The Center recently cut down excise duty on diesel by INR 10 per litre over the last month and a few states followed suit by reducing taxes on the commercially preferred fuel. Along with a moderation in goods movement, this concluded in a decline in cost of road transport during the month of November. Transporters also signal for a further dip in the fuel prices in the month of December. Higher fuel prices meant higher cost of good, which eventually was being borne by the consumers.
As per a CRISIL research, 70-75% of the 159 goods and route combinations reviewed underwent decline in freight rates, while others remained constant.However, this did not bring much relief to the transporters as the margin levels did not increase. In fact, free cash flows generated by transporters reduced from 17% to 15% of revenue in the month of October, while a higher degree of free cash flows would have supported higher demand for commercial vehicles. The rate correction was the lowest for the fast-moving consumer goods (FMCG) sector owing to high demand, but it was proportionately higher than the cut in diesel prices in segments like automobiles, textiles, cement and steel.
In December rates will go down further,” says Sachin Haritash, Director at Chetak Logistics
It has been predicted that even though cost of freight will reduce for smaller players in the open transport market, large fleet owners in the organized market will gain extra protection with their long term contracts. Freight rates for essentials such as FMCG remained relatively ‘resilient’ in November. There was also a decline in movement of freight in November due to slower industrial activity.