Tanvir Shawkat Head of Supply Chain Finance IDLC Finance Limited

1.0 Overview of the Industry

Bangladesh, an emerging economy, has reached a new milestone graduating from LDC bloc to the group of developing countries. With this new feather in the cap, there has been rapid development in the roads and highways of the country over the years. As a result, the manufacturing sector of the country is enjoying steep growth. To cater for the increased demand of road transportation, commercial vehicles are playing a crucial role to keep the countrywide supply chain functioning. Commercial vehicles help to fuel the distribution channel efficiency of products and services which ultimately makes them a key component of the overall value chain system.

The Commercial Vehicle Industry of Bangladesh

Commercial vehicle denotes the automobiles used for transporting goods and passengers or providing various services and that includes trucks, cargos, coaches and buses. Because of the rapid economic development our country is enjoying, its GDP is projected to reach 310 billion USD by 2021 as per the findings of Trading Economics global macro models and expert forecasts. With the help of advanced econometric models, experts have estimated the country’s GDP to trend around 340 billion USD in 2022. To cater for such a promising GDP growth, the commercial vehicle industry is expected to play a crucial role to ensure proper mobility of products and services.

Industry Insights of Transportation Sector
a. Types of Commercial Vehicle There are different types of commercial vehicles and they can be categorized on the basis of gross weight.

b. Current Scenario As discussed before, there has been rapid development in the roads and highways of the country which helped to improve the overall communication system. We started our journey in the year 1971 with 3,764 KM roads and we currently have 21,118.74 KM roads and highways connecting different parts of the country.

According to BRTC, till August 2021, there are 4,808,715 registered vehicles in Bangladesh.

c. Current Market Size
According to the statements of industry experts, the size of commercial vehicle industry has expanded to BDT 4,200 crore from the previous BDT 2,000 crore market. “Bangladesh is a potential market for commercial vehicles as the economy is booming”, said Hafizur Rahman Khan, Chairman of Runner Group. “The market size of commercial vehicle has increased by 15% to 20% annually over the previous decade”, he added. According to a recent publication on The Daily Star (November 2020), this commercial vehicle industry is the new hope for Bangladesh to take the emerging economy to the next level by the end of 2025.

d. Growth of the Industry
Over the past 8 years, the market for commercial vehicles has grown at a rate of 14% to 20% each year till 2019. According to Bangladesh Road Transport Authority (BRTA), it registered 12,644 trucks in 2018 in comparison to 10,329 trucks in 2016 and 6,605 trucks in 2015. During the pandemic and the lockdown, the industry experienced slight negative growth. According to BRTA data, the number of registered vehicles has decreased by 24.08% in the year 2020.

e. PEST Analysis: Commercial Vehicle Industry of Bangladesh

Oligopolistic features have been observed in the country’s commercial vehicle market which requires significant capital expenditure and regulation by BRTC.

Nitol provides the buyers pay-as-you-earn plans while Ifad offers numerous medium-term financing alternatives. It has been observed that transportation and logistics companies consist the major portion of the buyers. Government-run transportation companies usually procure vehicles via tenders which are eventually catered by private organizations. However, dual role of the aforementioned organizations as distributor and financier sometimes creates problematic issues. Once the vehicle is purchased on credit, the buyer may attempt to avoid payment with the claim of cash shortage because of lower earnings. Inefficient collection and lack of regular communication often results into irregular repayment which eventually turns into bad debts. This is the reason why poor cash flow is observed even though the figure of sales is lucrative.

Over the years, Nitol has successfully gained majority market share occupying 40% of the current market size. Quality products within budget and availability of spare parts have played key roles behind this success. Ifad Auto stands second with 38% market share followed by Runner Motors occupying 10% of the market.
The major selling model of the major market players are:

The COVID Impact in the Industry
In order to understand the impact of COVID, revenue trend of the major market players needs to be studied.

Due to Covid’19, the industry suffered and the sales dropped. The revenue of IFAD Motors Ltd and Runner Motors Limited decreased by 29.45% and 4.04% in the year 2020. It needs to be noted that due to unavailability of Nitol Motors Ltd revenue data of 2020, we could not include it in the analysis.

4.0 E-commerce and the Industry

(i) E-commerce Players

Real time bidding takes place in Truck Lagbe app once a request is placed. Users have the option to choose the best offer suitable for them. Corporate houses are also getting tied up with these fleet management entities for better and real-time bidding services.

(ii) Correlation Between E-commerce Growth and Commercial Vehicle Industry in India

The infographic demonstrates the scenario of Indian commercial vehicle market. In India, the manufacturers of commercial vehicles and spare parts not only fulfils the domestic demand but also caters external markets located in SAARC countries and European Union. Bangladeshi automobile industry is following the legacy with the aim to fulfil local demand with domestically produced commercial vehicles. Walton, Runner and other significant players in the industry are looking forward to producing 55,000 vehicles at least by the end of 2021.
Apart from providing on demand services, the e-commerce can play a vital role in the overall development of the industry. For instance, the e-commerce sites can make it popular to purchase commercial vehicles online thus fuelling the growth of this sector.

Challenges and Way-out
The commercial vehicle industry is facing a number of challenges and the pandemic has made the situation even worse.
Service life of vehicles have reduced due to poor road condition which is a result of ongoing massive development works. The traffic condition of the country is another challenge which must be mentioned. Due to heavy traffic in some cities and major highways, delivery of products is being delayed which is resulting into lower number of trips than expected.
Credit sales by the distributors are not properly assessed and there is no entry barrier in this business. Hence, unskilled business operators and unhealthy price competition is observed in this industry. Irregular repayment and repossession of vehicles due to non-payment Distributors’ end have increased significantly over the years. Financial institutions needs to play a key role here with proper customer assessment and increased focus in this industry.
Numerous road accidents have been reported on the national dailies and these accidents are mainly caused due to reckless driving and lack of training of the drivers on road safety. Majority of the commercial vehicle drivers are not trained professionally which is often resulting into greater number of accidents. Safety of the products is another key concern. It is not unusual to come across the news of burglary of the merchandises being carried. With the introduction of on demand third party service providers, the safety of the goods needs to be ensured strictly. As the industry greatly relies on imported vehicles, the size of the vehicles is crucial. The commercial vehicle industry needs to switch from Complete Built-Up (CBU) vehicles to Complete Knocked-Down (CKD) vehicles to cut down the import cost.
Although there are number of challenges dominant in this sector, the sector still looks promising. There are number of ongoing projects undertaken by the Roads and Highway Department. Once these projects will be operational, the traffic condition is expected to improve which will help to ensure smooth transportation. Technologies such as VTS can be used to get update of the real time location of the merchandises and this will help to ensure safety of the products in transit. Also, drivers of these commercial vehicles need professional training on roads and safety to cut down the number of road accidents.
As the economy is resuming after the lockdown, the commercial vehicle industry is also coming back to life. Accelerated funding from big giants and regional banking/financial institutions is highly required for industry-wide transformation to fuel this high pace of growth. Capital injection blended with technological advancement will help to alleviate start-ups like Truck Lagbe, GIM and Loop Fright so that they can continue the legacy.