Competition Issues in The Trucking Secto PDF

First Draft
Competition Issues in the

Trucking Sector in Bangladesh
Selim Raihan1
Abu Eusuf2
Soeb Ifthekhar3
August 2009
Paper Prepared for

Bangladesh Investment Climate Fund (BICF)
Submitted by
Unnayan Shamannay
2/E/1-B Mymensingh Road, Shahbag, Dhaka 1000
Phone: 8610332, 8622320, 8650015; Fax: 8622320
1
Associate Professor, Department of Economics, University of Dhaka. selim.raihan@gmail.com
2
Associate Professor, Department of Development Studies, University of Dhaka.
3
Research Associate, Unnayan Shamannay, Dhaka
1
Content
Executive Summary
I. Introduction
II. Objectives of the Study
III. Methodology of the Study

3.1. Competition assessment framework
3.2. Survey on service providers and service receivers
IV. Overview of the Surveyed Trucking Sector

4.1. Years in business of the trucking firms
4.2. Sources of initial investment of the trucking firms
4.3. Factors influencing the entry into the trucking business
4.4. Type of business receiving truck service
4.5. Types of goods transported by trucks
V. Growth of the Trucking Sector

5.1. Numbers of trucks per firm at start and at present
5.2. Renting of trucks
5.3. Monthly frequency of trips
5.4. Average number of trucks in truck stand
VI. Pricing Mechanism in the Trucking Sector

6.1. Truck renting mechanism
6.2. Influence of transport agencies
6.3. Pricing mechanism
6.4. Differences in fare for different routes
6.5. Influence of illegal toll on truck fares
VII. Understanding the Market: Concentration, Profitability and Entry and Exit
7.1. Share of largest five firms in the trucking market
7.2. Cost of business in different routes and profit margin
7.3. Reasons for new entry and exit
VIII. Associations in Trucking Business

8.1. Extent of affiliation with associations
8.2. Nature of truck owners association
8.3. Nature of labour association
IX. Threat of Substitute
X. Barriers to Entry
10.1. Problems of availability of loan and insurance
10.2. Problems of having small number of truck
10.3. Problems in registration process and fitness certificate
10.4. Problems in paying taxes
10.5. Geographical quota and barriers
10.6. Private companies and practices of cartel/syndication
10.7. “controls” over market
10.8. Non-price factors
10.9 cost analysis: calculation of exit cost
XI. Conclusion
2
List of Tables
Table 1: Area wise Selected Sample distribution for trucking sector

Table 2: Distribution of FGDs among the actors for each side of the route
Table 3: No of Years of Firms in Trucking Business (% of Respondents)
Table 4: Source of Initial Investment (% of the respondents)
Table 5: Factors behind Entry (% of the respondents)
Table 6: Major Receivers of Trucking Service (% of the respondents)
Table 8: Average Number of Trucks per Firm at Start and at Present
Table 9: Renting of Truck (% of respondents)
Table 10: Average Number of Monthly Trips during Peak Seasons
Table 11: Average Number of Monthly Trips during Lean Seasons
Table 12: Difference in Average Number of Monthly Trips between Peak and Lean Seasons
Table 13: Average Number of Trucks in Truck Stands
Table 14: Average Truck Fare in Peak Seasons (BDT per trip)
Table 15: Average Truck Fare Per Ton Per Km in Peak Seasons (BDT)
Table 16: Causes of Variation in Fare Among different Routes (% of respondents saying ‘yes’)
Table 17: % Difference in Average Truck Fares in Lean Seasons from Peak Seasons
Table 18: Average Market Share of Largest 5 Companies
Table 19: Reasons of Entry (% of the respondents)
Table 20: Reasons of Exiting the Business (% of the respondents)
Table 21: Involvement with Business Associations (% of respondents)
Table 22: Member of Business Associations (% of respondents)
Table 23: Involvements with Business Association by size of Firms (% of respondents)
Table 24: Alternative Options for Service Receivers (% of respondents)
Table 25: Cost of Transportation of 7 ton Goods in 2008 (BDT)
Table 26: Use of alternative ways (% of respondents)
Table 27: Reasons for not using railway as alternative mechanism (% of respondents)
Table 28: Reasons for not using River way as an Alternative (% of respondents)
Table 29: Problems in Accessing Bank Loan (% of respondents)
Table 30: Problems in Claiming Insurance Money (% of respondents)
Table 31: Requirement of Minimum Number of Trucks in different Routes (% of respondents)
Table 32: Problems in Getting License and Fitness Certifications (% of respondents)
Table 33: Problems in Paying Taxes (% of respondents)
Table 34: Existence of Geographical Quota (% of respondents saying ‘yes’)
Table 35: Existence of Cartel that influence price (% of respondents saying ‘yes’)
Table 36: Reasons for being involved in the Cartel Practice (% of respondents)
Table 37: The Trend in Cartel Practice (% of respondents)
Table 38: The Share in Service: Who controls Market? (% of respondents)
Table 39: Who Offers Low Price? (% of respondents)
Table 40: Non Price Factors favoring the Large Firms (% of respondents)
Table 41: Calculation of Exit Cost
List of Figures
Figure 1: Cost of business for 5 ton Truck in 2008 (% of total cost)

