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Freight Rates Are Up In October, Diesel Prices Exert Pressure On Margins

Frieght

In the first quarter of fiscal 2021, fleet utilization rates plunged with most consumption and demand centers locked down. 

With the consumption recovering, and infrastructure activity picking up, freight rates witnessed a sequential recovery in October.  However, with diesel prices ruling high after a scorching run-up, the overall profitability of transporters remains below levels seen in the closing quarter of last fiscal, rating agency Crisil has said in a report.

Over the past 2-3 years, the domestic road freight transportation industry ran into many speed-breakers. The axle load norms caused a discernible drop in fleet utilization levels in fiscal 2019, while the BS-VI norms led to a 10-15 per cent increase in the prices of new trucks in fiscal 2020.  Then came the Covid-19 pandemic and the sharp economic contraction.

In the first quarter of fiscal 2021, fleet utilization rates plunged with most consumption and demand centers locked down. A sequential recovery was visible with a gradual reopening of the economy over the next three quarters.

In the midst of all this, freight demand recovery was sporadic across segments; FMCG/FM CD recovered faster than discretionary segments such as readymade garments/textiles, and other consumer durables. 

Coal Train

In the midst of all this, freight demand recovery was sporadic across segments; FMCG/FM CD recovered faster than discretionary segments such as readymade garments/textiles, and other consumer durables. 

Even within states, recovery varied based on the pandemic caseload and unlocking levels, the report said. In such scenarios, transporters, logistics service providers, original equipment manufacturers, and financiers need to know the predicament of freight users, taxonomized by sectors, routes, applications, and platforms.

CRISIL, which has been tracking freight rates and operator cash flows (pre-E MI) across 32 key routes in India on a bi-monthly basis since October 2020, will now deliver the data signals every month. FreightSigns finds consumer essentials such as agri- products and FMCG/FMCD are the most resilient and stable segments driving the trucking industry, even in the current context. 

Many large fleet operators (35+ tonne GVW) have shifted focus from bulk commodities to lighter applications in the past two years. Two, the industry is showing signs of improvement in terms of the freight index and EMI serviceability across route-commodity combinations despite a jump in diesel prices. That’s because freight rates increased relatively higher compared with the increase in diesel prices over June-October 2021.

Furthermore, utilization in terms of the average monthly running or the number of trips done has also improved across most of the 159 route-commodity combinations tracked by CRISIL. However, despite improvement in the index in October 2021 to 122 (similar to February 2021 levels), the FCF still continues to be at a level (17 per cent) comparable with October 2020. This is one of the key reasons that financiers are still not comfortable in funding small fleet operators.

This is one of the key reasons that financiers are still not comfortable in funding small fleet operators.

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