Unorganised transport unions plaguing road transportation costs

Recently there was a news that Adani Cement decided to indefinitely suspend operations at Barmana and Darlaghat units in Himachal Pradesh due to steep transportation costs in the hilly state leading to losses. According to the company, two cement plants of the group have become unviable due to high cost inefficiencies in transportation and adamant stand of the truck unions.

From this situation an obvious question arises is – “Are small, unorganised transport unions formed at local level leading to inefficiencies?”. We regularly keep on hearing from industry sources about critical issues related to cost and efficiency of few unorganised transport unions. These unions exist at compound level, industrial area level or at small town level. In any tier-2 or tier-1 city level, multiple such small unions exist. The structure of these unions is highly unstructured and fragmented. Some of the examples include Tempo Associations or Truck Association or Trailer Association etc. Most of these ‘Associations’ fully control deployment of vehicles in that particular area for a certain type of vehicle or small haulage. For vehicle deployment for locations which are not served by a certain association, payment of specific fees to association is required either by shipper or by transporter to deploy vehicle from outside.

Our research show that most of these associations/unions start with some group to protect rightful interest of individual vehicle owners working as service providers. But over a period of time, these associations become so powerful and influential that they start dictating their terms and conditions, irrespective of legitimacy and economic sense of those conditions.

In many a case it has observed that these associations use muscle power to dictate their terms. Even if a shipper wants to use their own transport vehicle or some non-association attached vehicle from the area, they can’t operate it due to practices of association. Sometimes these practices increase cost of transportation significantly.

We took a cost from a similar association in prominent manufacturing location in North India for a 19ft vehicle to cover a distance of 80km, and the cost was Rs 10000/-. Vehicles on such routes return on same day and run on a single driver.

As per the customers, the engagement processes from these association are not smooth and sometimes hired vehicles are old, or don’t fit for deployment as per quality guidelines of companies. The rates of these associations are normally higher by 20% to 60%, compared to similar engagement in competitive markets. Ultimately, any such increase in cost due to inefficiency get passed on to end customer by way of increased product cost. None of the shipper or transporter bears the impact of such factors. Some associations may have legitimate reason for small premium, but those reasons do not justify the extent of charged rates.

The relation between the vehicle supplier/transporter and service user is of a partnership, which is expected to be based on theory of Win-Win between both parties. But this rule does not hold true to such small, unorganised associations and it looks like a partnership based on Win-Lose theory.  

Contrary to it, a few national unions like the All India Motor Transport Congress (AIMTC) or the All India Transport Welfare Association (AITWA) truly represent for welfare of vehicle owners and associated community, without intent of short shortsightedness. Normally, these associations take up the issues which impact transport community negatively. Steps and initiatives of these unions carry a large canvas and also support various stakeholders of the community. Even constructive inputs of such association support in policy making for the sector.

The problems of such small associations is not uniform across country, but few specific geographies have a high degree of problem, while many others don’t have such issues. One thing is very clear that such inefficiencies impact the business environment and growth of any area. Efficient supply chain is one of the prerequisites of growth of economy. The short-sighted approach of such associations results in long term damage for the overall ecosystem.   

This article has been authored by Mr. Vikash Khatri, Founder, Aviral Consulting. All views expressed in the article are his own and do not represent those of any entity he was, is or will be associated with.

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