Freight Corridors – How it is likely to change the CV business

With the Eastern and Western DFCs (Dedicated Freight Corridors) ready, the biggest impact will be on the commercial vehicles business in India. While business will still grow, there are some big structural changes likely in the trucking business.

Understanding Dedicated Freight Corridors

A dedicated freight corridor is estimated to have a 6.25X advantage over the current freight scenario. In the DFC, freight trains can travel at 2.5 times the normal speed and also carry 2.5 times the load that normal freight lines carry. This combines into a 6.25X advantage. Currently, the Eastern DFC connects the coal mines with the cement and power plants in the North, while the Western Corridor offers access to some of the biggest ports to export goods. In short, DFCs make moving goods by train more effective, more economical, and faster; reducing the load on the stressed highway system.

The shift in freight is already visible

Railways have always been the most efficient way to move goods at high speed. Crowding was the biggest challenge to freight movement. That is resolved through the dedicated freight corridors (DFCs). Take the case of automobiles. In 2014, just about 1% of the cars produced moved by railways, with the balance moving by road. Today, nearly 20% of the cars produced in India move by rail. Once all the key DFCs are completed in India, that share should go to well above 50%. The demand is likely to differ. For example, the demand in the Eastern Corridor will be more for heavy duty tipper trucks, while in the Western Corridor, it will be for tractor trailers and regular CVs.

How the trucking model will get disrupted

There are two major changes that will happen in the Indian trucking business, which is already being disrupted by the digital trucking platforms. However, the impact of DFCs is likely to be more structural in nature. For instance, an increasing share of long-haul freight is likely to shift from roads to rail. That will free up more of truck capacity. On the other hand, the demand for trucks will be more concentrated in last mile delivery. For instance, transporting the goods to the ports, or to factory gates will still need trucks. However, the demand for trucks is likely to gravitate more toward LCVs and MCVs and less towards HCVs. This could have larger implications for truck manufacturers.

Why the truck demand patterns could shift

There are some interesting changes that are likely in truck demand patterns. Remember, trains can only move from hub to hub. You still need flexible transport system to connect the hub with the spokes. That will need a lot of help from the intermediate LCVs. Also, once the cargo is offloaded by the freight train at the freight hub; it has to be distributed to warehouses, wholesalers, retailers, and to consumers. That network will be managed by LCVs and MCVs in particular. In short, the trucking demand pattern looks set to change. This will have larger implications for the business strategies of CV manufacturers and also for the investors looking to invest in such CV stocks!