Diesel price hike: Freight charges likely to go up 2-3% further

The latest diesel price hike may lead to truck rentals going up further at least by 2-3%, as fleet owners are facing increased input costs, forcing them to pass on the hike to their customers. Unlike in the earlier occasions of diesel price hike, this time around, fleet owners are facing much heat with vehicle prices going up from April 1, coupled with third party insurance costs rising further and toll rates witnessing another round of increase.

“All the input costs have gone up, now there is no reason to believe that rentals will not increase further. I think truck rentals may go up by 2 to 3%,” SP Singh, senior fellow & co-ordinator, Indian Foundation of Transport Research and Training (IFTRT), told FE.

Crisil Research, in its latest report, said from here, an increase in diesel price by Rs 5 per litre would push up freight rates by 2-3%. Considering the government’s investment plans and borrowing plan for the first half of the year, the increase in diesel price could be passed on to sectors such as steel and cement. The consumption sectors such as fast moving consumer goods/durables and textiles, however, would find it difficult to pass on the incremental cost to end-consumers, it said.

Singh, however, said that truck rentals have already overheated and are more than the cost escalation faced by the fleet owner. This is because between November 4, 2021 and March 22, 2022, there was a total lull in terms of diesel price hike due to elections and other external factors. However, there was an increase of 10-12 % in truck rentals during the period of lull.

“And from March 22 till April 4, the total diesel price increase has been at Rs 6. 30 and during this period truck rentals have gone up by 4-5%, as well,” he said.

The harvest season for fruit, vegetables and wheat have begun earlier than normal period because of the prevailing heat wave conditions. This is adding to the vehicle demand in the mandis. The fleet utilisation currently was at 80-85% and was at its best, he added.

All India Transporters Welfare Association (AITWA) joint secretary Abhishek Gupta told FE that while diesel price hikes are back-breaking, passing of the hike was not possible immediately and takes time. Margins are under tremendous pressure and uncertainty about future increases is a looming worry for the sector. Truck plying due to year-end was high in March but in April it is seen cooling off.

He said that on a Mumbai-Delhi round trip for every Rs 0.8 increase the cost increase is around Rs 1,000-1,500. With the repeated increases, the cost has increased by nearly 10% already and fares in spot markets have gone up. However, in contractual and other arrangements, it will be done now, but not retrospectively, he said, adding that, a toll hike of 15% has also been done with effect from April 1 which is going to increase operation cost.

IFTRT, in its latest report, said the international brent crude oil price touching $ 112/bbl has ultimately forced the public sector oil companies to their daily dose of hiking the fuel price by around 8 paisa/litre since since March 22, 2022, leading to accumulative increase by March 31, 2022 up to Rs 5.70/ litre for diesel.

On the back of heavy demand of tuck fleet on trunk routes due to beginning of summer crop harvest with increased arrival of food items by 20-25% and the peaked up despatches from factory gates at the end the fiscal have cumulatively led to 4% to 5% increase in truck rentals in last 8-9 days of March 2022.  The export-import trade too has touched its best performance and as such has added to strong truck freight market, it said.