Firms with long-term contracts with truckers may benefit from drop in diesel price

Companies with long-term contracts with transporters, with clauses for drop in freight in sync with the fall in fuel costs, are more likely to benefit from the recent dip in diesel prices than those who hire trucks from the open market.

Transporters in the open market are resisting a fall in prices as of now, though diesel prices have fallen by almost 10 per cent.

Research body Indian Foundation of Transport Research and Training (IFTRT) estimates that of the overall transport market, about 20-25 per cent of the trucking business is based on long-term contracts, while 75 per cent business is conducted through the open market.

Truck rentals are holding up in the open market now. “Demand for transportation is high because of the ongoing Kharif crop procurement season, higher arrivals of fruits and vegetables. Also, there was a temporary glut in truck driver availability as many of them had gone on leave for Diwali and

Chhat Puja ,” SP Singh, Senior Fellow, IFTRT, said. These features, coupled with the fact that the truck sales have dropped during the last two years, have led to lower capacity addition in the market.

IFTRT, which projected a 4-5 per cent drop in rentals in the near future, said though truckers were trying to hold the current rentals from falling, it may be difficult to do so over a longer period, particularly as Kharif procurement gets over in the next two weeks. Firms in transport business have a different point view. “We were not able to increase the prices proportionately when there was a 50 per cent increase in fuel prices. Truckers are under too much pressure to be able to make rate cuts,” said Vineet Agarwal, Managing Director, Transport Corporation of India.

Rhenus Logistics (India), a joint venture company in which Western Arya Group has a 51 per cent stake, does 90 per cent of its business through long-term contracts, while only 10 per cent is done via open market. “All long-term contracts have clauses that link the freight charge to fuel price,” said Vivek Arya, Managing Director, Rhenus Logistics, India.

Industry players also point out that when diesel prices were going up, many customers did not increase freight charges even though the contract provides for such hikes.

“The part load truck firms, parcel booking, freight aggregators, are holding on to the rates. Zonal players and trucking firms are in a wait-and-watch mode. The pressure from end-customers and competition will force them to drop prices,” said Singh, adding that the next quarter would be interesting to watch.