Freight rates on key routes zoom on diesel price hike

This will have an impact on inflation as everyone in the value chain passes on the costs.

After being subdued for several months, freight rates on key trunk routes have gone up by 10-15 per cent (see chart) following a steep hike in diesel prices.

It surpassed rates before the lockdown, according to the Indian Foundation of Transport Research and Training (IFTRT).

The hike in diesel prices have a direct correlation with the freight rates with fuel as a percentage accounting for more than 65 per cent of the variable operating costs for transporters.

On June 26, both petrol and diesel prices crossed the Rs 80-mark in Delhi, going up by 21 paise and 17 paise, respectively.

It was for the 19th day in a row with no downward price revision.

“In some routes where the demand is strong, the increase is as much as 20 per cent,” said SP Singh, senior fellow at IFTRT.

“The manufacturers are panicking as they don’t want inventory pile up and are willing to pay more.

"First, they were not able to produce due to the lockdown. Then, they weren’t sure of the demand.

"Now that demand is picking up gradually, they don’t want to be saddled with stock and are therefore not complaining of high freight rates,” said Singh, adding that the diesel price hike has come as an excuse for many to charge more.

This will have an impact on inflation as everyone in the value chain passes on the costs.

“This (hike in diesel price) will not help anyone, neither transporters nor users of the transport services,” said Balmalkit Singh, chairman of the core committee at All India Motor Transport Congress (AIMTC).

He added that the transporters, who were already reeling from intense pressure because of the pandemic and poor economic activity, had no option but to pass on the hike.

This, in turn, will firm up prices of all staples, essentials and non-essentials, thereby stoking inflation, he said.

Photograph: Reuters