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Roll no. : 34
Subject: Competition Law
Research paper topic-: Truking Cartel in India and today’s
scenario regarding the same
Semester: Sem 4
Name: Bhavita Babbar
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Index

S.No. Particulars Page No.

1. List of cases 2

2 Research 3-6
3 Important and landmark case Detail 6-8
4. Abstract of research 8
5. Conclusion 8

List of cases:

S.No. Case Issue

1. Bharat on wheel Keeping track of truck

2. Case related to transport exchange Driving out the

middleman
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Trucking cartels in India and today’s Scenario

Though emerging as a dominant mode the road goods transport sector in India has, it is observed,
hardly been able to emerge out of the traditional unorganized framework over a period of time. It
has been a widespread feeling that the market structure of the industry in terms of the supply of
services is very highly competitive. Given the dominance of small operators, it is natural to
expect a competitive regime to prevail. However, given the segmentation of the industry in terms
of market players and market makers, it has been an emerging feeling that this is a sector, which
is prone to be dominated by some of the players and makers. In the case of specialized traffic
like movement of petroleum products, routine contractual traffic (big ones), it is most likely that
there is absence of competition – in a market – where single buyers are faced with number of
sellers of services. This argument can perhaps be extended to manufactured items like chemicals,
pharmaceuticals, which are supplied in bulk all over the country. Even in the case of general
freight where the small operators dominate (in terms of numbers), it is recognised that the role of
the middlemen is crucial in price fixation as well as in allocation of quantum of movement as far
as the small operators are concerned. In other words, it has been an evolving feeling that a
significant part of the sector may not be really operating within a competitive market structure as
is normally thought out to be. It is against this background that we felt the need for a detailed
study on possible anticompetitive practices in the RGTI in India. This study was taken up at the
instance of the Competition Commission of India which provided the financial support.

