The road transport sector ferries almost all the goods in the country from toothpaste to cars and is a barometer for economic activity. Higher fuel prices had pushed up logistics costs for manufacturers which was trickling down to consumers as higher sticker prices.
However, with the Centre cutting excise duty on diesel by Rs 10 per litre last month, freight rates also came down. A few states also reduced taxes on diesel.
Subsequently, as per a report from Crisil research, freight rates declined across 70-75% of the 159 goods and route combinations it reviewed. Rates remained flat for the remaining combinations.
While this augurs well for manufacturers and consumers, the lower diesel prices did not result in better margins for the transporters. Free cash flows generated by transporters declined from about 17% of revenue in October to 15% last month given the reduction in goods movement and the competitive nature of the transport industry, the Crisil report noted.
The rate correction was the lowest for the fast-moving consumer goods (FMCG) sector owing to high demand, but it was proportionately higher than the cut in diesel prices in segments like automobiles, textiles, cement and steel.
“In December rates will go down further,” said Sachin Haritash, director at Chetak Logistics. While larger fleet owners in the organised sector will be more protected due to long-term contracts, freight rates will go down in the open market for smaller operators, he said, adding that even the FMCG sector will see lower goods movement this month.