1. Even as freight rates fall 7 pct, here is how Narendra Modi infra spend set to boost fleet operators business

Even as freight rates fall 7 pct, here is how Narendra Modi infra spend set to boost fleet operators business

The fall in freight rates was despite almost a fourth of the truck drivers being on Diwali vacation, which saw a smaller truck fleet ferrying cargo in the second half of October.

By: | Mumbai | Published: November 3, 2017 4:28 AM
Freight rates, demonetisation, freight rates fall, peak festive demand  Freight rates were down by a sharp 7-8% in October as peak festive demand in the country tapered off in the second half of the month.

Freight rates were down by a sharp 7-8% in October as peak festive demand in the country tapered off in the second half of the month. Rates went back to the pre-festive season levels as business for fleet operators continues to be on the slow lane as it was after demonetisation and the implementation of the goods and services tax. At the start of October, freight rates had gone up by a staggering 11-12% due to the onset of the festival season in the country. In the second half of October, customer spending declined and a 20-25% drop was witnessed in movement of fruits and vegetables to APMC (Agriculture Produce Market Committee) markets, according to SP Singh, senior fellow, Indian Foundation of Transport Research and Training (IFTRT). The fall in freight rates was despite almost a fourth of the truck drivers being on Diwali vacation, which saw a smaller truck fleet ferrying cargo in the second half of October. Singh feels that freight rates returning to pre-festive levels will likely result in a slump in heavy truck retail sales, going ahead. He said, “Although there is a demand from people wishing to replace their existing fleet, no fleet operators are adding additional trucks to their fleet due to lack of business”.

However, rating agency ICRA says that the sales will regain momentum aided by increased thrust on infrastructure and rural sectors in the last Budget, the potential implementation of fleet modernisation and higher demand from consumption-driven sectors and e-commerce logistic service providers. Subrata Ray, senior group vice-president, corporate sector ratings, ICRA said, “Post-GST, many underlying economic indicators have started showing initial signs of stabilisation. Besides uptick in IIP and core industries, many of the other freight-generating sectors, such as steel, automobiles, port traffic are growing at a healthy pace. There has also been considerable improvement in cargo managed by railways during the same period. Given these considerations, ICRA expects the domestic CV industry to register a growth of 6-7% in financial year 2018.”

While wholesale volumes for medium and heavy commercial vehicle (M&HCV) makers rose by 25% year-on-year in September, sale of M&HCVs was mixed in the month of October, mainly due to an inventory build-up in October and a high base. Binaifer Jehani, director, Crisil Research said, “Inventory build-up seen in October 2017 was about 2-3 days over normal inventories during September 2017. Inventory levels are expected to correct marginally in November and December 2017, which is a good time to correct inventory owing to lower base last year (demonetisation effect).”

In October, while Tata Motors reported an 8% growth at 11,391 units in October y-o-y in its M&HCV wholesale volumes, Ashok Leyland said its M&HCV sales declined by 5% to 9,110 units. According to analysts at Nomura, the replacement demand is coming from key states like Haryana, Rajasthan, Uttar Pradesh and Delhi that have imposed strict restrictions against overloading of trucks. This has resulted in fleet operators replacing their trucks for bigger ones to avoid overloading. They added, “The Indian government has recently increased its focus on road-building, with FY18-20 estimates spending almost double of FY15-17. This could provide further potential upside to our already ahead-of-consensus estimates of 15% growth for M&HCVs in FY19.”

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