One of the best quotes of Warren Buffett is “Time is the friend of a great business and an enemy of the mediocre one.”
The recent hike in diesel appears to be a part of a mega trend of ever increasing fuel prices.In Nov 2004, the diesel price in Delhi was around Rs.26.Now it is around 47 Rs.In other cities, it is even more.So we have an increase of 80% in this v controlled commodity.
Even at these prices, the oil companies are bleeding and are asking for further increases.Also, the unlimited QE promised by the FED will ensure global crude oil prices remain buoyant.
All these factors point to a future with increasing diesel prices.Now the immediate impact this mega trend is felt on the transportation sector.Freight rates have shot up soon after the announcement of the hike. All India Motor Transport Congress (AIMTC) effected a 15 % increase in the freight charges across the country. AIMTC claims to have around 80 lakh trucks under its fold.
The only real competition to the road haulage comes from the Railways.As per the Parikh report (section 4.9), railways consume 1/4th the diesel per net tonne kilometre as trucks.This implies a huge competitive advantage for the Railways and one of the reasons why Warren Buffett bought a railroad Burlington Northern.
In India, the beneficiary of this mega trend could be Concor (discussed earlier). Its a pity we have the likes of Mukul Roy heading the Railway ministry.But with time as your friend , the future appears promising for Concor.