China and India have almost become synonymous with global growth, yet doing business in these countries is still challenging for many companies.
In this two-part series, we shed some light on truck transportation in China and India. Both nations are giants of international trade, and it’s advisable to know how their trucking industries work if you are going to be active in these markets.
First, let’s look at how respective industries are governed and structured. In the second post in this series we’ll consider financial and pricing characteristics.
Regulations on the Transportation Industry
Both these countries are well known for their government bureaucracies. The table below summarizes the agencies that regulate trucking in China and India.
As can be seen, no single government agency has total responsibility for freight transportation, and there are historical as well as functional reasons for the way in which each department defines its turf. Not surprisingly, these demarcations can lead to internal conflicts.
Amending or introducing laws and regulations related to transportation often moves at a snail’s pace, particularly in China.
China’s Ministry of Transportation (MOT) – which appears to be becoming more influential – oversees licenses for trucking, NVOCCs, and the Civil Aviation Administration. The Ministry of Commerce (MOC) looks after the licensing freight forwarding.
By comparison, licensing arrangements are less complex in India, where the agencies and industry segments seem to be more clearly defined. Also, international companies are allowed to set up wholly-owned subsidiaries in India, something they can’t do in China.
Structure of Transportation Businesses
In terms of how trucking is structured, the business is highly fragmented in both China and India.
About 99% of the trucks in China are owned by single drivers or families. Large carriers with 100 vehicles or more are relatively rare.
Similarly, approximately 80% of the trucks in India are run by small operators. Here, the industry is built on a complex system of relationships and financial incentives, and although no one company has a major share of the market, there are strong players at the state and regional levels.
Requirements for Setting Up a Transportation Business
The two countries diverge when it comes to the requirements for setting up a transportation business.
In China, individual drivers are not allowed to establish a trucking company and secure a business license. Government sanctioned carriers must own more than five trucks. Individual operators have to sign an affiliate agreement with a larger carrier if they want to operate as a service provider.
These restrictions have led to the creation of a number of business models in the Chinese trucking industry. For example, entrepreneurs can:
- Drive an affiliate truck
- Pay a monthly or annual management fee for the vehicle
- Issue VAT invoices and charge handling fees on behalf of affiliate truck drivers
- Negotiate and purchase motor vehicle insurance on behalf of small truckers
- Operate as brokers who negotiate loads for affiliate trucks
Shippers must be aware of this complex structure if they are to avoid expensive pitfalls. For example, some small providers do not take responsibility for covering losses due to accidents, and may disappear when there is a large claim.
Setting up a trucking business in India is much simpler. However, the industry is based on a freight broking model, meaning that most operators rent vehicles from a common pool, causing complications. Pricing is controlled by the pools, for instance, so it can be tough to negotiate cost savings even for high-volume shippers. Also, it’s not easy to differentiate carriers according to their service performance because all vehicles are pulled from the communal pool.
Because of these factors, shippers in India often stay with the same carrier for long periods because there is little incentive to shop around.
An issue common to both China and India is a propensity to overload trucks. Operators in the highly competitive Chinese trucking market find it difficult to make a profit when hauling standard-sized loads, so they tend to exceed these limits. Indian truck drivers often follow the same practice.
Another practice shared by Chinese and Indian truckers is the use of driver teams on long haul routes. There are no strict limits on service hours in China, and drivers usually alternate overnight shifts.
Chinese truckers frequently go to one of the many city-based truck stops in the country to find their next load. Local freight forwarders function as brokers at these stops, offering a range of services such as arranging less-than-truckload pick-ups for shippers, cargo consolidation and storage, parking and sleeping facilities for drivers, and payments. Many freight forwarders establish long term business relationships with drivers.
There is a similar system in India, although freight forwarders tend not to be involved. Freight brokerage is well established in the country, but the entry barriers are high for newcomers owing to the strong influence of local players.
Conversely, in China there are no regulations or laws pertaining to freight brokerage, which is a new concept that has yet to become established.
China and India have come to represent the new world economic order, so it is important to be familiar with their regulations, business structures, business requirements, and common practices.
Still interested in learning more? Be sure to check out Part 2 of A Road Map to the Transportation Business in India & China for a look at the financial side of this complexity.