How higher petrol, diesel prices affected logistics industry?

As India is recovering from the deadly second wave of the COVID-19 pandemic, there have been several challenges in front of the country to deal with. This pandemic disrupted the lives of people across the world and a series of lockdowns and containment measures made things worse for the country.

The inflation increased which eventually led to skyrocketing prices of essential commodities like cooking oil, LPG, petrol and diesel prices. The most recent fuel price hike in India has been a cause for a primary concern for all sectors.

The rise in fuel prices has not only affected the household income but has also affected the logistics sector along with companies' balance sheets.

Though the prices have started falling, the petrol price is still above Rs 100 in metros. On September 5, the fuel prices across the country include Mumbai (Petrol: Rs 107.26, Diesel Rs 96.19), Delhi (Petrol Rs 101.19, Diesel Rs 88.62), Chennai (Petrol Rs 98.96, Diesel Rs 93.96), Kolkata (Petrol Rs 101.62, Diesel Rs 91.71).

Harsh Vaidya, founder, and CEO, WareIQ says,” While most logistics companies were ready to subsume the increased cost while the prices went up to 5-10%, with the hike having increased incrementally now, the need for negotiating with courier partners has arisen. Though with the Diwali sales season approaching, we are trying to not pass on the costs to our e-commerce sellers, as they would have already planned their sales in advance. Post the sales season we will have to look into revised costs if the trend continues.”

Vaidya is of the view that concerns arise when it comes to the sales season as with the increased buying patterns of consumers, there is a shortage in both middle and last-mile delivery when all the giants are looking at time-efficient deliveries. “We are hopeful that the authorities will look at taking efficient measures that could help in curbing the price inflation of fuel - which will help in maintaining profitable margins for the logistics and e-commerce sectors alike,” he added.

Meanwhile, Sandeep Aggarwal, co-founder of Candes opined, “There has always been a direct impact on e-commerce company’s profit margins due to inflating fuel prices.”

As per the Economists, a ten percent hike in fuel charge brings a two percent increase in the cost of delivering the goods. The freight charges calculated on the basis of distance get impacted with continuous hikes in the fuel price. Already stressed with Pandemic, the logistics sector is having a hard time. With every hike in the price of fuel, they are bound to increase their cost of carrying the goods. The e-commerce logistics ecosystem has to settle in accordance with the same and this straight away impacts the margins earned by the e-commerce companies.

“With the upward trend of consumer online buying behavior, the margins of e-commerce giants should increase multifold but the imbalance in the logistics ecosystem is having a negative effect on the trend and is constantly flattening the rising curve,” he further added.

The soon upcoming festive season needs a quick correction in the e-commerce logistics ecosystem in order to enable them to earn their appropriate margins. The global trends have a great impact but the reduction in  heavy taxes can surely reduce the burden of plunging profits on both the logistics and e-commerce sectors.