Middle East fuel shock drives margin squeeze for Indian road logistics, says ICRA

The Middle East fuel shock is turning into a margin problem for India’s road logistics sector. Surging pump prices are projected to squeeze operating margins for India’s road logistics sector upto 200 bps in FY 2027, according to rating agency ICRA’s note (pdf). Even as fleet operators scramble to pass the burden of costlier diesel onto customers, structural cost lags and soft volume growth are choking profitability.

Why it matters: The sector is absorbing part of the Middle East crude shock. Freight rates are rising, but soft demand and delayed pass-through and a fragmented operator base mean logistics companies are still expected to lose margin in FY 2027.

The estimate is based on diesel prices rising by INR 10/litre, with 90% of that increase passed through to customers. Diesel prices have already risen by INR 7.5/litre, after four hikes in May 2026. Compressed natural gas (CNG) prices also rose by 8%.

Freight rates are rising, but not enough to protect margins. Average freight rates from Delhi to major Indian cities were 7% higher in May 2026 compared to February 2026, reflecting the fuel-price reset. The sector is still expected to report up to 10% revenue growth in FY 2027, but that will come mainly from higher freight rates rather than a surge in the cargo volumes.

Fuel accounts for 50-60% of fleet operators’ operating costs and around 55% of revenue, making diesel and CNG prices the main swing factor for margins. Other crude-linked inputs, including tyres, lubricants and diesel exhaust fluid, add to costs because they are not always covered under fuel pass-through clauses.

Smaller operators have less room to absorb the shock. Small fleet operators account for 75-80% of India’s road logistics market, while operators with fewer than five trucks make up around 80% of the industry. These operators may absorb part of the cost increase to keep trucks running.