standard Industrial Classification (SIC), which accounts for a small portion of the Nation’s trucks, but a relatively large portion of freight movement. Yet, interstate deregulation was only the beginning of renewed competition. Shortly after the deregulation of interstate operations, intrastate regulations also were dismantled.

Before Federal preemption of States’ authority in 1995, most States controlled the routes, rates, and services of motor carriers within their borders. Continued circuitous routing of shipments and use of empty trailers on return trips were common, both examples of inefficiency. Deregulation of intrastate trucking first began in Florida in 1980, followed in Maine and Arizona in 1982, and later in five other States.Then, in 1995, the Trucking Industry Regulatory Reform A ct(TIRRA) prohibited all States from regulating carriers’ routes, rates, or services. States were still allowed to regulate such areas as safety, financialfitness, hazardous m aterial m ovem ent, and vehiclesize and weight. W hile the im pact of deregulation is difficult to separate from other factors, itis evidentthat growth in em ploym ent (including self-em ploym ent) was stronger during the period just priorto deregulation. Atthattim e, theInterstate Com - m erce Com m ission (ICC) lowered restrictions for new entrants to the industry in anticipation of deregulation. Because deregulation and recessionary economic conditions coincided, it is unknown how much of the reduction in employment between 1979 and 1983 is due to industry restructuring, and how much is due to economic conditions. One can speculate that it is a bit of both. The official estimate of total savings due to the Motor Carrier Act of 1980 is about $10 billion annually. When savings in inventory costs are added, gains have been estimated to be 6 times that figure.

The economic situation at the time when the Trucking Industry Regulatory Reform Act took effect bears some resemblance to that at the time when the Motor Carrier Act was implemented, in that industrial production had begun to decline. There was a marked slowdown in payroll employment growth after TIRRA. However, when growth among the selfemployed in 1995 is factored in, there appears to be little change in employment trend. (See next section). Nevertheless, increased efficiency arising from TIRRA will generate a $43 billion savings over 5 years, according to a source in the logistics industry.

Trucking-related jobs. While employment in transportation and warehousing comprises the majority of trucking jobs, it does not include almost 500,000 jobs among self-employed truckers and transportation brokers. Among selfemployed truckers, only those supporting trucking and warehousing are reflected here; these workers account for 80 percent of all self-employed truckers, with the remaining jobs supporting other industries. Most of the increase among the self-employed occurred between 1975 and 1982, with growth subsequently flat until 1995, when TIRRA was passed. (As mentioned earlier, employment of self-employed truckers picked up in 1995 when growth in the number of workers on payrolls in the trucking industry slowed.) Both the self-employed and subcontracting trucking companies are involved in leasing arrangements with trucking companies. Insight into this contracting activity is captured in the Census Bureau’s Motor Freight Transportation and Warehousing Survey, which indicates that the leasing of drivers with equipment increased by 50 percent between 1986 and 1995, averaging an annual growth rate of 6 percent per year. Leasing the services of drivers accounted for 66 percent of purchased transportation by trucking companies in 1995.15 Growth among the self-employed between 1995 and 1996 is corroborated by an increase of 80 percent in miles driven by leased drivers. Further evidence of the participation of truckers in leasing arrangements comes from the Current Population Survey, which shows that truckers are represented heavily among on-call workers.

As inter- and intrastate deregulation opened new routes and introduced new suppliers, third-party transportation brokers and freight forwarders rushed in to connect suppliers of freight services with customers. Transportation brokers operate between the shippers who need to move goods and the (truckload) carriers, creating a link between the two. Growth in this industry, captured in SIC 473, Freight Transportation Arrangement, has been dramatic. Only 75 transportation brokers were licensed by the ICC in 1975. Subsequently, the business grew by leaps and bounds to approximately 6,100 brokers in 1988 and more than 8,000 by the end of 1993. Employment in this industry segment rose at an annual rate of 7 percent between 1988 and 1996, more than twice as fast as jobs in trucking services. Demand for brokers’ services was so great that their employment increased throughout the 1990–91 recession, and, unlike for-hire trucking, brokers have posted accelerated job growth since the passage of TIRRA. These trucking-related job gains have come on top of the already significant job gains evident in the for-hire industry. The new jobs contribute to a more flexible and dynamic trucking operation. Next, we review changes in pay and working conditions for persons employed in trucking services.

