The massive $300 billion Indian transportation industry is going through a unique time in its history. With several revolutionary government initiatives like GST, digitization, etc.; large investments in the industry by existing stakeholders as well as new age startups; and a rising population of tech savvy youth, the industry is well poised for an unprecedented disruption by technology driven truck aggregators.
For an Indian entrepreneur with limited means, trucking has traditionally been amongst the most profitable businesses to be in. Availability of convenient financing options mean that a new truck can be purchased with a down payment of only 10%-15% of the total cost. The same truck can then be resold after 3-4 years at around 75% of its original value once all the bank loans are paid off. A small fleet operator can thus earn nearly 500%-700% return on his investment within 3-4 years time, even though it amounts to only INR 25-30K per vehicle per month. Thus, for a small fleet owner, even though the quantum of profits may be limited, but the on return-on-investment is extremely high.
However, as the number of vehicles in the fleet increases, this profitability declines drastically. Unlike other businesses, trucking businesses largely follow the law of diminishing returns, rather than economies of scale. This means that as the fleet size increases, the quantum of profits does not increase in proportion with the growth in the fleet.
Several reasons contribute to this phenomenon. An increase in the number of trucks brings in management and operational complexities that quickly drive up costs. Vehicle idling increases, vehicle utilisation decreases, route planning becomes inefficient, decision-making becomes hierarchical and thus slower, and credit terms with customers become more liberal. Hiring highly-paid staff to oversee various business aspects further increases the costs of operations for the fleet owner, who also has to deal with other issues such as shortage of drivers, imperfect route cost assessment, and pilferage in maintenance expenses. Management of en-route problems in multiple geographies around the country also becomes more difficult, and directly impacts the business productivity. All these factors eat into the profitability for fleet owners and it ultimately decreases the per vehicle profitability to only INR 5K-10K per month. These inefficiencies and challenges in scaling up fleet operations profitably, lead to freight charges being much higher for cargo shippers in the country compared to global benchmarks.
It is this opportunity that tech-driven truck aggregators can exploit using technology. Tech aggregators can help fleet operators scale their companies profitably without the burdens and complexities of a large fleet operator, but still enjoying all the benefits of scale. Machine learning and AI-based algorithms can assist fleet owners in planning optimal routes for their vehicles, thereby reducing idling time and increasing utilisation. Real-time vehicle tracking increases transparency and reliability of service. New age IoT hardware enables predictive and diagnostic analysis like driver behaviour, machine failures, diesel consumption and preventive maintenance. Cloud-based documentation can eliminate the need for manual paperwork such as lorry receipt, proof of delivery, and paper invoice. In addition to these benefits, the truck aggregators are also able to provide discounts to their fleet partners on all essential goods and services such as diesel, spare parts, consumable oils, vehicle purchase, insurance, and tyres. Lastly, the fleet partners no longer need to carry the overhead of a sales team as the truck aggregators provide them loads as per their preference. With these benefits, the entire transport value chain becomes more transparent, hassle-free, convenient, cost-efficient, and reliable for everyone involved – be it fleet operators or cargo owners.
Logistics is the wheel that turns the Indian economy. It currently accounts for 14% of the country’s total GDP and is estimated to be a more than $300 billion industry by the end of this decade. Inefficiencies such as underutilized assets, operational wastage, and sub-optimal route planning – amongst the most significant costs incurred by the industry – present the biggest opportunity for value creation for a new-age transport company, and tech-driven aggregators are positioning themselves ideally to seize this to revolutionise the way cargo transportation operates in the country.