Large and medium-sized fleet owners of trucks are heading back to showrooms, kick starting negotiations with dealers for purchases ending a two year hiatus, according to commercial vehicle manufacturers.Truck owners who had decided to sweat their assets to the maximum to prolong new asset purchases in the light of a slowing economy are understood to be back in the market for replacement purposes.Areas such as power generation, mining, road building and construction have seen some renewed spurt since the past one month. Further, freight rates have also firmed up slightly during the last one month and is expected to remain on the upward trajectory, according to market watchers Rajive Saharia, executive director (head - global truck business), Ashok Leyland, said, There is definitely a change in the business environment. In certain sectors, for example the power sector which is dependent in coal is now witnessing some positive activity. This is having a spin off benefit on the truck industry. Large fleet owners who had completed stopped buying have now started to converse again for new trucks.
Wheat harvest, increase in fruit and vegetable arrivals, growth in rural spending, shrinkage in fleet size of trucks having National Permit and improvement in dispatches of FMCG products, consumer durables, general merchandise and housing construction material, have led to an increase of 4-5% in freight rates in May, according to IFTRT.We are certainly seeing a demand uptick. With the reopening of new mines and other activities and with improving infrastructure we are witnessing a rise in demand for our trucks and buses, said Anders Grundstromer, managing director, Scania CV India. Scania is a Volkswagen-owned Swedish truck and bus manufacture and operates only in the premium range.Traditionally a large fleet truck owner replaces his asset within 6-7 years of purchase. However, their usage was extended to 8-9 years in this downcycle leading to a demand glut in the market, say manufacturers.The excise duty cut extension announced by the government yesterday is a positive step and will help bring back buyers but up to a limited extent say manufacturers, as the revival will largely depend on the general improvement in economy.The excise duty extension is surely a positive thing for the commercial vehicle sector but the sector is more dependent on freight movements. Truck buyers would not have held back their purchase had there been no extension on excise duty cut. But this will add to an overall improvement in sentiments, added Saharia.
While macro environment overall continues to be subdued, the recent trend in freight rates suggests that fleet operators are now able to pass on the rise in diesel costs. Going ahead, freight rates may go up further depending upon improvement in macro environment leading to availability of more freight which in turn would lead to better utilization of fleet capacity, a business review by Tata Motors stated Indias largest truck manufacturer Tata Motors, which has a market share of 50% of the commercial vehicle market, was running its plants below 50% capacity in order to align production with demand. The Mumbai-based company reported a fall of 29% last year in sales, high than the industry drop of 20%.