Logistics: Hurdles for the road freight sector - Views on News from Equitymaster

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Logistics: Hurdles for the road freight sector

May 27, 2009

In our previous article we had a look at the road freight industry and the factors driving growth. However, the road is not so smooth and there are a few factors that can prove to be a snag to the sector's growth prospects. In this article we shall take a look at some of the hurdles that the road freight industry faces.

  • Fragmented nature of the industry restricts benefits of scale of operations. Majority of the players are small entrepreneurs handling family businesses. Lack of scale increases the cost of services for customers. Smaller scale also impacts fund availability.

  • Inadequate investments and lack of timely execution of building supporting infrastructure such as roadways, expressways will result in inefficiency and higher costs of operation impacting profitability of the players.

  • Apart from improving quality of roads, the toll system needs to be integrated to save on time and lower costs. Several check points increase waiting or transit time. At times this leads to congestion, which besides increasing waiting or transit time, increases the cost of operation.

  • Lack of technology can also obstruct growth of the segment. Access to technology and implementation of modern methods is important as it will result in cost savings and improve transport efficiency. Technological upgradation in the areas of engineering, designs and construction methods is imminent as the same would speed up the pace of construction and infrastructural development, ensure better quality of transport system and reduce delays. Apart from construction and maintenance of roads to ease smooth transport of goods, technology can also be utilised for rolling stock.

  • There are also policy issues to be considered. For instance, a truck operator has to normally obtain clearance from seven (sales tax, regional transport officer (RTO), excise, forest, regulated market committee, civil supplies and geology and mining) different agencies for carrying goods or paying certain charges at the check post. These checks are generally conducted by respective agencies at separate points resulting into detention of vehicles, which impacts their operational viability owing to loss of time, idling of vehicles, etc. Time is wealth. Delays and idling of vehicles not only exerts cost pressure but restricts revenue growth.

  • Multiplicity of laws and agencies governing inter-state movement of goods and vehicles are major impediments, which also affects operational viability. These laws include governing access control to national highways, inter-state movement of goods and inter-state movement of vehicles.
These are few issues that can obstruct the growth of road transport and hence the growth of the freight industry. Apart from these, the issue of availability of skilled labour also needs to be tackled. There is also the need to set in place a single window clearance system for all authorised charges/clearances both at the origin and at check posts to ensure smooth inter-state transportation on national highways etc.

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