Figure 3: Cost of business for 7 ton Truck (covered) in 2008 (% of total cost)
3
Executive Summary
• Trucking sector is one of the most important transportation sectors in Bangladesh. There is no
denying the fact that an efficient and competitive transport sector is very important for export
competitiveness as well as for domestic economic growth. A less developed country like
Bangladesh often suffers from weak physical infrastructure and transport sector is a vital part of
this physical infrastructure. Bangladesh is a trade dependent country. It appears that major share
of the goods meant for export and import are carried from the ports to different parts of the
country through the trucking service. There are related concerns with respect to the
competitiveness of the trucking sector in Bangladesh as this has important bearings on the
competitiveness of exports as well as on the prices of imported commodities. Transport service is
a sector that is directly and indirectly attached to many economic activities. All the production
units have to be dependent for carrying distributional purpose. That’s why all the positive and
negative effects of trucking sector have immediate consequence on the related business.
Therefore, the nature of the barriers should be addressed and necessary steps are important for the
further well-being.
• There are several issues to be taken into account as far as the competitiveness of the trucking
sector in Bangladesh is concerned. There are issues of intra-firm rivalry, economies of scale and
scope and the issue of price and non-price competition among the firms in the trucking sector in
Bangladesh. The focus of the study is therefore to assess the competition issues on the trucking
sector in Bangladesh.
• The general objective of the study is to understand the degree of competition in the trucking
sector in Bangladesh. The specific objectives of this study are (i) to describe the different
institutions, government regulations, programs, rationale, and any other policies and measures
impacting on the market of the trucking sector especially in terms of entry, expansion, pricing,
output and competition; (ii) to explore the size structure and relative importance of different
economic agents in the trucking sector in Bangladesh; and (iii) to identify and describe the
different types of anticompetitive problems confronted, and the extent to which these emanate
from public policies and government regulations and/or private sector practices and arrangements.
• This study uses the Competition Assessment Framework (CAF), developed by DFID’s
(Department for International Development) Investment Climate Team in January 2008, with a
view to identifying the barriers to competition in developing countries where it included methods
of selection of sectors for assessment, analysis of competition, identification of the relevant
markets and the competitors, examination of the market structure, exploration of barriers to entry,
examination if government policies or institutions limit competition, consideration of vested
interests, examination of signs of anti-competitive conduct by firms etc.
• The study deals with both the primary and secondary data. Primary data have been collected
through a field survey with the help of well constructed questionnaires. The questionnaire based
survey has covered the service providers as well as services receivers in the trucking sector in
Bangladesh. Four routes have been selected purposively for collecting data in the trucking sector.
These routes are Dhaka-Chittagong, Chittagong-Dhaka, Benapole-Dhaka and Bogra-Dhaka
• The information on the age of the firms will tell us to what extent there has been any new entry in
the market. It appears that, in case of trucking business, predominantly all the four routes have
service providers who have been in business for six years or more. However, the Bogra-Dhaka
route has more new firms compared to other three routes. This suggests that there have been more
new entries in the Bogra-Dhaka route in the recent past compared to the other three routes. Thus
the Bogra-Dhaka route is an expanding route while the other three routes are relatively established
and old.
4
• The information on initial sources of investment will demonstrate the extent of the link between
the trucking sector and the formal credit market. It appears that the initial source of investment for
trucking business predominantly comes from own savings. The other important sources are ‘loan
from relatives’ and ‘bank loan’. Taking loans from the banks appears to be more prominent for
the Benapole-Dhaka route. However, all other routes seem to have lesser access to formal credit.
In the Bogra-Dhaka route ‘loan from truck sales centre’ is the second important source of
investment financing. For the Dhaka-Chittagong route and the Chittagong-Dhaka route
remittance is also a significant source of initial investment. The upshot of the aforementioned
discussion is that except Benapole-Dhaka route, the link between the trucking sector and the
formal credit market is rather weak.
• In general, ‘close connection with people at transport agencies or they are relations’ is the primary
factor influencing people to enter into the trucking business. However, in the Benapole-Dhaka
route, ‘close connection with C&F agents or they are relations’ appears to be most dominant
reason. Also, in this route, affiliation with political party, be at personal or family level, play some
important role in influencing the entry.
• It appears that in the Dhaka-Chittagong route 70 percent of the service receivers are RMG
exporters. Also, leather exporters constitute some important share. In the Chittagong-Dhaka and
Benapole-Dhaka routes, however, the major receivers of trucking service are the C&F agents.
This is because of the fact that these two routes are the major route of transporting imported
goods. In the Bogra-Dhaka route the major service receivers are the large, medium and small
traders. This is because of the fact that this route is used for transportation of domestic goods.
• It is found that RMG and agricultural products are mostly transported by trucks. RMG is the
major export item and Chittagong sea port is the only sea port for shipment of such products.
Consequently in Dhaka-Chittagong route 65.8 per cent of commodities, which are transported by
trucks, are nothing but RMG products. Export-oriented leather is also another important
transported item in this route. Again most of the imports enter into the country through
Chittagong sea port and Benapole land port. Mostly Benapole-Dhaka route is used to import
goods from India, and Chittagong– Dhaka route is used to import goods from the rest of the
world. From the rest of the world major import items are RMG accessories and raw materials,
machinery, computer, surgical accessories and different type of chemicals. Therefore, these items
have major shares of goods transported through Chittagong-Dhaka route. India is one of
Bangladesh’s major import sources from which agricultural products such as rice, wheat, pulse,
flour, sugar, paddy, onion, garlic, zinger, turmeric, fruits etc are imported. Therefore, these
products are mostly transported through Benapole-Dhaka route. On the other hand, domestic
agriculture produces, such as rice, wheat, pulse, flour, paddy, sugar, onion, zinger, turmeric etc.,
which are produced in North-western region are transported through the Bogra-Dhaka route.
• In the case of 5 ton trucks, it appears that the average number of trucks per firm in Dhaka-
Chittagong route was the highest both at start and at present. All routes have experienced growth
in average number of trucks per firm. However, the growth rate of the number of truck per firm is
observed to be the highest in Bogra-Dhaka route. In the case of 7 ton truck, the growth in the
average number of truck per firm was negative for Dhaka-Chittagong route. The average number
of trucks per firm at present appears to be highest in Chittagong-Dhaka route. The growth rate is
however highest for the Bogra-Dhaka route. For the 7 ton (covered) truck, there are new entries in
Benapole-Dhaka and Bogra-Dhaka routes compared to no trucks at start. Also, Chittagong-Dhaka
route experienced positive growth. However, the Dhaka-Chittagong route experienced negative
growth. In the case of 20 ton trucks, there were no trucks among the surveyed firms at start in the
Dhaka-Chittagong and Chittagong-Dhaka routes and they experienced new entries. There has
been no ownership of 20 ton trucks by the surveyed firms in the Benapole-Dhaka route while the
Bogra-Dhaka route experienced negative growth.
5
• It will also be interesting to look at the number of trucks rented from other people by the surveyed
firms. This will indicate whether firms operate in insufficient capacity in comparison to the
demand in some particular time in a year. It appears that majority of the firms in Dhaka-
Chittagong, Chittagong-Dhaka and Benapole-Dhaka routes experience the problem of insufficient
capacity. This problem is most acute for the Benapole-Dhaka route. However, three-fourth firms
in Bogra-Dhaka route have their own capacity to meet the market demand.
• Monthly number of trips is the reflection of business growth as most of the business operations
are directly or circuitously linked with trucking system. The monthly average number of trip is
lowest in Chittagong-Dhaka and is highest in Bogra-Dhaka. Alternative transporting system
(Cargo, Ship) in Chittagong-Dhaka route could be a cause of lowest number of trips. On the other
hand, Bogra is the key market point in north-west of Bangladesh. Through this transaction point
during peak season many of the produced items are transported to Dhaka which resulted in the
highest average number of truck trips for this route. Again, these regions are also known as
MONGA area, where we find a severe production shortfall in a certain season and production
shortages automatically induce a great downturn in average number of truck trips. In Bogra-
Dhaka, the gap between peak and lean period is highest also.
• Average number of trucks in truck stand also shows the overall growth of the trucking business.
For the Dhaka-Chittagong route, the average number of 5-ton trucks in truck stand declined in
2008 compared to the figures in 2006b and 2004. However, those of other categories of trucks
increased over the years. This suggests that in the Dhaka-Chittagong route there has been
substitution of 5 ton trucks by higher capacity trucks over the years under consideration. In the
other three routes, however, the average number increased over the years for all categories of
trucks.
• In Dhaka, businessmen hire truck from both independent brokers and transport agencies.
Individual brokers’ market share is decreasing fast due to the better service provided by transport
agencies. RMG industry is the largest player in export market. About 50 percent of them have
fixed transport agencies for transporting goods at a negotiated yearly rent contract. The rest 50
percent also make contract with transport agencies but not at any pre-fixed prices, but at prices
prevailing in the market on the day of transportation. The chief reason for selecting transport
agencies is that they ensure security of the goods and pay demurrages for any lost or damaged
goods. Textile, RMG, plastic and footwear industries that cater the domestic market hire truck
both from transport agencies and individual brokers. Earlier this market was entirely serviced by
Individual brokers. But now transport agencies have taken a significant share (around 30 percent)
of this market. Valuable imported goods - consumer (e.g TV, freeze), machineries parts,
cosmetics etc. - are now entirely transported by transport agencies for the very same reason of
security and demurrages. Transport market for building materials, i.e., rods, cement, tiles etc. is
still dominated by individual brokers. Transport agencies avoid this market as transportation of
these materials causes damage to the truck body. A large number of companies – like medicine,
agro-processing, and furniture companies – have developed their own fleet for transportation. The
reason behind is – timely distribution, product safety, reduced transport cost and more customer
penetration.
• In Chittagong, large importers of raw materials publish tenders at the beginning of the year and
ask transport agencies to participate. The transport agencies bid with their quoted price. The
importers select the suitable transport agencies based on price and other criteria. The selected
transport agencies then transport all the goods and raw materials of those companies at the quoted
price. Usually the transport agencies quote a higher price than the market price (at least BDT 1500
– 2000 higher than average market price). There are two major reasons for this higher price – (i)
the importers pay the rent monthly, bi-monthly or even half-yearly; and (ii) as the transport
agencies are bound to transport goods whenever are asked by the importers, the transport agencies
6
either have to maintain idle capacity or rent trucks from local market at higher prices. Other
importers ask their C&F agents to arrange the transport. The C&F agents largely depend on
independent brokers to rent a truck. Independent brokers go to Kadomtoli truck market and hire
truck at that day’s market price. The brokers charge BDT 200-400 as commission fee from the
truck owners. Local businessmen who had to transport their goods to Dhaka also depend on
independent brokers. In times of excess demand for trucks, the independent brokers contact with
truck oweners that operate in Comilla, Dhaka etc., and offer them a return trip and higher price.
Thus they help the businessmen and importers finding trucks. Small importers mostly rent trucks
from transport agencies to secure their goods from theft or robbery. As their capital base is small,
they cannot tolerate any risk on the goods. According to the businessmen, roughly 50 percent of
the total goods transported from Chittagong to Dhaka and other parts of the country go through
transport agencies and rest 50 percent through independent brokers.
• All the goods transported from Benapole are imported goods. For these goods, the C&F agents,
entrusted by the importers, hire trucks from the transport agencies. The principal reason to hire
trucks from transport agencies is that transport agencies deposit a substantial amount of security
money to C&F agents. If the goods are damaged due to any accident or mishandling, the C&F
agents deduct the demurrages from that deposited money. Because of this practice of depositing
security money, small truck owners are forced to drive out from the market and they are now left
with the only option to rent out the trucks to transport agencies. These small truck owners now
buy trips from these transport agencies. In this case, transport agencies charge around BDT 300-
500 per trip for each truck. The C&F agents get a fixed commission from transport agencies.
However, the commission play little role in the selection of transport agencies by the C&F agents.
Rather, the amount of security money for deposit, long term relationship and reputation of
transport agencies are the three major criteria in the selection of transport agencies.
• In Bogra, businessmen largely depend on independent brokers to rent trucks. The independent
brokers charge around BDT 200 as commission fee from customers and also take commission
from truck owners. The domination of independent brokers is so large that truck owners also
largely depend on them to rent away their trucks. One of the chief reasons of this practice is that
markets of agricultural goods are situated in several locations of this region, and most
businessmen in agricultural sector are small in size compared to other sectors. Therefore, it is not
possible for the truck owners to keep offices at every bazaar to hunt these businessmen.
Therefore, they rely on the brokers who help them to be connected with these small traders.
Because of this scattered nature of markets, local transport agencies have not developed in Bogra.
• As Dhaka in the main centre of trucking business, all transport agencies throughout the country
have their presence in Dhaka. According to the estimates by the participants in the there are
around 3000 transport agencies in Dhaka. Of them less than half have license from government.
Though transport agencies charge higher price (at least BDT 800-1500 per trip) compared to
individual brokers, transport agencies are increasingly occupying the share of the market from
individual brokers by providing customers with better security and demurrages of goods. When a
transport agency hires truck from market, they charge around BDT 1000 as commission.
Transport agencies have their own association in Dhaka. On the other hand, they are also member
of truck owners association as they own trucks. They use both of these organizations strongly to
deal with police and other stakeholders for the security of their trucks as well as business interest.
• There are more than 1500 transport agencies now in Chittagong. Of them only 400 have license
from government. To renew license, transport agencies have to pay for fitness certificate, taxes
regularly. Therefore many small and medium transport agencies avoid licensing. Interestingly
many transport agencies (around 30 percent) in Chittagong do not have their own trucks. Instead,
they book goods from businessmen or C&F agents and then hire trucks from market. Truck
agencies however charge BDT 800-1500 higher than the usual market price. The reason why
some businessmen and C&F agents’ buys service from them at higher price is that they pay
7
demurrage if goods are lost or damaged. The transport agencies have their own association in
Chittagong which works with truck owners and truck labour associations to secure their trucks
from any wrongdoing.
• The number of transport agencies currently operating in Benapole is more than 350. They
maintain offices in the land port area and handle both inbound and outbound transports. There are
popular practices to sell trips among transport agencies. For example – a transport agency that got
an order from a C&F agent to transport 10 truck of goods to Dhaka but has only 6 trucks in the
port area sells the rest 4 trucks trip to another transport agency. Sometimes they also hire
individual trucks from market in the face of high demand.
• Around 25-30 transport agencies have offices in Bogra for trucks coming to Bogra. Their main
job is to ensure that goods sent from Chittagong and Dhaka are unloaded safely and are delivered
to the specified recipients. They also collect any unpaid rent. For outbound (while returning to
Dhaka or Chittagong) these transport agencies usually do not directly book orders from
businessmen rather they very much depend on independent brokers.
• In Dhaka, it appears from the FGDs with the relevant stakeholders that though there are some
variations in prices based on demand and supply, the transport agencies and individual brokers
have some strong influence over the fixation of price. Some other factors of price determinations
are – distance, characteristics of transported goods, physical condition of the road, traffic jam in
the road, and the possibility of getting a return trip. As mentioned before, RMG exporters and
many distributors of imported goods sign fixed rent contract on yearly basis with transport
agencies. The price is either negotiated between parties or determined through bidding process. In
these contracts, transport agencies usually charge an additional BDT 1000-2000 because they also
provide security of goods and demurrages if goods are lost or damaged. For other industries that
also buy service from transport agencies, but do not make any pre negotiated price, they negotiate
price based on the price prevailing in Tejgaon market on the day of availing the service. The
prices in Dhaka market do not fluctuate much. One of the reasons is that a large number of trucks
(around 800) enter Dhaka every day carrying agriculture goods and imported food stuffs which
are consumed by Dhaka population. Many of these trucks return empty. So, these trucks are
happy to get a trip at a price only equal to the fuel and toll cost. The demand for covered van is
increasing because of better security, less probability of damage and extra loading capacity.
Businessmen now pay around BDT 1000-2000 extra to rent a 7 ton covered van than a 7 ton open
truck. Trucks that originate outside Dhaka sometimes pay a commission (around BDT 500) to
drivers so that they can find a return trip. Because of the restriction of entering into the city from 8
AM to 8 PM, if any truck is contracted to enter into Dhaka city then the businessmen have to pay
addition BDT 2000-3000. This timing restriction does not strictly apply on the covered van. So, it
can avoid that delay and therefore many businessmen are increasingly demanding its service.
Most trucks carrying agricultural goods charge return toll on bridges and a waiting charge from
the beparies. They also ask a premium (BDT 500-1000) to ensure that if the truck encounters an
accident or is halted due to mechanical failure, it can hire a new truck and load the goods into that
truck so that goods are delivered on time.
• In Chittagong, there are informal agreements on the base price among the truck drivers. None will
agree on a rent less than BDT 8000 for a Dhaka trip. However, prices vary widely based on the
characteristics of imported goods and raw materials. For raw materials, the importers or the C&F
agents sign long term contracts with the transport agencies on fixed prices. For other goods, price
is determined in the Kadomtali market based on daily demand and supply. One important factor
that influences pricing is the amounts of goods that are released from the port on any day. This is
actually the demand and has the tendency to fluctuate abruptly. Other than Dhaka, Comilla, and
Noakhali, the trucks want a premium charge on the rent as there is less chance to get a return trip
in the next day. If the truck is contracted to enter into Dhaka city then the businessmen have to
pay additional BDT 2000-3000. For example – the price of the trip for Chittagong to Kanchpur is
8
on average BDT 8500, while the price for the trip for Chittagong to Mirpur is BDT 11000. C&F
agents get a commission from transport agencies. This commission varies from BDT 300 to BDT
500. Traffic situation in Chittagong plays a crucial role in determining the price of inbound trip. If
there arises a shortage of trucks in Chittagong, trucks from Dhaka, Comilla, etc. charge a
minimum rent for a trip to Chittagong. Sometimes they even go empty if contracted by
independent broker or transport agency in Chittagong. In case of exporters, inbound market is
dominated by large and reputed transport agencies that have covered-van as they want to ensure
the security of their goods. Therefore, covered van fetches about BDT 1000-2000 additional price
than open vans.
• In Benapole, the prices vary for industrial raw materials and other imported goods. For raw
materials, the C&F agents sign long term deals with the transport agencies on a fixed price.
However, any deal has a condition that transport agency has to deliver the good at factory gate
within the stipulated time. For other imported goods, the price is negotiated based on any
particular day’s supply and demand. The number of individual trucks coming to Beanpole port
with inbound goods plays a crucial role here. The traffic situation in Doulotdia-Paturia ferry ghat
plays a crucial role in fixing the price. Any traffic jam at this ferry ghay has it impacts in two
ways – (i) increases the time needed to reach Dhaka and thus raises price, and (ii) reduce the
number of truck available in Benapole and thus makes a crisis of shortage. Sometimes the jam
becomes so erratic that trucks have to use the Jamuna bridge which is 100 km more than the usual
distance. Transport Agencies prefer Chittagong trip as it is the busiest port of the country and thus
the chance of getting trip in the next day is much higher. This intention is reflected in the price.
For a Chittagong trip, they only charge an additional BDT 1500-2000 to the price of Dhaka trip.
For one way trip to Dhaka, the return charge of ferry is added. Therefore up trip to Dhaka is about
BDT 1500-2000 higher than down trip from Dhaka. In the case of inbound trips, traffic situation
at ferry ghat also plays a crucial role in determining the price. Inbound market is more
competitive as individual trucks compete with the transport agency. These individual trucks, after
unloading at port, go to nearby Jessore district to get regular trip or buy trip from transport
agencies, as Jessore is the largest vegetable exporting region as far as the market in Dhaka is
concerned and thus the chance of getting trip is higher.
• In Bogra, there are informal agreements on the base price among the independent brokers. One–
way trip to Dhaka and other areas, where trucks will have to cross Jamuna bridge, need to pay the
return toll of Jamuna bridge in addition to the usual rent. Transport agencies returning trucks takes
this opportunity and offer more commission to independent brokers. If truck enters into Dhaka
City for unloading then an additional BDT 300-500 is charged with the rent. The rent is also
conditioned with timing. If there is a chance of traffic jam in any road, then the businessmen have
to pay additional amount depending on time delayed. Beparies who do trade of fresh vegetables,
fish and meat usually rent trucks with return trips. They have business connections with Dhaka
arotders, and these arotders help them arrange return trips. This enables the arotders to pay around
BDT 1000-1500 less for each of round trip. For the inbound trips transport agencies charge return
toll in addition to the regular rent. Other than transport agencies, trucks originated in Bogra do not
charge the return toll on Jamuna bridge. Their asking rent is very competitive. Sometimes they
ask barely the fuel cost only.
• The respondents were asked to provide information on the share of largest five firms for each
route. It can be argued that when the shares of few large companies are very high then there are
scopes of market concentration. This market concentration, in general, leads to high fares charged
by the large companies. It appears that there are significant market concentrations for all routes,
and for all categories of trucks and for all routes, market concentration has increased over time. It
also appears that for, the 5 ton trucks, in 2008, the market concentration appears to be the highest
in the Dhaka-Chittagong route, where the aggregate share of the largest 5 companies was 38.13
percent. In the case of 7 ton truck, however, the market concentration is the highest in the
Benapole-Dhaka route. In the case of 7 to (covered) trucks, Dhaka-Chittagong route has the
9
highest market concentration whereas in the case of 20 ton trucks the Chittagong-Dhaka route has
the highest market concentration. Focused group discussions pointed out to the fact that a number
of reasons have contributed to the growing number of trucks owned by the large companies.
These reasons are long term installment facility provided by truck sellers to the large truck
companies, better access to loans from formal financial institutions, and long term agreement
between large truck companies and large services receivers (i.e., large exporters or importers or
domestic traders). These facilities enjoyed by the large truck companies are anti-competitive in
nature as the small truck companies, in most instances, are deprived of such benefits.
• In Bangladesh, the cost of business in trucking sector is not only depended on the domestic
factors but it also has a strong link with the international market. The major components of costs
are spending on diesel, salary of driver and helpers, payment for toll, repairing, maintenance of
offices and staff and other costs. The upward trend of diesel price is the one of the key factors of
the rise in fares as it appears to have the largest share in the cost of trucking business for all routes
and all types of trucks. In the case of 5 ton trucks, Benapole-Dhaka route seems to spend as high
as 42 percent of total cost on diesel. This figure is however lowest for Dhaka-Chittagong route
(29.55 percent). Almost similar pattern is observed for all other categories of trucks. In the case
of 5 ton truck, the profit margin is the highest in the Bogra-Dhaka route and lowest for Chittagong
Dhaka route. This suggest that compared to three other routes, the Chittagong-Dhaka route is
more competitive. Almost similar pattern is observed for all other categories of trucks. The profit
figures appear to be reasonably high compared to the average national return to capital as
reflected from the bank deposit interest rate which is less than 10 percent. This indicates to the
fact that the market for the trucking service is not competitive.
• The reasons of new entry in trucking business can give us an idea about barriers and nature of
competition. It also can reflect the situation of transparency and corruption. According to the
respondents, the entering in trucking business are sometimes influenced by good relation with
ruling political party, huge supply of idle money or remittance, good relation with truck agencies,
relationship with agency or C&F agent, possibilities of regular profit and no previous experience
is required for starting. However, three reasons, namely easy availability of idle or remittance
money, affiliation with truck agencies and affiliation with C&F agents, appear to be the dominant
reasons. On the other hand, we found almost opposite response when we asked people, why they
were leaving the trucking business. The reasons which are important for leaving trucking
business, are- unable to make a good relation with transport agency, lack of relations with C&F
agents, shortage of reliable driver, massive loss by accident or stealing and losses from other
business.
• An important aspect in the analysis competition is the understanding of the availability of the
demand side substitution. Though, trucking business has played the major role for transportation
in Bangladesh, the railway and river-way both has implication for the sake of competitiveness.
The availability of these options can make the trucking market more competitive as well as
efficient. In this way, the service providers will face more competition and the service receivers
will have available opportunities for transporting their products. It is also true that sometimes the
rail transportation is much cost effective than the trucking service as it can carry more volumes
than the other services. On the other hand, river-way is also sometimes useful as many of the
production unit is nearer to the river-ports. Therefore, to assess the competitiveness of the
trucking service sector we also need to see whether service receivers have options other than
trucking to transport their products. Table 24 presents the summary of the responses of the service
receivers. It appears from that railway is the only available option for Benapole-Dhaka and Bogra-
Dhaka routes. This is also the dominant option for the Dhaka-Chittagong and Chittagong-Dhaka
routes. However, for these two routes, river way is also an option.
• Availability of loan is one of the basic concerns for the new investors. In many cases, the large
trucking firms have the privilege of accessing this loan and small firms face undue hazards. It
10
appears from that high interest rate charged by the financial institution act as a real obstacle for
the new investors. Also, difficulty in meeting terms and conditions of loan is another important
factor. For the small firms mortgage is an important obstacle. The respondents from Benapole-
Dhaka route indicated that not getting required amount of loan is a major problem. In Bogra-
Dhaka route, however, one third of the respondents reported of having no major problem in
accessing loan. FGDs with relevant stakeholders suggest that smooth process of accessing loan is
a prerequisite for healthy growth in the trucking service. Many investors also reported that
government could also help the new investors by providing loan with special facilities. This can
have a favourable impact on the overall economy as most of the economic sectors have clear
connection with the growth of trucking service.
• In case of trucking business, another very important issue is insurance. The chances of accidents
are relatively high in this service. In this survey, it is reported that a large part of the business
people involved in this sector get some support from insurance companies. Trucking sector is also
a very important sector for the insurance companies and they also try to maintain the professional
relationship for ensuring their good will. This is the probable cause why majority of the service
providers are largely satisfied with the insurance companies. But, there are also some problems.
The very common allegation against the insurance companies is that the trucking firms do not get
the money as per their claims. Also, some respondents mentioned that they didn’t receive any
money from the insurance companies. The process of claiming insurance money is also too much
cumbersome. Another awkward practice is bribery. It, however, appears that the trucking firms in
the Bogra-Dhaka route face lesser problems than those in other routes.
• FGDs with relevant stakeholders suggest that in Dhaka the minimum requirement is at least 4
trucks. It is suggested that at the current scenario, it better to start with 7 ton covered van and
establish good contact with transport agencies. In Chittagong, stakeholders opined to have at least
7-8 trucks to start a feasible business. However, it also appears that there is an option of buying 2-
3 trucks, open a transport agency and hire the rest from market according to needs. In Benapole,
earlier the requirement was 5-6 trucks. However, as the jam in ferry ghat has increased, now it is
more sensible to start with 8-10 trucks. In Bogra, the requirement is at least 5 trucks for a viable
business operation.
• This study has found that both the existing investors and the people who are interested to enter
into the trucking business have negative impression about the registration process and fitness
certificate. Most of the respondents in all four routes reported the practice of bribery. Also, police
harassment is another issue, which is highly reported in this survey. Again, complexity of
documentation and high fees charged by the authority are the other two problems. All of the
issues relating with the registration and fitness certificate, not only create corruption but also
result in some unfavorable environment for the small and medium firms and thereby they are anti-
competitive.
• According to the respondents, the tax payment is high and therefore they try to manage the
authorized persons to manipulate the imposed figures. This creates loses of government revenues
as well as it act as a anticompetitive behavior for the for the small and medium firms. Most of the
respondents also identified the problem of too many segments where taxes are imposed. In their
view, different types of tax on trucking sectors, which are presently operated, are not justified as
they discourage the new investment.
• Along with the rise in prices of food, which was very high in recent past, the trucking sector,
which carries the bulk amount of imported food items, was also accused like other sectors for
being engaged in any cartel or syndication. A collective operation can be created for the purpose
of enhancement of business support. However, sometimes the process of collective operation can
create problems for new business entrepreneurs as they may be anti-competitive. Formation of a
cartel among some dominant service providers can lead to higher price than the market price. It
11
appears that in Bogra-Dhaka route more than 80 percent of the respondents indicated the
existence of cartel practice in the trucking business. Also in other three routes some significant
proportion of the respondents reported the existence of such practice. However, this problem
appears to be less acute in the Dhaka-Chittagong route.
• Even if there are available trucks in the routes, large service providers control the market through
their reputation and non-price benefits. Sometimes they manage long-term agreements with the
service receivers. Also, the advantage of the large firms to provide continued support for 3-6
months are preferable to many service receivers, and this act against the interest of the small and
medium firms. This advantage also gives a lead against the new entrants in trucking service. The
capacity of extended communication and working area also give superiority for the large firms
who have been operating their business for long periods. The market leaders (mostly the trucking
agencies) have also opportunities to use more security money and they have very good relations
with owner and brokers as well. It also appears that sometimes these dominant groups can attract
more skilled labor by providing them higher wages.
• Through the analysis of cost of a business, we are able to know the extent of exit cost in
comparison with the minimum investment. This calculation gives us some idea about the easiness
of entry and exists in the trucking market. In this survey, we collected information on the
minimum number of trucks, unit price of trucks, and some other costs (which can be treated as
miscellaneous expenditure). Sum of these expenses may reflect the amount of minimum
investment required to start a business in any particular route. On the other hand, minimum
number of truck multiplied by minimum resale price of each truck can be said as the minimum
resale price in each route. The difference between the minimum investment and the minimum
resale price for each route shows the minimum exit cost from a business for a particular route.
Again, minimum exit cost as a percentage of minimum investment for a particular route indicates
the extent of exit costs. If the cost of exit cost is high, this will act as a barrier for new entries.
Among the routes, the exit cost is the highest in Chittagong-Dhaka route and the lowest in
Benapole-Dhaka route, which suggests that the barriers to entry in terms of exit cost is the highest
in the Chittagong-Dhaka route and the lowest in the Benapole-Dhaka route. This study has made
some analysis of the issues related to competition in the trucking sector in Bangladesh. The
analyses suggest that there are some significant anti-competitive practices in the trucking sector
and the market is also significantly concentrated. There are also some important barriers to entry
in the market. Though the extent of competition varies across different routes and for different
types trucks, in general, it appears that the trucking market is not competitive enough in
Bangladesh. This finding has important negative implications for economic growth as well as
export competitiveness of the country.
12
Competition Issues in the Trucking Sector in Bangladesh
Selim Raihan, Abu Eusuf and Soeb Ifthekhar
I. INTRODUCTION
Trucking sector is one of the most important transportation sectors in Bangladesh. There is no
denying the fact that an efficient and competitive transport sector is very important for export
competitiveness as well as for domestic economic growth. A less developed country like
Bangladesh often suffers from weak physical infrastructure and transport sector is a vital part
of this physical infrastructure.
Bangladesh is a trade dependent country. It appears that major share of the goods meant for
export and import are carried from the ports to different parts of the country through the
trucking service. There are related concerns with respect to the competitiveness of the
trucking sector in Bangladesh as this has important bearings on the competitiveness of
exports as well as on the prices of imported commodities.
Transport service is a sector that is directly and indirectly attached to many economic
activities. All the production units have to be dependent for carrying distributional purpose.
That’s why all the positive and negative effects of trucking sector have immediate
consequence on the related business. Therefore, the nature of the barriers should be addressed
and necessary steps are important for the further well-being.
The value-added share of the land transportation (mostly the trucking service) in total
transportation in Bangladesh has been more than 50 percent over the last 10 years or so
according the estimates of the Bangladesh Bureau of Statistics (BBS). Also, the share of land
transportation in country’s GDP increased from 6.32 percent 2000 to 7.78 percent in 1998
indicating to the increased importance of land transportation in economic activities over time.
There are several issues to be taken into account as far as the competitiveness of the trucking
sector in Bangladesh is concerned. There are issues of intra-firm rivalry, economies of scale
and scope and the issue of price and non-price competition among the firms in the trucking
sector in Bangladesh. The focus of the study is therefore to assess the competition issues on
the trucking sector in Bangladesh.
The structure of the report is as follows: Section II provides the objectives of the study;
Section III discusses on the methodology of the study; Section IV presents an overview of the
surveyed trucking firms; Section V provides an analysis of the growth of the trucking firms in
different routes; Section VI explores the pricing mechanism in the trucking sector in
Bangladesh; Section VII examines the issues related to market concentration, profitability
and entry and exit in the trucking sector; Section VIII analyses the role of different
associations in the trucking sector; Section IX explores the threat of substitutes; Section X
examines the barriers to entry and finally Section XI concludes.
13
II. OBJECTIVES OF THE STUDY
The general objective of the study is to understand the degree of competition in the trucking
sector in Bangladesh. The specific objectives of this study are
• to describe the different institutions, government regulations, programs, rationale, and

