India remains the 4th largest economy in the world, after the USA, European Union and China. In 2014-2015, the Indian economy remained poised to overcome the sub-five per cent growth of gross domestic product (GDP) witnessed over the last two years. India’s services sector – that remained resilient even during and immediately after the global financial crisis – buckled under the pressure of continued global and domestic slowdown, resulting in sub-normal growth in the last two years. However, early shoots of revival became visible in 2014-2015 with signs of improvement in world GDP growth and trade also reflected in pick-up in some key services like transport logistics and retail trading.
In recent years, the accessibility, door-to-door service and reliability have earned road transportation a higher share of both passenger and freight traffic vis-à-vis other transport modes. As a result, road transportation has emerged as the dominant segment in India’s transportation sector. Both freight and passenger movements by road are expected to rapidly expand in the coming years. In particular, freight movement by road transport is expected to show robust growth over the medium term due to a number of factors, which is substantial investment in improvement in national highway network, which will facilitate speedy, reliable, door-to-door services and rising volumes of exports and imports. The major objective in the 12th Five Year Plan would be to augment the capacity of various modes of transport and set up an infrastructure comparable with the best in the world. In roads, apart from completing the various phases of national highways development projects (NHDP) which are in progress, substantial progress would be made in development of expressway network to increase the mobility. Standards of maintenance of national highways would be further strengthened and a network of six-lane roads augmented and significantly increased.
Domestic freight transportation services involve the movement of goods within India. The modes of surface transport include roadways, railways, coastal and pipelines. Demand for freight transportation services depends upon the size, structure and demographic profile of the economy. Industrial and agricultural production, along with export-import trade, primarily drives growth in the freight transportation industry. Among modes, this industry is dominated by roads, followed by rail. Over the years, roadways have captured a very significant share of freight on account of faster service and point-to-point connectivity. During the post-reform period (1992-1993 to 2004-2005), volume of freight carried by road grew at an annual average rate of 6.5 per cent compared with a growth of 3.6 per cent in rail freight. Over the years, the modal split in freight movement between rail and road has skewed in favour of road. The share of road transport in freight movement which was around 14 per cent in 1950-1951 has increased to around 61 per cent, while that of railways has fallen from more than 4/5th to less than 2/5th over the same period.
In India, freight is transported across the country mainly through roadways, railways, coastal means and pipelines. Demand for domestic freight transport comes from industrial and agricultural goods along with export and import trade. These goods form the primary freight, calculated in terms of billion tonnes per km (BTKM), which are then transported via road, railways, ships or pipelines. Supply side drivers include: on road vehicle capacities, modal infrastructure which includes road, rail, pipelines and coastal shipping, storage infrastructure and increasing proliferation of the hub-and-spoke model. Another key driver for the supply of freight is the availability of allied infrastructure such as warehousing, container freight stations, inland clearance depots, cold storage etc. industrial goods and consumer products then form the redistribution freight, which is transported from hubs to spokes in the hub and spoke model. Based on the framework, a relationship between the estimated primary freight movement in the country and growth in industry and agricultural GDP has been econometrically established.
Bulk of freight in India is transported through roads, whose share in total traffic is estimated to have risen by 8.5 per cent in the last decade to about 63 per cent in 2013-2014. The road freight transport segment is also deregulated and highly fragmented, with small operators having over 65-70 per cent share. High fragmentation in the industry enhances competition, offering customers better
The key industry participants include the transport operators which are the trucking companies, and which solicit freight and convey it from one location to another. The transport operators or freight transportation services providers can be broadly classified as small fleet operators (SFOs) owning up to five vehicles, medium fleet operators (MFOs) owning between six to 20 vehicles and large fleet operators (LFOs) owning typically over 20 vehicles.
