Post Date : July 14, 2021
Soaring fuel prices have pushed the trucking industry on the verge of disaster and hence, it is severely impacting the financial well-being of the trucking industry. With the upsurge in diesel price, more than 50,000 single-truck owners are likely to go off with their businesses.
Not only this, even the vehicle supply is higher than the requirement on the road which makes the matters worse even more. It will most certainly prompt fleet owners to bring down the fleet size considerably leaving the small-time single-truck owner in a lurch.
Single-truck owners are generally more vulnerable to hikes as they rely on big trucking companies for businesses. They act as suppliers to fleet owners who outsource their business to these small players for better network and deeper penetration in the region.
It is estimated that fuel cost accounts for more than 50% of the total cost of operations, therefore, it threatens to eat up margins big-time besides making the going tough. On top of it, some firms are bound by contracts for the fuel supply, under which they can’t pass on nearly 80% of the hike to the customers. It makes the whole business unviable.
However, some small fleet operators are also taking advantage of the hikes. Small transporters that follow the spot prices have been increasing prices in tandem with the changes in fuel prices. The quantum of increase taken by these operators is higher than the actual increase in the fuel prices. If fuel prices have gone up by 4% in a month, the rates of small transporters have gone up 6%. They have been taking advantage of the fuel price hike and surge in demand.
With petrol and diesel prices continuously on a rise coupled with a consistent rise in fuel prices to their record highs, domestic freight costs have nowhere to go but northward.
Meanwhile, the temperature-controlled truck transportation industry looks all set to pass on the entire fuel price hike to its customers. In temperature-controlled industry, the demand is predominantly higher and outstrips the supply, therefore, such a spike doesn’t have bearing on the business as much.
Having said that, the government’s move to hike fuel prices is in opposition to its goal of lowering logistics costs across the country to a single digit of the total cost of production.
Diesel price hike has always been there in the past; however, in the present time it is unprecedented. The government is viewing petro products not as a tool of healthy logistics but as a source of revenue only. Such blind milking is causing a great harm to the road transport industry. The transporters have no means to adjust their fright on daily basis along with daily fluctuating fuel prices. As a result the profitability of truck owners and transporters have eroded to a great extent. Business has become unviable for them.”~ Mahendra Arya, President, All India Transporters Welfare Association (AITWA)
He further opined “I would suggest government to chalk out a quarterly increase formula. It can absorb all effects of increased costs on crude in the next quarter by increasing or decreasing the rates. This will give some respite to transporters even without reducing the rates.”
High operational cost and fuel costs both are adding to the woes of logistics and transport companies, eating up margins, counter-intuitive to the government’s goals of bringing down logistic costs from 13-15% to 8%. If the fuel costs continue to remain elevated, a corresponding increase in product delivery costs will become imperative, eventually bringing about a domino effect, resulting in higher inflation.
Logistics, in particular, is among the first and most affected sectors so far. There are already talks of transporters seeking a hike in freight costs by 10-15 %, and small contractors and supply chain companies are already re-evaluating long term contracts.