The Hindu Business Line : It’s the market that determines road freight increase

Kolkata, June 4 Any hike in diesel price is bound to push up the road freight rates, more so because the diesel cost accounts for nearly 70 per cent of the operating cost; yet the freight increase need not necessarily fully reflect the price increase.

Experience shows that immediately after the announcement of the price hike, there will be a spurt in freight rates which gradually get adjusted to lower levels depending on the market condition.

This happens due to various reasons. First, the road transport industry being unorganised with individuals having one or two vehicles dominating the industry, the freight rates are always negotiated rates. These vehicle owners-cum-operators do not have much say in the determination of rates.

It is the middlemen and the brokers who call the shots. The negotiations over rates are finalised at their levels. As a result, the vehicle owners-cum-operators are not always fully compensated for the price increase. But they cannot keep their assets idle either because such idling is not in their interests.

In fact, individual transport operators are opposed to diesel price hike as they do not benefit from it. Their condition, in fact, worsens with every increase as the middlemen take away the cream.

According to a major transport company, it is the market that determines the extent of freight increase as a sequel to diesel price hike. If the extent of price increase is small, the market absorbs it more quickly than if it is not so small. Higher increases take time to get adjusted to the market condition. Generally the market does not always absorb it in full.

There are other factors. Any steep increase in freight, it is felt, might render the road transport industry uncompetitive via-a-vis the railways. So major road transport companies will desist from such increases. Also, with hike in fuel price, the level of adulteration increases. Finally, with the monsoon due to break out soon, this is certainly not the best time for the road transport sector to effect any significant rise in freight rates. The road movement as it is remains at a low key during the monsoon.

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