India

ICRA said the industry is shifting to a scenario where supply outpaces demand, limiting pricing flexibility and weighing on margins.

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India’s road logistics sector is expected to face margin pressure in FY27 as rising fuel costs and weak pricing power offset revenue growth, according to a latest report by ICRA.

Operating margins are likely to contract by 150–200 basis points, assuming a ₹10 per litre increase in fuel prices, marking a reversal from the pandemic period when strong demand supported margin expansion.

The sector is projected to post revenue growth of 8–10 per cent in FY27, largely driven by higher freight rates, while volume growth is expected to remain subdued amid inflation, supply chain disruptions and weak consumption.

Fuel, which accounts for 50–60 per cent of operating costs for largely diesel-powered fleets, remains the key cost driver. Diesel prices rose about 8 per cent in May 2026, while freight rates increased around 7 per cent, indicating only partial pass-through due to intense competition and excess capacity.

ICRA said the industry is shifting to a scenario where supply outpaces demand, limiting pricing flexibility and weighing on margins.

Macro challenges

Macroeconomic challenges, including inflation, supply chain disruptions and a potential El Niño impact on rural demand, are expected to weigh on freight volumes, particularly in sectors such as FMCG and automobiles. At the same time, government infrastructure programmes such as Bharatmala Pariyojana, PM Gati Shakti and the National Logistics Policy, along with growth in e-commerce, are expected to support medium-term demand.

Organised logistics players are likely to be better positioned to manage cost pressures through fuel pass-through clauses and long-term contracts, while smaller fleet operators may face greater stress in the fragmented market.

According to the report, industry feedback indicates fuel cost increases are typically passed on with a lag, though the extent varies across segments depending on contract structures and demand conditions.

Despite margin pressure, credit metrics are expected to remain stable, with most rated entities in the investment-grade category and debt levels likely to remain under control as fleet expansion slows.

ICRA said elevated fuel costs could accelerate structural shifts in the sector, including greater adoption of electric trucks, improved route optimisation and a gradual shift from unorganised to organised operators.

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