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Freight rates perk up, but diesel hike hits margins in India: CRISIL

11 Nov '21
3 min read
Pic: Enanuchit | Dreamstime.com
Pic: Enanuchit | Dreamstime.com

With the monsoon withdrawing, consumption recovering and infrastructure activity picking up, freight rates saw a sequential recovery in October, according to rating agency CRISIL, which recently said that with high diesel prices, the overall profitability of Indian transporters remains below levels seen in the closing quarter of the last fiscal.

The recovery has been broad-based, with most route-commodity combinations seeing an increase in freight rates. In October 2021, 80-85 per cent of the combinations saw an improvement in freight rates over August 2021, while 15-20 per cent was unable to pass on the diesel price hikes due to demand-supply considerations.

CRISFrex captures changes in freight rates on a sequential basis. What makes it first-of-its-kind in India is that it also tracks the free cash flows, or FCF (pre-EMI) of transporters on an ongoing basis. Higher FCF would typically lead to higher demand for commercial vehicles.

Applications like textiles (especially readymade garments) have been struggling as demand may take another few months to revive to pre-pandemic levels, CRISIL 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 utilisation 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 2019-20. Then came the COVID-19 pandemic and the sharp economic contraction.

In the first quarter of fiscal 2020-21, fleet utilisation rates plunged with most consumption and demand centres locked down. A sequential recovery was visible with a gradual reopening of the economy over the next three quarters.

Amid all this, freight demand recovery was sporadic across segments; FMCG/FMCD 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.

In such scenarios, transporters, logistics service providers, original equipment manufacturers and financers need to know the predicament of freight users, taxonomised by sectors, routes, applications and platforms.

CRISIL, which has been tracking freight rates and operator cash flows (pre-EMI) across 32 key routes in India on a bi-monthly basis since October 2020, will now deliver the data signals every month.

FreightSigns has found that consumer essentials like agri-products and FMCG/FMCD are the most resilient and stable segments driving the trucking industry, even in the current context. In fact, many large fleet operators 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, utilisation 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.

Fibre2Fashion News Desk (DS)

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