Diesel prices cut, truck sales up, yet no drop in freight rates

Diesel prices have reduced by almost Rs 6 per litre in the last 30 days…

Diesel prices have reduced by almost Rs 6 per litre in the last 30 days and heavy truck sales have been on the rise, but truck rentals are yet to see any drop, a report from independent transport research agency IFTRT says. This is likely to prove a major challenge for  the Modi government looking to battle high inflation, because unless transport costs reduce, prices of all food and non-food items are unlikely to see any moderation.

“Contrary to the estimates of expected 3-4% reduction in truck rentals on trunk routes, the freight charges remained firm and unchanged during October 2014 on the back of increased despatches to APMCs of fruits and vegetables and brisk flow of cargo from manufacturing sector on account of strong spending by consumers due to peak festival season and short supply of trucks in the last 7-10 days of October due to Diwali and ‘Chhat Puja’ festivals,” the report from the Indian Foundation of Transport Research and Training (IFTRT) said.

Taking a cue from falling global oil prices, the central government on October 18 announced a Rs 3.37/litre cut in diesel prices – down from a historic high of Rs 58.97/litre. It also de-regulated diesel prices, a practice alreadty done for petrol prices back in June 2012. A further cut of Rs 2.25/litre to diesel prices was made on October 31st.

Low supply of trucks and high demand for goods movement is said to be the major reason why freight rates have not dropped. About 10-15% National Permit truck fleet is said to have been diverted to the Kharif Crop procurement of paddy, cotton, pulses, oil seeds and other cereal items on intra-State local movement in various States.

“The average 25-30% drop in truck sales in last 6-8 quarters has reduced the truck fleet on National Permit Circuit and at the local truck operation on intra-State movement the 17-20 years old trucks numbering 75,000 – 1,00,000 have been diverted voluntarily by truckers to the scrappage market as these vehicles were unviable and required extensive regular maintenance. Thus, in last two years, despite weak economy, the truckers have survived due to shrinking national fleet,” the report said.

Heavy and medium truck sales, which have dropped by 40% in the last two years, have been rising in the past few months. In September, they grew 23% YoY to 19,035 units.

Interestingly, IFTRT said that in case of contractual transport business, the transport firms have reduced freight charges reflecting the cut in diesel price as in each contract there exists escalation / de-escalation clause. The transport contracts constitute around 25% of the freight transport business in the country.

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