Rising fuel cost pushes India Inc to hike prices
MUMBAI, Feb 28: 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 10-12per cent 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 2-2.5per cent of the cost of a car. But, due to the jump in sea freight and the 10-12per cent increase in truck rentals, we will have to go in for another round of price hikes of around 2- 3per cent," said MG Motor India president and MD Rajeev Chaba. He is currently negotiating these rates with the transporters.
For trucking, almost 45per cent 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 30per cent. Logistics startup Rivigo's founder and CEO Deepak Garg said freight prices are unsustainable today and unless there's an immediate correction of 15-20per cent, 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 11.3per cent 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 excise collected by Centre (Rs lakh cr) Fuel VAT collected by states (Rs lakh cr) 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. -TNN