1. Insights from Literature

Deregulation in the transport sector has taken place in many countries in the past two decades or
so. From a review of literature at the international level, it has been observed that the effects of
deregulation have depended on the extent to which the industry was regulated earlier. However,
broadly the effects have been as follows:
The capacity available for common use has increased significantly with increasing dominance
by highly competitive small operators
Rates have fallen considerably as a result of more capacity and introduction of better
technological features
Falling rates have benefited customers but with costs not reducing to such an extent, profit
levels have fallen though operators offering higher levels of service have achieved higher profit
levels.
The roads goods transport industry in India has never been regulated the way it has been in
many other countries. But a regulatory framework in the form of the MV Act has been in place
since 1939. However, an effective regulatory framework has, according to popular opinion,
never been attempted to be put in place. This has emerged over the years as a major external
impediment (in terms of a number of dimensions) to the effective growth of the trucking industry
in India. A survey of the literature related to the trucking sector in India put our study in the
proper perspective. The study team believed that it needed to fill certain gaps. First of all, it was
pertinent to take a critical look at the supply chain related to trucking, in the sense of who
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actually determined the price of trucking services and more specifically, the role of the operators
and other intermediaries in determination of the price. The basic objective was to examine the
possibility of price fixation at levels not really reflecting competitive benchmark rates. Thus, a
related objective was to take a look at various costs related to operations and the returns derived
thereby. Given the state of the market and knowledge of the cost structure, it was possible to
make conjectures related to breaking even, earning of positive or negative economic profit, the
rationale for overloading, and so forth. However, this required some understanding of policy and
regulatory elements, which would ultimately have an impact on fixation of tariffs and costs
thereby affecting operations.
3. Analysis of Freight Rates and Operating Costs
The objective behind this analysis was to look at the trend in movement – in terms of increase or
decrease in freight rates and then examine profitability of operators. One point of view that has
emerged over a period of time is that there has been only a gradual 8 (though some what
consistent) increase in freight rates in India due to the entry of a large number of operators. With
increasing fuel costs, it is claimed that profitability has decreased considerably with many
operators just able to break-even. According to the operators, the profitability of truck operations
is said to have been adversely impacted due to increasing average operating cost (mostly fuel)
and falling or flat freight rates. Given a basic analytical model, an attempt has been made to
examine the profitability of operations for average freight rates on the different routes. From
simulation exercises, it was estimated that only at much higher level of movements, operations
would be profitable. Given the pressures on margins, it is very clear that it is only with a certain
level of overloading that operations turn out to be viable. This is a wide spread practice with axle
loads well in excess of the legal limit – a practice aided significantly by laxity of enforcement of
axle load controls by the concerned regulatory authorities in different States.
4. The Industry – Its Structure, Market Surveys and Analysis
From the different supply chain models that were considered one could say that the market
appears to be segmented on various basis, say as per area of operation, as per routes, i.e.
operators as well as booking and commission agents seem to have certain preferred routes. The
preference for the area of operation is in general based on familiarity with the route, contacts on
that route, infrastructure required, which in turn reduces associated risks. Historically, this kind
of market segmentation seems to have led to more powers in the hands of intermediaries as the
information flow was normally accessible to the intermediaries only. Therefore, in the past, these
intermediaries have enjoyed higher margins and have been in such a position so as to exploit the
market situation in their favour. However, over a period of time, the entry of a large number of
players, both operators and intermediaries, is ensuring that the structure is driven by market
forces. Given the dominance of small operators and the user requirements in terms of reliable
haulage, loss protection, the role of the intermediaries is substantial and proving to be useful to
both from demand and supply perspectives. Though, there could be situations wherein these
intermediaries seem to be colluding with each other in fixing freight rate as well as the
conditions and terms of freight movement, the existence of a 9 large number of these
intermediaries especially in the significant sections of the overall movement reveals an
overwhelming tendency towards a market determined revenue sharing arrangement. The
Mumbai market reflects this scenario to a very large extent. However, concerns that have been
raised regarding cartelisation practices in local movements and bid rigging practices in the
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context of attempts to aim at competition for the market by way of tenders and open bid
procedures, need to be looked into and such practices removed/ curbed.
