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Diesel price on fire: Soaring truck rentals pose inflation risk

Mamuni Das New Delhi | Updated on June 25, 2020 Published on June 26, 2020

The price of diesel has gone up by over ₹10 a litre since early June

A series of diesel price hikes since early June is likely to fuel inflation and truck rentals are set to soar, according to transporters. Truck freight charges on trunk routes have already shot up by 10-12 per cent since June 1, following increase in diesel price, said SP Singh, Senior Fellow, Indian Foundation of Transport Research and Training (IFTRT), a transport research body. The price of diesel has gone up by over ₹10 a litre since early June.

The increase in freight rate comes as several manufacturers are desperate to transport their products and lower their inventory cost, according to Singh.

The increase in rates is seen in trucks hired from the spot market (where trucks are hired based on demand and supply) as well as those trucks hired on contract with customers. The contract usually has price escalation clauses, which allow truck companies to pass on the increase in fuel rate to their customers, according to IFTRT.

“The increase in diesel prices will lead to inflation impacting the poor and middle class,” said Kultaran Singh Atwal, President, All India Motor Transport Congress (AIMTC). Diesel price hike has increased the cost of running trucks by 20-25 per cent, according to AIMTC. Of the total operating cost of the truck business, diesel accounts for 60-65 per cent and forms the largest chunk of the operating expenditure.

However, not all truckers are able to pass on the hike. Some fleet operators point out that in locations where Covid-19 infection is higher, there is no cargo available pushing truck operators to park their vehicles instead of running them atlosses. Operations for small fleet owners have become unviable.

 

Tax waiver plea

Pointing out that about 70 per cent of the retail price of fuel constitutes the Central and State taxes, transporters have been asking governments to waive the taxes to lower prices of the fuel. On the base price of diesel and petrol, this is 275 per cent and 255 per cent respectively, according to AIMTC.

Railways as an entity, which is traditionally the single largest consumer of diesel, also plans to control cost. The Indian Railways, which has decided on a long-term strategy to use less diesel, has expedited its action last week asking zones to “discourage” diesel use. In a recent letter, the Railways has asked zones to limit the use of high-speed diesel in trains by prioritising electric trains.

Citing an example of how the recent price hikes will crush truck operators, AIMTC said a truck that moves over a long route spread over days, will not be able to pass on the hike as the contract will not have freight rates linked to diesel price escalation-clauses. Meanwhile, on Thursday, in Delhi, fuel price was higher than on Wednesday – marking yet another day of increase in price. Private bus operators, who run buses for state road transport undertakings, have also demanded lower fuel price.

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Published on June 26, 2020
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