Exorbitant hike in fuel prices obstructing the revival of the transport sector

Rising fuel prices stand in the way of revival of the trucking industry
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With lockdown restrictions, vehicular lock jam and large scale exodus of migrant workers to their homes, the road transport sector has certainly dodged many bullets and yet rendered exceptional efforts in maintaining seamless supply chain operations in the country. However, all is not well for the sector as it battles dip in demand amidst sky-rocketing fuel prices. We explore the present situation of the road transport sector and what remains to be done to place it back on its tracks.

One of the most promising sectors of the economy, the Road Transport Sector – the lifeline of the country, has survived against all odds in order to render essential services even in such dire circumstances; with restrictions surfacing from the imposed lockdown in the country. It is worthy of being touted as the ‘Backbone of the economy” as it has defied every hurdle and adversity into ensuring seamless operations and transport.

The road transport sector has done a commendable job of maintaining the essential supply chain of the country during the corona crisis against all adversities.

Also Read: Rising freight rates turns out to be the next biggest nightmare for shippers.

“More than 85% of the transporters are small operators having one to five trucks about 65% of them are self-employed, owner-drivers.  About 43% of Diesel consumption is by Transport Vehicles while 13 % is by Farmers and both are on the edge in present times.”, writes Mr Chirag Katira, Project Head for COVID-19, All India Motor Transport Congress.

But problems still lie galore for the sector due to deficiencies in the system. We explore the challenges plaguing the sector, below.

  1. Derailed economy: Amidst the lockdown, closure of economy has had a debilitating impact upon the entire road transport sector.  The sector is battling with dearth of demand in the market and as of now, about 65-70% of the vehicles are still off the roads.
  2. Another factor that has retarded the growth of the sector is heightened operating cost. There has been an exorbitant rise in operating costs with diesel price hike, Toll, Corruption and statutory financial obligations. Without return loads, the vehicles have come to a standstill in large numbers due to poor throughput.  This acute financial crisis is driving small operators out of business.
  3. Regular revision of fuel prices: “Daily revision of the Diesel price has become the worst nightmare of the road transport sector of India and is bleeding it to its imminent extinction”, writes Mr Katira.

Diesel price accounts for about 65% of the operating cost of a truck which is increasing spirally over since last 15 days. Small increments cannot be absorbed by the truckers and hence operations are becoming majorly loss-making. The daily fluctuations and variances in prices across the country could not be absorbed and have thus resulted in negative cash flow for the operators.  Mr Katira cites an example to drive home this point.  

“For example, if the vehicle is moving from Amritsar to Trivandrum, which is approx. 3284 km, with fixed freight paid to the trucker on per trip basis, the transit time is around 12 days during which the tank is refilled about 4 – 5 times. With Diesel prices increasing on a daily basis, the operating cost increase substantially but the same is not affected in the freight paid. As such, most of the operations result in losses,“ Mr Katira explained.

Thus, the revised rates of diesel have led to losses one after the another, due to the imbalance between the freight paid and the operating costs incurred. Another aspect regarding fuel that has created tension in the road transport sector is the differential pricing of fuel in different states. Due to the lack of uniform fuel prices, vehicles that are bound for different corners of the country, have to fill the tanks at a higher price of diesel than what they have quoted to their clients in their home states. This creates confusion and also leads to imbalance.

The growing spike in Petrol and Diesel prices has already led to havoc with uncontrollable inflationary forces impacting not only the road transport sector but the common man in general. This, in turn, leads to an all-round and back-breaking hike in the prices of other goods and services.

“The small operators are increasingly going bankrupt and it is highly likely that the trend of the closure of transport business will shoot exponentially in the near future resulting in a major loss of livelihood and disruption of the supply chain,” Mr Katira voices his concerns.

Apart from the increase in fuel prices, the dip in demand is also impeding the pace of the Road Sector. The vehicular lock jam arising due to large-scale exodus of migrant labourers had crippled the sector post-lockdown. Although a considerable chunk of the blue-collared workforce is back to work, the situation still seems bleak for the sector.

Mr Katira also says that the promises that the Government had made, with respect to ensuring employment to the workers, are nowhere near fruition. Thus, this has created an air of uncertainty, whereby even though workers are present, the dip in demand has rendered them jobless.

Mr Katira places three strong points of request which transporters want the government to consider:

  1. Hike of diesel price be rolled back at the earliest
  2.  Daily revision of diesel prices be discarded and Monthly/Quarterly Revision of Diesel Prices be instituted
  3. Uniform pricing of fuel across the country should be implemented in National and Road Transport Sector’s Interest.

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