Mounting freight costs worry automakers in India

freight costs

Escalating freight costs pose fresh problems to automakers as they start to reopen factories after a two-month halt due to the nationwide lockdown.

Truck fleet operators are charging a premium of 30-40% for transporting finished vehicles, parts as well as raw materials across routes connecting industrial zones and ports, shared five industry officials.

“The cost of transporting goods is very high right now as transporters are charging premium freight. They say that they are offering more salaries to the truck drivers to get them back to work but drivers remain insecure about job stability and health risks.”

~Rakesh Sharma, Executive Director, Bajaj Auto Ltd

He said Bajaj Auto’s plan to ramp up production from June to 75% of capacity across its facilities hinges on the availability of trucks to procure components and transport finished vehicles, besides the demand scenario.

A hefty increase in transportation costs will impact the cost of producing vehicles. This may force automakers to pass on the additional costs to customers through higher vehicle prices. Companies may also decide to absorb the increased costs, given the weak covid-19-induced demand scenario, which would then hurt their profit margins.

The shortage of truck drivers is part of a larger problem of labour shortage, which has started mushrooming in the automotive manufacturing.

S.P. Singh, senior fellow at the Indian Foundation of Transport Research and Training (IFTRT) however termed the shortage of truck drivers a temporary problem.

Singh said fleet operators are charging more because there is insufficient load for their return journeys.

“One way load rentals are up by 25-30% as truckers are not sure of full truck load on their return journey,” Singh said, adding that truck drivers have started to return to work over the past two weeks.

According to Singh, one-way freight charges for an 18-ton payload multi-axle truck would be INR 75,000 between Delhi–Mumbai.

Singh estimates that only 30-35% of the entire fleet of 5.2 million trucks in India has been operational in May.

“Although the rentals are more currently, the bigger underlying issue is of demand because there are thousands of trucks standing idle,” Singh added.

The Nationwide lockdown have halted all economic activity and shuttered the auto sector as many auto players reported zero sales in April registering a year-on-year de-growth of 100%.

Source: LiveMint

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