Workload statistics. Traffic measures imply an increasing workload for most trucking employees. For example, the average length of haul for interstate freight increased dramatically between 1975 and 1985, as trucking firms expanded their geographic coverage. Increased average hauls are normally associated with more time away from home, because most hauls are delivered by one operator (although this is not always the case). Growth of intrastate freight and increasing “just-in-time” demands may have caused trip lengths to decline for intercity movements, although overall lengths of hauls have increased.

High labor turnover. Increasing workloads and less-attractive pay have contributed to an extremely high driver turnover rate. Recent labor turnover statistics show that within the large truckload sector, labor turnover ranges between 80 and 100 percent a year; smaller carriers in the truckload sector experience turnover in the 60- to 80-percent range. In the lessthan- truckload sector, which is generally better paid, turnover is closer to 15 percent. One study calculated a 38-percent turnover rate for both types of carriers combined, compared with only 12 percent in manufacturing. The high turnover rate in trucking is indicative of an occupation that is relatively easy to enter (highly labor-elastic), but difficult to perform over an extended period. For companies, high turnover results in a greater share of resources devoted to recruitment. Companies are beginning to experiment with wage increases in an effort to reduce these turnover costs.


Other industry developments
As indicated earlier, trucking companies have been aggressive in pursuing strategies that yield cost reductions or increased efficiency. Carriers are faced with the same demands that transportation buyers face: better and faster service, specific delivery and pickup times, and better tracking and tracing of shipments. For shippers, predictable service sometimes is more important than the cost of goods movement, depending on whether the production schedule is “just-in-time” or not. Shippers of high-valued products such as computers, electronics, medical products, and auto parts are especially likely to demand fast, reliable delivery. If market demand can change suddenly, as it does in computer markets, products have shorter “lifespans” and must be turned around quickly. Whatever the case, transportation companies have responded by focusing on better management of time and assets in the delivery process, a strategy that relies on new technologies and less intermediate handling of goods in transport.

Just-in-time delivery. Customers began to demand quicker and more flexible service from the transportation network as they switched to just-in-time processes. In 1990, 18 percent of production was just-in-time, compared with 28 per cent in 1995, and inventory-sales ratios declined sharply over that 5-year period. Further improvements in inventory systems are expected to reduce the time that warehouses take to fill orders by 15 to 20 percent over the next 5 years, and to cut transit times by 5 to 10 percent. As world trade grows and the business environment becomes even more sophisticated, demands for efficiency will continue to increase. Many new technologies have come into play in the search for quicker and better distribution methods. For example, electronic data interchange, new vehicle location detection systems, and voice and data communication services all are improving the logistical management of the trucking operation. Innovations in mobile communication systems have enabled companies to monitor such statistics as mileage traveled on a specific vehicle, fuel efficiency, best fueling locations, and vehicle location and speeds, as well as other data. Companies can better utilize their equipment when they can quickly reschedule or combine existing delivery pickups, vastly improving their ability to manage inventory. Transportation brokers and third-party providers lower the cost of goods movement by filling empty return hauls and increasing freight volume per mile traveled.

More capital-intensive operations. The capital-to-labor ratio increased for the trucking industry in recent decades, due in part to the use of larger and more fuel-efficient trucks. This, in turn, contributed to a 20-percent increase in the average tonnage of freight hauled between 1975 and 1995. As a result, companies were able to spread variable costs over larger volumes of freight. While the fuel efficiency of the Nation’s motor vehicles in general has increased, the move towards larger trucks partially reduced the gains but economized firms’ use of labor. Any increased fuel efficiency in freight transportation also has been mitigated by the movement of freight from slow-moving modes (rail) to faster moving ones (air and truck). Like increasing vehicle size, the growing use of containerization in the inter-modal industry also has helped firms to save on labor costs. Inter-modal firms link different modes of transportation, often truck and rail or truck and air, for ultimate delivery to the customer. Providing a seamless flow of goods from the Nation’s ports to railroads and highways, the inter-modal delivery system has been supported through provisions of the Inter-modal Surface Transportation Efficiency Act of 1991, which provides funding for inter-modal projects. Between 1988 and 1995, the average annual rate of growth in this industry component was 6 percent. Containerization refers to movement of commodities in large containers or trailers rather than as smaller units, representing a shift to more capital-intensive operations. Use of containers reduces handling costs, costs of damage or theft, and very importantly, time required to transfer cargo. Because commodities are in bulky containers, cargo is moved by crane or forklift, a procedure requiring less manual labor than the handling of smaller packages. Forms of containerization took hold in the early 1980s in both rail-truck transport and truck-water transport, and have continued to become more widespread.

