Freight rates for mining, steel and cement saw a healthy month-on-month (m-o-m) increase in December as construction activity resumed. According to rating agency CRISIL's first-of-its-kind index in India, CRISFrex, the rise seems to be driven by industrial activity, as almost on all routes, steel, mining, and auto freight saw a sequential increase.
On the other hand, the rating agency says that freight rates for fast-moving consumer goods (FMCG), fast-moving consumer durables (FMCD), and parcel and loose goods saw a sequential drop in a few routes as consumer spending tapered after the festive season.
Freight rates in December improved at a mid-single-digit level m-o-m. They rose for almost all commodities barring FMCG and petroleum products.
For consumer essentials such as FMCG and FMCD, which are relatively resilient and stable segments, the drop was limited to less than 1% on the month.
Industrials such as mining products like coal, iron ore, and limestone, cement, and steel are seeing a sequential recovery as freight rates for these applications have improved by more than 5%. "A key driver for this improvement is the resumption in construction and mining activities, which were subdued in December after a slow November due to prolonged monsoon. The extended south-west monsoon rains had affected the rates in November," CRISIL says.
During December 2021, discretionary goods such as automobiles and textiles also saw an improvement in freight rates. A slowly improving scenario drives the improvement in auto-carriers in terms of vehicle dispatches, which has, thus far, been marred by supply issues, while that in textiles is driven by restocking of inventory in December after festive buying seen in November.
Cumulatively, due to these factors, the CRISFrex Index improved to 120 in December 2021 from 114 in the past month. Further, relatively stable fuel prices have resulted in this increase translating into a direct increase in margins.
"The free cash flow (FCF) (pre-equated monthly instalments-EMI) as assessed by CRISIL, is estimated to be at about 20% of freight earnings compared with 15% in November 2021, translating into a sequential rise in terms of margins, but margins are still slightly below levels seen in December 2020," the rating agency points out.
For the CRISFrex Index, the rating agency incorporates views of 100-150 transporters to understand freight dynamics and operational aspects such as the number of trips and key cost heads, including fuel, driver, toll, tire and maintenance. This exercise is conducted on a closed sample of 159 route-commodity combinations spanning 32 routes, 11 commodity types, and five truck platforms with differing load bodies depending on the commodity carried, it added.