Long plagued by the freight rates, transporters experience a moment of relief as monsoon withdrawal, recovery in consumption and a pick-up in infrastructure activity in the month of October lead to a sequential recovery in the Indian freight rates, says a report by S&P Global-owned company CRISIL Research.
While the recovery in freight rates was a positive sign, the overall profitability of transporters remained below those levels seen in the closing quarter of the last fiscal year due to high diesel prices, the research company added.
As per the report, the recovery has been largely broad-based with most route-and-commodity combinations experiencing an uptick in freight rates.
In October 2021, about 80% to 85% of these combinations saw an improvement in freight rates compared with August 2021, while about 15% to 20% were unable to pass on the rise in diesel price due to demand-supply considerations.
After the rough terrain over the past two to three years, the domestic road freight transportation industry has run into more speed-breakers.
In the fiscal year 2019, the impact of axle load norms caused a noticeable drop in fleet usage levels, while the BS-VI norms introduced by the Indian government to control pollutants emitted by vehicles and bring the country on par with EU and US standards led to a 10% to 15% increase in the prices of new trucks in 2020.
Then came the Covid-19 pandemic and the sharp economic contraction, CRISIL Research added.
As per the reports, freight rates for haulage of industrial materials, such as cement, have been relatively firm. The movement of consumption-related goods, such as fast-moving consumer goods (FMCG) and fast-moving consumer durables (FMCD), and agri-products have been relatively firm as well.
Further, the study added that the applications such as textiles (especially readymade garments) have been struggling because demand may take another few months to revive to pre-pandemic levels.
Fleet usage rates
A plunge in fleet usage rates was seen in the first quarter of the fiscal year 2021, as most consumption and demand centers were locked down. However, the study reveals that 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; both FMCG and FMCD recovered faster than discretionary segments such as readymade garments and textiles, as well as other consumer durables.
Even within states, recovery varied based on the pandemic caseload and unlocking levels.
CRISIL Research added that in such scenarios, transporters, logistics service providers, original equipment manufacturers, and financiers need to know the predicament of freight users, taxonomized by sectors, routes, applications, and platforms.