Creeping rise in fuel prices set to stoke inflation further: Transporters

Freight rates on grand trunk routes have already shot up by an average 3%-4% month-on-month in the last few days, according to Indian Foundation of Transport Research & Training

The recurrent  increase in the fuel prices over the last 10 days is singing into the margins of small and large transporters and will force them to pass on the hike to their customers. This in turn is set to make the prices of daily consumables and other goods dearer, impact consumption and slow the economic growth, said transporters and analysts.

Freight rates on grand trunk routes have already shot up by an average 3-4 per cent month-on-month in the last few days, according to Indian Foundation of Transport Research & Training. This is set to go further if the fuel price hike continues.

“The incessant price hike in small doses is like a ‘frog in boiling water,’ if this continues, the freight rates will notch up to an all-time high by May,  '' said Jasjit Sethi, CEO TCI Supply Chain Solutions, adding that this is hitting transporters of all hues.

Sunil Sinha, chief economist, India Ratings & Research said the fuel price hikes are set to have a cascading impact on the economic growth.  “The daily price increases will impinge on the pockets of the households. They would spend more on fuel and cut on other items. This will impact GDP as the consumption demand accounts for 57-58 per cent in the GDP.”

Oil marketing companies hiked the petrol and diesel prices on Thursday for the ninth time in the last 10 days. A litre of petrol in Delhi now costs ₹ 101.81 as against ₹ 101.01 previously, while diesel will be sold at ₹ 93.07 from ₹ 92.27 per litre earlier.

In Mumbai, petrol costs ₹ 116.72 per litre and diesel ₹ 100.94 per litre. Among the metro cities, fuel rates are the highest in Mumbai. The prices vary across the states due to value-added tax (VAT).

According to Sinha, the price adjustments that have taken place so far is not enough and still more is required if the OMCs have to recover the costs. “Even an expectation of a further price increase will impact households,” he said adding that once the transport prices go up, it’s set to jack up prices across the board including that of daily consumables.  

While rising fuel prices is one part, transporters looking to buy new/old vehicles will have to folk out more as automobile makers hike vehicle prices to pass on the increase in cost of inputs such as steel, aluminium, etc.

The creeping increments have impacted the transporter’s sentiments adversely, said Vinod Aggarwal, managing director and CEO, Volvo Eicher Commercial Vehicles. Prices of trucks across the range are set to go up from 1 April as companies pass on the higher costs of raw materials. VECV too will hike price by 200 basis points from Friday, said Aggarwal. 

“Despite the headwinds the recovery of CVs will remain on track,” said Aggarwal.

To be sure, higher prices are hurting even the large fleet operators bound by monthly or quarterly contracts. They don’t have an option but to absorb the hikes and take a hit on the margins. Fuel cost accounts for 65 per cent of the operating cost for a truck operator.

Balmalkit Singh, chairman, core committee, All India Motor Transport Committee said the recurrent hikes will jack up prices and stoke inflation. “We appeal to the government that instead of a daily price increase, review it quarterly and bring it in the GST ambit.”

Prices of tyres are up, toll charges have gone up, motor insurance premiums are also set to increase from next month, he said. “There is no way transporters can absorb these costs.”

S. P Singh, senior fellow, IFTRT believes, there is much ado about nothing. According to him, given the strong demand, the price hike can easily be absorbed by the transporters.

The diesel price was frozen for 137 days but truck rentals went up even during this period. The transporters have enough cushion to absorb the increase. “They are being opportunistic and increasing rates to bump up the margins,” said Singh.