The Indian transportation industry is continually growing at a CAGR of 15 percent. With over seven million goods vehicles moving around the country, the freight volume has reached 1,325 billion ton-km, a figure that is supposed to double by 2025. We spend almost 14 percent of our GDP on transportation and logistics, whereas in developed countries the spend is around 6-8 percent. However, the industry remains heavily fragmented, unorganized and very rough in nature. In order to gain a better understanding of the issues, we must understand the day-to-day operations in the industry and its key stakeholders.
In the trucking industry, spot market or mandi plays a pivotal role, especially in the Indian context. No matter how big or small a player is, one has to reach out to the spot market to fulfil their daily transportation requirements. The infographic below clearly explains the workings of the spot market.
The key players in the market are -
Assigning a load to a vehicle is not an easy process, as there are multiple entities involved in the entire transaction and multiple activities happen in the background before the vehicle can be in-transit. The nature of spot market is such it is heavily time-bound i.e., a shipper requires a vehicle urgently and reaches out to the transporter who, in turn, reaches out to the live spot market (brokers and fleet owners) to get the current rates, and since these transactions are bound by time, this leads to huge price volatility.
In India, there are multiple modes of agreements carried out by shippers to manage truck load operations. The common approximation in practice is that in India, contractual relationships cover around 30-40 percent of the market, whereas spot consists of the remainder. Shippers typically use a combination of multiple types of relationships to manage their truckload operations.
How do spot markets operate?
In a transport company leads start queuing up at the beginning of the day i.e., the shippers confirm the requirement of truck load movement for the next day. At the same time the vehicle suppliers get a true check on the inventory of vehicles available as most of the vehicles are done with their unloading and are ready for their next trip. Parallels can be drawn between the spot market and the trading floor at the stock market i.e., they are both governed by the demand and supply. By 5pm, the vehicle availability is made open by the suppliers and the assignment starts. However, the suppliers hold their cards close to the chest and the assignment does not happen until after a fair round of negotiation on the daily pricing happens. Something as innocuous as multiple phone calls for a specific route can drive the price up drastically as it throws an indication that the demand is high.
All the above activities take place with minimalistic or no technology and because the market is large, fragmented and unorganised, the truck load assignment has been subjected to a large number of first-generation procurement mechanisms.
Once the load vehicle assignment is done, the transporters have a final check to ensure that the drivers understand the loading point correctly and are on route. The vehicles are loaded, documentation process is completed, and the ,transporters pay out the advance money to the vehicle suppliers. In this trade 80-90 percent of the money is paid out to the vehicle supplier as advance and the rest is paid out on delivery of the goods.
How can technology smoothen the working of spot market?
There have been numerous attempts made to build an exchange that can recreate the spot market in the online world. Moreover, a lot of the shippers have tried to move to electronic modes of managing their truck load operations, however a handful have been able to move successfully in India. A lot of shippers have used auctioning platforms to assign lanes, routes, or volumes to transporters. However, even though the shippers have chosen the online path, the transporters, brokers and fleet owners have to come down to the spot market to fulfil the daily loads.
Technology can play a significant role in bringing the spot markets online. However, the following aspects need to be addressed carefully –
I still believe that technology has a long and a major role to play in this field, especially in the Indian context. There is a flurry of startups such as Blackbuck, Rivigo, 4tigo, TruckHall, Freightbazaar trying to make some dents in the landscape and smoothen the operations. However, this is a long marathon and a huge market, and will take years of hard work before some substantial impact can be brought in the industry.