The widening market. Competition is taking place across traditional modes of transport. In fact, in 1996 several major players in the trucking industry were reclassified into the air courier industry, due to a shift over time in their primary product. Because the decision to move freight has become a function of cost and time rather than regulation, traditional market definitions (and concentration levels) no longer apply, and this has resulted in a “market” that encompasses every possible mode of transport. in response to deregulation and the intense competition that followed, the trucking industry has changed the quality and types of services it renders By most accounts, the resulting reductions in cost have been passed on to consumers. Today, trucking services are more responsive to our increasingly dynamic and complex economic environment, incorporating improvements in technology that have pervaded all industries. Competition has resulted in increasing capital intensity in the industry, as firms strive to reduce average variable costs per load. Firms often are coupling with other transportation sectors to minimize the cost for specific delivery requirements by combining the efficiencies of different modes of transport. Increased competition also has led companies to change the character of compensation plans for their workers, replacing those based on time with plans based on output. Over the years, wage premiums for unionized truckers have been bid down, and union representation has fallen dramatically. Increasing workloads and less attractive pay have led to high labor turnover and persistent driver shortages.





















Chapter - 4
CHALLENGES OF TRUCK INDUSTRY

Overcapacity in the trucking industry through the 2001-2003 recession resulted in significant capacity rationalization. As the economy improved in 2004, demand for truck capacity increased substantially, leading to shortages within the industry, with availability of drivers being the limiting factor. High fuel costs and strict regulatory environment following 9/11 have placed additional pressures on the trucking industry. The industry's major challenges are summarized as under:

• Low operating margins - sharp competition
• Centralized decision making in a mobile work environment – disenfranchised mobile workforce (drivers) controlling 80 percent of variable costs
• Driver shortage - high rate of driver churn into the construction sector
• Stricter regulatory environment and compliance regimen post 9/11 - loss of productivity and increase in operating costs
• Higher driver qualifications post 9/11 - higher cost of hiring and employing drivers
• High fuel costs
• Increase in insurance costs
• High cost of truck down time - need for effective maintenance management

Truck driver is the most critical link in the road transport chain. Despite the significance of his role, he faces several problems. His working conditions are appalling. Long working hours away from home, absence of proper facilities at work, driving on bad roads, inadequate space in the cabin, etc. are responsible for his fatigue which endanger road safety. The various problems of the drivers should be addressed at the earliest. The driver shortage is probably the number one factor affecting capacity. According to the American Trucking Association, the driver shortage has reached 20,000 today and is expected to exceed 114,000 by 2014. Further, because of the high rate of turnover, over 300,000 new truck drivers are expected to be needed over the next 5 years. This problem is large and growing. Barring a sudden solution, many operators may soon see a combination of idle fleets and lower margins, as driver pay may have to double by 2014 in order to alleviate the driver crunch. This is not a speculative risk – it is already occurring. In Werner’s recent second quarter release, it conceded that 129 trucks in their fleet are sitting idle due to the current driver market.