any other policies and measures impacting on the market of the trucking sector
especially in terms of entry, expansion, pricing, output and competition;
• to explore the size structure and relative importance of different economic agents in
the trucking sector in Bangladesh; and
• to identify and describe the different types of anticompetitive problems confronted,

and the extent to which these emanate from public policies and government
regulations and/or private sector practices and arrangements.
III. METHODOLOGY OF THE STUDY
3.1. Competition Assessment Framework
This study uses the Competition Assessment Framework (CAF), developed by DFID’s
(Department for International Development) Investment Climate Team in January 2008, with
a view to identifying the barriers to competition in developing countries where it included
methods of selection of sectors for assessment, analysis of competition, identification of the
relevant markets and the competitors, examination of the market structure, exploration of
barriers to entry, examination if government policies or institutions limit competition,
consideration of vested interests, examination of signs of anti-competitive conduct by firms
etc.
At the beginning, “is the sector important to the economy?” and “is the sector important to
consumers?” – on the basis of these two questions, there should selection of sectors for
assessment. If the answer to both questions is ‘yes’, the possibility of limited competition in
the sector could be assessed through some other questions. Assessments of the effects on
competition of particular restraints may be undertaken in a variety of ways and the
appropriate methods will depend on the information and resources available. A widely-
quoted way to assess the intensity of competition is to recognize that it reflects not only the
competition between the current competitors but also the threat of new entrants, the threat of
substitute products being developed, the bargaining power of buyers, and the bargaining
power of firms that supply inputs to the market. After selecting a sector for assessment, the
first step is to identify the relevant markets and then the next step is to identify the existing
competitors, that means who are the existing suppliers to the market and who are the main
buyers from each of these suppliers, and what are the main products that each purchases from
them should be defined. Because, if there are numerous small suppliers they should be
grouped appropriately and if certain buyers always buy from certain suppliers (or buy certain
products from certain suppliers) the market might be less competitive than it appears to be.
Now the step is to examine the market structure of the selected sector in order to know
whether that market structure suggests limited competition or not. This result can be gathered
by taking the answers of some questions say, stability of market shares of the major suppliers
14
(or buyers), new entry in the past and their success rate, whether a single buyer, or a small
number of large buyers, account for a substantial part of the market or not etc.
Though in a competitive market new entry is essential, some barriers may prevent entry or
make it costly to enter into the market then the existing suppliers might be able to raise prices
above the competitive level. There are various types of barriers to entry i.e. natural, strategic,
regulatory and policy barriers and gender - based barriers. Barriers those are related with
resources or technology needed to become a supplier to the market are called natural barriers
where it may include the existence of large economies of scale, large “sunk cost”, new
entrant’s access to technology, raw materials and distribution channels. Finally if there are
significant natural barriers that harm competition, feasible policy measures should be taken to
reduce their impacts. Strategic barriers result from actions by existing suppliers that are
intended to discourage new entry including creating excess capacity, ‘bundling and tying’
(to force new entrants either to compete for the grouped products or to compete on one
product, arranging long term exclusive contracts and exclusive supply and distribution
agreements, individually or collectively acting in ways that indicate the incumbent firm or
firms would act in a predatory or aggressive way if new entry took place . At any level of
government, national, state or local, regulatory and Policy barriers to entry can exist to any
particular markets say, health and safety concerns, national security, or even short-term
‘industrial policy’ to develop infant industries or particular geographical districts. If any
regulatory barriers harm competition, the loss of competition should be compared with the
benefits claimed for the existence of the barriers. Now because of gender bias, women are
discriminated in business especially in developing countries, that’s why first of all we should
examine whether there are any significant barriers to entry in the relevant market, then
identify the effects on competition and finally we should have to justify the appearance of the
policy – based reasons for these barriers.
We know that in some cases government intervention plays a significant role for moving
forward the economies of many countries. In spite of this there may arise some situations
when we should have to justify whether competition is distorted by the existence of a state-
owned enterprise, or the conduct of public procurement, or sector regulation, or the existence
of trade and industrial policies, or the unequal enforcement of laws and regulations. If so,
then identify the significance of the effects on the welfare of consumers or on the input costs
of producers. How does the extent of the impact on consumers and producers compare with
any public benefits likely to result from the operation of any of these government policies? At
the age of globalization everything should be run freely but unfortunately some stakeholders
are always opposed to increase competition in the market in order to gain monopoly profit.
So at first we will have to identify the key stakeholders and their position on competition,
their influence, and how important their views are. Knowing this will help to provide the
basis for a realistic assessment of what will be needed to modify any constraints that exist,
and to introduce more effective competition. The three main types of anti-competitive
behavior (horizontal, vertical and other factors) are arising from collusion among competitors
from the abuse of dominance by firms with market power, and from some mergers and
acquisitions. ‘Abuse of dominance’ describes situations where a dominant firm uses its
market power to increase prices above competitive levels, or to prevent smaller competitors
from increasing their market shares, or to discourage market entry. In fact dominance,
collusion and mergers can all generate extra issues when there are vertical restraints within
supply chains, that is, between producers, wholesalers or retailers. Finally, it should be
examined that whether the conduct of the firms in the market suggest either that suppliers are
co-coordinating their behavior, through collusion or tacitly, or that large suppliers with
15
market power are using their dominance in anti-competitive ways, or that suppliers are not
following good operational practice. If so, then identify the significance of the effects.
3.2. Survey on Service Providers and Service Receivers
The study deals with both the primary and secondary data. Primary data have been collected
through a field survey with the help of well constructed questionnaires. The questionnaire
based survey has covered the service providers as well as services receivers in the trucking
sector in Bangladesh. Four routes have been selected purposively for collecting data in the
trucking sector. These routes are as follows:
Route 1: Dhaka – Chittagong: This is the most important route for transportation of export-
oriented products, mainly the ready-made garments (RMGs) from Dhaka and Narayangonj to
the Chittagong sea port.
Route 2: Chittagong – Dhaka: This is one of the most important routes for transportation of
imported goods through the Chittagong sea port to Dhaka.
Route 3: Benapole – Dhaka: This is another important route for transportation of imported
goods from India through the Benapole land port to Dhaka.
Route 4: Bogra – Dhaka: This is a major route for transportation of domestic goods from the
North-Western part of the country to Dhaka.
The survey covered a total of 325 respondents from these four routes. The distribution of 325
samples across different actors is presented in Table 1. A technique of multi staged purposive
random sampling is used to select the number of sample actors in different stages of value
chain in the trucking sector.
Table 1: Area wise Selected Sample distribution for trucking sector
Service Provider Service Receiver

