Rlys may lose freight traffic to road

The fuel adjustment component (FAC) introduced for rail freight is likely to push up the transport charges by 5.8% and may result in traffic moving away from the state-run transporter to trucks as moving goods by road will get even more attractive. The 5-6% decline in road freight rates over the past few months will add to the competitiveness of trucks, industry players said.

The freight increase will cost the Railways some of the premium cargo moved by it (such as cars) and help consolidate truck freight rates. “The dynamic fuel surcharge will result in a freight change twice a year. Rail transportation of cars will, therefore, become progressively more expensive as we are likely to see an upward revision in diesel prices,” said R Sethuraman, director, finance and corporate affairs, Hyundai Motor India, which continues to use Railways along with road transport for movement of its vehicles.

At present, road transport sector has around 80% share of country’s freight, while Railways’ share has been steadily decreasing — from 32% in 2002 to 20% at present. Industry estimates suggest that the share of cement, which is one of the major bulk cargo items, has dropped by 8-9%. Items like iron ore, coal, steel, fertilizer, petrol product and cement constitute 90% of rail cargo. With transporters getting huge number of heavy duty and multi-axel trucks, some of these major cargos are also getting shifted to the road transport sector.

Absolute comparison of freight charges for each category of items shows that rail charges are less. But factors like safe delivery, continuous availability of booking and delivery point within business centres/markets and business hubs, along with personalized service and better claim settlement make road transport sector more attractive. About 95% of the parcel cargo is transported by road.

The new announcement has not gone down well with the market. “A 5% increase in freight rates from April 1 will generate higher revenues to Railways, but it also runs the risk of losing its already dwindling market share to roads and highways. While improvement in connectivity to mines is a welcome step, increase in freight will not only push up steel prices, it will also add to inflationary pressures,” said Dilip Oomen, MD, Essar Steel.

Industry experts said the focus should be on increasing the speed of cargo delivery than comparing whether it would entail loss for Railways or road transport. “We have a record of cargo moving 30 km per hour by road and 25 km by train, which is dismal. There is a need to bring down our logistic expense to 7% of GDP, which is at present 15% of our GDP,” said S P Singh, convener, Indian Foundation of Transport Research and Training, an advocacy group.