Railway freight tariff to go up from Oct 1

Railway freight tariff will go up from October 1 due to the increase in fuel cost but passenger fares will remain untouched, according to Minister of State for Railways Adhir Ranjan Chowdhury.

However, he did not quantify the percentage of hike in freight tariff saying it was a budget proposal to review the fuel adjustment component (FAC) after six months.

“Tariff has already been increased. As per the proposal of the budget, it will be hiked again in October,” said Mr. Chowdhury on the sidelines of a conference here.

Railways had earlier hiked the freight rate by 5.7 per cent in April 1 while linking the fuel adjustment component (FAC) with goods tariff. FAC is linked with fuel and energy prices and calculated accordingly.

Asked whether passenger fares will also be considered for further hike, Mr. Chowdhury replied in the negative. “No it will be freight only,” he said.

“The FAC is proposed in the budget. It is a budget proposal that tariff will be examined taking the fuel cost in mind after every six months,” Minister said.

However, he said, “It will be in a dynamic way. If the global oil price will decrease then freight tariff will also decrease,” and added “the rupee value…current scenario is volatile. It is a concern for all of us.”

Railways is in the process of setting up Rail Tariff Authority (RTA) for which it got cabinet approval this month.

Once the RTA is constituted, it will suggest the level of tariff for both the freight and passenger fares from time to time taking into account the input cost and volatile market conditions.

While delivering his address at the conference on “Modernisation of Indian Railways — Challenges and opportunities,” Mr. Chowdhury said India should emulate China’s progress in the field and batted for “friendship” between the two countries.

“It is my wish to travel from Delhi to Beijing in a train because China is our neighbouring country.

“When we are talking of a barrier-free world, let us dream first. All problems will be solved if friendship between elephant and dragon is established,” he said.


Another rail fare hike in October?

Come October, rail commuters are likely to be served another dose of fare hike. During that month, the Railways will review the fuel adjustment component (FAC) and the burden arising from the rise in diesel and electricity costs will be passed on to passengers.

The increased freight rates, supplementary and reservation charges announced in the Railway budget for 2013-14 will come into effect on April 1.

Fares for animals and birds too have been raised by at least 25 per cent. Speaking at the National Editors Conference here on Saturday, Railway Board Chairman Vinay Mittal said the FAC would be next reviewed in October. Mr. Mittal said freight charges had been hiked (with effect from April 1) by 5.7 per cent, passing on the entire burden of Rs. 3,300 crore caused by the huge hike of Rs. 10.8 a litre of diesel for bulk purchasers.

The railways had absorbed the load on itself as the fares had been increased in January. In future both the fares and freight rates would be increased to offset the loss.

Oil marketing companies effected a second hike of Re. 1 for bulk purchasers after the Railway Budget was presented. Given the policy decision to pass it on to the consignors and consumers, the next hike in passenger and freight rates is bound to come in October.

In tune with the budget proposals, the Railways have notified the 5.7 per cent across-the-board freight rate hike with effect from April 1, which would yield Rs. 4,200 crore during the next fiscal.

Though the organisation claims it had absorbed the financial loss of about Rs. 800 crore on account of passenger trains, the fact is that the budget proposals increasing reservation fee and supplementary charges for trains, tatkal charges, and clerkage and cancellation charges would mop up more than Rs. 850 crore during 2013-14.

All these revisions have been notified and will be effective on journeys starting on April 1. As per the fine print of the circulars, the tatkal charges would be realised at the rate of 10 per cent of the basic fare for reserved second class sleeper and 30 per cent of the basic fare for all other classes subject to the minimum and maximum charges specified. The increase ranges from Rs. 15 to Rs. 100 depending upon the class.

Second and sleeper classes have been spared from the hike in the reservation fees, while all other high-end passengers will have to shell out increased charges ranging from Rs. 15 to Rs. 35 a person.

