Road freight rates to cool off 10-12% following diesel price cut: IFTRT

Freight rates on key trunk routes are expected to come down by 10-12 per cent in the next few days following the cut in diesel prices, according to the Indian Foundation of Transport Research and Training (IFTRT).

The prices of fruit, vegetables, and other consumables are expected to reduce, offering a relief to consumers.

“Freight rates are expected to come down 10-12 per cent in the next few days,” said S P Singh, senior fellow at the IFTRT, a New Delhi-based think-tank. He attributed it to the fall in diesel prices and an expected drop in value-added tax (VAT) rates by state governments.

In Delhi for instance, diesel price is down by Rs 12 including the reduction in VAT. In some states the reduction is Rs 14, said Singh.

The expected fall in truck rentals will be the first in five months. After plunging 23-27 per cent in April and May owing to the pandemic, rentals have been rising since June.

Petrol prices on Thursday were cut in the range of Rs 5.7-6.35 per litre across the country and diesel rates by Rs 11.16-12.88 following the excite cut.

With the high tide of the festive season ending with Diwali, the freight volumes started reducing in October-end. So the additional demand of 30-35 per cent, which came up due to the festivals, has dried up. The combined effect of reduction in cargo availability and drop in excise and VAT will drag down freight rates by at least 12 per cent. It can go up to 14-15 per cent by month-end, Singh said.

Since states charge VAT not just on the base price but also on the excise duty the Centre levies, the incidence of price reduction is higher. The reduction was larger in states with a higher VAT.

Truck operators running on medium and long routes had taken an average price hike of 10-12 per cent during in October. The hike was more than double the increase in diesel prices due to the high utilisation of 80-85 per cent on key trunk routes, according to the IFTRT. It was fuelled by festive season demand and a 25 per cent increase in factory dispatches.

However, some sector watchers said the cut in diesel prices alone might not reduce freight rates. The forces of demand and supply will be the key determinant.

“We will have to wait and watch as not only has the Centre reduced excise but several states have reduced VAT too,” said Hemal Thakkar, director, CRISIL.

Initially freight rates did not increase in the same proportion as diesel prices, so there were chances of freight rates further increasing as demand was buoyant, he said.

“The gap between freight and diesel prices will be determined by demand-supply dynamics, which will find a balance in the coming days,” said Thakkar.  

Bal Malkit Singh, former president of the All India Motor Transport Congress, said: “We welcome the move and are requesting the state governments to reduce VAT.”

Diesel prices and other costs, including tyre prices, have gone up drastically, hitting the transporters’ viability, he said, adding, he was not sure if the demand would hold up even after the festivals.

Sachin Haritash, founder and chief executive officer, Mavyn, a digital trucking platform, said the transport industry would respond to the diesel price reduction with immediate effect, which, in turn, will reduce the prices of perishable goods like fruit, vegetables, poultry, and dairy products.

“We expect both contract and spot prices to cool. Most importantly, it would bring back truck operators who have been off the road due to high fuel prices,” said Haritash.

Mavyn has close to 4,000 trucks on its platform.