Food Bill May Boost Freight Movement of Railways: Official

Indian Railways expects a huge movement of food grains across the country, once the UPA government’s proposed Food Security Bill is passed, a senior official said here today.

D P Pande, General Manager of South-Central Railway said the national carrier encourages private freight terminals under the PPP model to meet the future cargo handling demand from all sectors.

“As per our estimation, with Food Security Bill, there will be a major increase in the rail movement across the country. In Andhra, as a strong producer of food grains, there will be an increased movement,” Pande told reporters in a press conference.

The landmark legislation aims at giving legal right over a uniform quantity of 5 kg food grains at a fixed price of Rs 1-3 per kg via ration shops to 67 per cent of the population.

He said the cement industry in the country has made investments worth nearly Rs 30,000 crore to increase capacities which would be required for transportation.

According to him, the major constraint for Railways is terminals. Freight handling terminals have to be increased proportionate to tonnage.

“That is why we promulgated private freight terminal policy. Anybody, who can set up a terminal in a private property, we will provide the authority to handle goods and he can charge the customers,” Pande explained.

The Ministry of Railways, in 2010, had finalised policy on Private Freight Terminal (PFT) with the participation of the private sector.

The main objectives of this policy are to enable rapid development of network for freight terminals with private investment to integrate rail transport with supply chain to provide efficient and cost effective logistic to end users.

It would also provide a new business opportunity to the investor who gets rail access to handle third party cargo. This policy has become effective from 31st May, 2010.

Pande said South Central Railway aims to garner Rs 11,700 crore revenue in the current fiscal as against Rs 10,036 crore last year.

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.