5. Effects of Policy and Regulatory Regimes on Competitiveness of the Industry
Several Committees and Study reports have, in the past, pointed out the implications of several
policy and regulatory regimes on the efficiency and viability of operations of the trucking sector
and thereby its competitiveness in the Indian context. The present study also points out the
deleterious effects of the taxation regime (vehicle and operation related as also commodity
related) on costs of operations. Further, it also points out to a number of problems resulting from
the regulatory regime especially smooth flow of movements due to barriers there by affecting
efficiency of operations and competitiveness.
6. Competition Advocacy Measures and Initiatives
i) In the context of local operations, the Regional Transport Authority (RTA) can be requested to
provide parking spaces where operators could be located and also to notify (based on discussions
with the operators and users) a price band within which the operators could compete until such
time that the market has effective competition. Thus, the State Governments through the RTA
could eliminate price fixation practices in local movements.
ii) It is necessary that the Central and State Governments and other public sector bodies enhance
the efficiency and competitiveness of competitive tendering through more careful attention to the
tendering process. Given that there is provision for action against bid rigging or collusive rigging
in the Competition Act, 2002, the Commission’s advocacy role would be to impress upon
Governments for an active oversight of the competitive 10 tendering process to ensure
sustainability of competition failing which active competition enforcement would be resorted to
by the agency.
iii) An effective public sector role (Central and State) can be in facilitating applications and
adaptability of information technology and Intelligent Transport Systems (ITS) to all aspects of
trucking operations so that information asymmetries which continue to plague profitable
operations can be minimised if not eliminated.
iv) State legislation providing for cooperative efforts already exists. What are required are some
efforts on the part of the respective State Governments to encourage operators based in the State
to get down to formation of such cooperative units of operators. The Commission can actively
promote this idea with the State Governments as an advocacy measure.
v) The Commission, in its advocacy initiative, must lay particular emphasis on the emergence of
a mechanism for a competitive price regime in the market for container movement by rail and
also point out the need for a fair allocation of services in terms of access between the players (the
multimodal operators) in the market.
vi) As an advocacy measure, the Commission needs to point out the anomalies resulting from
Customs’ bonding requirements in the context of truck container movement from the ports which
need to be removed to provide a level playing field to the trucking sector.
vii) Service quality of trucking services is poor – which does not augur well for our domestic as
well as our international expansion efforts in terms of competitiveness of the economy.
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Advocacy should cover the quality aspect of the trucking service (industry) also in terms of
requiring proper enforcement of standards provided by the MV Act.
viii) The relevant provisions relating to fixation of minimum and maximum rates contained in
Section 67 (1) and Section 79 (2) (iv) are redundant and should be dropped from the Act. This is
to ensure that there is no more clamor for minimum rates under the existing regulatory
framework. 11
ix) As an advocacy measure, Governments need to be advised on the issue of the current
perverse system of financial incentives such as high tax rates and tolls on multi axle vehicles so
as to ensure a tax regime that results in more efficient use of trucking and road capacity. This is
especially important in the context of our competitiveness in international markets.
x) The Commission, as an advocacy measure, should advise the Central Government to initiate a
review into the requirements for an efficient and sustainable nation freight transport system
(encompassing all freight transport modes). Taking into account reforms to date and also the
various detailed studies undertaken in this regard, the review should map out what is required to:
• Achieve competitive neutrality across all transport modes;
• Address barriers to competition and efficiency in individual modes; and
• Enhance interfaces between modes.
This is an important advocacy measure which could ultimately result in policies which can help
ensure that the mix of transport modes reflects the intrinsic efficiency of the different modes
compared to current Government policies and regulations that favored one mode to other.
xi) With an economy dominated by roads and road transport, it is increasingly important that
truckers have much the same right as the railways to travel interstate with a minimum of delays.
Legal and administrative reforms are needed in this area are needed for India to function
effectively as a single market. As a measure of competition advocacy, the Commission needs to
emphasize the importance of elimination of regulatory and physical barriers which can pave the
way for a seamless national (single) market to begin with. The State Governments should be
encouraged to carry out competition audit of existing regulations especially those providing for
the present system of checkpoints administered by the States and involve a number of agencies
(which involve restrictions on flow of commodities, the fiscal regime, etc) to determine the need
for their continuation.

