Construction Activity Boosts Steel and Cement Freight Rates
Steel and cement freight rates posted good month-on-month gains in December, supported by an increase in construction activity. These are the findings of CRISIL's CRISFrex index, the first of its kind in India, which records changes in freight rates on a sequential basis and tracks Free Cash Flow, or FCF, (preEMI) of carriers on an ongoing basis. In general, a higher FCF will improve demand for commercial vehicles. According to the ratings agency's index, rates in December improved by a single-digit average for the month. They rose for most raw materials, with the exception of consumer goods and petroleum products. For consumer staples such as FMCG/FMCD, which are relatively sustainable and stable segments, reductions are capped at less than 1% for the month. Industrial products such as mining products (coal, iron ore and limestone), cement and steel have seen sustained recovery as freight rates for these applications improved by more than 5%. The main driver of this improvement was the resumption of construction and mining activities, which fell in December after a sluggish November due to the prolonged monsoon, CRISIL said. According to the index, discretionary items such as automobiles and textiles also saw an improvement in freight rates. The improvement of motor carriers is driven by a slow scenario of improvement in vehicle volumes (so far affected by supply issues), while textiles are boosted by car reserve in December after festive shopping seen in November In total, the CRISFrex index improved to 120 in December 2021 from 114 the previous month due to factors this element. In addition, relatively stable fuel prices mean that this increase translates into a direct increase in profit margins. FCF, (preEMI) as assessed by CRISIL, is estimated at around 20% of freight revenue compared to 15% in November 2021, resulting in a consistently increasing profit margin, but margins still slightly below the levels seen in December 2020.
Tags : Press Room freight rates CRISFrex index sustainable segment