Road transport sector likely to contract by 18-20% in FY21

New Delhi: The domestic road transport sector is likely to contract by up to 20 per cent on account of Covid-19 pandemic-induced challenges, rating agency Icra said on Thursday.

It has also revised the outlook on the logistics sector from 'stable' to 'negative', given the prevailing circumstances and its impact on the industry metrics. The rapid rise of Covd-19 pandemic and subsequent restrictive measures implemented by the central and state governments to contain the disease have adversely impacted the prospects of the Indian logistics sector, especially the road freight transportation movement, Icra said in a statement. The implementation of the 40-day nationwide lockdown aggravated the prevailing softness in the Indian economic activity, resulting in a decline in freight availability during Q4FY20, which further contracted sharply in Q1FY21, it said.

"In FY21, Icra expects a contraction of 18-20 per cent year-on-year in aggregate revenues of its sample of logistics companies. Additionally, the near-term profitability metrics are anticipated to remain under pressure given the subdued fleet utilisation levels in light of muted freight availability, and continued high fixed costs such as driver salaries, truck EMIs and maintenance costs," the agency said. Accordingly, the outlook on the sector has been revised to 'negative' from 'stable', it added.

"The implementation of nationwide lockdown to contain the Covid-19 spread resulted in disruption in supply-chains across sectors, restrictions on cross-border movement and dearth of availability of drivers and thereby led to contraction in revenue of the logistics sector in Q4FY20; and subsequently in Q1 FY2021," said Shamsher Dewan, Vice President, Icra Ratings. Further, the near-term growth prospects of the sector also remain subdued owing to the evolving Covid-19 situation, which has exacerbated the Indian macroeconomic growth scenario, he said, adding that accordingly, the domestic logistics sector is expected to contract sharply in the current fiscal.

Icra noted that the freight movement during the period was impacted by restrictions on cross-border movement, shortage in availability of drivers and manpower due to large-scale migration and lack of availability of return load.

In addition to the impact on the road logistics sector, the macro-economic slowdown and evolving Covid-19 situation also had a bearing on rail and seaway freight traffic, with freight volumes contracting by 21.3 per cent and 19.7 per cent y-o-y, respectively, during Q1FY21, it said.