The pandemic has left the lifeline of India’s cargo movement battling a triple whammy.
As the nation limps out of the world’s strictest lockdown, transporters are struggling to find enough load to get trucks back on road. There aren’t enough drivers as they returned home in the nation’s biggest migration since the partition. Now, higher fuel prices and increased toll is making business unviable.
“It is hard to find enough freight for the existing fleet and make money at the same time,” Ashish Terkriwal, who counts Relaxo Footwears Ltd. and SBL Homeopathy among clients, told BloombergQuint over the phone from Delhi. With diesel prices and toll going up, it’s difficult to charge more because demand is low and competition is high, he said. “We tried to increase the freight rate by 20-25% but had to settle for 10%. That room is also slowly going away.”
Fuel contributes 60% of the costs and toll accounts for 15% for trucking companies, according to All India Transporters Welfare Association. Such an increase makes transportation of staples to steel costlier as hiring the nation’s 90 lakh trucks, which ferry more than two-thirds of India's cargo, becomes expensive.
India hiked taxes on petrol and diesel in March and May to shore up revenue as the economy is expected to contract this fiscal. While consumers didn’t feel the pinch as long as oil was falling, oil retailers started increasing prices when crude rose again. Diesel, the fuel used by trucks, is nearing a record high. Along with that, data of 260 posts provided by transporters lobby show, toll rates on national highways rose 5-15% starting April. Capacity utilisation, however, is still at half the pre-Covid levels.
What makes costlier fuel an even bigger problem is that diesel prices are hiked every day, according to Prakash Pandey, head of Karnataka Good Transport Association. There isn’t time, he said, to factor in these changes for trips that generally last over several days.
Cargo Movement Turns Costlier
Freight rates have increased on certain routes by nearly 20-25% but that is also because truckers are returning with bare minimum volume, Ashok Goyal, vice president of at the transporters lobby, said over the phone from Mumbai. The rates have jumped the most from Maharashtra and Gujarat, he said, as there’s no return load. “Instead of waiting for two-three days, now one has to wait for weeks to get some return load for long-haul travels.”
Low demand and competition curtails ability to charge more. Most transporters BloombergQuint spoke with said the increase in freight rates is more than offset by costlier fuel, higher toll, and a rise in drivers’ wages amid manpower crunch.
“To make drivers come back we had to increase their pay,” Abhishek Gupta, joint secretary of transporters’ lobby and managing director at Prakash Parcel Service, said over the phone. “Other smaller expenses have cropped up, such as ensuring transport for the staff and sanitisation,” he said.
For Gupta’s firm, 30% of 250 trucks are without drivers. “And half of the trucks that have drivers are idle because of lack of business and non-viability.”
‘Pent-Up Demand Is Over’
Terkriwal spent much of the last few weeks working the phones to find shipments to get all his trucks on the road. Fifty trucks in his fleet of 225 are idle. But the ones that are ferrying goods don’t get return loans, keeping his capacity utilisation at 65%. But he considers himself lucky to have reached that level. “The overall scene is worse.”
Ashish Gupta, director of Delhi-based Best Roadways, has been getting load for only 60% of his capacity. Gupta, who owns around 1,000 trucks, said higher operational costs and the idle capacity is only adding to his expenses.
Terkriwal fears he won’t be able to sustain if things persist like this. “This is not a great position. I can’t survive for more than two to three months like this.”
Not that the business was booming prior to the virus outbreak. Consumption in India slowed even before the pandemic. The pandemic froze all business activity barring essential services, and a recovery is likely to be slow and painful. The International Monetary Fund expects the Indian economy to contract 4.5% this fiscal. Other forecasts suggest a much sharper decline.
“We thought the demand will increase after the lockdown restrictions are eased, but that did not happen,” Ashok Goyal, vice president at the transporters lobby, said. Labour crunch is hurting everyone, and he doesn’t see demand improving till September.
“All the pent-up and temporary demand is now over,” said Sunil Agarwal, owner of Kolkata-based Commercial Transport, which ferries loads for Godrej Consumer Products Ltd., Marico Ltd. and Britannia Industries Ltd. Consumers durables and alcohol companies, he said, have not returned to the normal level of business.
While truck operators want drivers to return, they are apprehensive. That will only bring more trucks on the road, causing excess capacity. “If they return, there will be a bloodbath,” Goyal said. “The freight rates will fall further, costs will rise, and we will see many businesses shut operations.”
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