November 6, 2020: Road freight rates are likely to remain firm in the foreseeable future as the nationwide lockdown and the consequent financial distress have taken a large number of trucks off the roads at a time when other sectors of the economy are seeing a revival.
At present, road freight rates are 15-25% higher than pre-COVID-19 levels, as per estimates from industry stakeholders.
The road transport sector accounts for 60% of the logistics mix in the country, with about 10 mln trucks plying on roads. Of these, 90% are operated by small fleet owners, who have one to five trucks.
“Lots of guys, even their 50% capacity have not hit the road…for the small players, it is not viable for them to run the business any more,” said Jyotheesh Kumar, chief executive officer, Decker Logistics Pvt Ltd. The working capital cycle for small fleet operators has taken a significant hit due to the pandemic, he added.
Disruption of working capital cycle aside, the sector is also staring at many small operators defaulting on loan repayments. In order to provide relief to borrowers during the pandemic, the Reserve Bank of India allowed banks to offer moratorium on loans for six months till Aug 31.
“Loan payments are big concern and this has compounded the problems for the small fleet owners,” said All India Transporters Welfare Association’s President Pradeep Singal.
“Delinquencies in EMIs have started and the distress, especially among the small fleet operators is real, (and) 25-30% of the pre-COVID supply will likely be off the roads,” said Anjani Mandal, co-founder and chief executive officer, 4Tigo, a business-to-business technology platform provider for truck fleet owners and logistics companies.
While lower supply is expected to keep freight rates 10-20% above pre-pandemic levels right into 2021, transport truck operators will also face increased competition from the railways, which has introduced a number of tariff concessions and discounts to make freight movement on railways more attractive.
Higher state and central levies have only added fuel to the fire. Despite a fall in crude oil prices, higher taxes on diesel since the beginning of the lockdown have resulted in significantly elevated retail prices.
Although some states later reduced the levies back to pre-COVID-19 levels, diesel prices are still higher than in early March. Currently, diesel prices in the four major metropolitan cities of Delhi, Mumbai, Kolkata, and Chennai are 9.6-14.1% higher than the levels on Mar 1.
The pandemic has dealt a significant blow to the truck transport industry, with disruption of working capital cycle applying the brakes to the movement of many trucks. At the same time, high diesel prices in India will add to costs for the country’s logistics chain, and this is likely to have an inflationary impact on the economy in the days to come.
Source: Cogencis