Private
Area Truck Transport C&F Total
Bepari company/
owner agency agent
businessman
Dhaka 25 25 - 20 30 100
Chittagong 20 20 15 10 10 75
Benapole 20 20 15 10 10 75
Bogra 30 10 - 20 15 75
Total 95 75 30 60 65 325
There have also been a number of focused group discussions (FGDs) to capture the
qualitative aspects of the research. The distribution of the FGDs is presented in Table 2.
Table 2: Distribution of FGDs among the actors for each side of the route
Area Service Service Total

Providers Receivers
Dhaka (one for each route) 3*1=3 3*1=3 6
Chitagong 1 1 2
Benapole 1 1 2
Bogra 1 1 2
Total 6 6 12
16
IV. OVERVIEW OF THE SURVEYED TRUCKING SECTOR
As mentioned in the previous sector, this study has surveyed 179 trucking firms in four
different routes in Bangladesh. At the beginning of the analysis of competition issues, it will
be useful to provide a brief overview of these surveyed firms.
4.1. Years in Business of the Trucking Firms
The information on the age of the firms will tell us to what extent there has been any new
entry in the market. It appears from Table 3 that, in case of trucking business, predominantly
all the four routes have service providers who have been in business for six years or more.
However, the Bogra-Dhaka route has more new firms compared to other three routes. This
suggests that there have been more new entries in the Bogra-Dhaka route in the recent past
compared to the other three routes. Thus the Bogra-Dhaka route is an expanding route while
the other three routes are relatively established and old.
Table 3: No of Years of Firms in Trucking Business (% of Respondents)
No of years Route 1 Route 2 Route 3 Route 4 Total

< 1 Year 0 2.5 2.5 10.3 3.4
1-3 Years 1.7 2.5 7.5 10.3 5.0
4-5 Years 15.0 7.5 2.5 10.3 9.5
≥ 6 Years 83.3 87.5 87.5 69.2 82.1
Number 60 40 40 39 179
Route 1: Dhaka-Chittagong; Route 2: Chittagong-Dhaka; Route 3: Benapole-Dhaka; Route 4: Bogra-Dhaka
4.2. Sources of Initial investment of the Trucking Firms
The information on initial sources of investment will demonstrate the extent of the link
between the trucking sector and the formal credit market. Table 4 provides such information.
It appears that the initial source of investment for trucking business predominantly comes
from own savings. The other important sources are ‘loan from relatives’ and ‘bank loan’.
Taking loans from the banks appears to be more prominent for the Benapole-Dhaka route.
However, all other routes seem to have lesser access to formal credit. In the Bogra-Dhaka
route ‘loan from truck sales centre’ is the second important source of investment financing.
For the Dhaka-Chittagong route and the Chittagong-Dhaka route remittance is also a
significant source of initial investment. The upshot of the aforementioned discussion is that
except Benapole-Dhaka route, the link between the trucking sector and the formal credit
market is rather weak.
Table 4: Source of Initial Investment (% of the respondents)
Route 1 Route 2 Route 3 Route 4 Total

From own savings 90.0 82.5 94.6 90.0 89.3
Loan from relatives 25.0 45.0 35.1 22.5 31.1
Bank loan 16.7 17.5 45.9 17.5 23.2
Loan from truck sales center 13.3 7.5 8.1 35.0 15.8
Remittance 16.7 15.0 8.1 2.5 11.3
Others 5 7.5 - 2.5 4
Number of respondents 60 40 37 40 177
17
4.3. Factors Influencing the Entry into the Trucking Business
It appears from Table 5 that, in general, ‘close connection with people at transport agencies
or they are relations’ is the primary factor influencing people to enter into the trucking
business. However, in the Benapole-Dhaka route, ‘close connection with C&F agents or they
are relations’ appears to be most dominant reason. Also, in this route, affiliation with political
party, be at personal or family level, play some important role in influencing the entry.
Table 5: Factors behind Entry (% of the respondents)
Route 1 Route 2 Route 3 Route 4

Personal affiliation with political party 5.00 10.00 25.00 0
Family level association with political party 3.33 2.50 17.50 0
Close connection with C&F agents or they are relations 13.33 22.50 82.50 2.50
Close connection with people at transport agencies or they are relations 68.33 57.50 57.50 47.50
Family business/inheritance/experience 25 27.5 17.5 25
Previously mechanics/spare parts businessman 10.00 5.00 0 25.00
Other 10.00 15.00 0 32.50
4.4. Type of Business Receiving Truck Service
The survey on service receivers provides the information on the major types of businesses
those use trucking services in the four major routes. It appears from Table 6 that in the
Dhaka-Chittagong route 70 percent of the service receivers are RMG exporters. Also, leather
exporters constitute some important share. In the Chittagong-Dhaka and Benapole-Dhaka
routes, however, the major receivers of trucking service are the C&F agents. This is because
of the fact that these two routes are the major route of transporting imported goods. In the
Bogra-Dhaka route the major service receivers are the large, medium and small traders. This
is because of the fact that this route is used for transportation of domestic goods.
Type of Business Route 1 Route 2 Route 3 Route 4 Total

C&F agent 0.0 45.7 41.2 0.0 20.8
RMG Exporter 70.0 0.0 0.0 0.0 19.4
Large and Medium Trader 7.5 14.3 29.4 44.1 23.8
Small Trader 0.0 28.6 29.4 44.1 24.3
Leather exporter 20.0 0.0 0.0 0.0 5.6
Other 2.5 11.4 0.0 11.8 6.1
Total 100 100 100 100 100
4.5. Types of Goods Transported by Trucks
It is already seen the major types of business that receive the trucking service in different
routes. Now to know what types of commodities are usually transported by truck the service
receives were asked to respond. It is seen from Table 7 that RMG and agricultural products
are mostly transported by trucks. RMG is the major export item and Chittagong sea port is
the only sea port for shipment of such products. Consequently in Dhaka-Chittagong route
65.8 per cent of commodities, which are transported by trucks, are nothing but RMG
18
products. Export-oriented leather is also another important transported item in this route.
Again most of the imports enter into the country through Chittagong sea port and Benapole
land port. Mostly Benapole-Dhaka route is used to import goods from India, and Chittagong–
Dhaka route is used to import goods from the rest of the world. From the rest of the world
major import items are RMG accessories and raw materials, machinery, computer, surgical
accessories and different type of chemicals. Therefore, these items have major shares of
goods transported through Chittagong-Dhaka route. India is one of Bangladesh’s major
import sources from which agricultural products such as rice, wheat, pulse, flour, sugar,
paddy, onion, garlic, zinger, turmeric, fruits etc are imported. Therefore, these products are
mostly transported through Benapole-Dhaka route. On the other hand, domestic agriculture
produces, such as rice, wheat, pulse, flour, paddy, sugar, onion, zinger, turmeric etc., which
are produced in North-western region are transported through the Bogra-Dhaka route.

Vegetables/fruits 2.5 17.0 20.8 5.1 11.9
RMG 65.8 3.8 1.9 0.0 15.5
RMG accessories/ Raw materials 4.9 9.4 15.1 12.8 10.4
Machinery/ Computer access/surgical/ cycle parts 0.0 17.0 15.1 0.0 8.8
Rice/wheat/pulses/flour/sugar/paddy 0.0 3.8 11.3 25.6 13.0
Onion/garlic/zinger/turmeric/salt/chili 0.0 7.5 9.4 23.1 9.3
Cement/tiles/glass 0.0 9.4 5.6 2.5 4.7
Iron/tin/wire 4.9 0.0 9.4 15.3 6.7
Chemicals 0.0 13.2 3.8 0.0 4.7
Fertilizer/insecticide 0.0 5.7 7.6 5.1 4.7
Snacks/powder milk 2.5 5.7 0.0 0.0 2.1
Oil 0.0 3.8 0.0 5.1 2.1
Leather 19.5 3.8 0.0 5.1 6.2
Total 100.0 100.0 100.0 100.0 100.0
V. GROWTH OF THE TRUCKING SECTOR
5.1. Numbers of Trucks per Firm at Start and at Present
One way of examining the growth of the trucking sector is the comparison of average number
of trucks per firm in different route at the time of start of the business and at the time when
the survey was being conducted. Table 8 provides such information.
Table 8: Average Number of Trucks per Firm at Start and at Present
Route 5 Ton 7 Ton 7 Ton (Covered) 20 Ton

Start Now Growth Start Now Growth Start Now Growth Start Now Growth
(no) (no) (%) (no) (no) (%) (no) (no) (%) (no) (no) (%)
Route 1 4.4 5.6 22.1 27.0 3.1 -759.9 13.0 11.9 -9.3 0.0 3.0 100.0
Route 2 2.3 3.6 35.8 2.9 5.3 45.4 3.0 5.2 42.6 0.0 6.0 100.0
Route 3 1.4 2.4 44.0 1.7 2.8 38.3 0.0 2.0 100.0 0.0 0.0 0.0
Route 4 1.4 3.6 61.1 1.1 3.3 66.7 0.0 2.0 100.0 2.0 1.3 -60.0
19
In the case of 5 ton trucks, it appears that the average number of trucks per firm in Dhaka-
Chittagong route was the highest both at start and at present. All routes have experienced
growth in average number of trucks per firm. However, the growth rate of the number of
truck per firm is observed to be the highest in Bogra-Dhaka route.
In the case of 7 ton truck, the growth in the average number of truck per firm was negative
for Dhaka-Chittagong route. The average number of trucks per firm at present appears to be
highest in Chittagong-Dhaka route. The growth rate is however highest for the Bogra-Dhaka
route.
For the 7 ton (covered) truck, there are new entries in Benapole-Dhaka and Bogra-Dhaka
routes compared to no trucks at start. Also, Chittagong-Dhaka route experienced positive
growth. However, the Dhaka-Chittagong route experienced negative growth.
In the case of 20 ton trucks, there were no trucks among the surveyed firms at start in the
Dhaka-Chittagong and Chittagong-Dhaka routes and they experienced new entries. There has
been no ownership of 20 ton trucks by the surveyed firms in the Benapole-Dhaka route while
the Bogra-Dhaka route experienced negative growth.
5.2. Renting of Trucks
It will also be interesting to look at the number of trucks rented from other people by the
surveyed firms. This will indicate whether firms operate in insufficient capacity in
comparison to the demand in some particular time in a year. Table 9 suggests that majority of
the firms in Dhaka-Chittagong, Chittagong-Dhaka and Benapole-Dhaka routes experience the
problem of insufficient capacity. This problem is most acute for the Benapole-Dhaka route.
However, three-fourth firms in Bogra-Dhaka route have their own capacity to meet the
market demand.
Table 9: Renting of Truck (% of respondents)

Yes (%) 61.0 72.5 92.3 25.6 62.7
No (%) 39.0 27.5 7.7 74.4 37.3
Number of respondents 59 40 39 39 177
5.3. Monthly Frequency of Trips
Monthly number of trips is the reflection of business growth as most of the business
operations are directly or circuitously linked with trucking system. The monthly average
number of trip is lowest in Chittagong-Dhaka and is highest in Bogra-Dhaka. Alternative
transporting system (Cargo, Ship) in Chittagong-Dhaka route could be a cause of lowest
number of trips. On the other hand, Bogra is the key market point in north-west of
Bangladesh. Through this transaction point during peak season many of the produced items
are transported to Dhaka which resulted in the highest average number of truck trips for this
route. Again, these regions are also known as MONGA area, where we find a severe
production shortfall in a certain season and production shortages automatically induce a great
20
downturn in average number of truck trips. In Bogra-Dhaka, the gap between peak and lean
period is highest also.
Interestingly, in the case of Dhaka-Chittagong route compared to 2004, in 2008 the numbers
of trips declined for all the categories of trucks. Same scenario holds for both peak and lean
seasons. As mentioned before, this route is primarily used for export of RMG products. It is
learnt that increasingly, many RMG firms in Dhaka are now using their own transport system
to carry goods to Chittagong and not hiring trucks as like before. On the other hand, for all
other routes, both in the peak and lean periods, the number of monthly trips are rising.
Table 10: Average Number of Monthly Trips during Peak Seasons
5 Ton 7 Ton 7 Ton (covered)

Route
2008 2006 2004 2008 2006 2004 2008 2006 2004
Route 1 15.8 15.5 17.3 10.8 11.5 12.7 14.4 14.1 14.1
Route 2 9.5 8.9 8.6 10.8 9.8 9.1 10.8 9.7 9.1
Route 3 13.3 12.0 11.3 14.5 13.4 12.1 12.5 12.5 10.8
Route 4 17.5 15.4 15.7 16.5 14.4 12.6 - - -
Table 11: Average Number of Monthly Trips during Lean Seasons

Route
2008 2006 2004 2008 2006 2004 2008 2006 2004
Route 1 10.8 11.5 12.8 6.7 7.6 8.7 10.5 10.3 12.7
Route 2 6.8 6.6 6.4 7.9 7.3 7.0 8.2 7.5 7.2
Route 3 9.4 8.7 8.3 10.5 9.5 8.4 8.8 8.5 7.8
Route 4 10.1 9.5 9.7 10.5 9.6 8.3 - - -
Table 12: Difference in Average Number of Monthly Trips between Peak and Lean Seasons

