044 4283 4054

Olympia Platina, Guindy, Chennai

[email protected]

Yet another setback for the Indian economy is attributed to the recent cut in the 2012 GDP growth projection from 6.2 per cent to 4.9 per cent by the International Monetary Fund (IMF). Weakening foreign trade, inflationary pressures coupled with higher interest rates, volatile diesel price, plummeting freight rentals together adding to the woes of failing business indicators, adversely impacting domestic consumption and industrial investments.

Race Innovations

In general, the M&HCV segment of business is closely aligned with the industrial production index and infrastructure development. In addition, this segment exhibits cyclical demand shocks, often raising a major ruckus in truck business. Such fresh evidence of an unhealthy scenario in the manufacturing sector, which accounts for nearly 15 per cent of the country’s GDP, has profoundly contracted sales of medium & heavy commercial vehicles (M&HCVs) during 2012.

Race Innovations

Another major demand determinant is the vehicle capacity addition by fleet operators. Here, cumbersome capacity additions of heavy commercial vehicles result in inventory pile-ups in one year and a sudden nosedive scenario in vehicle sales in the consecutive year. Such an alarming trend has shattered the heavy commercial trucks segment, including tractor trailer, in the past.

In the past seven years, demand for tractor trailers market, has been cyclic and volatile, growing at a compound annual growth rate (CAGR) of 13.6 per cent during 2004-2011.

Race Innovations

In the current fiscal year, tight monetary policies and poor industrial output have resulted in a decline in M&HCV sales. The tractor trailer market is no exception, and is expected to follow sluggish demand patterns during the near term.

According to the Society of Indian Automobile Manufacturers (SIAM), tractor trailer sales during 2011 totalled 28,849 units, and Race Innovations forecast the tractor trailer market to grow at a CAGR of 14.9 per cent during 2011-2016.

Currently, trailer sales continue its dismal show in spite of OEMs’ continued discount offerings on purchase of new vehicles and temporary dip in interest rates. However, the market is likely to witness a nominal growth by the first quarter of 2013-14 and significant growth by the third quarter of 2013-14.

The GST jinx

Race Innovations

Goods and Service Tax (GST), one of the most awaited and biggest taxation reforms in India, is set to seamlessly integrate the Central and State taxes, thereby evading manifold stratums of tax system. Such unified tax structure leads to a coherent and corruption-free tax transaction taking the logistics & transportation sector to the next level in terms of investments, infrastructure and efficient supply chain networks.

Although the GST system has been largely commended for its rational tax system approach, enhancing the transaction policies and largely boosting the nation’s economic developments, there have been several impediments in its implementation in the past two years.

Analysts foresee that an implementation of GST permitting the Centre and the States to carry out rationalized tax policy in unison by April 2013 is likely to fail. Of course, in recent months, heightened political discussions among the Centre and the States on the tax reform implementation are clearly showing some positive signs. Inter-State tussle over tax sharing is a major determinant.

Race Innovations

Today, the logistics & transportation sector is operating with multiple nodal networks and warehouse, at reduced operational efficiencies and ineffective supply chain networks. However, the introduction of integrated GST (IGST) is expected to transform the logistics and transportation business landscape by shutting down the existing warehouses at certain locations and encouraging the development of highly integrated and state-of-art warehouses and stock transfer centres at strategic locations. Such consolidation strategy is likely to result in the emergence of hub-and-spoke models and super-efficient supply chain networks, providing a plethora of growth opportunities for the Indian trailer market.

Effective implementation of IGST, coupled with the realignment of a scrambled transportation network and infrastructure businesses to well-defined regional clusters, will certainly drive the demand for tractor-trailers due to the growing trend towards bulkier transportation and mass transit of goods to a central point.

Organized vs. unorganized players

Race Innovations

Traditionally, the Indian trailer market has been fragmented in nature with 44.9 per cent of the market is held by the unorganized players. But today growing competition, coupled with diminishing profit margins, tightening regulatory and statutory norms and demand for mounting quality trailer components/aggregates, are pushing the trailer OEMs to realign business operations from an unorganized to organized structure.

“The share of the organized trailer OEMs is expected to increase to 62.1 per cent by 2016 and the consolidation trend is certain to have a positive impact on the trailer market”, says Mr. Udaya Kumar, AGM Research and Consulting, RACE Innovations.

Further, the players in the unorganized sector are enhancing their manufacturing capabilities to capture the regional demand for specific applications. It is expected that some of the unorganized trailer manufacturers will continue to leverage their local demands, while focusing more on innovative applications rather than expanding their business operations at different locations. This clearly shows that there will be still an intense competition between the organized and unorganized players. But, organized players score brownie points when it comes to the use of quality components in their trailers, mass production capabilities and compliance with the evolving ARAI trailer body codes and taxation norms. Another evolving trend in the trailer industry is the increasing demand for light weight trailers for enhancing the load carrying capacity to minimize the prevailing overloading of vehicles.

Beyond 2017, we see a majority of the unorganized players shifting into organized sector either by collaborating with the established OEMs or enhancing their capabilities to cope up the GST, competitive, and regulatory pressures.

“Application-centric demand is triggering vehicle manufacturers to collaborate with trailer OEMs to unleash a region-specific demand potential. The trailer OEMs will be able to expand beyond their regional boundaries and cater to a diverse customer base by leveraging on vehicle manufacturers’ warehouses and aftermarket support across the country”, says Mr. Rajesh Khanna, Chief Operating Officer, RACE Innovations.

A majority of the emerging trailer original equipment manufacturers (TOEMs) are likely to collaborate or establish technological partnership with the branded component manufacturers to use quality aggregates on their trailers to standardize their designs and enhance the brand value. International trailer OEMs are eyeing the Indian market with a view to capitalizing on the high growth trailer market, and these foreign players either sign a joint venture with established TOEMs or set up their greenfield facility. This trend is clearly changing the competitive landscape in the Indian market, forcing the local players to enhance their service levels and technology to retain their pie in the market.



Recent Posts