Buoyed by strong growth in freight volumes aided by accelerated pace of vaccinations, pent up demand and firm freight rates, the road logistics sector is expected to grow at 13-16 per cent in FY22 against the earlier projected 6-9 per cent, ratings agency ICRA said on Tuesday.

Maintaining a stable outlook for the sector, ICRA said that the optimism stems from a favourable scenario as most players reported strong growth in freight volumes on a sequential basis in Q2 FY22, with the momentum continuing in Q3 FY22.

“Industry revenues reached multi-year high levels in Q2 FY22 with strong recovery in industrial activities. Monthly FASTag volumes ramped up to its highest level since the pandemic in October 2021, with declining Covid infections. The sector is likely to grow at 13 per cent-16 per cent in FY22 over FY21,” ICRA Ratings Sector Head Suprio Banerjee.

Omicron worry

Nevertheless, the Omicron variant is a key monitorable, given the sector’s vulnerability to economic activity on an aggregate basis. ICRA expects industry volumes to remain stable in FY23 as well, with expectation of steady business activities and formalisation of the sector, he added.

Medium term outlook

“Growth over the medium term will continue to be driven by demand from varied segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals and industrial goods coupled with industry paradigm shift towards organised logistics players, post the GST and E-way bill implementation,” ICRA said.

“Furthermore, multi-modal offerings are likely to gain increased acceptance and traction going forward, given that players offering such services had more flexibility and hence, were better placed to service their customers during the lockdown phase. Given these factors, and the relatively higher financial flexibility available to large, organised players vis-à-vis their smaller counterparts, there is potential for increased formalisation in the sector, going forward,” Banerjee said.