Supplementary charges for superfast trains have been increased for all classes ranging from Rs. 5 to Rs. 25. Add to this increased clerkage charges of Rs. 5 for second class and Rs. 10 for all other classes.

Service tax will be levied separately on both the reservation fees and supplementary charges.

Cancellation charges too have been raised by Rs. 5 for second class, while others will have to bear additional burden ranging from Rs. 20 to Rs. 50.

Mr. Mittal said that due to paucity of funds, priority would be given to projects on the verge of completion or considered critical.

The emphasis was on improving the network in mountain States. Jammu and Kashmir, the north-east and Uttarakhand would get priority.

The Qazigund-Banihal section would be commissioned by May first week. The section would pierce the Pir Panjal Himalayan Ranges, thanks to the 11.2-km tunnel.

The Railways were in touch with the J&K government for issuing a composite rail-road ticket to facilitate hassle-free travel for passengers as a direct rail link between Jammu and Srinagar was yet to be put in place.

Trains operate only up to Udhampur and would be linked with Katra soon. But the stretch between Katra and Banihal is posing several engineering challenges.

Environmental clearance was holding up the progress in Sikkim, but work on laying the track up to Rangpo was in progress. In Manipur, work was affected by the economic blockade.

Acknowledging the strategic importance of extending the rail network right up to Tawang in Arunachal Pradesh, Financial Commissioner Vijaya Kanth said a survey had been undertaken.


Railways may decide on passenger fare hike in October

A decision on a possible hike in passenger fares will be taken by the Railways in October, when it will review the fuel adjustment component (FAC) in the wake of rising fuel and energy costs.

While the freight rate will go up by about 5.7 per cent from April 1 due to the linking of the FAC to the freight tariff, the Railways will examine its applicability in its passenger services in October this year.

“There is a policy now and the FAC is linked with energy and fuel prices and calculated accordingly,” Railway Board chairman Vinay Mittal said at a conference.

Passenger fares could go up by 2 to 3 per cent if the FAC is linked to the basic fare in passenger services in October.

“The FAC will be reviewed after six months for both freight and passenger fares. Whether the FAC will be reduced or increased, it will be examined in October and a decision will be taken only then,” he said, adding, “by that time, the Rail Tariff Authority is also expected to be constituted.”

The Rail Tariff Authority, the first of its kind for the Railways, will suggest the level of tariffs for both freight and passenger services from time to time, taking into account input costs and market conditions.

Mr Mittal said currently the RTA is in the inter-ministerial consultation stage and a Cabinet note will be prepared for it shortly.

“The FAC for passenger and freight are calculated separately. While we decided to link the FAC with freight tariff from April 1, we absorbed the increased fuel cost of Rs. 800 crore and did not hike passenger fares,” he said.

“Since we raised the passenger fare in January we did not consider it again, and the FAC was implemented for freight only,” he said.

Asked repeatedly whether or not the FAC will be imposed in October, Mr Mittal, however, said “I am not in a position to say that now because it will be reviewed and then a decision will be

The FAC, which takes into account both electricity and diesel costs, is about 16 to 17 per cent of the total expenditure. There is a 39 per cent hike in fuel cost and an 8 per cent energy hike till January 2013 from April 2012.

Mr Mittal also said that the Railways is focusing on fiscal discipline by curbing expenditure.

Referring to passenger amenities, he said measures are being taken to bring down the accident rate and improving passenger amenities at rail premises.


Rlys needs more steam for cargo edge

The inclusion of a Fuel Adjustment Component (FAC) in freight rates with effect from April 1, coupled with a roughly 25 per cent rise in these rates since March 2012, could undermine Indian Railways’ (IR’s) competitive edge further vis-a-vis road transport over distances up to 700 km.

Signs of trouble are already being witnessed, with high rated commodities such as cement and white goods showing a shortfall of around 20 million tonnes as compared to their target in the first 10 months of the current financial year.

