Creative Destruction Underway

Ramesh Kumar from Greater Noida

Modal shift ought to be a nightmare for road transporters. What they built assiduously over decades thanks to the lethargy of Indian Railways, now being taken away. If not already, the motion is set in place. By the government wholeheartedly. It was the same government or bureaucracy under different political dispensations that almost dismantled the Railway hegemony enabling the rise of road transport. No longer. Times are changing.

The draft National Logistics Policy (NLP) released almost a year ago, has clearly indicated what it desires. Take a look.

Currently, the modal ratio is road 60%, rail 31% and water 9% approximately. Under the draft NLP likely to be announced as a pucca policy very soon, again specifically stated by the Finance Minister Nirmala Seetharaman in her Budget Speech 2020, will desire to optimize with a modal mix of road 25-30%, rail 50-55%, and water 20-25%.

All the policy initiatives over NDA-1 and NDA-2 are in this direction. The Dedicated Freight Corridor, nearing completion, will certainly be a big boost to rail. Waterways, sure, will take time to fructify. But certainly an achievable and desirable goal to reduce carbon emission as well as to decongest highways. The Bharatmala with dedicated freight corridors is the only silver lining for road transporters from a larger perspective.

The rise of startups such as Rivigo, Blackbuck in the road transport segment certainly is a big thorn for the conventional transporters. But the government is looking beyond the unorganized group of old school transporters. Various policy announcements such as the hefty axle load rise are shrinking the marketspace. That is the supply excess is ballooning with earlier overloading violators are blessed with a bonanza. Legal at that. The established fleet owning transporters and or the big boys who have hundreds if not thousands of associates plying on highways with the big boy's brands are safe with their long term transport contracts and are less concerned about the noise at the bottom of the pyramid.

What's the future of road transport? Forget long hauls. Rail will eat into that. No two opinions. Yet, rail has its own disadvantage: needs support at the first and last-mile delivery. Rail can't come to one's doorstep. So short-haul will remain the domain of road transport. Niche segments such as chemicals, fuel, LPG, etc again can remain in road transport fold.  Bulk items such as steel, cement, fertilizer, and coal belong to rail.

Ecom is an area where road transport can have a say. However, e-com players are majorly dumping higher payload vehicles and opting for smaller payload ones following the axle load revision due to approx. 15% freight advantage.

A growing economy like India that wants to cater to the needs of aspirational India in the remotest corners via e-com route, the road has a marginal advantage (how long, one does not know) over the rail.

Containerisation is another bright spot. Dry ports across India is a reality. Now with the fresh thrust on export hubs at the district level - if not immediately, but in the 5-6 year horizon - announced in the Budget 2020 is something road transport can explore. From dry ports/CFS to the nearest ICD. With Concor going private sooner which enjoys a huge container movement market, here again, the first/last mile connectivity is something to mull over.

Not to be forgotten is the project cargo. That has to be on-road only. A niche premium market. The rail cannot handle. Then comes the question of how many projects and where. There again it is a bit overcrowded.

Many matured traditional transporters have foreseen this changing trend long ago and there goes the tale of many of them getting into or diversifying into allied services such as warehousing and kitting etc inside.

Pure vanilla transporters (fleet owning, am referring to) have to look into their crystal glass if they have not yet. The elimination of the weakest from the millions of truck owners is inevitable. Creative destruction.