Fuel Price Rise Trembling Logistic And E-Commerce Sector

The logistic sector is supposed to engage more than 40 million individuals in India and it is on the way to becoming one of the biggest job makings sectors in the country by 2022.  

Fuel costs are a critical component of overall logistics costs. In recent months, we have seen a significant and steady rise in fuel costs and this is bound to make goods transport costlier. As per standardized calculations, a 5 per cent fuel price hike leads to a nearly 2 per cent increase in transportation charges. 

"The festive season has started and this is the peak demand time wherein customers expect better deals from the retailers and e-commerce brands. In such a scenario, a hike in transportation costs could be a dampener for some. At the same time, the challenge posed by higher fuel prices can be overcome by optimization and digitization of logistics operations. The cost of logistics in India is much higher than in most other developed countries and the reason is the inefficiency of operations. By using advanced technologies and streamlining the operations, it is possible to generate much higher revenues compared to the average per vehicle ROI at present," said Karan Shaha, Chief Executive Officer (CEO) and Co-founder, Vahak.

Petroleum cost has crossed Rs 100 for every litre in few states. India has the most elevated fuel rates among neighbouring countries. The climb in fuel costs straightforwardly impacts a few sectors including transport, food delivery, logistic sector, and e-commerce. The record-high fuel costs in these times have made e comm vendors and logistics players think about their margin while slicing other costs to oblige higher logistics to spend.

Saahil Goel, CEO, and Co-founder of Shiprocket, said, "The transportation cost is undoubtedly dependent on the fuel price and the hike in fuel prices will have a direct impact on both the logistics and e-commerce sectors. Since companies will need to bear these costs and fuel price increase will have a domino effect on every aspect of business, including a rise in the cost of the end customer’s product, logistics and e-commerce platforms are actively working towards a solution that can help average this cost. Innovative solutions such as Shiprocket fulfillment will store the products closer to the customer’s address and will deliver the shipments within 1-2 days, thereby reducing the cost. However, efficient management of NDR is crucial since it will directly affect the inflated costs." 

Similarly, Vivek Juneja, Founder, and MD of Varuna Group said, "Diesel usually makes for about 30-40 per cent of the freight rate, so the surge in diesel prices will create a ripple effect by increasing both the freight prices and the price of the product the end customer receives, along with the overall cost of logistics. This will also apply during the festive season which sees an uptick in demand when the cost will increase due to the fuel price hike. On average, 3-5 per cent of fuel price spikes are considered when companies sign a contract. However, with the price of diesel increasing rapidly, companies will need to reassess their contracts." 

"Surge in fuel prices is definitely impacting the logistics sector and increasing transportation costs. Impact of this will finally be felt by end consumers as companies will bundle this cost in product pricing itself. By bringing efficiency in the end to end supply chain using data intelligence, brands can offset the impact to some extent. At Pickrr we are taking special initiatives to ensure that our 50K+ sellers are regularly provided with actionable insights that will bring down NDR rates and optimise logistic operations." said Rhitiman Majumder, Co-Founder and CEO, Pickrr.

“The fuel price escalation has resulted in the increase of operating costs for all service providers.  Only some sectors with higher logistics and freight spends passed on the impact partially while others refrained. The costs also have risen due to supply-demand issues, higher costs of lubricants, tyres, spare parts, labor costs, etc. The off take for logistics services has been relatively normal not only due to supply side factors but since the consumption has not really picked up to the levels estimated. The overall industry is optimistic about the upcoming festive season to cover the lost ground.” said Vineet Agarwal is the Managing Director of TCI

Sometimes in the gone days when logistics supply was only an optional thought of big companies. Albeit the logistic services area was generally untidy previously. Presently, the increasing demand for online conveyances and accessibility of merchandise by individuals has led the sector to develop at a CAGR of 10.5 per cent by 2025.  

Abhishek Bansal, Co-Founder, and CEO, Shadowfax Technologies also said, "Net take-home earning for delivery individuals has gone up by 30 per cent this year. With the market bouncing back from COVID-19 very strongly, this has resulted in higher efficiency per hour for delivery partners which has reduced travel distance per order. Shadowfax is providing a surge to last-mile delivery partners to deliver more orders for the next three months considering the festive season." 