The FTL (Full Truck Load) segment comprises of a business model wherein the LFOs have contracts with the end-user to provide door-to-door service and pay for the entire load-carrying capacity of the truck (or FTL) from one location to another. The service is offered at a predetermined price and is generally used by customers/manufacturers with large quantities of goods to be transported. On the other hand, the LTL (Less Than Truck Load) segment service is categorised into two categories; parcel and express cargo. LTL involves partial or less than full capacity of the truck load. In LTL operations, the customers do not hire the entire truck, and the LTL service provider aggregates consignments from various clients and sends them across to the desired destination. Unlike FTL operations, wherein the consignment originates from a single source, this arrangement requires a wider reach and adequate infrastructure.
Share of non-bulk traffic is likely to increase over the next five years. Non-bulk traffic (mostly transported by road), is expected to grow at an eight to 10 per cent CAGR during 2013-2014 to 2018-2019, as consumption demand improves, especially for consumer durables, pharmaceuticals and automobiles. The share of the non-bulk segment in the overall primary freight traffic is thus expected to increase to 57 to 58 per cent by 2018-2019, from 47 to 48 per cent in 2008-2009.
Supply constraints faced by railways benefits road transportation. As rail capacity constraints are likely to continue, road freight operators are in a better position to capitalise on incremental demand in the next five years. It is expected that the share of roads in the total freight to increase to over 65 per cent in 2018-2019, from 63 per cent in 2014-2015, while the share of railways is likely to decline to 26.6 per cent in 2018-2019 from 27.6 per cent in 2014-2015.
While road freight traffic growth is expected to remain moderate in the short term, it is expected to grow at eight to nine per cent CAGR to about 2,200 BTKM in 2018-2019, from an estimated 1,500 BTKM in 2013-2014, driven by a revival in freight demand. Bulk traffic is expected to grow at eight per cent to 10 per cent CAGR over the period of 2013-2014 to 2018-2019. A strong growth in non-bulk transport by road and capacity constraints faced by the railways will enable road freight traffic to grow faster.
VRL Logistics Limited, as one of the leading pan-India surface logistics and parcel delivery service providers in India, is eyeing this market while looking at increasing its goods transportation network and fleet size, proportion of owned transshipment hubs at strategic locations and expanding its transshipment hub capacities, improving operating efficiencies through technology enhancements, focusing on higher margin parcel delivery services, consolidating its bus operations services and enhancing operational controls to ensure timely delivery and quality service.
The company entered the “Limca Book of Records” in 2013 for being the single largest fleet owner of commercial vehicles in private sector in India.” VRL Logistics Limited is now making a public issue of equity shares priced at Rs 195 to Rs 205 each aggregating up to Rs 1,170 million, and an offer for sale of upto 17,116,000 equity shares by NSR-PE Mauritius LLC. The issue opens April 15, 2015 and closes April 17, 2015.
VRL Logistics Limited’s Chairman and Managing Director, Dr Vijay Sankeshwar said the variety of goods transportation in the fleet enabled it to serve a diverse mix of consignments, where its goods transportation service business served a broad range of industries, including the fast-moving
consumer goods (FMCG) sector as well as other industries like food, textiles, apparel, furniture, appliances, pharmaceutical products, rubber, plastics, metal and metal products, wood, glass, automotive parts and machinery.
The company’s goods transportation fleet included 3,546 owned vehicles that enabled it to reduce dependence on hired vehicles, retain control of the value chain and service quality and establish a reputation for reliability and timely delivery of consignments. The company’s in-house technology systems enable it to improve service quality and consistency alongside increasing operating efficiency including through seamless real time monitoring of its operations, consignment bookings and delivery status while maintaining stringent financial controls.
It also provided luxury bus services to meet the transportation requirements of various customer segments across Karnataka, Maharashtra, Goa, Andhra Pradesh, Telengana, Tamil nadu, Gujarat and Rajasthan through its 455 buses, besides operating car carrier vehicles for transportation of cars, vehicles for liquid transportation, courier service business, and minor business interests in wind power, air charter services and hospitality.