High inflation and supply shortages of diesel threatens to increase trucking costs. Analysts point out that if the scenario persists, it could lead to not just an increase in operating expenses, but will have a cascading effect on the already high inflation considering that 70 per cent of diesel is consumed by the transport sector.
Fuel accounts for 45-60 per cent of a truck’s operating costs. Besides GST, Excise, VAT, tolls and agriculture cess are other costs, analysts say. High inflation and low consumer spending have has already impacted logistics activity in May. Inflation is already above the RBI and government’s comfort zone, they said.
Diesel shortage
“Trucking rates depend on demand supply. The off take of agri-commodities is happening. Truckers will carry the load even at high prices and will pass on the cost to end-consumers. High inflation and diesel costs are already a dampener. Diesel shortage would mean purchasing fuel at higher costs in black. It can lead to demand destruction. Major impact will be on small truck operators,” said a senior executive from an FMCG company. The All-India Motor Transport Congress (AIMTC), which represents around 95 lakh truckers and about 50 lakh bus, taxicabs and maxicabs, said fuel shortage is likely to disrupt supply chains across all sectors.
The government is attributing the increase in demand to seasonal surges due to agricultural activities, bulk buyers shifting purchases to petrol pumps, a substantial reduction in sales by private firms and a sudden surge in fuel demand. Though the government is assuring of sufficient supplies, the ground reality is quite different, the AIMTC warned.
The problem is that some States have diesel shortages and have rationalised quotas. If the requirement is more, even then you won’t get the higher quantum. A few days ago, pumps in Madhya Pradesh, Rajasthan, Maharashtra, Karnataka, Punjab and Himachal Pradesh were running dry, said AIMTC President, KS Atwal.
“If the cost is high, then it will be passed on to consumers. I don’t think prices (logistics) will come down. Demand is there. Trucking costs are likely to maintain at May levels as there is seasonal demand for agro-commodities,” Atwal said. The Chief Operating Officer of Mahindra Logistics (MLL) Transportation & Procurement, Sushil Rathi, said, “In most transportation contracts, we benchmark fuel rates and as per changes in fuel cost, it is only natural for transportation rates to get affected. Lately, we have observed drastic changes in fuel rates, which we believe, will definitely trigger the value-based threshold.”
Impact of inflation
In the short-term, inflation may hamper growth, but for a country like India where there are heightened manufacturing activities, Rathi said he does not see much slowdown.
“Indian Foundation of Transport Research & Training said freight rates on grand trunk routes have already shot up by an average 3-4 per cent m-o-m. The recurrent increase in fuel prices singe into margins of small and large transporters and will eventually force them to pass on the hike to their customers,” he added.
On the scenario for the next three to six months, Rathi said trucking capacity enhancement is happening at a slow pace, thereby resulting in shortages for specific truck types. This has already resulted in freight corrections in the last few months. A case in point is the car carrier segment.