Route
2008 2006 2004 2008 2006 2004 2008 2006 2004
Route 1 5.0 4.0 4.5 4.1 3.9 4.0 3.9 3.9 1.4
Route 2 2.6 2.3 2.2 2.9 2.5 2.1 2.5 2.2 1.8
Route 3 3.8 3.3 3.0 4.0 3.9 3.7 3.6 4.0 3.0
Route 4 7.4 5.9 6.0 6.0 4.9 4.3 - - -
5.4. Average Number of Trucks in Truck Stand
Average number of trucks in truck stand also shows the overall growth of the trucking
business. For the Dhaka-Chittagong route, the average number of 5-ton trucks in truck stand
declined in 2008 compared to the figures in 2006b and 2004. However, those of other
categories of trucks increased over the years. This suggests that in the Dhaka-Chittagong
route there has been substitution of 5 ton trucks by higher capacity trucks over the years
under consideration. In the other three routes, however, the average number increased over
the years for all categories of trucks.
Considering the operational frequency and numbers of running trucks in a truck stand, we can
differentiate them as small, medium, and large scale. Benapole truck stand is the only
surveyed stand, which have almost total concentration in Benapole-Dhaka route. Aminbazar
21
and Tejgoan truck terminal have great importance also for Dhaka-Chittagong. Again, Bhober
Bazar truck stand and Kadamtali are the other two stands, which have huge dominancy for
Bogra-Dhaka and Chittagong-Dhaka routes respectively. In case of medium category, we can
mention the name of Inter-district truck stand and Namajgor truck stand in Bogra and
Tinmatha and Bandar truck terminal in Chittagong-Dhaka route. The rest of the stands can be
addressed as small category as their volume of transported items are comparatively low and
number of trucks in those stands are not that much large.
Table 13: Average Number of Trucks in Truck Stands4
5 Ton 7 Ton 7 Ton (covered) 20 Ton

Routes
2008 2006 2004 2008 2006 2004 2008 2006 2004 2008 2006 2004
Route 1 574 617 643 377 367 437 515 416 402 153 114 95
Route 2 1676 1541 1539 2292 1911 1537 1227 969 826 279 203 131
Route 3 116 104 95 200 186 172 70 62 54 - - -
Route 4 449 390 344 186 159 136 - - - 13 8 4
VI. PRICING MECHANISM IN THE TRUCKING SECTOR
Examination of the pricing mechanism in the trucking sector will help us understand the
structure of the market in this sector. In order to understand the pricing mechanism it is also
useful to examine the truck renting mechanism in different routes.
6.1. Truck Renting Mechanism
Focused group discussions with the relevant stakeholders suggest that there are some
important features in different trucking routes under consideration. These are discussed
below.
In Dhaka, businessmen hire truck from both independent brokers5 and transport agencies.
Individual brokers’ market share is decreasing fast due to the better service provided by
transport agencies. RMG industry is the largest player in export market. About 50 percent of
them have fixed transport agencies for transporting goods at a negotiated yearly rent contract.
The rest 50 percent also make contract with transport agencies but not at any pre-fixed prices,
but at prices prevailing in the market on the day of transportation. The chief reason for
selecting transport agencies is that they ensure security of the goods and pay demurrages for
any lost or damaged goods. Textile, RMG, plastic and footwear industries that cater the
domestic market hire truck both from transport agencies and individual brokers. Earlier this
market was entirely serviced by Individual brokers. But now transport agencies have taken a
significant share (around 30 percent) of this market. Valuable imported goods - consumer
(e.g TV, freeze), machineries parts, cosmetics etc. - are now entirely transported by transport
agencies for the very same reason of security and demurrages. Transport market for building
materials, i.e., rods, cement, tiles etc. is still dominated by individual brokers. Transport
4
The list of truck stands is provided in Annex 1
5
The independent broker is usually a person or a number of persons who have an office and sell trucking service
to businessman. They do not have their own trucks. After receiving order from businessmen, they contact with
truck owners to transport the ordered goods. So, they are actually the linking agent between businessman and
truck owner.
22
agencies avoid this market as transportation of these materials causes damage to the truck
body. A large number of companies – like medicine, agro-processing, and furniture
companies – have developed their own fleet for transportation. The reason behind is – timely
distribution, product safety, reduced transport cost and more customer penetration.
In Chittagong, large importers of raw materials publish tenders at the beginning of the year
and ask transport agencies to participate. The transport agencies bid with their quoted price.
The importers select the suitable transport agencies based on price and other criteria. The
selected transport agencies then transport all the goods and raw materials of those companies
at the quoted price. Usually the transport agencies quote a higher price than the market price
(at least BDT 1500 – 2000 higher than average market price). There are two major reasons
for this higher price – (i) the importers pay the rent monthly, bi-monthly or even half-yearly;
and (ii) as the transport agencies are bound to transport goods whenever are asked by the
importers, the transport agencies either have to maintain idle capacity or rent trucks from
local market at higher prices. Other importers ask their C&F agents to arrange the transport.
The C&F agents largely depend on independent brokers to rent a truck. Independent brokers
go to Kadomtoli truck market and hire truck at that day’s market price. The brokers charge
BDT 200-400 as commission fee from the truck owners. Local businessmen who had to
transport their goods to Dhaka also depend on independent brokers. In times of excess
demand for trucks, the independent brokers contact with truck oweners that operate in
Comilla, Dhaka etc., and offer them a return trip and higher price. Thus they help the
businessmen and importers finding trucks. Small importers mostly rent trucks from transport
agencies to secure their goods from theft or robbery. As their capital base is small, they
cannot tolerate any risk on the goods. According to the businessmen, roughly 50 percent of
the total goods transported from Chittagong to Dhaka and other parts of the country go
through transport agencies and rest 50 percent through independent brokers.
All the goods transported from Benapole are imported goods. For these goods, the C&F
agents, entrusted by the importers, hire trucks from the transport agencies. The principal
reason to hire trucks from transport agencies is that transport agencies deposit a substantial
amount of security money to C&F agents. If the goods are damaged due to any accident or
mishandling, the C&F agents deduct the demurrages from that deposited money. Because of
this practice of depositing security money, small truck owners are forced to drive out from
the market and they are now left with the only option to rent out the trucks to transport
agencies. These small truck owners now buy trips from these transport agencies. In this case,
transport agencies charge around BDT 300-500 per trip for each truck. The C&F agents get a
fixed commission from transport agencies. However, the commission play little role in the
selection of transport agencies by the C&F agents. Rather, the amount of security money for
deposit, long term relationship and reputation of transport agencies are the three major
criteria in the selection of transport agencies.
In Bogra, businessmen largely depend on independent brokers to rent trucks. The

independent brokers charge around BDT 200 as commission fee from customers and also
take commission from truck owners. The domination of independent brokers is so large that
truck owners also largely depend on them to rent away their trucks. One of the chief reasons
of this practice is that markets of agricultural goods are situated in several locations of this
region, and most businessmen in agricultural sector are small in size compared to other
sectors. Therefore, it is not possible for the truck owners to keep offices at every bazaar to
hunt these businessmen. Therefore, they rely on the brokers who help them to be connected
23
with these small traders. Because of this scattered nature of markets, local transport agencies
have not developed in Bogra.
6.2. Influence of Transport Agencies
As Dhaka in the main centre of trucking business, all transport agencies throughout the
country have their presence in Dhaka. According to the estimates by the participants in the
there are around 3000 transport agencies in Dhaka. Of them less than half have license from
government. Though transport agencies charge higher price (at least BDT 800-1500 per trip)
compared to individual brokers, transport agencies are increasingly occupying the share of
the market from individual brokers by providing customers with better security and
demurrages of goods. When a transport agency hires truck from market, they charge around
BDT 1000 as commission. Transport agencies have their own association in Dhaka. On the
other hand, they are also member of truck owners association as they own trucks. They use
both of these organizations strongly to deal with police and other stakeholders for the security
of their trucks as well as business interest.
There are more than 1500 transport agencies now in Chittagong. Of them only 400 have
license from government. To renew license, transport agencies have to pay for fitness
certificate, taxes regularly. Therefore many small and medium transport agencies avoid
licensing. Interestingly many transport agencies (around 30 percent) in Chittagong do not
have their own trucks. Instead, they book goods from businessmen or C&F agents and then
hire trucks from market. Truck agencies however charge BDT 800-1500 higher than the usual
market price. The reason why some businessmen and C&F agents’ buys service from them at
higher price is that they pay demurrage if goods are lost or damaged. The transport agencies
have their own association in Chittagong which works with truck owners and truck labour
associations to secure their trucks from any wrongdoing.
The number of transport agencies currently operating in Benapole is more than 350. They
maintain offices in the land port area and handle both inbound and outbound transports.
There are popular practices to sell trips among transport agencies. For example – a transport
agency that got an order from a C&F agent to transport 10 truck of goods to Dhaka but has
only 6 trucks in the port area sells the rest 4 trucks trip to another transport agency.
Sometimes they also hire individual trucks from market in the face of high demand.
Around 25-30 transport agencies have offices in Bogra for trucks coming to Bogra. Their
main job is to ensure that goods sent from Chittagong and Dhaka are unloaded safely and are
delivered to the specified recipients. They also collect any unpaid rent. For outbound (while
returning to Dhaka or Chittagong) these transport agencies usually do not directly book
orders from businessmen rather they very much depend on independent brokers.
6.3. Pricing Mechanism
Focused group discussions also provided some very useful insights about the pricing
mechanism in different trucking routes. These are summarized below.
In Dhaka, it appears from the FGDs with the relevant stakeholders that though there are some
variations in prices based on demand and supply, the transport agencies and individual
24
brokers have some strong influence over the fixation of price. Some other factors of price
determinations are – distance, characteristics of transported goods, physical condition of the
road, traffic jam in the road, and the possibility of getting a return trip. As mentioned before,
RMG exporters and many distributors of imported goods sign fixed rent contract on yearly
basis with transport agencies. The price is either negotiated between parties or determined
through bidding process. In these contracts, transport agencies usually charge an additional
BDT 1000-2000 because they also provide security of goods and demurrages if goods are lost
or damaged. For other industries that also buy service from transport agencies, but do not
make any pre negotiated price, they negotiate price based on the price prevailing in Tejgaon
market on the day of availing the service. The prices in Dhaka market do not fluctuate much.
One of the reasons is that a large number of trucks (around 800) enter Dhaka every day
carrying agriculture goods and imported food stuffs which are consumed by Dhaka
population. Many of these trucks return empty. So, these trucks are happy to get a trip at a
price only equal to the fuel and toll cost. The demand for covered van is increasing because
of better security, less probability of damage and extra loading capacity. Businessmen now
pay around BDT 1000-2000 extra to rent a 7 ton covered van than a 7 ton open truck. Trucks
that originate outside Dhaka sometimes pay a commission (around BDT 500) to drivers so
that they can find a return trip. Because of the restriction of entering into the city from 8 AM
to 8 PM, if any truck is contracted to enter into Dhaka city then the businessmen have to pay
addition BDT 2000-3000. This timing restriction does not strictly apply on the covered van.
So, it can avoid that delay and therefore many businessmen are increasingly demanding its
service. Most trucks carrying agricultural goods charge return toll on bridges and a waiting
charge from the beparies. They also ask a premium (BDT 500-1000) to ensure that if the
truck encounters an accident or is halted due to mechanical failure, it can hire a new truck and
load the goods into that truck so that goods are delivered on time.
In Chittagong, there are informal agreements on the base price among the truck drivers. None
will agree on a rent less than BDT 8000 for a Dhaka trip. However, prices vary widely based
on the characteristics of imported goods and raw materials. For raw materials, the importers
or the C&F agents sign long term contracts with the transport agencies on fixed prices. For
other goods, price is determined in the Kadomtali market based on daily demand and supply.
One important factor that influences pricing is the amounts of goods that are released from
the port on any day. This is actually the demand and has the tendency to fluctuate abruptly.
Other than Dhaka, Comilla, and Noakhali, the trucks want a premium charge on the rent as
there is less chance to get a return trip in the next day. If the truck is contracted to enter into
Dhaka city then the businessmen have to pay additional BDT 2000-3000. For example – the
price of the trip for Chittagong to Kanchpur is on average BDT 8500, while the price for the
trip for Chittagong to Mirpur is BDT 11000. C&F agents get a commission from transport
agencies. This commission varies from BDT 300 to BDT 500. Traffic situation in Chittagong
plays a crucial role in determining the price of inbound trip. If there arises a shortage of
trucks in Chittagong, trucks from Dhaka, Comilla, etc. charge a minimum rent for a trip to
Chittagong. Sometimes they even go empty if contracted by independent broker or transport
agency in Chittagong. In case of exporters, inbound market is dominated by large and reputed
transport agencies that have covered-van as they want to ensure the security of their goods.
Therefore, covered van fetches about BDT 1000-2000 additional price than open vans.
In Benapole, the prices vary for industrial raw materials and other imported goods. For raw
materials, the C&F agents sign long term deals with the transport agencies on a fixed price.
However, any deal has a condition that transport agency has to deliver the good at factory
gate within the stipulated time. For other imported goods, the price is negotiated based on any
25
particular day’s supply and demand. The number of individual trucks coming to Beanpole
port with inbound goods plays a crucial role here. The traffic situation in Doulotdia-Paturia
ferry ghat plays a crucial role in fixing the price. Any traffic jam at this ferry ghay has it
impacts in two ways – (i) increases the time needed to reach Dhaka and thus raises price, and
(ii) reduce the number of truck available in Benapole and thus makes a crisis of shortage.
Sometimes the jam becomes so erratic that trucks have to use the Jamuna bridge which is 100
km more than the usual distance. Transport Agencies prefer Chittagong trip as it is the busiest
port of the country and thus the chance of getting trip in the next day is much higher. This
intention is reflected in the price. For a Chittagong trip, they only charge an additional BDT
1500-2000 to the price of Dhaka trip. For one way trip to Dhaka, the return charge of ferry is
added. Therefore up trip to Dhaka is about BDT 1500-2000 higher than down trip from
Dhaka. In the case of inbound trips, traffic situation at ferry ghat also plays a crucial role in
determining the price. Inbound market is more competitive as individual trucks compete with
the transport agency. These individual trucks, after unloading at port, go to nearby Jessore
district to get regular trip or buy trip from transport agencies, as Jessore is the largest
vegetable exporting region as far as the market in Dhaka is concerned and thus the chance of
getting trip is higher.
In Bogra, there are informal agreements on the base price among the independent brokers.
One–way trip to Dhaka and other areas, where trucks will have to cross Jamuna bridge, need
to pay the return toll of Jamuna bridge in addition to the usual rent. Transport agencies
returning trucks takes this opportunity and offer more commission to independent brokers. If
truck enters into Dhaka City for unloading then an additional BDT 300-500 is charged with
the rent. The rent is also conditioned with timing. If there is a chance of traffic jam in any
road, then the businessmen have to pay additional amount depending on time delayed.
Beparies who do trade of fresh vegetables, fish and meat usually rent trucks with return trips.
They have business connections with Dhaka arotders, and these arotders help them arrange
return trips. This enables the arotders to pay around BDT 1000-1500 less for each of round
trip. For the inbound trips transport agencies charge return toll in addition to the regular rent.
Other than transport agencies, trucks originated in Bogra do not charge the return toll on
Jamuna bridge. Their asking rent is very competitive. Sometimes they ask barely the fuel cost
only.
6.4. Differences in Fare for Different Routes
The fare charged in different routes for different time periods are reported in Table 14. The
general picture that emerges from Table_ that during 2004 and 2008 fares increased for all
routes. It is also interesting to observe that for almost similar distance, there are different
fares for Dhaka-Chittagong and Chittagong-Dhaka routes. As mentioned before, there are
some additional fares charged by the truck service providers when truck enter Dhaka city.
Table 14: Average Truck Fare in Peak Seasons (BDT per trip)

