Freight cost likely to rise internationally; domestic demand strong: Experts
In an interview with CNBC-TV18, Chander Agarwal, MD, TCI Express, and Hemal Thakkar, Director, CRISIL Research, discussed the impact of the rising geopolitical tensions on logistics players. Agarwal believes freight costs will rise internationally and the country will face heat from a domestic standpoint as well. Thakkar, meanwhile feels that domestic demand will continue to remain strong, though EXIM trade may get impacted due to the ongoing Russia-Ukraine war.
A direct fallout of the Russia-Ukraine war has been on commodities with crude trading at $110 per barrel. Different businesses, especially the logistics sector, have been hit as a result. To assess the impact of the rising geopolitical tensions on logistics players, CNBC-TV18 caught up with Chander Agarwal, MD, TCI Express, and Hemal Thakkar, Director, CRISIL Research.
Agarwal affirmed that costs are going up across the board. However, he mentioned that since the company has an asset-light model, the rise in fuel prices is being passed through in its entirety to the customers.
"One advantage we have is that we have an asset-light model, we do not own any of our trucks and every time there is some sort of a fuel price hike or something like this, it's a direct pass-on to the customer. It's important to note that at an all-India level, if you look at the freight price in relation to the fuel cost, it's all going to go up," he said.
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Agarwal believes the industry will feel the heat of rising costs for some time. Owing to the geopolitical tensions and rising oil prices, freight costs will most likely rise internationally, he shared.
"We will feel the heat, the country will feel the heat, from a domestic consumption point of view. But overall, the international trade that India is involved in, will also see a rise in freight costs for possibly a short period of time," he said.
On capacity utilisation, he said that the company is operating at 85-86 percent currently. He remains hopeful of a better Q4 as compared to Q3.
"The top line growth for this quarter is going to be slightly better than last year's quarter for sure. In terms of capacity utilisation, we are at about 85-86 percent and I think we will take it up to 87-88 percent for sure. Now, we have the new sorting centre coming up, which start next week," he mentioned.
Meanwhile, Thakkar highlighted that export-import (EXIM) trade could be impacted by the Russia-Ukraine tensions. He pointed out that while he is not seeing a major change in bulk commodities, consumption-related sectors will still see higher freight demand as fuel prices account for 45-55 percent of a transporter’s operating cost. Thakkar feels domestic cues are strong even as international situation continues to be volatile. He believes the underlying domestic demand to be strong.
"There are certain segments, which may still continue to do good, like consumption-related sectors, FMCG; agri products could still do good, but with fuel price increases, we may also see some kind of impact on auto demand for two-wheelers, entry level passenger vehicles. So auto may slowdown," he mentioned.
"EXIM trade could come to a sluggish or a slowdown mode because of which we could see some kind of impact on that part of the value chain. Those goods and commodities could see some sluggishness with respect to movement. But as such bulk commodities and consumption-related commodities, which are largely domestically dependent, we are not seeing a major change there," he explained.
Watch the video for the full interview.
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