Hurting fleet operators return trucks

MUMBAI/ NEW DELHI: Sunder Subramaniam, a sub-broker based in the Andheri East suburb of Mumbai, was driving through Torangal and the Bellary-Hospet belt en route to Mumbai on Saturday when he saw an astounding sight on the National Highway.

“There were hundreds of trucks loaded with iron ore lined up for a few kilometres on the road, apart from some excavators, etc. None of them was moving. One lane was blocked, which clogged traffic,” Subramaniam said. It took him two hours to get past the snarl.

India’s iron ore exports plunged 60% in October as recession hit the global steel
industry. The fallout of this has been hard for fleet operators, who find themselves with
no business at hand and big loans to repay.

So much so, they have begun approaching financiers to surrender vehicles because of inability to repay loan instalments, say sources.

The New Delhi-based Indian Foundation of Transport Research and Training (IFTRT), estimates truck fleet utilisation declined by 25-30% in October, while truck/trailer (5-49 tonne) sales were down almost to half at 12,335 units.

S P Singh, senior fellow at IFTRT, said, earlier, private banks and non-banking finance companies (NBFCs) were keen on vehicle repossession just after three EMI defaults by a transporter.

“But now, since the sector has slowed down and transporters with bulk orders are finding it impossible to repay loans, they are themselves approaching financers and returning vehicles. They have no other option,” Singh said.

IFTRT estimates that around 6,000 heavy commercial vehicles are lying in stockyards set up by NBFCs and private banks.

What compounds matters is the drop in resale value of trucks. “Sometimes the truck owners consider paying the EMI through the second-hand price of the vehicle. Reselling is decided on the scrap value of the metals in the truck.

Considering the falling commodity prices, truck owners might as well return the trucks,” said an auto analyst from a leading international brokerage house.

R Shridhar, managing director. Shriram Transport Finance, India’s biggest NBFC financier of commercial vehicles, said he is yet to see any voluntary surrender of trucks.
“This is because our borrowers haven’t been hit that badly. Most of them are small truck owners dependent on agricultural transportation. But yes, we know that trucks plying on national highways carrying iron ore and construction material have completely come to a dead stop,” he said.

Ravi Deshpande, analyst, Enam Securities, says the lack of business in iron ore and steel transportation “is the consequence of a fall in exports due to incompetent prices, fall in railway freight charges making rail a more viable option and production cuts being announced by manufacturers of steel”.

Analysts say absence of liquidity in real estate has affected transportation of construction materials. 

So, once the truck owners are ready to give up on their vehicles, to what extend will the financial institutions bail them out?

An auto analyst from another Mumbai-based brokerage firm, requesting he be not named since he is not authorized to speak, said normally banks and captive financial institutions repossess the vehicles and auction them off.

“But this time around, large banks have kept themselves out of commercial vehicle financing for the last six months, so it is up to the NBFCs to decide what to do. This may even prompt them from further lending,” he said.

In October, sales of medium commercial vehicles (15-16.2 tonne) fell by 42% to 2,221 units whereas intermediate vehicles (8-12 tonne) saw a decline of over 43% to 1,642 units.