Ris­ing truck rentals out­pace fuel price hike, but for how long?

Mint Asia ST - - Mark To Market -

The

con­tin­u­ous rise in crude oil prices along with the de­pre­ci­at­ing ru­pee is send­ing shivers down the Street.

But, it is yet to dampen sentiment among truck op­er­a­tors as they have been com­fort­ably pass­ing on the hike in diesel price to the end user, through higher truck rentals (freight rate).

A re­port by In­dian Foun­da­tion of Trans­port Re­search and Train­ing in­di­cates that freight rates over the nine months till Septem­ber-end out­paced that of diesel on ar­te­rial routes by a wide mar­gin.

True, a ris­ing trend in freight rates is a proxy for im­prov­ing eco­nomic ac­tiv­ity and mir­rors healthy move­ment of goods. Nor­mally, ac­tiv­ity stalls dur­ing heavy mon­soon rains.

But this time around, a steady flow of fruits, veg­eta­bles, agri-pro­duce along with con­stant de­ploy­ment of trucks for in­fra­struc­ture and con­struc­tion ac­tiv­ity have kept the rentals high.

Cargo from factory gates too was 10-15% higher dur­ing Septem­ber when com­pared with the re­cent past.

How­ever, there are rea­sons be­yond mere cargo car­riage that sup­port high truck rentals this time.

About three-fourths of the con­tracts are now fixed through trans­porta­tion agents, lo­gis­tics ser­vice providers and factory unions, with pass-through clause for cost hikes. This has made it easy to pass on higher fuel and oper­at­ing costs to the end user.

One can also at­tribute in­creased move­ment of goods to the growth of e-com­merce too. An­a­lysts say that healthy growth in ex­port-im­port trade has also given a leg- up to rentals, in the last few months.

Mean­while, the strict im­ple­men­ta­tion of over­load­ing norms across states is steadily im­prov­ing fleet uti­liza­tion and the de­ploy­ment of more trucks.

In turn, it sup­ports rentals and truck sales, which have been grow­ing faster than all other ve­hi­cle cat­e­gories for sev­eral quar­ters.

All the above-men­tioned fac­tors sup­port de­mand for trucks, which in turn sup­ports high rentals.

Apart from diesel prices, other costs have been ris­ing too, such as in­surance, labour and in­ter­est rates. And fleet op­er­a­tors have been smoothly pass­ing on these costs too.

But how long can rentals out­pace fuel cost hikes? Some an­a­lysts say that the im­pact of ris­ing costs of­ten hits the com­mer­cial ve­hi­cle sec­tor with a lag.

Right now, there is the fes­tive sea­son when move­ment of goods peaks in the coun­try. One needs to watch if rentals will hold out to beat cost pres­sures, there­after.

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