Meanwhile, Sandeep Aggarwal, Co-founder, Candes said that as per the Economists, a 10 per cent hike in fuel charge brings a 2 per cent increase in the delivery cost. Consequently, rising freight charges pressurize the Pandemic-stressed logistics sector. The e-commerce logistics ecosystem settles with the reduced margins. 

He added, "Although there is an upward trend in consumer online buying, the imbalance in the logistics ecosystem negatively affects and reduces profits. On the other hand, consumers get discouraged from offline purchases due to soaring fuel prices. Hence, Inflating fuel prices impact the e-commerce industry both ways." 

In the wake of high fuel costs, some D2C businesses like to use their own conveyance modes instead of picking delivery services of the commercial centres. In spite of the increment in fuel costs, D2C organizations track down the last mile delivery costs reasonably. 

“As a D2C brand we maintain a tight supply chain which means that transportation cost is a small part of overall input cost. However, we have seen our delivery partner costs increase by 8-10%, part of which they have absorbed and the remaining we have absorbed without increasing prices for our customers. We will evaluate the situation again after the festival season and take appropriate actions if required” says Jatin Gujrati, Business Head, Vedix

“While the price of diesel is significantly impacting transporters cost of operations, the end consumers have been adamant on not giving price increases. There is a threat to lose business in case one tries to increase prices. This is impacting the bottom lines of already stressed transporters. On a positive note, we are also noticing a lot more interest of transporters to look at alternate electric and energy storage based systems that give a significant edge over fuel-driven units,” Rajat Gupta, Founder, and CEO of Tessol 

The festive season has begun and The rapid spike in Petrol and Diesel costs has as of now prompted destruction with unmanageable inflationary forces affecting the transport area as well as the everyday person overall. This, thusly, prompts an overall and back-breaking climb in the costs of other goods and products.  

''Logistics is one of the key cost drivers in ecommerce.Recent boom in ecommerce has led to significant demand in logistics service, thereby increase in demand for fuel used extensively in the industry.D2C players like Bwkf are protected from these price fluctuations due to fixed costs negotiated with the third-party logistics service providers. We have 100% of logistics serviced by multiple third-parties and we have costs agreed with them for a longer term. This benefited us to hedge our costs owing to these fluctuations. We have been able to reduce our logistics costs by over 20% in the last six months, while the industry may be experiencing an upward trend.'' said Prabhkiran Singh, CEO & Co-Founder, Bewakoof

With the festive season just around the corner, the volume of shipments will increase drastically. Shiprocket’s plan to cope with the current scenario is to control the NDR, reduce return orders, and enhance delivery speed and efficiency to bring down the cost at the sellers’ end, thereby easing the fuel price spike pressure, Goel mentioned 

Harsh Vaidya, Founder & CEO, WareIQ "While most logistics companies were ready to subsume the increased cost while the prices went up to 5-10 per cent, 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 costings if the trend continues."

Further, he added “Especial 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.” 

Juneja said, "There is also another side to this –in the past 4 years before the pandemic had a fairly low rate of new vehicle purchases. However, with the pandemic causing a drastic surge in demand for logistics, there has been a demand-supply mismatch in the vehicles, and logistics companies will also need to look at investing in their fleet which will be an additional cost component resulting in higher freight costs. Besides, recent years have also seen fully funded startups enter the market, and with this hyper-competition, the freight rates have bottomed out. But now, companies will need to bear the additional costs stemming from the rise in fuel prices and increased investment in a fleet to meet the rising demands."  

"Our widespread e-commerce distribution network spans to the far ends of the country with a presence across 27000+ PIN codes spread over 25 states and four Union Territories (UT). Transportation cost is a significant component of the overall distribution cost and an increase in fuel price adversely impacts the business. With the upcoming festival season, volume increases by 4 to 5 times and with it, fleet utilization also increases hence costs will go up and so will the overheads."

"Earlier, during the onset of the second wave of COVID-19, there was another significant fuel hike where we had absorbed the costs to whatever extent possible. We’re hopeful that the authorities will take efficient measures that could help in curbing the price inflation of fuel. However, every fuel price hike increases our network costs, which has become unsustainable for us to maintain our operational efficiency, and in due course, if these prices do not go back, we may be required to transfer some of these costs to the customers." T. A. Krishnan, CEO, and Co-founder, Ecom Express India Pvt. Ltd.