Truckers say freight will rise 8-16% on diesel hike

Get ready to pay more for your vegetables and grocery as truck owners gear up to increase freight rates following the recent hike in diesel prices.

A member of the All India Motor Transport Congress (AIMTC) on Monday said freight rates could go up 8-16% unless the government intervenes and rolls back a part of the hike.

This person, who declined to be identified, dismissed talk of more vehicles lying idle because of the slowdown and fuel price spike and said there was enough pricing power with the fleet owners to pass on the diesel hike impact to consumers.

SP Singh, a senior fellow with the Indian Foundation of Transport Research & Training (IFTRT), pointed out that between 2005 and 2010, diesel price rose about 26% to Rs37.75 per litre and truck rentals outpaced overall cost spike by rising 55-60%. In IFTRT’s assessment, the latest round of diesel price hike would have a weighted impact of only 4% on freight rates but transporters would levy a much larger increase on the end consumer.

Not just the common man, the hike in diesel prices is also seen impacting the truck financing business adversely.

“Demand in the commercial vehicle industry is anyway sluggish since April this year. Increase in diesel prices will further see an impact on the profitability of truckers. All these factors will act as a dampener to purchases of new CVs,” said R Sridhar, managing director, Shriram Transport Finance.

The AIMTC member conceded that while the load per trip for transporters has not fallen so far, it could go down in the months to come due to the rising costs of each consignment.    

Fuel accounts for 50-60% of the total logistics cost and any increase in fuel prices tends to impact the logistics sector adversely.

“This is one of the steepest rises that we have seen over the last three years… Besides fuel costs, increase in inputs and operational costs such as tyres and spares, insurance premium and toll rates can push up the freight rates by another 3-4%. We expect the freight rise to stabilise around 7-10% in due course owing to increase in demand closer to the festival season,” said Vineet Agarwal, executive director, Transport Corporation of India.

Ajay Chopra, CEO of Tata’s Group’s logistics arm Drive India Enterprises said though enough business is available for logistics companies, corporate customers are reluctant to factor in frequent price hikes. “This creates a stonewalling kind of situation wherein the corporates are not ready to take the hit, logistics companies’ margins come under pressure and those of trucking companies are further more under pressure.”

Kiran Salunke, managing director of Siesta Logistics, however, said logistics is a fuel-neutral industry. “Generally, most final customers —- corporates, manufacturing units —- factor in any kind of fuel price hikes in their contracts with logistics companies. Then, it is upon logistics companies to decide whether to pass on the benefit to the end truck owner. In most cases they do, but some may not. Further, the trucking industry has been doing good and the diesel price increase hit would be marginal,” he said.

Surface transport minister C P Joshi appeared sympathetic to the woes of transporters but made it clear that a rollback may be too much to expect. “I hope transporters understand this issue… We have to live with this diesel price increase reality because if we defer it, it will mean compromising on other aspects of development,” he said.