Truck freight rates up by 4-5 per cent
In the month of September, freight rates on trunk routes saw an increase of four to five per cent on the back of strong cargo flow from agriculture and small and medium industry segments on the eve of the festival season.
According to The Indian Foundation of Transport Research and Training `2.98 (IFTRT), per litre hike in diesel price, 20-25 per cent increase in output of fruits, vegetables, pulses and other food items along with improved factory output by 10-15 per cent, especially from small and medium manufacturing units (SMEs) resulted in improved cargo offerings for trucking industry and consequently boosted the truck rentals by four to five per cent during September. Rental on the Delhi-MumbaiDelhi round-trip on a 15-tonne `89,350 payload truck stood at on October 1 when compared with `85,100
on September 2. The Delhi-Bangalore-Delhi round-trip saw a rise of four
`139,000 per cent to from `133,700
and the DelhiChennai-Delhi trip rental was up five per cent to `140,200 `133,500.
Thus, with improvements across categories, fleet utilisation level went up after a phase which saw truckers facing over supply issues. talks to the logistics service providers and truckers to know how is it going to affect the logistics players/CV players and how will supply chain and logistics managers face the increase in trucking rates?
OP Harshwal, CEO, V-Xpress, says, “Transport cost is the largest component and accounts for almost one-third of the overall logistics cost. In the current competitive environment, lower freight cost gives customers an edge over the competition. Any increase in freight is bound to directly impact the profit margins for customers who are generally reluctant to increase the freight rates and hence also impact the profitability for the logistics players. As the market is dynamic and evolving, every customer aims at optimising their supply chain and every logistics player looks at reducing their operational cost and provide best customer service. Customers will tend to consolidate their loads and try to move as much material as possible through Full Truck Loads (FTL) as against sundry loads. So, logistics players will see a shift from sundry loads moving into FTL loads.”
Anjani Mandal, Cofounder and CEO, 4TiGO urged for further rationalisation in freight rates in large number of routes, especially those originating from the South. “At current utilisation levels, they are still inadequate to cover costs and cost of finance. Improvement in their utilisation is entirely dependent on an upswing in demand from themselves. They can achieve this by venturing into under-served routes even if they are not familiar with such routes,” he adds.
According to Hari Om Prasad, Regional Head-Transportation, Haiko Logistics, it is affecting the project cost higher. Logistics players having contracts with the companies on annual, half annual basis is losing money due to increase in rate. During September, the loads from FMCGs increased due to festive season resulting higher demand of supply of trucks. Those who are working with these companies on adhoc basis will have no impact. However, consumer will pay higher rates for the goods.
R Jayakumar, Chairman, Jayem Logistics points two major factors directly associated with the increase or decrease of freight rates; one is diesel and other is demand. “Although the diesel prices have been fluctuating over the past few months, demand has also gone up because of festive seasons and big bang sale from E-commerce companies. Lot of demand has been generated by SMEs and logistics companies will have good time in terms of their revenue but operational inefficiencies will add to customer woes. Trunk routes like Delhi – Mumbai/Delhi – Chennai/ Delhi – Bangalore/Chennai – Bangalore and vice versa will witness lot of movement. CV players must match the demand and gear up their supplies. GST will play a very big role in capacity enhancement of CV players, hence the lot of thrust will be on supply of HMV/LMVs,” he adds.
Ajay Khosla, DGM (Delhi & Uttarakhand), Jaipur Golden Transport Company, says, “In last four years, only the prices of fuel have increased more than 10 times and still increasing. The increase in fuel cost makes transportation cost higher which affect directly and indirectly to the rest of the economy because all the production need to be transport to different channels to reach ultimately end consumer.”
“It will erode the margins further for transportation companies in case they have agreed on a fixed long term rate contracts. Even when they are not committed it is not easy to get equivalent increases from the users and squeezes the overall margins in the business,” notes Aditya Gupta, Head - 3PLS Business Development, DIESL.
“Fuel cost is the focal element of the overall transportation cost and these recent hikes affected all modes of transportation (Road/ Air/Train) but this impact utmost to the road transportation only as this sector demand highest fuel based energy. These all-time high fuel prices adding significant cost to truck owners cannot be compensate through fuel surcharge only. Thus, these are calculated based on loaded mile as other than dedicated contract movements all carrier must run empty when unload one shipment and move to pick another one,” Khosla adds.
Gagan Klaire, Director, Majha Transport, shares, “Being a trucker, we welcome an increase in freight rates, which have been long overdue. Although the increase seems to be more because of
Every customer aims at optimising their supply chain and every logistics player looks at reducing their operational cost and provide best customer service At current utilisation levels, it is still inadequate to cover costs and cost of finance. Improvement in utilisation is dependent on an upswing in demand Logistics players having contracts with the companies on annual, half annual basis is losing money due to increase in rate Lot of demand has been generated by SMEs and logistics companies will have good time in terms of their revenue but operational inefficiencies add to customer woes
the festive season around, and historically month September has always seen an upward increase in freights. However, in some lanes like Delhi-Mumbai the freight has only increased, whereas there has been no increase the other way around.”
“On a larger picture, the freight increase is indication of correction in demand-supply of trucks. There has been an abnormal increase of fleet over the last few years. The last 10 months have been corrected by negative addition on fleet, immense drop in trucker’s revenue, fall in demand in industrial and infrastructure sectors, NGT implication of 10 years’ registration of fleet has led to a good number of scarping of old fleet around NCR (which is a home for majority of the fleet registration),” he adds.
What influences the increase?
If one see the entire supply chain value, there are many elements which can any time add up to the freight rate. Harshwal listed the following points for the increase: • Rising fuel prices is the primary and direct reason for freight rate increase. The diesel prices have gone up to 20 per cent as compared to last year, which is also because we have seen crude prices gradually rise over the past several months. • Increase in the toll taxes (which is the second highest cost component of the freight charges) along the highways. Purchase of new trucks by vendors have also lead to increase in freight as they must recover the cost of the vehicle.
According to Mandal, it is a consequence in part due to supply vs demand mismatch for the route and partly because an increase in fuel and manpower costs. However, there are correspondingly, an equivalent number of routes where the prices are going down.
“Rather than stating, ‘keeping the rates low’, business owners must understand that cost increases will come. They may rather take the other means of transportation. Railway may be an option. They may hire the alternative vehicles with proper packaging of the material,” informs Prasad. Sharing the trucker’s perspective, Klaire says, “As most of the 3PL and big companies have enjoyed the drop-in trucker freight rates over past few years accordingly they should be gearing themselves for quantum leaps in freight rates over the next few years.”
The increase in fuel cost makes transportation cost higher which affect directly and indirectly to the rest of the economy transport These all-time high fuel prices adding significant cost to truck owners cannot be compensate through fuel surcharge only We welcome an increase in freight rates. The increase seems to be more because of the festive season, which is always seen an upward increase in freights
OP Harshwal CEO V-Xpress
Anjani Mandal Co-founder and CEO 4TiGO
Hari Om Prasad Regional Head-Transportation Haiko Logistics
R Jayakumar Chairman Jayem Logistics
Gagan Klaire Director Majha Transport
Aditya Gupta Head - 3PLS Business Development DIESL
Ajay Khosla DGM (Delhi & Uttarakhand) Jaipur Golden Transport Company