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.

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Draft Policy for Rail Terminals at Ports

The efforts of the railways to provide linkages with ports by setting up terminals at ports cannot come at a more appropriate time.

Once a popular mode of transportation of cargo, railways have been losing market share to other modes of transport in the country. The freight share of the railways in 1951-52, for example, was 79% as against 21% of the road freight share. During the period rail freight enjoyed total dominance of bulk cargo as well as retail parcel cargo on the medium and long haulage. However, over the last 60 years the table has turned around and now road freight enjoys 80% share with rail having a claim of only 20%. According to Delhi-based Indian Foundation of Transport Research and Training, there could be number of reasons for this reversal, but the gradual weakening of rail freight due to negligible investment on replacement and expansion of rolling stock. “Despite economies of scale and lower freight charges, the road freight/ truck transport has expanded at a very rapid pace with the entry of high tonnage and high volume trucks and trailers operating with single all India permit trunk routes with ubiquitous presence covering last mile destinations,” it said.

Early this month the ministry of railways released a draft policy on rail terminals at private ports. It seems to be part of a serious effort to fill the gap in physical infrastructure that exists today and to provide last-mile rail connectivity. “At a time when most of the ports are gearing up to expand their capacities and capabilities to the expected surge in trade in the coming years, railways are on the right track, at least in thinking,” said a port official from Mumbai.

The policy aims to set a framework of development of rail terminals and associated logistic facilities for cargo handling and other related activities at privately developed ports.

On the look of it, the draft policy appears quite attractive and it gives amble evidence to suggest that the railways is willing to learn from mistakes and undo the damages that the department made during its earlier attempts of public-private partnership ventures.

For example, the policy draft says that there would not be any terminal charges levied by the railways on such terminals.
More importantly, the operator will be free to fix tariff for such services offered by him at the terminal. The developer will also be able to independently recover various service charges from its customers for the services provided at the terminal. Similarly, free time for loading and unloading will be as per railways rules. There will also be no wharfage levied for rakes handled in the facilities.

The draft also promises connectivity to the terminals from the nearest suitable railheads. The project would be contracted for 30 years and renewable afterwards. It also stipulates that the port rail terminal has to come up within two of years of signing the contract with the railways.

To make the policy attractive for investors, railways is not levying any security or licence charge. However, the port authority will bear the entire cost of the terminal. All consignment booked to and from the port rail terminal will be prepaid.

According to official sources, the ministry is getting encouraging responses from the industry stakeholders to its request for feedback on the draft paper. “It would take us some time to consolidate and a final policy is put in place,” ETSL was told.

Though the draft policy appears attractive for investors, many in the industry, and especially those who have already joined hands with the railways for transportation of containers, are waiting with crossed fingers for the final policy to make its appearance.

“We were also shown a rosy picture when the department announced its privatization programme of moving containers by rail,” said a private container rail operator. “But you see what is the status those 16 odd players who have taken the licenses. If the ministry wants to attract private investment to its ventures, it should first undo the damage it has done to those who are left stranded and bleeding today for no fault of theirs. Only such a measure could instill confidence among the investors, not otherwise,” he concluded.

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