Though there was an incremental growth in coal and iron ore, considered captive traffic for IR, overall freight volume is expected to fall short of its target of 1,025 mt by 18 mt in 2012-13. Some experts believe IR has begun losing its market share in high-rated commodities to road haulage. There was a shortfall in average lead (distance over which the freight is transported) by around four per cent during the 10 months of this financial year ending January 31.

The figures
Amey Joshi, analyst, India Ratings & Research, says 50-60 per cent of the freight expense in cement is on movement by rail. “This is essentially 15-18 per cent of total costs for a cement company,” he said.

About 40-50 per cent of rail traffic is coal, carried over distances more than 500 km. For all other commodities, the average distance is 500 km.

On longer distances, IR still has the edge. Rail freight rates for distances above 800 km are nearly 60 per cent less than those across road transport. However, considering the average distance over which the railways carry a tonne of cargo is around 600 km, the freight rise is expected to cut into their share of high-rated goods traffic. With industrial units increasingly being set up near raw material centres, this lead enjoyed by IR is decreasing.

The rise in rates came with an economic slowdown causing a three per cent fall in freight loading in the third quarter of 2012-13. This was not seen even during the economic crisis of 2008-09, when railway freight loading showed growth.

Interestingly, around 98 per cent of the 36 mt of incremental traffic came from coal in the first 10 months of 2012-13. There was a fall in cement and fertiliser and a meagre increase in POL (petroleum products) transportation.

An ex-Railway Board official told Business Standard, “The railways could retain only those high-rated bulk commodities in 2012-13 which had no other option. As coal is dispatched in large quantities, it has no other viable mode of transportation. And, hiking of freight for coal would indirectly pinch the railways in the form of increase in electricity rates.”

Foodgrain is another low-rated (subsidised) commodity moved by rail for long or medium leads. The cost of transportation is borne by the ministry of finance.

With the FAC inclusion, prices will be reviewed every six months. “Fuel price adjustment has to be dynamic and it can go either way, according to the movement of the fuel prices,” said Railways Minister Pawan Bansal.

The diesel component in freight services is 10.5 per cent, while 5.64 per cent goes to electricity charges. So far this financial year, diesel charges have risen 39 per cent and electricity by eight per cent.

Alternative haulage
Though an official claimed IR enjoyed an advantage in bulk commodities, where they offered siding facilities, if the service quality and a 20-kmph average speed of a freight train were taken, the advantage would take a beating. Besides, while roadways offer door-to-door service, rail movement sees the additional cost of door-bridging and additional handling at either end.

In India, 57 per cent of freight is transported by road, 36 per cent by IR, six per cent by water and less than one per cent by air, according to a 2011 report by global consultancy firm McKinsey.

Despite these figures, transporters said the bottlenecks faced in movement of cargo by road were huge. “Transportation by rail does not require any invoice or permit to cross state boundaries. In roadways, there are 17 authorities that can stop a truck. If they have any doubt over the commodity carried, the truck is held up for days and sales tax inspectors earn a lot of money from that,” said Rajinder Kapoor of Kapoor Freight Carriers.

Road transportation, however, provides a highly competitive option, as a majority of trucks in the country are run by a single owner. Less than six per cent of the ownership is of those with a fleet of 20 or more trucks. Rates are usually higher in the onward journey and lower on the way back but there is very little empty running over long distances. The actual rates charged from regular bulk customers are usually 10-15 per cent lower than the published rates, says a transport agency employee, on condition of anonymity.

In the case of IR, the rates are fixed on distance,without any geographical, directional or seasonal variations.

Owing to the high cost of freight movement, logistics cost in the country, which includes inventory control, transportation, warehousing, packaging, losses and related administration costs, is estimated at roughly 13 per cent of gross domestic product. The corresponding figure for other major economies, according to a working group report of the Planning Commission is 9.9 per cent for the US, 10 per cent in Europe and 13.4 per cent in Japan. India’s emergence as a manufactured products outsourcing hub is impacted by costly logistics.


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.