CRISIL Warns Diesel Price Hike Could Hit India’s Trucking Sector, Push Freight Rates Higher

India’s trucking and logistics sector is staring at fresh pressure as rising crude oil prices increase the likelihood of a diesel price hike. According to a new report by CRISIL Intelligence, every ₹5 per litre increase in diesel prices may require freight rates to rise by 2.5-2.8% merely to protect transporter margins and maintain free cash flows.

The warning comes at a time when state-run oil marketing companies (OMCs) are continuing to absorb heavy losses by keeping retail fuel prices unchanged despite crude oil prices remaining above $100 per barrel due to the prolonged West Asia conflict.

Union Petroleum and Natural Gas Minister Hardeep Singh Puri recently said OMCs are losing nearly ₹1,000 crore every day, while cumulative under-recoveries this quarter have reportedly climbed to around ₹1.98 lakh crore. Industry estimates suggest that Indian Oil, BPCL and HPCL together are incurring losses of nearly ₹30,000 crore every month on fuel sales.

Diesel Costs Threaten Transporter Profitability

For India’s transport sector, diesel remains the single-largest operating expense, accounting for nearly 50-60% of overall costs. Industry participants say even a modest increase in diesel prices could significantly hurt profitability, particularly for small and mid-sized fleet operators working with thin margins.

CRISIL noted that transporters may struggle to fully pass on higher fuel costs because of weak freight demand, excess fleet capacity, and limited pricing power. Several operators have indicated that they are unable to recover nearly 80% of fuel cost increases in contracted freight arrangements.

The agency added that operating expenses excluding EMIs remained elevated at around 78-79% of total transporter costs in April, while free cash flow before EMI stood at just 21.6%.

Freight Demand Weakens Across Industrial Corridors

The pressure from rising fuel costs comes at a time when freight activity itself is slowing. CRISIL’s Pan-India Freight Index (CRISFrex) declined to 100.5 in April from 101.4 in March due to weaker industrial activity and lower cargo movement after the year-end dispatch season.

Other indicators are also showing signs of moderation. Daily FASTag transaction volumes fell 6.2% month-on-month in March before recovering slightly in April. Fleet utilisation levels have softened as transporters grapple with uncertainty around industrial demand and fuel supply disruptions linked to geopolitical tensions.

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Conclusion

CRISIL’s latest assessment highlights the growing stress in India’s trucking and logistics sector as elevated crude oil prices continue to pressure fuel economics. With diesel accounting for the bulk of transporter operating costs, even a small price hike could push freight rates higher, squeeze margins further, and eventually increase logistics-driven inflation across sectors dependent on road transportation.

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