Driver issues rank high on this list, and even some seemingly unrelated items such as fuel and insurance costs are in the hands of drivers to a fair extent. The major reasons for driver dissatisfaction are quality of life issues - being away from home for extended periods, unpredictable schedules, and inability to follow an after-work routine. Driver disenfranchisement and lack of a career path further compound the problem. Although drivers are better educated and more qualified than ever before, they have little voice within their companies. Decision-making is highly centralized within trucking companies, even though the workforce is highly decentralized, with drivers controlling about 80 percent of variable cost. Variable costs are factors such as labor, fuel, and maintenance. For these reasons, driver turnover is high - over 130 percent (annual rate) in the fourth quarter of 2005. Fleet operators estimate that recruiting and training of a new driver costs $5,000 to $8,500. Reducing turnover thus is a key goal, and improving driver satisfaction is key to this end. Ironically, some fleets are reluctant to invest in training because of high turnover, but lack of training may contribute to turnover. The ability to manage affairs such as banking, health plans, retirement accounts, remote education, and to stay in touch with friends and family and have access to information and entertainment while on the road, can increase driver satisfaction by minimizing the disruptions to lifestyle caused by long periods away from home.

Fuel prices are the second highest operational cost for truckers. With fuel costs in the $2.75 to $3.25 a gallon range, many trucking operators are only maintaining profitability by imposing surcharges. Unfortunately smaller trucking operators have had more difficulty than large companies in passing on surcharges to their customers. Going forward, it appears likely that smaller truckers will not be able to mitigate the increase in diesel fuel. Additionally, larger trucking operators can count on economies of scale, which enables them to buy fuel in bulk and control their own filling stations. In contrast, smaller operators are forced to pay retail prices. Skyrocketing fuel prices not only exacerbate the pressure small truckers feel in comparison with larger competitors, but also encourage shippers to reconsider lower-cost rail options. The recent expansion in inter-modal transportation, which has increased from a growth rate of 5% in the 1990s to 9% today, is a direct result of these trucking cost shocks. The $14 billion inter-modal market is dwarfed by the $312 billion truckload market, but is growing into an increasingly competitive alternative for shippers. As fuel prices continue to increase, smaller trucking companies will increasingly face margin pressures. In response, we expect bankruptcies to skyrocket. In 2005, the trucking sector saw 2,250 bankruptcies. By 2010, we expect this number to more than double.

With rising fuel costs, reducing fuel consumption is another important goal. Idling trucks waste much fuel. Fleet operators also face capital costs, truck maintenance and downtime costs, insurance costs, and the costs of back-office functions such as record keeping and billing. The burden of regulatory compliance enters into the need for record keeping. Sharp competition translates into low margins (under 4 percent net margin for class 1 & 2 carriers). In a tough pricing environment, efficient operation is critical as there is no room for unnecessary costs. Fleets must maximize efficiency in all aspects of their operations to remain competitive and profitable.

Taxation of Road Users and Highway Expenditure

Road users are responsible for vehicle operating costs such as fuel, tyres, maintenance etc. They are also responsible for certain social costs which include costs of road damage, administration of traffic police, signaling etc., environment degradation, road accidents and congestion. It may be noted that there is no well defined road user charge policy in India for recovery of road costs. There has been some progress towards road pricing and cost recovery from road users over the last few years. This aspect will assume more importance as road agencies are granted more autonomy in raising funds. Both the central government and some state governments are moving towards “the user pays” principle in road pricing through levy of fuel cess for road development and maintenance. It is important to distinguish between tax revenue and road user charges. Specific taxes/charges like fuel cess can be considered as a road user charge. But most taxes on vehicles and operating inputs (fuel, tyres etc.) are part of the general tax revenue.

Chapter - 5
Summary of Recommendations

1. A number of policy changes are recommended to improve axle load controls: expand enforcement authority beyond officials of the Motor Vehicles Department (for instance Karnataka State has empowered PWD engineers); distinguish between minor (up to 5%) and more excessive overloading for which there would be extreme penalties; and make abetment of overloading an offence so as to enable action against the broker or transporter arranging the load.

2. To reduce delays at border crossings, particularly for high value or time-sensitive goods, the report recommends consideration of a system such as the European T.I.R., to permit sealed trucks which elect to use the system to operate without en-route inspections on the basis of a certificate issued at origin by a duly authorized and bonded issuing entity.

3. To encourage use of multi-axle vehicles and tractor-trailer combinations, thereby reducing transport costs and road pavement damage, it is recommended that incentives be put in place such as tax rates favoring such vehicles and reduced tolls on highways to reward their reduced impact on pavements.

