Rising fuel prices keep logistics industry on its toes

Rising fuel prices pose a challenge for logistics and transport companies that are now planning to increase the price of their services to retain margins.

Fuel prices contribute to 40-60% of the operational cost for any individual transporter or transport company, industry watchers informed DH. The operational costs have increased in the range of 10-20% for these firms.

WareIQ, which offers next-day delivery for e-commerce companies in India, has seen operating costs rise by 8-10% in recent times.

Harsh Vaidya, Founder, and CEO of WareIQ say the volatility of fuel prices has kept the industry on its toes.

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“Rising fuel prices typically force businesses in the logistics industry to either raise prices or suffer a financial loss. If the prices continue to increase, the trucking companies, couriers, and packaging material providers will have no option but to increase the cost of their services – which will eventually begin to reflect on the prices of our services as well.”

T.A. Krishnan, Co-founder, and CEO, Ecom Express goes on to add, owing to the fuel price rise, which has been significantly high this year, it has become unsustainable for the company to maintain its operational efficiency.

“We have been absorbing the costs to the extent possible, however, if the prices do not go back, and for us to deliver the right levels of service, some part of the costs will have to be transferred to the customers,’’ says Krishnan.

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From a courier standpoint, prices may increase by 8-10%.

The auto fuel prices have been hiked 14 times so far in May, touching a record high on May 27, when petrol rose by 24 paise per litre while diesel surged 29 paise in the national capital. The petrol prices have already crossed the Rs 100-mark in several cities in the country.

According to G R Shanmugappa, General Secretary, The South India Motor Transport Association (SIMTA), the transport sector of India is bleeding on account of ever-rising diesel prices. “We have been taking up the issue with the government time and again as diesel constitutes about 65% of the operating costs and its hike is further denting the negative margins. Freights too have dwindled by 25% on poor demand.”

Tusker’s Deputy General Manager, Vikram Hadagali explains, with the continuous price increase, the end transporter is unable to manage his working costs at contracted prices offered to shippers or aggregators like Tusker. “Hence the demand for a price increase from their end has been very prevalent in the last few weeks, 18-20% minimum rise in the operational costs is expected to cover the additional burden on the transporters.”

Hadagali says some of the transporters that work with essential commodities have already increased prices owing to increased costs of both fuel and manpower.

“Availability of loads during the lockdown is something that is keeping the price increase in control right now, if the prices don’t recede when lockdown closes almost all of the transporters will increase the prices to manage the increased costs. Working margins will come under severe strain and companies not willing to work with smaller margins will lose out big time.”