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Business News/ News / India/  Diesel price cut, moderation in goods transport after pre-festive rush soften freight rates
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Diesel price cut, moderation in goods transport after pre-festive rush soften freight rates

Discretionary goods such as automobiles and textiles saw the highest correction in freight rates, about 10%, because dispatches have been under pressure

The CRISFrex Index dropped to 114 in November from 122 in October. (File Photo)Premium
The CRISFrex Index dropped to 114 in November from 122 in October. (File Photo)

MUMBAI: India's freight rates dropped sequentially in November, following the cut in taxes on diesel and slower goods haulage during the month, Crisil said on Friday. 

In its research report on freight activities, the ratings agency said the quantum of freight moved was flat-to-negative in the month just gone by after the pre-festive buzz in October.

Discretionary goods such as automobiles and textiles saw the highest correction in freight rates, about 10%, because dispatches have been under pressure, Crisil said.

Industrials such as mining products (coal, iron ore, limestone), cement and steel witnessed a slight moderation in freight rates relative to the diesel price cut.

Slack demand for mining/construction aggregates, cement and steel haulage reflected in the lack of interest among transporters to buy new tippers and high-tonnage tractor-trailers typically used in these segments.

As a result, the CRISFrex Index dropped to 114 in November from 122 in October, said the ratings agency.

But the month-on-month decline in margins has been relatively less because FCF (pre-EMI), as assessed by CRISIL Research, is estimated at 15% of the freight earnings compared with 17% in October. The margins, nevertheless, remain slightly above August levels.

In early November, the Union government announced a 10 per litre cut in central excise on diesel, which was followed by some states cutting VAT (value added tax) on the fuel.

While this may seem to augur well for the profitability of transporters, the freight industry is dynamic and competitive, so demand-supply also plays a material role in freight rates.

The excise duty cut translates to a 3-5% reduction in the cost structure of a transporter. Add the lowering of VAT, and the reduction will be 4-6%.

As per FreightSigns, consumer essentials such as agri- products and FMCG/FMCD are the most resilient and stable segments driving the trucking industry, even in the current context. This was seen in November also, when haulage of FMCG/FMCD saw the lowest correction among all the commodity types tracked by FreightSigns.

CRISIL analysed views of 100-150 transporters to understand freight dynamics and operational aspects such as the number of trips made and the cost heads (fuel, driver, toll, tyre and maintenance).

The exercise was conducted on a closed sample of 159 route-commodity combinations spanning 32 routes, 11 commodity types, and five truck platforms with differing load bodies. 

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Published: 03 Dec 2021, 01:49 PM IST
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