Pick up in economic activities boosts freight rates, CV sales in August

For the first time since Covid outbreak, revenue of the operators is outpacing income and prompting them not only to replace older trucks but also expand fleet

Freight rates across key trunk routes rose an average 4.5-5 per cent in August. The increase - the third in three straight months since the lockdown lifted - was led by higher exports and increased cargo offering from all sectors, said the Indian Foundation of Transport Research and Training (IFTRT) on Thursday.

“If one looks at the absolute rates on each of the routes, this is the highest for the month of August since 2019,” said S P Singh, senior fellow, IFTRT. 
 
As a result, the trucking and transport business has been fairly remunerative and fleet owners have been able to pass on all operating costs and yet recover remunerative truck rentals/retail freight in the open market transport business.

For the first time since the outbreak of the pandemic, the revenue of the operators is outpacing income and prompting them to not only replace older trucks, but also expand the fleet.
 
A stable diesel price and low interest rate for finance have helped transporters' operating costs, said Singh.
 
India’s industrial production grew 13.6 per cent in June, from the year-ago period, due to a low-base effect. "The steep decline in the number of daily confirmed Covid cases and increased economic activity have driven the sequential improvement in industrial activity in June. This improvement has continued into July, as reflected in the manufacturing PMI, which was back in the expansion territory after having contracted in June,” said CARE Ratings in a note.

Taking a cue from improved macros, commercial vehicle makers bumped up despatches in August, resulting in a sharp year-on-year (YoY) growth. 
 
Automobile firms in India count despatches as sales.

Albeit on a low base, cumulative sales for the top four commercial vehicle makers, including Tata Motors, Ashok Leyland, Mahindra & Mahindra (M&M), and Eicher Motors, rose 23 per cent YoY to 50,886 units, from 41,202 units a year earlier.
 
The despatches also showed an improvement from July for most companies, with the exception of M&M that saw steep decline – sequentially as well as YoY of 50 per cent and 42 per cent, respectively.

According to Singh, fleet owners have reverted to fleet replacement and even expanding their intermediate light commercial vehicle sales running on compressed natural gas since diesel prices have shot up since January.

But not everyone agrees with IFTRT's views. 
 
Bal Malkit Singh of Bal Roadways says while the increase in freight rates is encouraging, there is scope for further correction as it is still not in proportion to the increase in the overall operating costs.
 
“The prices of diesel and tyres have risen sharply. Even toll charges are higher. The idling time for my trucks is still high. So what's the change?” asks Singh.
 
An analyst at a research firm concurs. "The freights have gone up, but the road transport sector is still not out of the woods,” adds the analyst.