Impact of variation in HSD rates on contract prices

Abstract

Logistics is one of the most critical enablers for the economy of any country and forms the backbone for the growth of manufacturing industry in that economy. In terms of modal mix, road transportation forms the largest share of freight movement with a share of close to ~60%-62% while ~32% of the freight is carried by railways. Airways, Coastal Shipping and Inland Waterways forms the remaining 6%-8% of the freight movement. Going forward, despite development of other modes of transportation with National Waterways, Dedicated Freight Corridor etc. Road transportation is expected to be the dominant mode of transportation in the Indian logistics landscape, particularly for the movement of freight. The quality and cost of road transportation services is critical for competitiveness of the manufacturing industries in any region. Consequently, it becomes important to understand the nature of transactions that occur between different stakeholders in the trucking sector. These transactions will directly impact the development of services provided by each of the stakeholders involved. In this regard, this report attempts to understand the transactions between different stakeholders – Consignor, Consignee, 3PL players, Truckers, Brokers etc. in terms of the cost of moving freight from one point to another. The focus of this report will be to understand the impact of fuel rate fluctuations on contract prices between a consignor and consignee as well as on the profitability of all other stakeholders involved in the transaction. We will attempt to identify the existing issues with respect to presence and enforceability of contract terms between these parties and propose mechanisms to incorporate fuel rate fluctuations in contract prices to mitigate the risks associated with fuel rate variation.