4. Since a significant portion of the driver population is illiterate, it is recommended that audio-visual driver training materials be developed in the local language. This is already being done in the ongoing Kerala and Karnataka state road projects, and could be further pursued in the new state road projects proposed for Bank financing..

5. To improve axle load controls, changes recommended are: expand enforcement authority beyond officials of the Motor Vehicles Department; distinguish between minor (up to 5% of gross vehicle weight) and more excessive overloading for which there would be extreme penalties; and make abetment an offence to enable action against the broker or transporter arranging the load.




6. Invest in permanent weigh stations at strategic locations on the National Highway network to enable random checks of trucks passing the weigh station when the station is open. Require trucks found to be over-loaded to unload the excess load at their own cost and risk.

7. To prevent excessive hours of driving, it is recommended that trucks operating outside their home state be required to carry two licensed drivers at all times. This too could be taken up as a policy initiative under various State road projects.



Insurance Issues in Trucking Safety

1. As clearly demonstrated in country after country, an effective insurance industry has a critical role to play in improving the safety of the road transport system. However, for reasons that are not entirely clear, the Indian insurance system has never assumed the pivotal role in highway safety that it has in other countries. Supporting law enforcement in imposing accountabilities for unsafe driving is, of course, not the only function of the insurance industry, but arguably it is its most important one from the perspective of public policy. The problems related to the insurance system are described in the following:

2. In liability insurance in India it is the vehicle, not the owner or driver, which is insured. Thus it is the vehicle’s accident record that impacts on the experience rating aspects of the insurance premium. Since most accidents are due to the performance of either the driver of the vehicle or the owner who controls the driver, owners and drivers should bear the economic brunt of experience-rated premium increases if the driving or accident record is not good. As it stands now, it is a simple matter for an owner or driver with a bad accident record to replace the vehicle and thus avoid an adverse experience-rated premium increase. Experience-rated premiums should attach to the owner and to the driver of the vehicle.


3. In auto and truck liability insurance the policies do not have an upper liability limit while premium rates are controlled. The result has been loss ratios on truck insurance that exceed 100% by a wide margin, obviously decreasing any incentives the insurers may have to pursue such business. This is due in large part to government regulatory controls on premiums charged. Insurance industry representatives indicate that political lobbying by trucking interests has kept the premiums down. This constitutes an implicit subsidy to trucking, but one mainly realized by unsafe vehicle operators. Consideration should be given to allowing the insurance carriers greater flexibility to set policy limits and deductibles and to have more freedom in adjusting insurance rates on an owner or driver experience-rated basis. Some additional flexibility has been granted recently, whereby insurers can increase liability rates up to 400 percent of the base rate for a driver with a poor driving record, however, they cannot refuse to issue liability insurance.

4. Accident investigation and records-keeping are inadequate, and the insurance industry have either not been sufficiently motivated or empowered to compel improvements. Police are supposed to collect records relating to accidents, but according to the Sundar Committee, the Motor Vehicle Incident (MVI) reports mostly contain a statement that records were not produced, so it is not possible for the insurance company to prove any violation.

5. The driver licensing system is badly broken. It is commonly stated that a majority of truck drivers have invalid commercial driver licenses. It is imperative for highway safety that the system of driver licensing function properly. This must include not only proper and reasonable driver qualification and testing, but also an open system so that insurers, vehicle owners and others with valid needs can get complete information on an individual driver’s accident and violation record. This information will help insurers and truck operators get unsafe drivers off the road.

6. In addition to accident liabilities, there are also problems in the cargo insurance area. The transporter is liable for cargo loss or damage though in most cases the prevention of that loss and damage is in the hands of the truck operator. While it is possible for the transporter to obtain carrier’s liability coverage for the cargo, the insurance is high, and apparently is only available as part of a broader policy that is difficult or impractical for small transporters to obtain. The owner of the goods can obtain cargo coverage from insurers and usually does get such coverage on loss- or damage-sensitive cargo. In the event of a cargo loss the insurer pays the claim and then proceeds via subrogation to collect its loss from the transporters. This activity is only effective against the more financially established transporters; the small truck operators usually escape liability for their losses. Combined with the deficient driver licensing system, the ultimate result is both bad economics and bad safety performance. In conjunction with the overall reforms in this area, transporters should be allowed to buy individual cargo coverage for the goods in their (or their subcontractor’s) possession on a basis that will draw insurance industry interest to that line of coverage.