Routes
2008 2006 2004 2008 2006 2004 2008 2006 2004 2008 2006 2004
Route 1 5644 5328 5081 6778 6056 5500 9565 8355 7990 30000 25000 18000
Route 2 8551 8090 7432 10257 9689 8971 11961 11263 11014 19725 18167 16941
Route 3 10208 8977 8063 13681 12353 10822 13409 12025 10778 - - -
Route 4 8138 7444 6833 9250 8409 7614 - - - 14700 14000 14200
26
The information contained in Table 15 is not normalized as different routes have different
distances and also there are different capacities of trucks. Therefore, in Table_ the fares are
normalized by dividing the distances and the carrying capacity of the truck. It appears from
Table_ that in Dhaka-Chittagong route, the highest fare in 2008 per ton per km was charged
by the 20 ton trucks, whereas, in the case of Chittagong-Dhaka route, the highest fare is
charged by the 5 ton trucks. In Benapole-Dhaka and Bogra-Dhaka route also the highest fare
per ton per km is charged by the 5 ton trucks. However, among all routes, the highest fare per
ton per km is charged by the 5 ton trucks in Bogra-Dhaka route. Also, in the case of 7 ton
truck, per ton per km fare is the highest for Bogra-Dhaka route.
Table 15: Average Truck Fare Per Ton Per Km in Peak Seasons (BDT)6

Routes
2008 2006 2004 2008 2006 2004 2008 2006 2004 2008 2006 2004
Route 1 3.96 3.74 3.57 3.40 3.04 2.76 4.79 4.19 4.01 5.26 4.39 3.16
Route 2 6.00 5.68 5.22 5.14 4.86 4.50 6.00 5.65 5.52 3.46 3.19 2.97
Route 3 5.53 4.87 4.37 5.30 4.78 4.19 5.19 4.66 4.17 - - -
Route 4 10.11 9.25 8.49 8.21 7.46 6.76 - - - 4.57 4.35 4.41
Table 16 suggests that the factors which have important roles for variations in fares are –
distance, commodity type, single or return trip, departure and arrival time, good business
relationship, seasonal variations and road condition. Distance, road conditions, commodity
types, single or return trip and seasonal variations appear to invariably common for all routes.
However, there are some differences with respect to departure and arrival time and good
business relation for different routes. For example, variation in departure and arrival time
appears to be very important for Bogra-Dhaka route, whereas, it is least important for
Chittagong-Dhaka and Dhaka-Chittagong route. Also, good business relation appears to be
very important for Bogra-Dhaka and Benapole-Dhaka route, whereas it is least important for
Chittagong-Dhaka route.
Table 16: Causes of Variation in Fare Among different Routes (% of respondents saying ‘yes’)
Whether fare varies for Route 1 Route 2 Route 3 Route 4

distance 100 100 97 100
commodity type 95 85 100 97.5
one way or return trip 100 82.5 97 97.5
departure & arrival time 50 45 92.5 97.5
good business relation 58.3 32.5 72.5 74.5
specific time in a year 100 92.5 100 100
road condition 95 95 100 100
6
Dhaka-Chittagong = 285 km (approx), Bogra-Dhaka= 161 km (approx), Benapole-Dhaka= 369 km (approx).
The districts that are covered by these distances are – (i) Dhaka-Chittagong: Narayangang, Comilla, Feni,
Chittagong, (ii) Dhaka-Bogra: Gazipur, Tangail, Sirajganj, Bogra, (iii) Dhaka-Benapole: Manikganj, Rajbari,
Faridpur, Magura,Jinaidah, Jessore. These distances are important as there are many other ways to go from one
place to another.
27
The impact of seasonal variation on variation in fare is also manifested in Table 17 where it
appears that the difference between the peak season fare and lean season fare could be as high
as 36.6 percent in 2008 (in the case of 7 ton truck for the Dhaka-Chittagong route). The
seasonal variation in fares seems to be most prominent for the Dhaka-Chittagong route,
whereas it is least prominent for the Bogra-Dhaka route.
Table 17: % Difference in Average Truck Fares in Lean Seasons from Peak Seasons

Routes
2008 2006 2004 2008 2006 2004 2008 2006 2004 2008 2006 2004
Route 1 -25.5 -26.2 -23.6 -36.6 -33.9 -24.5 -36.1 -32.1 -29.4 -16.7 -28.0 -11.1
Route 2 -15.9 -16.8 -16.1 -19.4 -19.9 -19.5 -18.6 -28.9 -28.5 -8.9 -7.0 -6.3
Route 3 -13.8 -14.5 -21.5 -11.7 -12.3 -10.9 -10.8 -11.4 -10.8 - - -
Route 4 -12.1 -11.4 -11.4 -9.3 -9.7 -8.7 - - - -7.5 -9.3 -9.3
6.5. Influence of Illegal Toll on Truck Fares
In Dhaka, truck owners have to pay illegal tolls of BDT 50-100 taka to park the truck at truck
stand. Truck owners on average pay BDT 500 per month for each truck as bribes to police
sergeants in Dhaka.
In Chittagong, before this caretaker government, each truck had to pay BDT 200 taka to buy
traffic token. This was a novel way of collecting illegal tolls. Now, this system is no longer
used but the traffic police has made 12 spots from Dhaka to Chittagong where each truck has
to pay BDT 20 at each of those points. In some spots, local labour association works on
behalf of them. Each truck had to pay illegal toll of BDT 300 to get custom clearance
certificate in the port. As there is a shortage of parking space beside ports, many trucks are
parked beside the highway. Police charge BDT 50 on each of these trucks for each night.
Before caretaker government, each truck once entered into Chittagong had to pay BDT 100-
200 to the port trade unions.
In Benapole, truck owners have to pay BDT 200 per month for each truck at local police
station. During traffic jam in ferry ghat, truck Drivers had to pay additional BDT 1000-1500
to ferry officials for getting a ticket.
In Bogra, truck owners have to pay BDT 150 per month for each truck at local police station.
VII. UNDERSTANDING THE MARKET: CONCENTRATION, PROFITABILITY

AND ENTRY AND EXIT
7.1. Share of Largest Five Firms in the Trucking Market
The respondents were asked to provide information on the share of largest five firms for each
route. It can be argued that when the shares of few large companies are very high then there
are scopes of market concentration. This market concentration, in general, leads to high fares
28
charged by the large companies. Table 18 suggests that there are significant market
concentrations for all routes, and for all categories of trucks and for all routes, market
concentration has increased over time. It also appears that for, the 5 ton trucks, in 2008, the
market concentration appears to be the highest in the Dhaka-Chittagong route, where the
aggregate share of the largest 5 companies was 38.13 percent. In the case of 7 ton truck,
however, the market concentration is the highest in the Benapole-Dhaka route. In the case of
7 to (covered) trucks, Dhaka-Chittagong route has the highest market concentration whereas
in the case of 20 ton trucks the Chittagong-Dhaka route has the highest market concentration.
Table 18: Average Market Share of Largest 5 Companies

Routes
2008 2006 2004 2008 2006 2004 2008 2006 2004 2008 2006 2004
Route 1 38.13 35.57 35.40 28.66 25.45 25.15 38.55 23.49 18.14 41.40 36.67 27.51
Route 2 27.12 26.61 25.28 22.10 23.52 25.00 19.00 19.70 22.40 51.65 40.45 37.05
Route 3 21.70 21.29 20.22 42.91 35.82 28.93 33.54 27.21 22.37
Route 4 32.59 31.24 30.79 35.95 32.61 26.89 36.56 35.94 37.5
Focused group discussions pointed out to the fact that a number of reasons have contributed
to the growing number of trucks owned by the large companies. These reasons are long term
installment facility provided by truck sellers to the large truck companies, better access to
loans from formal financial institutions, and long term agreement between large truck
companies and large services receivers (i.e., large exporters or importers or domestic traders).
These facilities enjoyed by the large truck companies are anti-competitive in nature as the
small truck companies, in most instances, are deprived of such benefits.
7.2. Cost of Business in different Routes and Profit Margin
In Bangladesh, the cost of business in trucking sector is not only depended on the domestic
factors but it also has a strong link with the international market. The major components of
costs are spending on diesel, salary of driver and helpers, payment for toll, repairing,
maintenance of offices and staff and other costs. The upward trend of diesel price is the one
of the key factors of the rise in fares as it appears to have the largest share in the cost of
trucking business for all routes and all types of trucks. In the case of 5 ton trucks, Benapole-
Dhaka route seems to spend as high as 42 percent of total cost on diesel (Figure 1). This
figure is however lowest for Dhaka-Chittagong route (29.55 percent). Almost similar pattern
is observed for all other categories of trucks (Figures 2-4). In the case of 5 ton truck, the
profit margin is the highest in the Bogra-Dhaka route and lowest for Chittagong Dhaka route.
This suggest that compared to three other routes, the Chittagong-Dhaka route is more
competitive. Almost similar pattern is observed for all other categories of trucks.
The profit figures appear to be reasonably high compared to the average national return to
capital as reflected from the bank deposit interest rate which is less than 10 percent. This
indicates to the fact that the market for the trucking service is not competitive.
29
42
45
36.83
33.57
40
32.83
31.09
29.55
30.5
35
30
22.82
25 Route 1
14.73
20
11.85
12.7 Route 2
10.71
10.67
10.42
15
7.58
7.14
7.05
6.61
6.58
6.51
6.25
Route 3
4.76
4.61
10
3.74
2.71
2.54
2.29
1.58
5 Route 4
0
Diesel Driver/ Toll Truck Office/ Other Profit
expenses helper spare/ staff expenses
salary repair expenses

40.14
45
36.68
40
34.62
33.11
32.32
31.96
35
28.76
30
22.77
25 Route 1
Route 2
15.29
20
11.41
Route 3
10.29
15
10.02
9.47
8.02
7.74
7.72
7.69
Route 4
7.29
7.13
7.03
10
5.83
5.07
4.54
4.51
3.84
2.54
2.37
1.89
5
0
Diesel Driver/ Toll Truck spare/ Office/ staff Other Profit
expenses helper salary repair expenses expenses
30
Figure 3: Cost of business for 7 ton Truck (covered) in 2008 (% of total cost)
40
33.42
31.14
31.14
35
28.02
30
24.07
24.07
25
20
14.41
14.41
Route 1
12.42
11.31
11.31
15 Route 2
7.64
7.64
7.08
6.97
6.96
6.61
6.61
10 Route 3
5.13
4.83
4.83
5
0
Diesel Driver/ Toll Truck Office/ staff Other Profit
expenses helper spare/ expenses expenses
salary repair
Route 1: Dhaka-Chittagong; Route 2: Chittagong-Dhaka; Route 3: Benapole-Dhaka

40.61
45
35.59
40
33.57
32.83
29.55
35
30 22.82
25
14.73
20 Rout
12.7
10.67
15 Rout
7.58
7.14
7.05
6.61
6.25
6.6
6.4
10
5.6
4.76
Rout
3.74
3.6
1.6
5
0
Diesel Driver/ Toll Truck Office/ Other Profit
expenses helper spare/ staff expenses
salary repair expenses
Route 1: Dhaka-Chittagong; Route 2: Chittagong-Dhaka; Route 4: Bogra-Dhaka
7.3. Reasons for New Entry and Exit
The reasons of new entry in trucking business can give us an idea about barriers and nature of
competition. It also can reflect the situation of transparency and corruption. According to the
respondents, the entering in trucking business are sometimes influenced by good relation with
ruling political party, huge supply of idle money or remittance, good relation with truck
31
agencies, relationship with agency or C&F agent, possibilities of regular profit and no
previous experience is required for starting. However, three reasons, namely easy availability
of idle or remittance money, affiliation with truck agencies and affiliation with C&F agents,
appear to be the dominant reasons (Table 19).
Table 19: Reasons of Entry (% of the respondents)

Good relation with ruling political party 8.3 17.5 22.5 30.0 18.3
Huge supply of idle money or remittance 63.3 65.0 82.5 77.5 71.1
Good relation with truck agencies 76.7 60.0 82.5 37.5 65.6
Relationship with agency or C&F agent 50.0 50.0 65.0 62.5 56.1
Possibilities of regular profit 1.7 5.0 2.5 5.0 3.3
No requirement of previous experience 8.3 17.5 22.5 30.0 18.3
On the other hand, we found almost opposite response when we asked people, why they were
leaving the trucking business. The reasons which are important for leaving trucking business,
are- unable to make a good relation with transport agency, lack of relations with C&F agents,
shortage of reliable driver, massive loss by accident or stealing and losses from other
business (Table 20).
Table 20: Reasons of Exiting the Business (% of the respondents)

Lack of good relation with transport agency 11.7 7.5 20.0 20.0 15.6
Lack of good relations with C&F agents 43.3 50.0 90.0 90.0 65.0
Shortage of reliable driver 83.3 90.0 97.5 97.5 90.6
Massive loss by accident or stealing 61.7 65.0 65.0 65.0 60.0
Losses from other business 11.7 7.5 20.0 20.0 15.6
The comparisons of the reasons of entering in the trucking business and the reasons of exiting
from the business also have a clear relationship. The reasons for which the people are
interested to do business sometimes create inefficiency for the overall market. Those reasons
also undermine competition among the service providers of trucking business. The results of
exiting from the market have shown the anti-competitive behavior and thereby these reasons
are creating disadvantage for the operation of new business.
VIII. ASSOCIATIONS IN TRUCKING BUSINESS
8.1. Extent of Affiliation with Associations
In case of business association, on average 68.9 per cent businessmen are affiliated with their
relevant business communities. These business associations are concern about the problems
of the business people as well as they are treated as the head for any internal clash. These
associations are also useful to give a proper direction for the overall well-being of the related
sectors. However, affiliation to association seem to strongest in Bogra-Dhaka route and
weakest in Benapole-Dhaka route (Table 21).
32
Table 21: Involvement with Business Associations (% of respondents)

