Rising fuel cost pushes India Inc to hike prices


2021-02-26 22:30:00

MUMBAI/NEW DELHI/CHENNAI/BENGALURU: Rising fuel expenses are having a cascading effect on manufacturing costs across sectors, which is resulting in higher prices for the end consumer. On Thursday, RBI governor Shaktikanta Das also pointed out that rising fuel prices have a cost-push factor.
According to auto companies and transporters, truck rentals have gone up 10-12% in the last two months and most companies are currently negotiating freight rates. Some like MG Motor said they plan to take a price hike too.
“Typically, freight comprises 2-2.5% of the cost of a car. But, due to the jump in sea freight and the 10-12% increase in truck rentals, we will have to go in for another round of price hikes of around 2-3%,” said MG Motor India president and MD Rajeev Chaba. He is currently negotiating these rates with the transporters.

For trucking, almost 45% of the cost is due to fuel. And with fuel prices having gone up 65 times since the onset of Covid, the total increase has been upwards of 30%. Logistics startup Rivigo’s founder and CEO Deepak Garg said freight prices are unsustainable today and unless there’s an immediate correction of 15-20%, the trucking industry could face difficulties.

T A Krishnan, founder and CEO of Ecom Express, which works with e-tailers like Amazon India and Flipkart, said conversations are already under way with e-commerce firms to reflect the increased cost of deliveries in contracts.
Online food delivery firm Swiggy is finalising a new payment structure for its delivery partners in light of the increased fuel prices, a person aware of the matter said. Zomato on Thursday said it will hike payments to its delivery partners so they can absorb the increased cost of fuel. Whether these costs would eventually be passed on to the consumers remains to be seen.

Godrej Appliances business head and executive VP Kamal Nandi said most transporters predominantly use diesel in their vehicles. Since July 2020, there has been a steady increase in diesel prices, amounting to an 11.3% surge, and this has been impacting freight charges. “This is expected to impact prices and consumer demand,” said Nandi.

Most companies are staring at a combination of higher expenses such as those for key raw materials which, along with rising fuel prices, add to the overall cost burden. Parle Products category head Mayank Shah said, with raw material and packaging expenses going up, there is an overall impact on costs.
“Packaging materials are derivatives of petroleum products and that is also up, which is causing significant pressure on the bottom line. Currently, we are watching the situation. But if the prices do not go back, we will have to pass on the cost to consumers,” said Shah.
A price increase could be in the range 5-7%. “No one would want to take a price hike right now as all are more interested in the revival of demand. But if input costs do not soften anytime soon, companies would be forced to take a price hike in two months,” said Shah.

WayCool Foods, a farm-to-fork supply chain enterprise, said with the fuel price increase, its total logistics cost has gone up by nearly a rupee per kg of fruits/vegetables.

“Our inbound logistics cost — to move produce from farm to urban centres — are seeing an increase of roughly 55 paise per kg. In case of movements from warehouses to retail locations, we are seeing a price rise of around 25 paise per kg,” WayCool co-founder and CEO Karthik Jayaraman said.
In the last six months, fuel prices have increased by approximately 23%. “Initially, our logistics partners were able to absorb the costs. But once the increase crossed 10-15%, we had to revisit our arrangements with them,” he added.
“A typical lower middle-class family, whose grocery baskets are vegetables-heavy, may see roughly a 1-2% hike in bills. At this point, the pinch may not be too high. But if this continues, the impact may show up in consumers’ budgets,” he said.
Air travel too has become more expensive. A kilolitre (KL) of aviation turbine fuel (ATF) — which accounts for 40% of an Indian carrier’s total operating cost — for domestic flights cost Rs 26,860 at Delhi’s T3 and Rs 26,456 at Mumbai airport on June 1, 2020.
By January 1 this year, jet fuel prices had shot up to Rs 40,783 at Delhi’s T3 and Rs 39,267 at Mumbai, and there have been multiple price hikes thereafter as well. Airfare range for flying between Delhi and Mumbai, for instance, now is Rs 3,900-13,000, instead of Rs 3,500-10,000 earlier. These are economy one-way fares that do not include user fee of airports, passenger security fees (Rs 150 for domestic) and GST.
(Contributions by Nandini Goswami, Rajesh Chandramouli, Avik Das, Saurabh Sinha, Digbijay Mishra, Surojit Gupta & Namrata Singh)



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