Freight rates may rise by 10%

The domestic supply chain, logistics companies as well as transport firms are likely to jack up freight rates in the wake of the deregulation of the fuel prices.

Players in the organised and unorganized segments of the transportation business are considering a 5-10% hike.

Players in the transport sector, which contributes around 5% to the gross domestic product (GDP), feel freight hike cannot be avoided as fuel accounts for a major share of the operating cost.

Another concern on the mega players’ mind is clogging at pumps due to price differential post deregulation, thereby hurting time-definite delivery.

Freight hike, meanwhile, is imminent. “Fuel accounts for 50-60% of the input cost of the trucking operations. Any impact - good or bad - will certainly have a bearing on the freight rates. With this signal, the freight rates should move up. Secondly, the demand-supply scenario is also a factor. And the demand is on an upswing right now,” said Vineet Agarwal, executive director, Transport Corporation of India Ltd (TCI).

Another logistics major, Safexpress, has also taken up the matter of rate hike with its clients. Vineet Kanaujia, general manager, Safexpress, said, “Oil is an input to the supply chain, which is an input to the economy. Deregulation is in the pipeline. Whenever it happens, it will have a huge impact on the supply chain business.”

Freight rate hike is high on Safexpress’ mind too apart from other operational. “The hike will be in the range of 5-10%, depending on the contract and zones in which we operate,” added Kanaujia. “As a company, time-definite delivery is very important to us. With the new system in place, there will be congestion due to skewing of traffic to a particular filling station. So, we either have to queue up and waste time or pay a premium. The latter will add an extra dimension to the input cost affecting profitability,” Kanaujia added.

The players in the unorganized sector, which accounts for at least 80% of the sector, is also revising the rates by 8-12%. “The various unions operating in the country have hiked the rate in the range of 10-12%, while the transport firms have indicated an 8-10% hike,” said S P Singh, senior fellow, Indian Foundation of Transport Research and Training (IFTRT).

Singh, however, said the hike indicated by the operators is not in sync with the diesel price hike. “Increase of Rs 2 per litre of diesel, pushes the freight rate up by a maximum of 4%. But this opportunistic increase is not sustainable,” Singh added.

The deregulation move, however, will largely jeopardise the small operators as big firms may have a way out. As per global standards, trucking majors in developed countries tie up with a single retailer who becomes their priority supplier. Going forward, the domestic logistics majors too may like to consider this.

Experts, meanwhile, feel that the government needs to play safe while implementing the scheme. “There should be a system of checks and balance, so that the price variation between two companies is not much. If it is more than a particular threshold level, it will lead to congestion at particular set of pumps,” said