% of respondents involved 71.7 67.5 47.5 87.5
The important associations in trucking sectors are- truck/covered van owners associations,
transport agency/ owner association, motor parts business association and engineering
workshop business association. Table 22 indicates that in Dhaka-Chittagong route, as high as
73.7 percent of the truck firms are associated with truck/covered van owners association.
However, in Bogra-Dhaka route, only 34.3 percent of the respondents are members of such
association. Among these almost 46 percent businessmen are associated with truck/covered
van associations. In the Chittagong-Dhaka route almost 35 percent firms are members of the
transport agency/owner association, whereas for other routes, the membership for such
associations is not very prominent. Also, for other types of associations, memberships are not
very high as compared to the first type of association. This suggests that truck/covered van
owners association is the most prominent type of association.
Table 22: Member of Business Associations (% of respondents)

Truck/covered van owners association 44.2 44.4 73.7 34.3
Transport agency/owners association 34.9 7.4 10.5 8.6
Motor parts business association 14.0 7.4 25.7
Engineering workshop business association 4.7 14.3
It is also apparent from Table 23 that involvement with any business association most
prominent for the large trucking firms for Dhaka-Chittagong, Chittagong-Dhaka and
Benapole-Dhaka routes. However, the involvement of small and medium firms is stronger in
the Bogra-Dhaka route.
Table 23: Involvements with Business Association by size of Firms (% of respondents)

Small 66.67 57.89 59.26 85.19
Medium 77.78 75 50 100
Large 100 100 100 50
8.2. Nature of Truck Owners Association
FGDs with relevant stakeholders helped reveal many facts related to the nature of truck
owners associations in different routes. These are discussed below.
There several truck owners associations in Dhaka. The national truck owners association is
also situated in Dhaka. In 2002, government appointed a commissioner in the committee of
national truck owners’ association to administer the day to day activities and thus interfered
with its activity. Since then no new election has taken place in the association. The same
33
committee has been working for the last 7 years. As the rule of law is a rather weak and
cumbersome, the truck owners’ association has its viability to ensure the security of their
trucks from theft and robbery. The association expressed that parking space in Tejgaon truck
stand is not sufficient and therefore they are forced to park trucks beside roads. Traffic
sergeants take this opportunity and ask for illegal tolls.
The truck owners have three associations in Chittagong. The reason is either political or
conflict of interest. In all these associations, committee members are elected through
selection. Most of them have strong linkages with local political power base. They maintain
close relationship with labour associations, trade unions and transport agency associations.
The committee deals with the police and other labour organizations in case there are any
demurrage issues due to accident, theft or others. As the practice of toll collection is high in
Chittagong and there are increasing incidents of robbery on the way to Dhaka, the truck
owners are compelled to join in the associations to save themselves. The associations enable
them to deal with police and other local groups to secure their vehicles and goods in case of
unwanted circumstances.
In Benapole, as transport agencies dominate this port, the truck owners association is an
association of large truck owners. They elect their members for 2 years. The committee deals
with the police and other labour organizations in case there arises any demurrage issue due to
accident and theft.
In Bogra, the majority of truck owners are small in size. Therefore the owners depend highly
on association for the security of their trucks and business interest. Though they have the
option to elect the representative committee, the members follows selection mechanism. The
reason is that they prefer to select powerful members of the ruling political party in
government so that the representatives can use their political power to uphold the members’
interest. As mentioned earlier, transport agencies ask lower price while returning to Dhaka
but Dhaka trip is the lifeline for the trucking business in Bogra. So, to shield their business,
the trucking association informally forces these transport agencies not to ask lower price than
them.
8.3. Nature of Labour Association
In Dhaka, labour associations exist at truck stand level, district level and national level in
Dhaka. Each truck pays BDT 20-30 taka per trip to these associations. They collect this
money at various points. Labour associations control the parking spaces in Dhaka and
charges around BDT 30-50 taka per truck per night. Labour associations are mostly
influenced by local big political shots. Though labour association is meant to help the
unemployed driver and helper, in Dhaka these associations has become a platform of
amassing bribes and tolls. They pay regularly to police, high administration officials, political
leaders and cadres etc. to retain their control on the stand.
In Chittagong, there are around 9 labour associations and trade unions. Each truck pays BDT
20-30 taka per trip to these associations. They collect this money at various points. As in
Dhaka, the labour associations and trade unions in Chittaging are work as a platform of
collecting illegal tolls. All drivers and helpers are member of some labour associations.
34
In Benapole, the truck owners have to pay to two labour associations – one is truck labour
association and other is port labour association. All drivers and helpers are member of truck
labour association. On average, each truck pays BDT 20 per trip to these two associations.
They collect it at the land port gate.
In Bogra, all drivers and helpers are members of this association. It is obligatory. All trucks
have to pay around BDT 50 per trip to this association. The association pays a minimum
amount to the unemployed drivers and helpers for around 2-3 months. In case of death for
accidents, the association pays BDT 25,000 to families of the victim (driver and helper). The
independent brokers are also members of this association. Each of them pays around BDT
200 per month to this association. In return, the association ensures the interest of
independent brokers.
IX. THREAT OF SUBSTITUTE
An important aspect in the analysis competition is the understanding of the availability of the
demand side substitution. Though, trucking business has played the major role for
transportation in Bangladesh, the railway and river-way both has implication for the sake of
competitiveness. The availability of these options can make the trucking market more
competitive as well as efficient. In this way, the service providers will face more competition
and the service receivers will have available opportunities for transporting their products. It is
also true that sometimes the rail transportation is much cost effective than the trucking
service as it can carry more volumes than the other services. On the other hand, river-way is
also sometimes useful as many of the production unit is nearer to the river-ports. Therefore,
to assess the competitiveness of the trucking service sector we also need to see whether
service receivers have options other than trucking to transport their products. Table 24
presents the summary of the responses of the service receivers. It appears from Table 24 that
railway is the only available option for Benapole-Dhaka and Bogra-Dhaka routes. This is also
the dominant option for the Dhaka-Chittagong and Chittagong-Dhaka routes. However, for
these two routes, river way is also an option.
Table 24: Alternative Options for Service Receivers (% of respondents)

Railway 56.4 47.1 100.0 100.0
River way 10.3 2.9 0 0
No alternative way 30.8 14.7 0 0
Both railway & river way 2.6 35.3 0 0
The cost of transportation varies across different mode of transportation. An example is

provided in Table 25 for transporting 7 ton goods via different modes of transportation. It
appears that both for the Dhaka-Chittagong route and Chittagong-Dhaka route trucking is
most costly option of transporting goods and the rive way is the least costly option. Also, for
the Benapole-Dhaka and Bogra-Dhaka route the trucking fare is higher than the railway fare.
Interestingly, however, as Table 26 suggests, in Dhaka-Chittgong route as high as 23 percent
of the respondents use railway as an alternative to trucking. Also around 20 percent of the
respondents in Chittagong-Dhaka route use railway. But, the use of river way is very minimal
35
in these two routes. In the case of Benapole-Dhaka and Bogra-Dhaka routes, very few
respondents use railway as an alternative to trucking. There is no use of river way by the
respondents.
Table 25: Cost of Transportation of 7 ton Goods in 2008 (BDT)
Truck Rail River

Route 1 6778 5423 4067
Route 2 10257 9027 7221
Route 3 13681 12313
Route 4 9250 8325
Table 26: Use of alternative ways (% of respondents)
Truck Rail River

Route 1 100 23.42 5.11
Route 2 100 19.27 3.57
Route 3 100 4.66
Route 4 100 6.92
Now, it appears that despite the fact that the trucking fare is higher than railway fare or river-
way fare (in the cases of Route 1 and Route 2) there has been dominant use of trucking
service and insignificant uses of alternatives to trucking. The service receivers mentioned a
number of reasons for the less uses of railway and river way. These reasons are summarized
in Table 27 and Table 28.
Table 27: Reasons for not using railway as alternative mechanism (% of respondents)

Difficult to make booking 7.9 9.09 6.38 12.9
Lack of security 30.11 27.23 6.45
Frequent up & down of goods 22.56 23.97 29.22 22.34
Take more time 46.5 57.53 41.41 47.06
More cost for using truck to load goods 11.84 13.64 16.21 19.22
Need Shifting of goods for broad gaze and meter gaze line 14.89
It is suitable for every commodity 1.32 2.27 6.38 4.84
Other 9.22 24.99 21.28 33.88
FGDs in Dhaka indicate that the key problem of railway is that they do not have any
collection service from factory/warehouse and delivery service to delivery point. The time
schedule of train is not suitable for factories. According to businessmen, train service is
economical to transport cement, fertilizer, coal etc. in barges/ships as they are heavy and
transported in big volume. In Chittagong it is learnt that shipping agencies use railway to
transport container – loaded with exported goods. Also, 100% export oriented industries in
some cases use this service for the transportation of imported raw materials. Other than
container, businessmen do not transport any goods by railway because of security concerns
and unintended delay. The only way, according to them, to increase the use of railway is to
36
privatize the goods transportation system of railway. The other option is to lay down a new
line dedicated for goods transport. In Benapole, the importers are not permitted to send
imported goods through the rail station at Benapole port. They are allowed to load goods at
Jessore station which is 18 kilometre away from Benapole port. In addition, there is
confusion over broad-gauge and meter-gauge train for transportation of goods from Jessore to
Dhaka. The businessmen opine that if Padma bridge is constructed the transportation time by
trucking from Benapole to Dhaka and Chittagong would be reduced by at least 2 hours. In
that case, the relevance of railway as a viable option will be further lost. Also, there are
concerns related to security of goods. No major waterway exists close to beanpole port. In
Bogra, the businessmen do not find confidence to send goods through railway. If goods are
lost or damaged, railway does not give any demurrage.
Table 28: Reasons for not using River way as an Alternative (% of respondents)
Route 1 Route 2
High risk of damage of goods 27.31 25.53
Need more time 18.75 29.79
Difficult to loading and unloading 6.25 6.38
Lack of security 18.75 8.51
Need to use other transport 25 14.89
Expensive if less amount of goods 18.21 21.22
Other 7.21 9.67
In the case of water way there are a number of reasons for the very low use of this service.
Table 28 provides the major reasons, and they are high risk of damage of goods, requirement
of more time, lack of security and the need to use other types of transport system to reach the
product in final destination. From FGDs in Dhaka and Chittagong it appears that some heavy
industries like cement, steel etc. and some large importers of food grain (e.g. wheat, rice,
soybean etc.) use waterways to transport raw materials and goods. Though the cost of per ton
transportation in waterways is less than half in compared to trucks, most medium sized
businessmen prefer to use trucks for the reasons mentioned above. In Bogra, waterway
requires a significant amount of goods to be transported at a time which is not feasible with
the current transportation pattern in Bogra.
X. BARRIERS TO ENTRY
10.1. Problems of Availability of Loan and Insurance
Availability of loan is one of the basic concerns for the new investors. In many cases, the
large trucking firms have the privilege of accessing this loan and small firms face undue
hazards. It appears from Table 29 that high interest rate charged by the financial institution
act as a real obstacle for the new investors. Also, difficulty in meeting terms and conditions
of loan is another important factor. For the small firms mortgage is an important obstacle.
The respondents from Benapole-Dhaka route indicated that not getting required amount of
loan is a major problem. In Bogra-Dhaka route, however, one third of the respondents
reported of having no major problem in accessing loan. FGDs with relevant stakeholders
suggest that smooth process of accessing loan is a prerequisite for healthy growth in the
trucking service. Many investors also reported that government could also help the new
37
investors by providing loan with special facilities. This can have a favourable impact on the
overall economy as most of the economic sectors have clear connection with the growth of
trucking service.
Table 29: Problems in Accessing Bank Loan (% of respondents)

High interest rate 43.2 37.9 27.5 30.5
Difficult to meet terms & conditions of loan 23.6 35.4 25.0 29.4
New traders do not get loan 11.4 12.7 2.5 8.5
Mortgage is difficult for small firms 22.7 20.5 25.0 18.2
No problem to get loan 9.1 12.8 5.2 36.9
Lengthy time requirement 4.5 28.2 7.5 2.6
Cannot get adequate loan 7.2 5.1 57.5 2.6
Other 8.2 7.7 2.5 2.6
In case of trucking business, another very important issue is insurance. The chances of
accidents are relatively high in this service. In this survey, it is reported that a large part of the
business people involved in this sector get some support from insurance companies. Trucking
sector is also a very important sector for the insurance companies and they also try to
maintain the professional relationship for ensuring their good will. This is the probable cause
why majority of the service providers are largely satisfied with the insurance companies. But,
there are also some problems. The very common allegation against the insurance companies
is that the trucking firms do not get the money as per their claims. Also, some respondents
mentioned that they didn’t receive any money from the insurance companies. The process of
claiming insurance money is also too much cumbersome. Another awkward practice is
bribery. It, however, appears that the trucking firms in the Bogra-Dhaka route face lesser
problems than those in other routes (Table 30).
Table 30: Problems in Claiming Insurance Money (% of respondents)

Do not get any money 25.0 17.7 21.2 15.1
Cumbersome to draw claim (bribery) 27.5 25.1 19.2 15.1
No major problem 55.0 51.5 65.0 77.2
Do not get actual amount 25.0 12.6 17.5 22.4
10.2. Problems of having Small Number of Truck
It appears from the study that there are numerous problems for the small trucking firms. The
basic problem of small firms is the risk of accidents as their capital or investment is small.
Small firms also face the problem of getting sufficient orders from the service receivers
because of their limited capacity. Therefore, it is always hard to achieve reliability and
reputation and as a result they suffer from inconsistent support from the service receivers.
38
Again, the requirement of having some minimum number of trucks also creates some
problems for the small firms. These problems include unreliable service, inconsistent support
from the service receivers, low rate of return on investment, high risk of business being
closed in the wake of any accident. Also, these firms have little chance of recovering from
any major accident, and thus the possibility of returning back to the business after occurrence
of any serious accident is low.
Table 31 provides the information on the requirement of minimum number of trucks. In

Dhaka-Chittagong, Chittagong-Dhaka and Bogra-Dhaka routes majority of the respondents
opined that there should be at least 3-4 trucks for a viable business in the trucking sector.
Table 31: Requirement of Minimum Number of Trucks in different Routes (% of respondents)

