Freight Rates Ease a Tad in May after Union Govt Slashes Excise Duty on Fuel: Report
Moneylife Digital Team 02 June 2022
In May, transporters passed on the drop in diesel prices by decreasing freight rates on several routes. However, fleet utilisation remained flat during the month compared with the previous month, says a research note.
 
According to CRISIL Ratings, while utilisation for the market load was higher, this was offset by slightly lower utilisation for parcel or loose goods, mining (primarily coal and iron ore), and agri-products. The remaining commodities, including auto-carriers, container applications, fast-moving consumer goods (FMCG), fast-moving consumer durables (FMCD), steel, textiles, and petroleum tankers, saw a flattish trajectory in utilisation, it says. 
 
 
"The complete effect of this (excise) duty cut would be visible in the CRISFrex index from next month. This is because the central government set an extrinsic decline in excise duty at the end of the month, whereas CRISFrex represents freight rates and fuel prices for the entire month," the rating agency says.
 
CRISFrex indicates that freight rates have dropped on month, with free cash-flow (FCF; pre-equated monthly instalment) decreasing 100bps (basis points).
 
 
During May, freight rates for most commodities also declined, but were stable for mining and cement. Freight rates declined on-month for consumer essentials such as agri-products, FMCG, FMCD, loose goods and discretionary goods like automobiles and textiles, and bulk commodities such as containers, petroleum tankers and steel.
 
This translated into the CRISFrex rising on month to 126 in May from 129 in April. 
 
 
"Flat utilisation levels, a decrease in freight rates, and lower diesel prices resulted in the industry's FCF contracting slightly to about 18% in May compared with around 19% in April," the rating agency says.
 
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