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High diesel prices to impact margins of freight operators: Crisil

NEW DELHI :

Despite a recovery in freight rates due to withdrawal of monsoons, recovery in consumption and a pickup in infrastructure-related activities, the overall profitability of freight and logistic companies remained below levels seen during October last year due to rising diesel prices, rating agency Crisil Ltd said in a report on Monday. 

“The recovery has been broad-based, with most route commodity combinations seeing an increase in freight rates. In October 2021, about 80-85% of the combinations saw an

improvement in freight rates over August 2021, while about 15- 20% were unable to pass on the diesel price hikes due to demand-supply considerations,” the report said. 

“Freight rates for haulage of industrials such as cement have been relatively firm.

Movement of consumption-related goods such as FMCG/FMCD (Fast Moving Consumer Goods/Fast Moving Consumer Durables) and agri-products has been relatively firm as well,” the report said adding that applications such as textiles (especially readymade garments) have been struggling as demand may take another few months to revive to pre-pandemic levels.

A copy of the report titled ‘FreightSigns: What is the goods traffic, and the free cash flow of fleet operators, telling us?’ has been reviewed by Mint.

Brent crude price have rose to $83 a barrel on 9 November from $42 a barrel a year ago as prices firmed up due to improved demand. 

The report said that the domestic road freight transportation industry ran into many speed-breakers during the last two to three years. 

“The axle load norms caused a discernible drop in fleet utilisation levels in fiscal 2019, while the BS-VI norms led to a 10-15% increase in the prices of new trucks in fiscal 2020.

Then came the Covid-19 pandemic and the sharp economic contraction,” the report said. 

“By the third quarter of fiscal 2021, freight rates for cement, steel and auto-carriers had materially improved. The first two segments benefited from the government’s infra push, while increase in demand for passenger vehicles fuelled by preference for personal mobility boosted auto-carriers,” it added. 

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