7. A review of government policies that may inhibit India’s recently privatized insurance industry from playing a much more prominent role in trucking safety is one of the more important and urgent policy actions that need to be considered by the government. The

8. Sundar Committee did not fully appreciate the contribution made by the insurance industry to an orderly and safe trucking industry in other countries, and therefore did not lay sufficient stress on resolving the problems of the insurance industry in India. However, the Insurance Regulatory Development Authority (IRDA) has constituted a Committee headed by Shri Money which would be looking into these aspects.











Chapter - 6
Future of Truck Industry

The future of the trucking industry is a hotly contested issue if ever there was one. The primary question is whether the future is going to be profitable or not.

The current economic meltdown has been a huge slap in the face for just about everyone. People living beyond their means are starting to realize that isn’t such a smart idea. Businesses are seeing massive downturns in revenue and entire industries are reconsidering their viability. When the second largest mall owner goes bankrupt, you know the economic status quo is no longer the status quo at all.

The trucking industry is no different than any other part of the economy. The future of the trucking industry has always been an issue that most of us haven’t really wanted to address. Well, that no longer is a choice. The industry has been slapped around something seriously the last few years and the future is one that needs to be discussed. The good news is the trucking industry is a critical part of the economy in this country.

o Who moves goods and raw materials around?
o Who brings fuel to gas stations?
o Who brings food to grocery stores?
o Who brings medical supplies and equipment to hospitals?
o Who moves raw materials?
This is indisputable and the answer is the Trucks Will Do. Hence the question should not be “What will be the future of truck industry”, but what will it look like?

Fuel is going to be a big issue moving forward. The high prices of 2008 were a huge wakeup call for every trucking company and a death note for more than a few of them. The current economic recession has created a major pull back on demand and fuel prices have plummeted. This does not mean the issue has gone away. When the economy eventually revs back up, demand will rise again. When it does, fuel prices will shoot back up.


The bigger issue with future is not the next few years, but the next 10, 20 or 30 years. The problem is Availability. There is something known as peak fuel that gets everyone in a huff. The argument is we are now producing the most oil we ever will and production will start to drop in the next few years. The merits of this argument are difficult to determine, but what is not disputed is we’ve found all the easy to drill oil. There is more oil off Brazil, Alaska and perhaps in the melting arctic not to mention Iraq. The problem is it is going to cost a ton to produce it. An oil drill for the Gulf of Mexico was just completed and it cost $6 BILLION dollars for one well. The pumps you see driving down the freeway cost in the thousands. This represents a huge increase in cost and it will be passed along in fuel prices. How high will they go? Nobody knows, but what is clear is the issue of fuel price is going to revolutionize how the trucking industry works. In fact, the future of the trucking industry more or less boils down to this issue.






















Annexure

Bibliography

1. National Transport Policy Committee 1980
2. Report of the Steering Committee on Trucking Operations in India, 1999
3. India Transport Sector: the Challenges Ahead, Document of the World Bank, 2002
4. China: Strategies for Road Freight Development, Document of the World Bank, 1995
5. India: Efficiency of the Road Transport Industry, World Bank Policy Note, 2003
6. Highway Sector Financing in India, Document of the World Bank, 2004
7. Road Development Plan: Vision 2021, Ministry of Road Transport and Highways
8. Report of the Working Group on Road Transport for the Tenth Five Year Plan
9. India Vision 2020, Planning Commission
10. Economic Survey, Ministry of Finance, 2002-04
11. Publications of All India Motor Transport Congress
12. Publications of All India Confederation of Goods Vehicle Owners’ Associations
13. Report of National Aid Control Programme, Ministry of Health and Family Welfare, 1996
14. Paper by SM Afsar, DFID, New Delhi on HIV/AIDs Programme amongst Truckers: The Need and Challenges.






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