Important and Landmark case

1. Case related to Transport Exchange

(Source: Business World, October 04, 2004)
Driving out the middlemen For more than five decades, thousands of brokers have
dominated the Rs 70,000- crore road freight sector. Now, one company wants to replace
them. Nazeer is a strapping young man who is supremely confident of his abilities. His
profession requires him to be in a state of almost perpetual motion, plying up and down
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the Chennai-Kolkata highway several times a month. He has been a truck driver for five
years now. You can tell that he handles the stress as well as he handles the steering
wheel. He holds a record for having conquered the eastern leg of India's golden
quadrilateral in three days flat. His peers admire him. He also commands the respect of
his boss - Narasimha Rao. Narasimha Rao has been an entrepreneur-fleet operator for 23
years. He owns 42 trucks that ferry goods all over the country. He is sharp and street
smart. He has the schedules, movements, and loads of all his trucks plotted in his mind.
He lives in Tenali, a small town in Andhra Pradesh. Yet he manages his countrywide
fleet, customers and drivers with acumen. But there is one set of people that Rao does not
relish dealing with - brokers. They intermediate between those with trucks and those with
freight. Munna of Kolkata is one such broker. Munna's office is a small room. Many
drivers come there. Many languages are spoken. Many deals are struck. And many
crumpled currency notes change hands. And more often than not, those who give do so
reluctantly. Drivers are crowded around Munna's table for the better part of the day... and
night. Many like Nazeer, who have come from Chennai, seek Munna out to find a return
load for their truck. Rao would be very disappointed if Nazeer came back to Chennai
with an empty truck. He would be equally unhappy if Nazeer is stranded in Kolkata even
for a few days without a return load. Every idle day means loss of revenue. On the
contrary, the longer a truck stays on the road, the more profits it earns for its owner. Both
Rao and Nazeer know that. Munna knows it too, and exploits it to his advantage. Rao-
Nazeer-Munna - truck owner, driver, broker: this trio forms the backbone of the country's
Rs 70,000-crore road freight industry. And more often than not, the broker has the upper
hand in this uneasy economic relationship. Even big transport and logistics companies
with large fleets outsource a substantial part of their truck requirements. And Munna is
much in demand. Every farmer, every manufacturer, and every trader relies on this trio to
lug fruits and food grains, raw materials and finished products across the country. This
basic transportation model, as defined by the triumvirate, has survived the last half a
century with very little change. Monsoons have come and gone, the composition of
India's manufacturing sector has changed, new industrial clusters have sprung up, new
highways have been laid, large logistics companies have been born, information
technology has transformed the way the transport sector does business, and bigger and
better multi-axle trucks have hit the roads. But the broker has remained unchallenged.
Now, one man wants to change all that. He wants to displace the brokers from the
trucking chain. J.K. Rajagopal is the CEO of Transport Exchange, a new road freight
exchange. It has been working out of 40 offices on the country's highways for almost six
months now. He hopes that truck operators and companies will find in Transport
Exchange a respectable, efficient and transparent intermediary. Over 5,000 truckers and
500 companies have already signed up with it. Among them is Rao, one of the early
members of Transport Exchange. Rao is a good example of how Transport Exchange can
help truck owners. To begin with, Nazeer has now stopped visiting Munna's Kolkata
office. For that matter, he doesn't need to visit any broker anymore. These days, when he
makes a trip to Kolkata, he stops at Kharagpur. He calls Transport Exchange in Kolkata
and places a request for a return load. By the time he reaches Kolkata, unloads the freight
and gets some shut-eye, Transport Exchange has a load ready for him. He no longer has
to shell out Rs 2,000 or more to Munna as brokerage. Transport Exchange is happy with
less than half that amount. Moreover, as much as Rao trusts Nazeer, he does not have to
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worry about the possibility of the latter cutting a deal with Munna or other brokers. He
also need not be anxious of finding a return load quickly enough. Rao is certain most of
his trucks will soon run at optimum capacity. "The utilisation of my trucks has been
pretty much the same since I joined Transport Exchange. But I expect it to improve a lot
as Transport Exchange expands," he says. There are other benefits too. If Nazeer needs
some cash in case of an emergency on the highway, Rao only needs to call the nearest
Transport Exchange office. (See 'Working Capital: A Trucker's Lifeline') Rajagopal isn't
the first one to attempt the disintermediation of the trucking business model. A couple of
years ago, Transport Corporation of India (TCI), one of the largest logistics companies,
tried it with apnatransport.com. It was a Web-based model, requiring fleet operators to
log on to the Net. It failed. Other online ventures have survived, but only just. For
example, the Indian Freight Exchange,a multi-modal exchange, has perhaps done better
in the sea and air sectors than on roads. So far, all such attempts have relied on the
Internet - one of the greatest tools for disintermediation. In recent times, the Web has cut
out brokers in several sectors worldwide, including air tickets, automotive, commodities
and real estate. But India's truckers are very different from America's net-savvy car
buyers or Europe's travellers. Nazeer is happy with his place behind the wheel. His rough,
greasy hands are unlikely to touch computer keyboards in the near future. That is why
Transport Exchange - it works through a physical network of offices - has a better chance
of success than the likes of apnatransport.com. "Such physical exchanges will work. They
have a better chance of capturing brokerage revenues from the value chain," says a senior
executive of a Web based logistics firm.

Abstract of Research
Any attempt to understand a market for a product / service and its characteristics would
necessarily have to begin with the relevant definitions, which can be primarily in terms of the
product/ service that is offered, the geographic area which it serves, the nature of substitution
possibilities within and outside and the ease of entry and /or exit into the sector in terms of
policy/ regulatory elements and factors within the sector. All these features can ultimately affect
the quantity and quality of services offered as also the price that is charged to the consumer and
the revenue realisation of the producer. We attempt below some relevant definitions in the
context of the RGTI in India.

Conclusion
Competition law provides a regulatory framework to maintain and improve efficiency in
markets, promote competitive practices, and restrain price rises in markets where competition is
affected by business practices ( collusive price-fixing, input output allocation, bid rigging); abuse
of dominant position (exclusion, discrimination and predation); and mergers and acquisitions.
Competition laws in many developing countries also cover a broad range of anticompetitive
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actions and policies, including discretionary grants of monopoly power and unduly restrictive
government regulations.