India’s domestic sectors are increasing road transport fleet utilization

Chennai: Despite weakening exports, road transport fleet operators will see improved utilization this year thanks to support from some domestic sectors.

Nearly a third of freight demand comes from export-oriented sectors, which saw a slowdown in the last financial year.

Crisil, however, expects revenue growth for road transport fleet operators to double to 9-11 per cent this financial year, driven by better domestic demand and despite weakening exports. Operating margin also improves by 75-100 basis points due to improved fleet utilization and fixed fuel costs.

Volume growth this fiscal year will be driven by domestic freight-intensive sectors such as mining, industrials, manufacturing, infrastructure and engineered goods. As a result, fleet utilization will improve to over 85 per cent this financial year from 82-83 per cent last year.

Moreover, exports are showing signs of improvement, in line with the upward trends in India’s key export destinations such as the Eurozone and the US.

“This improved utilization will not only lead to increased revenues, but also increase operator efficiency. Additionally, since diesel and fuel, which account for approximately 55 percent of total costs, are pass-through expenses, any increase in their costs resulting from international price changes may be passed on to customers as demand remains strong. Holding other costs constant, operators’ operating margins will improve to 9.0-9.5 per cent this financial year,” said Himank Sharma, director, CRISIL Ratings.

Fleet operators have expanded their fleet by 60 percent in the three fiscal years to 2024 amid a surge in demand following the Covid-19 pandemic. With the current focus on consolidating operations, fleet expansion would reduce to 15 percent of the existing fleet size this fiscal year.