Post Date : April 21, 2020
Nowadays, in most of the supply chain and logistics forum, a question that is often asked about is about the post lockdown truck demand. As industries are preparing to open up, trucking freight rates across key routes are already up by 20%-30%. Once the lockdown is eased across geographies, most of the experts are expecting sudden surge in demand. However this may be temporarily true, my view on the surge in demand is a little different: there may not be significant increase in demand of trucks as demand from end consumer will not spike all of a sudden.
Post lockdown, consumer sentiment will not be very positive and they may not spend out of the way for non-essential goods. Inventory of non-essential products at retail shelves and supply chain channels will be same as of pre-lockdown period. Moreover, there may not be a festive season leading to surge in sudden demand of consumer electronics, white goods and apparel or lifestyle products.
In case of essential goods (grocery/FMCG products) off take from retail may slightly go down for some time, as end consumers have a tendency of keeping high inventory at time of crisis. Such consumer behavior is visible in current crisis, which means immediately after lockdown there will not be huge pull from customers instead the demand for inventory replenishment at retail will prevail. In this time of lockdown, many companies have rationalized their SKU offering. Post lockdown, companies will again push all other SKUs to retail shelves for replenishment.
Even the project cargo may witness decline in load factor. All ongoing project work will not progress in lockdown and post lockdown project requirement will be at same pace without any fluctuation. Meanwhile, new CAPEX and infra projects may be postponed due to weak liquidity and poor economic scenario. This will impact negatively on road transportation sector.
As per research on behavioural science, it takes more than 2 months (approx. 66 days) before a new behavior becomes automatic.We are in a lockdown of 40+ days, which is a significant time period to impact consumer behavior. So, we can also expect that post lockdown, demand may not be as high as pre-lockdown. Such theory supporting decline in consumption pattern also does not support theory of sudden surge in trucks demand for transportation.
During the period of lockdown, Indian Railways is focusing on freight transportation as a support mechanism to maintain supplies. But this situation may result in opportunity for railways and shippers both. For railways, transportation of FMCG and essential commodities may be a new stream of revenue, where they were never active. While for shippers, long-haul transportation through rail mode will be cost effective. So, a lot will also depend on how Indian railways takes it forward, as a new opportunity.
On the other hand, we foresee shortage of drivers and handlers after lockdown. Shortage of drivers will reduce the availability of available trucks for loading and such scenario can create a gap in demand and supply of trucks. So post lockdown, without any real surge in demand, shortage of trucks and surge in freight rates are expected.
This article has been authored by Vikash Khatri, Founder, Aviral Consulting Pvt Ltd. He can be reached at [email protected]