The recent trends in demand for logistics indicate a big shift in business towards organized players due to reforms like the GST. The shift is driven more by the rollout of the GST than e-way bill implementation. Further, the cost of owning trucks is increasing, and hence small truck owners are suffering. The average life of a new truck is 10-12 years, after which it is used for intra-state movement. As per the government’s scrappage policy, older trucks used for local transportation will have to be scrapped, thus resulting in a shortage of trucks for local transportation.
Only large players with strong volumes are able to operate profitably. Organized large players will incur a large capex as they see strong demand with a shift in business from unorganized players. Capex will largely be towards fleet addition and adding of technological capabilities. Thus, a definite shift is occurring towards organized from the unorganized sector, and the same will only accelerate going forward.
With the DFC (dedicated freight corridor) being partially operational, some volumes are shifting from Road to Rail. Truck operators will be impacted, especially in the mid-mile segment.
However, road transporters will be required for first and last-mile operations. The impact will be visible in bulk commodities like steel, cement, and coal. Segments like FMCG, Consumer, and Pharma may not see a very large shift towards rail. The logistics market is driven by the full truckload (FTL) segment, which constitutes 90 per cent of the market. The balance is being driven by the less than truckload (LTL) segment.
Though the e-commerce segment is growing fast, players are not expecting the kind of growth that was seen during the COVID-ensuing lockdowns. With new entrants entering the last-mile segment and the e-commerce vertical, they are hampering the market for traditional players, given their aggressive pricing. The business model is unlikely to sustain with such aggression. Multi-modal is an emerging theme currently. There are a lot of opportunities across sectors. The margin in the pure play Transportation businesses remains stressed, and value-added service-driven businesses will see strong traction in the long term.
Logistics activity was very strong in Apr’22 and May’22, but has slowed in Jun’22 and Jul’22 led by elevated diesel prices which is a major concern in the near term.
Diesel prices continue to stay elevated, despite the cut in excise duty. Logistics operators have passed on the price increase so far, with no change in demand. But, now given that demand is slowing down, it will be difficult for fleet operators to raise rates further in the near term.