One truck is sufficient for business 10.33 2.67
4-5 trucks are needed 25 14.86 51.23 5.24
Need at more than 5 trucks 75 85.14 38.44 92.09
However, FGDs with relevant stakeholders suggest that in Dhaka the minimum requirement
is at least 4 trucks. It is suggested that at the current scenario, it better to start with 7 ton
covered van and establish good contact with transport agencies. In Chittagong, stakeholders
opined to have at least 7-8 trucks to start a feasible business. However, it also appears that
there is an option of buying 2-3 trucks, open a transport agency and hire the rest from market
according to needs. In Benapole, earlier the requirement was 5-6 trucks. However, as the jam
in ferry ghat has increased, now it is more sensible to start with 8-10 trucks. In Bogra, the
requirement is at least 5 trucks for a viable business operation.
10.3. Problems in Registration Process and Fitness Certificate
This study has found that both the existing investors and the people who are interested to
enter into the trucking business have negative impression about the registration process and
fitness certificate. Most of the respondents in all four routes reported the practice of bribery.
Also, police harassment is another issue, which is highly reported in this survey. Again,
complexity of documentation and high fees charged by the authority are the other two
problems. All of the issues relating with the registration and fitness certificate, not only create
corruption but also result in some unfavorable environment for the small and medium firms
and thereby they are anti-competitive (Table 32).
Table 32: Problems in Getting License and Fitness Certifications (% of respondents)

Bribe 82.1 60.0 92.5 60.7
Police harassment 38.9 45.0 35.0 52.0
Fees are high 18.9 15.0 17.5 12.2
Complexity of rules/need legal documents 26.7 22.5 15.0 17.5
39
10.4. Problems in Paying Taxes
In Bangladesh, the number of taxpayer is too low. Many of the tax payer have tendency to
avoid taxes through bribery. In trucking service, similar picture is also emerged (Table 33).
According to the respondents, the tax payment is high and therefore they try to manage the
authorized persons to manipulate the imposed figures. This creates loses of government
revenues as well as it act as a anticompetitive behavior for the for the small and medium
firms. Most of the respondents also identified the problem of too many segments where taxes
are imposed. In their view, different types of tax on trucking sectors, which are presently
operated, are not justified as they discourage the new investment.
Table 33: Problems in Paying Taxes (% of respondents)

Tax is high relative to profit, so give bribe 78.5 68.7 78.9 75.3
Different type of tax need to give which is not logical 57.3 77.7 60.1 62.4
No major problem 14.7 13.6 11.8 6.5
10.5. Geographical Quota and Barriers
In trucking business, geographical location may play an important role by causing of barriers.
In some cases, the localized people only may have control on a particular route and thereby
they can create anti-competitive business practices. However, in our selected routes, most of
the business people indicted that their markets were free from any geographical quotas. In
case of Dhaka-Chittagong and Bogra-Dhaka routes some existence of geographical quota is
found (Table 34).
Table 34: Existence of Geographical Quota (% of respondents saying ‘yes’)

Yes (%) 20.0 5.0 .0 20.0
10.6. Private companies and practices of cartel/syndication
Along with the rise in prices of food, which was very high in recent past, the trucking sector,
which carries the bulk amount of imported food items, was also accused like other sectors for
being engaged in any cartel or syndication. A collective operation can be created for the
purpose of enhancement of business support. However, sometimes the process of collective
operation can create problems for new business entrepreneurs as they may be anti-
competitive. Formation of a cartel among some dominant service providers can lead to higher
price than the market price. It appears that in Bogra-Dhaka route more than 80 percent of the
respondents indicated the existence of cartel practice in the trucking business (Table 35).
Also in other three routes some significant proportion of the respondents reported the
existence of such practice. However, this problem appears to be less acute in the Dhaka-
Chittagong route.
40
Table 35: Existence of Cartel that influence price (% of respondents saying ‘yes’)

Yes (%) 33.6 42.5 62.4 82.5
In our survey, we tried to focus on the reasons behind the cartel practice. Most of respondents
reported that when they take their decisions collectively, it would benefit them by lowering
their transportation cost. They also get support in case of emergency need and security of
goods.
Table 36: Reasons for being involved in the Cartel Practice (% of respondents)

Security of goods 54.3 23.1 40.0 21.1
Avoid trouble of renting 6.5 12.8 12.3 28.9
To meet emergency needs 63.1 18 52.5 60.5
Transport cost become less 65.7 70.5 57.5 69.5
Expand business 2.2 15.4 5.0 15.8
An increasing trend in the cartel practice indicates to the fact of market being more and more
anti-competitive. In Table 37, we have found an absolute response for increasing cartels.
Almost all the respondents in Dhaka-Chittagong, Benapole-Dhaka and Bogra-Dhaka route
confirmed the increasing trend of cartel practices. Also, majority of the respondents in
Chittagong-Dhaka route expressed the similar view.
Table 37: The Trend in Cartel Practice (% of respondents)

Increased (%) 96.7 67.5 100.0 100.0
Decreased (%) 3.3 32.5 0.0 0.0
10.7. “Controls” over Market
It has already mentioned that there are different types of service providers in the trucking
sector, such as small truck firms, big truck firms, transport agencies, truck associations etc. It
is important to know their influence over the market. Because if the big transport agencies
and large trucking firms provide majority of the services in the market then they could
eliminate the small trucking firms from the market, and could also discourage new entry into
the market. We have already seen that in case of transporting goods the service receivers
mostly rely on transport agencies and consequently the market share of the trucking agencies
for Dhaka-Chittagong, Chittagong-Dhaka and Benapole-Dhaka rotes are very high. In the
case of Bogra-Dhaka route the share of trucking associations is higher than others (Table 38).
41
Table 38: The Share in Service: Who controls Market? (% of respondents)
Type Route 1 Route 2 Route 3 Route 4

Small truck owners 2.6 0.0 26.5 2.9
Large truck owners 0.0 18.6 0.0 17.6
Transport Agencies 97.4 64.3 73.5 38.2
Truck associations 0.0 17.1 0.0 41.3
Now, why transport companies are on the top of service receivers’ choice? Quality of service,
security and reliability are obviously important but fare could be the single most important
factor which always plays the vital rule in case of choosing service provider. More than three
quarters of the service receivers in the Dhaka-Chittagong and Benapole-Dhaka routes think
that transport companies charge the lowest fare. Also, in the Chittagong-Dhaka route majority
of the respondents expressed the similar view. Transport companies can do so due to
economies of scale. In the Bogra-Dhaka route, where the influence of transport agencies is
less pronounced, 70.6 per cent of service receivers held the view that small truck firms offer
less fare than others (Table 39).
Table 39: Who Offers Low Price? (% of respondents)

Small truck owners 7.7 20.0 26.5 70.6
Large truck owners 15.4 24.3 0.0 20.6
Transport Agencies 76.9 55.7 73.5 8.8
10.8. Non-price Factors
Even if there are available trucks in the routes, large service providers control the market
through their reputation and non-price benefits. Sometimes they manage long-term
agreements with the service receivers. Also, the advantage of the large firms to provide
continued support for 3-6 months are preferable to many service receivers, and this act
against the interest of the small and medium firms. This advantage also gives a lead against
the new entrants in trucking service. The capacity of extended communication and working
area also give superiority for the large firms who have been operating their business for long
periods. The market leaders (mostly the trucking agencies) have also opportunities to use
more security money and they have very good relations with owner and brokers as well. It
also appears that sometimes these dominant groups can attract more skilled labor by
providing them higher wages (Table 40).
Table 40: Non Price Factors favoring the Large Firms (% of respondents)

Being able to maintain long term agreement 88.3 87.5 22.5 32.5
Being able to provide continued service for 3-6 months 71.7 30.0 52.5 32.5
The capacity of extended communication & working area 5.0 17.5 32.5 67.5
42
10.9 Cost analysis: Calculation of Exit Cost
Through the analysis of cost of a business, we are able to know the extent of exit cost in
comparison with the minimum investment. This calculation gives us some idea about the
easiness of entry and exists in the trucking market. In this survey, we collected information
on the minimum number of trucks, unit price of trucks, and some other costs (which can be
treated as miscellaneous expenditure). Sum of these expenses may reflect the amount of
minimum investment required to start a business in any particular route. On the other hand,
minimum number of truck multiplied by minimum resale price of each truck can be said as
the minimum resale price in each route. The difference between the minimum investment and
the minimum resale price for each route shows the minimum exit cost from a business for a
particular route. Again, minimum exit cost as a percentage of minimum investment for a
particular route indicates the extent of exit costs. If the cost of exit cost is high, this will act as
a barrier for new entries. Among the routes, the exit cost is the highest in Chittagong-Dhaka
route and the lowest in Benapole-Dhaka route (Table 41). This suggests that the barriers to
entry in terms of exit cost is the highest in the Chittagong-Dhaka route and the lowest in the
Benapole-Dhaka route.
Table 41: Calculation of Exit Cost
1. 2. 3. 4. 5. 6. 7. 8.
Minim Unit Other Resale Min Min resale Min exit cost Exist cost as a %
um no. price of cost price of Investment price (1*4) (5-6) of min
of truck (Tk) truck (1*2+3) investment
truck (Tk) (Tk) [(7*100)/5]
(averag
e)
Route 1 1.46 2551754 161754.4 1724211 3887315.8 2517347.37 1369968.43 35.24
Route 2 1 2372500 189825 1477500 2562325 1477500 1084825 42.33
Route 3 1.08 2722500 6820.51 2473750 2947120.51 2671650 275470.51 9.34
Route 4 1.1 1711250 55815.79 1295000 1938190.79 1424500 513690.79 26.50
XI. CONCLUSION
This study has made some analysis of the issues related to competition in the trucking sector
in Bangladesh. The analyses suggest that there are some significant anti-competitive practices
in the trucking sector and the market is also significantly concentrated. There are also some
important barriers to entry in the market. Though the extent of competition varies across
different routes and for different types trucks, in general, it appears that the trucking market is
not competitive enough in Bangladesh. This finding has important negative implications for
economic growth as well as export competitiveness of the country.
43
Annex 1
The surveyed truck stands are-
Name of the truck stand Route

1 Benapol truck stand Benapole-Dhaka
2 Nishindhara Bogra-Dhaka
3 Inter-district truck stand Bogra-Dhaka
4 Namajgor truck stand Bogra-Dhaka
5 Charmatha truck stand Bogra-Dhaka
6 Bhober bazar truck stand Bogra-Dhaka
7 Puran Borga truck stand Bogra-Dhaka
8 Tinmatha truck stand Bogra-Dhaka
9 Kadamtali, Chittagong Chittagong-Dhaka
10 Majhirghat Chittagong Chittagong-Dhaka
11 Eid goan kacha rasta truck stand Chittagong-Dhaka
12 Bandar truck terminal Chittagong-Dhaka
13 Nimtola truck stand Chittagong-Dhaka
14 Baro quarter halishahar Chittagong-Dhaka
15 Aminbazar Dhaka-Chittagong
16 Tejgoan truck terminal Dhaka-Chittagong
17 Gabtoli truck terminal Dhaka-Chittagong
18 Postogola truck terminal Dhaka-Chittagong
44

Competition Issues in The Trucking Secto PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Competition Issues in The Trucking Secto PDF

Uploaded by

Copyright:

Available Formats

First Draft

Competition Issues in the

Paper Prepared for

II. Objectives of the Study

III. Methodology of the Study

IV. Overview of the Surveyed Trucking Sector

V. Growth of the Trucking Sector

VI. Pricing Mechanism in the Trucking Sector

VIII. Associations in Trucking Business

IX. Threat of Substitute

Table 1: Area wise Selected Sample distribution for trucking sector

Figure 1: Cost of business for 5 ton Truck in 2008 (% of total cost)

Selim Raihan, Abu Eusuf and Soeb Ifthekhar

• to describe the different institutions, government regulations, programs, rationale, and

• to identify and describe the different types of anticompetitive problems confronted,

III. METHODOLOGY OF THE STUDY

3.1. Competition Assessment Framework

3.2. Survey on Service Providers and Service Receivers

Table 1: Area wise Selected Sample distribution for trucking sector

Service Provider Service Receiver

Area Service Service Total

4.1. Years in Business of the Trucking Firms

Table 3: No of Years of Firms in Trucking Business (% of Respondents)

No of years Route 1 Route 2 Route 3 Route 4 Total

4.2. Sources of Initial investment of the Trucking Firms

Route 1 Route 2 Route 3 Route 4 Total

Table 5: Factors behind Entry (% of the respondents)

Route 1 Route 2 Route 3 Route 4

4.4. Type of Business Receiving Truck Service

Table 6: Major Receivers of Trucking Service (% of the respondents)

Type of Business Route 1 Route 2 Route 3 Route 4 Total

4.5. Types of Goods Transported by Trucks

Table 7: Major Receivers of Trucking Service (% of the respondents)

Route 1 Route 2 Route 3 Route 4 Total

V. GROWTH OF THE TRUCKING SECTOR

5.1. Numbers of Trucks per Firm at Start and at Present

Table 8: Average Number of Trucks per Firm at Start and at Present

Route 5 Ton 7 Ton 7 Ton (Covered) 20 Ton

5.2. Renting of Trucks

Table 9: Renting of Truck (% of respondents)

Route 1 Route 2 Route 3 Route 4 Total

5.3. Monthly Frequency of Trips

Table 10: Average Number of Monthly Trips during Peak Seasons

5 Ton 7 Ton 7 Ton (covered)

Table 11: Average Number of Monthly Trips during Lean Seasons

5 Ton 7 Ton 7 Ton (covered)

5 Ton 7 Ton 7 Ton (covered)

5.4. Average Number of Trucks in Truck Stand

Table 13: Average Number of Trucks in Truck Stands4

5 Ton 7 Ton 7 Ton (covered) 20 Ton

VI. PRICING MECHANISM IN THE TRUCKING SECTOR

6.1. Truck Renting Mechanism

In Bogra, businessmen largely depend on independent brokers to rent trucks. The

6.2. Influence of Transport Agencies

6.3. Pricing Mechanism

6.4. Differences in Fare for Different Routes

5 Ton 7 Ton 7 Ton (covered) 20 Ton

5 Ton 7 Ton 7 Ton (covered) 20 Ton

Whether fare varies for Route 1 Route 2 Route 3 Route 4

5 Ton 7 Ton 7 Ton (covered) 20 Ton

6.5. Influence of Illegal Toll on Truck Fares

VII. UNDERSTANDING THE MARKET: CONCENTRATION, PROFITABILITY