As GST opens up Indian highways, a former McKinsey consultant is ready to profit by the truckload

Around this time of the year, back in 2014, Deepak Garg was following trucks on Indian highways.

It wasn’t a newfound hobby or any strange affliction. After earning coveted degrees from the Indian Institute of Technology, Kanpur, and the Indian Institute of Management, Lucknow, and following it up with an eight-year stint with McKinsey & Company, Garg was on the road chasing his entrepreneurial ambitions. Three years on, the bearded, soft-spoken 35-year-old is shifting gears to dive right into the biggest disruption in India’s transportation sector, the goods and services tax.

“Initially, the idea was to build a marketplace for freight,” Garg said, sitting in his light-filled office in Gurugram. On paper, the plan for a transportation aggregator that would bring thousands of trucks to a single point of purchase made sense. Over 90% of the operators in India’s $96 billion freight transportation industry (pdf) own fleets of six or less vehicles.

On top of that, thanks to the country’s woeful highway infrastructure where only 3% of the roads are four-lane or more, an average Indian truck runs only between 60,000 and 100,000 miles every year. That’s a sixth of the annual average of a truck in the US. Clearly, there was a problem to solve.

Behind the wheel

But once Garg spent time on the highway, he quickly realised the primary complication in the Indian trucking industry: driver shortage. “As a country, we need a million truck drivers every year,” he explained. “We don’t have those many.” The situation is so severe that some estimates say (pdf) the scarcity could hit 50% by 2020.

As he traversed the country by road, Garg found that people avoided the profession because of the daunting work schedule. Drivers end up working long hours on accident-prone Indian roads, not returning home for days, and becoming social outcasts of sorts. Women often refused to marry them, said some drivers. “Unless you solve that problem, unless you have drivers to run trucks, you won’t be able to build an aggregator,” Garg said. “From a tech problem, it became a very deep human problem.”

Garg’s solution was disarmingly straightforward: A relay system, partly inspired by a model that Indian Railways has deployed for years, where a driver would be at the wheel for no more than 4.5 hours. At the end of his shift, he’d hand over the truck to a new driver, before driving another vehicle back to where he came from. A driver in this system could be back home within half-a-day, having driven two different trucks in opposite directions, compared to days (if not weeks) if he drove for a conventional operator.

When Garg took the idea to truck drivers, they got behind it. Saab, mera number le lo (Sir, take my number), some told him. This will definitely work, others said.

Within months, Garg turned this relay model into Rivigo, a transportation startup that now operates with 4,000 drivers and a fleet of 2,100 trucks. Gazal Kalra, a McKinsey alumna, joined him as co-founder. “We are a logistics company, move goods from point A to point B and charge for that service,” Garg said. “We do it better than the others, so we charge some more. And we give you the best service.”

Since it was founded in August 2014, Rivigo has raised around $100 million, out of which $75 million came from private equity major Warburg Pincus late last year. Garg, who serves as CEO, declined to discuss valuation, though he said the company should make a profit this financial year.

By Garg’s estimates, compared to conventional trucking services, Rivigo can deliver in between 50% and 70% less time. “So, Delhi to Mumbai typically takes four days for anyone else. We take 24 hours,” he said. “Delhi to Bangalore (Bengaluru), it takes eight days, nine days sometimes. I think we do a third-day delivery.”

Riding on the GST

After hanging fire for the better part of two decades, the GST, India’s biggest ever tax reform, was finally rolled out by the Narendra Modi government on July 01. It subsumes a range of central and state taxes, thereby turning the entire country into a single market for the first time. In practice, it will mean that border controls established by various states to levy taxes on goods entering their respective territories will be lifted. This should cut down the waiting time for trucks and hasten their movement nationwide.

For Garg, the GST’s likely impact on inter-state movement is largely inconsequential. “I think some reduction will happen, but it (the long waiting time) is a myth,” he explained. “Overall, the median border waiting time is 69 minutes across the country. When your average trip time is in days, how much does an hour matter?”

“We believe that customers will value our services a lot more post-GST.”

Instead, it’s the transformation of the entire logistics ecosystem is India that has Garg on the edge of his seat. “GST basically helps you create an environment which is not optimising for tax, but optimising for efficiencies,” he said. That will mean that instead of having distribution centres or warehouses in every state, which were meant to offset tax variation, companies can now focus on having facilities that serve their customers most efficiently. For instance, fast-moving consumer goods (FMCG) companies that currently have between 35 and 40 distribution centres nationwide, according to Garg, can now be potentially served out of six such facilities. Overall, Rivigo’s internal modelling suggests that only eight regional logistics hubs will be required to serve the entire country, which could potentially bring down a company’s total inventory warehousing costs by around 40%.

Such consolidation will necessarily demand an improved transportation network, as the distance between these logistics hubs and customers will more than double from around 200km now to at least 500km. Logistics operators will not only have to traverse longer distances faster, they’ll also have to do so with a high level of reliability.

For Rivigo, which serves the pharmaceutical, automobile, apparel, and e-commerce industries, among others, it’s an ideal scenario.

“We believe that customers will value our services a lot more post-GST,” Garg said. So, while the traditional trucking industry will continue to mirror the overall economy’s trajectory, expanding at around 1.3 times the GDP growth, express freight service providers like Rivigo could be doubling their business every year.

Tech to go the distance

At the heart of Rivigo’s operations is an obsession with data and technology.

Every Rivigo truck is rigged with at least three sensors that monitor fuel consumption and a vehicle’s vitals such as coolant level and GPS information. Besides, each driver also has a smartphone app which relays data back to the company’s operations centre. “We use that data to process reports and then push out that report into the field,” Garg explained.

“With tech and data you can scale things up. You can get to 100,000 trucks, you can get to 500,000 trucks, you can get to any number.”

This real-time monitoring is central to maintaining efficiency across the entire network. Keeping tabs on fuel levels in vehicles, for instance, is critical because Rivigo trucks are handed over from one driver to another at regular intervals, which increases the possibility of pilferage. “So, unless you have a very solid solution for fuel management using tech and data, you’ll not be able to get the best mileage,” Garg said. Similarly, if a driver makes an unscheduled stop during his section of a relay, it can make the entire sequence of subsequent handovers go awry.

The company’s current operations structure involves around 70 pitstops, where trucks are handed over from one driver to another. Between five and eight of these pitstops are grouped into clusters, and a number of clusters together form a zone. So, whenever Rivigo’s technology backbone spots any vehicle deviating from set parameters, specific teams at different levels are alerted and corrective actions are immediately undertaken.

This reliance on data and technology not only allows Rivigo to operate around 1,500 trucks nationwide at any point in time with minimal delays, it also provides a foundation for future growth. “Manually, you can’t manage such a large operation. It’s not possible,” Garg said. “With tech and data you can scale things up. You can get to 100,000 trucks, you can get to 500,000 trucks, you can get to any number.”

With a little over 2,000 vehicles in its fleet, Rivigo clearly has enough room to grow. But, having already chased down big numbers and many trucks in a hurry, the former McKinsey consultant doesn’t seem particularly impatient.

“We know it’s a long journey,” he said, “and we want to build it right.”

This article first appeared on Quartz.