In our last post, we compared the regulations and industry structures that characterize trucking in China and India. This week, let’s focus on finance.
Tax regulation can be perplexing in any country, but the regulatory maze in both China and India is especially complex. A brief summary of the taxes that pertain to trucking is presented in Table 1.
The single biggest issue in India is the country’s non-uniform tax structure. India has a dual tax structure – by the state and by the central government that are charged simultaneously. A uniform value-added tax (VAT) structure has been proposed, and is supposed to come into force this year.
On the ground, Indian truck operators must deal with number of different government agencies to obtain clearances for carrying goods and/or to pay various charges at border check posts. There are agencies that oversee regional transportation, excise duties, forestry products flows, and the movement of civil supplies such as essential commodities (as well as related responsibilities such as weights and measures and food adulteration control), for example.
These bureaucratic speed bumps along with infrastructural issues can add significant cost to freight transportation in India. Road damage caused by overloaded vehicles is one component of the country’s inflated freight bills. Another is multiple checks while a truck is on en route – conducted by as many as six different government agencies – which cause delays and lower speeds, increase fuel consumption when vehicles idle, and result in under-utilization of the nation’s transportation capacity. On a macro level this “transit cost” also makes Indian trucking less competitive compared to other modes, impedes freight flows, and makes it difficult for India to develop a common market approach to trade.
China’s trucking industry is hampered by a similar patchwork of government agencies. However, the country boasts a relatively efficient road system owing to a decade-long highway building program. Corruption is a problem. Long haul drivers can expect to get tickets from local officials for no good reason, for example, and might be forced to pay cash if they want to continue with a minimum of delay.
Neither country has a common database for checking a carrier’s safety records, insurance coverage, trucking licenses, operation permits, credit history, etc. In the absence of this information, qualifying carriers is far from straightforward in China and India.
Another important piece of the financial jigsaw is the cost of insurance. Chinese drivers are legally obliged at the state level to buy motor vehicle accident liability insurance. Coverage amounts to about CNY 12,000 (about $2,000 at today’s prices) per truck. Some carriers buy third-party liability and auto liability insurance in order to protect themselves. Usually shipper customers force logistics and trucking companies to cover cargo damage claims even where they have their own insurance; a practice that is illegal but still prevalent in China.
Similarly, all vehicles must carry accident insurance in India by law. However, goods still have to be insured by shippers since most truckers will not entertain large claims. Truckers will assist shippers in filing claims.
Finally, there is the cost of procuring truck capacity. Quotes from Chinese carriers – usually based on cargo tonnage or volume – are subject to invoicing and insurance fees. Fuel costs and road tolls also have to be factored into freight rates. Shippers are advised to double-check the figures when receiving quotes from truckers in China.
It is usual for individual drivers to ask for quick payment after offloading, and ask the customer to remit cash to their debit cards directly without an invoice. Many larger players in China offer long term credit terms of 45 to 60 days.
Pricing and equipment availability are controlled by common trucking pools in most Indian cities. Also keep in mind that unless there is strict local enforcement, it may be difficult to abide by the country’s regulations on truck overloading, documentation, permits, etc.
This two-part series offers a glimpse of the complexities of moving goods by road in China and India. Obviously logistics professionals must do their homework before venturing in these countries, but there is no substitute for on-the-ground expertise, whether through local offices or a solution like TMC’s Control Tower©.