Truck rentals rise despite diesel price cut in October

By: | Published: November 8, 2018 12:20 AM

Truck rentals, for instance, on the Delhi-Mumbai-Delhi trunk route have increased by 13% to Rs 97,500 in the last two months (August 2 to November 2) while the variation in diesel prices for the same period has been Rs 5.71.

Truck rentals rise despite diesel price cut in October

Despite the reduction in diesel prices by around Rs 2 per litre in the second half of October 2018, truck rentals for the month across the country’s trunk routes increased by 1.1% over the rates in September, according to Indian Foundation of Transport Research and Training (IFTRT), the apex body which tracks the truck industry.

“Led by various factors, the truck rentals have remained quite volatile and contrary to the normal expectation of open freight market despite fall in international crude price leading to partial cut in diesel price as peak festival demand, kharif food item procurement and demand for truck fleet from rural economy, truck rentals have remained firm and range bound by sustaining the 5-6% hike in truck rentals during September 2018 and have only increased further in October 2018,” IFTRT pointed out.

Truck rentals, for instance, on the Delhi-Mumbai-Delhi trunk route have increased by 13% to Rs 97,500 in the last two months (August 2 to November 2) while the variation in diesel prices for the same period has been Rs 5.71. This is also true for routes such as Delhi-Bengaluru and Delhi-Kolkata.

Analysts with Kotak Institutional Equities believe that an increase in freight rates can be considered as an indicator of a broad-based growth in economic activity in times of stable inter-modal mix given limited barriers to adding supply. “What is more revealing is a continuation of such hardening of rates in the seasonally weak current quarter, with the change more than compensating for the increase in fuel price,” analysts at Kotak noted in a recent report.

However, according to Jacob KK, vice-president operations, Patel Roadways, “This is a very unorganised market with no fixed rule on freight rates. While diesel prices contribute around 40-45% of the cost of operations, demand contributes 10-15% of the increase in freight rates. In the months of August and September, while there hasn’t been any major shift in demand, the increase in freight rates came mostly from diesel prices constantly shooting up. Moreover, during the festive season, freight rates rise anyway due to high demand.”

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