Mumbai: Demand for cargo transport by road has been boosted by higher output from industries such as cement, steel and fertilizer, higher demand, and an early onset of summer that forced farmers to advance their harvest. Freight rates are up, as a result, another indicator that economic growth is gaining momentum.
Cement sales grew 9% in the quarter to 31 March after a tepid nine months. Electricity generation increased 5.62% in March and 3% in April from a year earlier, according to the Central Electricity Authority.
Road freight rates for a return trip from Delhi to Mumbai and Delhi to Chennai, in April, rose 6.7% (from Rs.81,500 to Rs.87,000 for 25.2 tonnes) and 4.4% (Rs.128,500 to Rs.134,200 for 25.2 tonnes), respectively, according to data available with the Indian Foundation of Transport Research and Training (IFTRT). The pace of increase is the fastest in a year.
“It is anecdotal evidence that the movement of goods has improved, which is a good sign for the economy,” said Devendra Pant, chief economist at India Ratings and Research Pvt. Ltd, a Fitch Group arm.
Freight rates are rising at a time when supplies of both cargo and trucks have risen sharply.
Sales of medium- and heavy-duty trucks (those with a gross vehicle weight ranging from 16 to 49 tonnes) jumped 30% to 302,000 in the year to 31 March over the previous year, according to the Society of Indian Automobile Manufacturers, or Siam.
To be sure, much of the demand for trucks has been spurred by regulatory changes, such as the implementation of stricter emission and safety norms.The anti-lock braking system, (ABS) and speed-limiting device were made mandatory in October 2015. Bharat Stage IV norms for trucks will kick in from 1 April 2017.
Fleet operators are advancing purchases to beat price hikes stemming from the use of more expensive automobile technologies. Such changes increase the price of a truck by Rs.50,000 to Rs.100,000.
Indicating industrial rebound, growth in the so-called core sector of the economy accelerated to 6.4% in March—the fastest in 16 months. The core sector comprises crude oil, petroleum and petroleum products, natural gas, fertilizer, coal,electricity, cement and finished steel.
In the year to March, the core sector grew 2.7%—slower than the 4.5% expansion in 2014-15.
The firming up of freight rates “is an indicator of a pick-up in overall demand and an improvement in capacity utilization of the fleet operators”, said Subrata Ray, senior group vice-president at the rating company Icra Ltd.
Truck operators, Ray said, had also benefited from a decline in diesel prices.
A truck operator’s profitability is a function of freight rates and operating costs. Truck freight rates are governed by demand for transport and capacity utilization.
The surge in demand has caught some truckers unawares.
Balmalkit Singh, a Mumbai-based transporter, has at least 20 trucks lying idle because long-haul drivers aren’t available.
The shortage of drivers has been felt for some time now, and the increase in demand for freight transport has accentuated the lack of enough drivers.
“Truck rentals in the last three months have been on an up- swing and fleet operators have been able to pass on diesel price revision quiet smoothly,” said S.P. Singh, senior fellow at IFTRT.
The fleet operators, in fact, increased prices by 1%-1.5% on key trunk routes, such as Delhi-Mumbai-Delhi, Delhi-Guwahati-Delhi, Delhi-Chennai-Delhi and Delhi-Bilaspur-Delhi, even after diesel prices were cut by Rs.1.30 litre on 16 April—a sign of their confidence that the demand for freight transport is rebounding.
Of course, not everyone is buying the turnaround story.
“I don’t think there is any real pickup in demand. The freight rates have moved up because there is a mismatch in demand and supply,” said N.L. Gupta, whose firm Caravan Roadways Ltd was badly hit by the economic slowdown in 2012-13.
According to Gupta, mid-size transport firms are yet to recover from the slowdown. Over the last three years, Caravan Roadways has reduced its fleet size from 300 to 120.
Even so, the procurement of around eight million tonnes of wheat in several states, the early arrival in the markets of summer fruits and vegetables, and 10% increase in the movement by road of cement, fertilizer and steel in April helped improve the fleet utilization rate and round-trip prices by 10-15% on different trunk routes, Singh said.
India’s top three cement producers—UltraTech Cement Ltd, ACC Ltd and Ambuja Cements Ltd—expect a revival in cement demand in the current financial year. The companies project a 6-8% increase in demand for the building material in the year to March 2017, compared to a rise of about 3% the previous year, Mint reported on 1 May.
These forecasts are grounded on the expectations of improved demand from infrastructure and housing projects backed by the government.