Post Date : June 1, 2021
Logistics and transport companies —who have been working day and night to keep the supply of essentials moving across the nation— have been pushed to the edge by the lockdown curbs and the ever-increasing fuel price.
Rising fuel prices is posing a challenge for transporters to maintain their operations at the same rates, forcing them to look at raising the price of their services to retain margins.
Usually, fuel prices contribute to 40-60% of the operational cost for any individual transporter or transport company. Increasing the fuel rates is leading to an increase of 10-20% in the overall operation costs of firms.
Harsh Vaidya, Founder, and CEO of WareIQ says that the volatility of fuel prices has kept the industry on its toes.
“Rising fuel prices typically force businesses in the logistics industry to either raise prices or suffer a financial loss. If the prices continue to increase, the trucking companies, couriers, and packaging material providers will have no option but to increase the cost of their services as well”, he shares.
The auto fuel prices have been hiked 14 times so far in May, touching a record high on May 27, when petrol rose by 24 paise per litre while diesel surged 29 paise in the national capital. The Petrol prices have already crossed the INR 100-mark in several cities in the country.
This will have an impact on logistics. The Indian road transport sector carries goods worth $150 billion a year, which means about $12 billion of business, is done per month. The truck fleet utilisation had peaked at 85 percent in March, which was better than the pre-COVID levels but has now dropped to 70 percent.
Till now transporters have been absorbing the cost but the increasing fuel rates have impacted their operational efficiency, leading to this drop in fleet utilisation. Many truckers will also be forced to shut operations if the situation does not improve and they will also be hard-pressed to pay back their EMIs.
To keep moving and delivering the right services, transporters now see transferring some part of the cost to customers as their only solution.
T.A. Krishnan, Co-founder, and CEO, Ecom Express shares, “We have been absorbing the cost to the extent possible, however, if the prices do not go back, and for us to deliver the right levels of service, some part of the costs will have to be transferred to the customers”.
According to the couriers, prices may increase by 8-10% if the situation persists and a further increase in fuel rate is witnessed.
Transporters have been trying to address the situation without pushing the cost upon the customers, and they have been taking up the issue of increased fuel price with the government and stopping the fuel rates from denting the negative margins.
With the difficulty of managing the working cost at the contacted price given to the shipper at hand, transporters are also demanding price increase from their end. Tusker’s Deputy General Manager, Vikram Hadagali said that an 18-20% minimum rise in the operational costs is expected to cover the additional burden that has been put on the transporters by the increasing fuel rates.
Along with the increased fuel price, the lack of workforce and impact on manufacturing by the curfew-like curbs has also been affecting the operation efficiency and increasing the overall cost. Companies are forced to work with zero or minimum margins.
Many transporters have already increased their service prices owing to the same.
Moving forward, if the fuel rates do not go back to normal, all the transporters and logistics operators will be pushed into raising their prices to maintain their operational efficiency.