The roughly 20 per cent freight rate hike effected by the railways will undermine their competitive edge vis-a-vis road transport on distances ranging 400-700 km. Freight rates for all commodities except iron ore were raised on March 6 — a few days ahead of the Railway Budget.
On longer distances, the railways still have the edge. Rail freight rates for distances above 800 km are nearly 60 per cent less than those across road transport. However, considering that the average distance over which the railways carry a tonne of cargo is around 600 km, the hike will cut into their share of goods traffic. With industrial units being increasingly set up near raw material centres, this lead enjoyed by the railways is also decreasing. Experts say the railway ministry’s target of raising Rs 10,000-15,000 crore with the rate hike can boomerang, with diversion of traffic. A hike was required but the one effected was too steep, a former railway board member (traffic) said on the condition of anonymity.
Owing to the high cost of freight movement, the 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 GDP. It is higher than the corresponding figures for other major economies, according to a working group report of the Planning Commission on logistics. For the US, it is 9.9 per cent, for Europe 10 per cent and for Japan 13.4 per cent. India’s emergence as a manufactured products outsourcing hub is also threatened by costly logistics.
In India, 57 per cent of the freight is transported by road, 36 per cent by railways, six per cent by water and less than one per cent by air, according to a 2011 report by global consultancy firm McKinsey.
In the past, the railways lost petroleum, oil and lubricants (POL) and iron ore traffic mainly due to the shortage of rolling stock and high costs. In fact, in the case of POL, petroleum companies shifted to pipelines for transportation. “In transport demand, non-monetary factors such as transit time, reliability of the transit time, frequency of service and past experiences with the service also contribute in decision-making,” said a railway official.
Besides the railways' basic freight rate, total charges increase with the levy of the busy season charge (October-June) and a development surcharge levied on top of the two.
| MIDDLE-DISTANCE COMPETITIVENESS (Charges in Rs/ tonne) | ||||
| Destination from Delhi | Distance (km) | Road charge | Rail charge* (After rate hike) | Rail charge (Before rate hike) |
| Chandigarh | 274 | 770 | 337-449.8 | 286-381 |
| Amritsar | 447 | 760 | 523-697.0 | 435-581 |
| Lucknow | 497 | 780 | 576-769.0 | 480-640 |
| Allahabad | 628 | 880 | 738-984.0 | 597-796 |
| Kolkata | 1,461 | 3,000 | 1,635 -2,181.0 | 1,341-1,788 |
| Chennai | 2,095 | 4,660 | 2,331-3,109.0 | 1,758-2,345 |
| Trivandrum | 2,814 | 5,550 | 2,902-3,500.0 | 2,116-2,821 |
| *For high-rated commodities in classes 150 to 200, including cement, bricks and stones, coal, petroleum products and gases, minerals and ores, and iron and steel Source: Transport companies and railways’ rate circular | ||||
Though an official claimed the railways enjoyed an advantage in bulk commodities, where they offered siding facilities, yet if the service quality and a 20-kmph average speed of a freight train were taken, the advantage would take a beating. Besides, while the roadways offer door-to-door service, railway movement sees the additional cost of door-bridging as well as additional handling involved at either end.
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S P Singh, coordinator, Indian Foundation of Transport Research and Training, said, "Of the traffic of goods transported more than 250 km, roads have 80 per cent share and the railways a mere 20 per cent. With the introduction of heavy commercial vehicles (HCVs) and multi-axle commercial vehicles (MAVs), which have higher axle-loading, bulk commodities are also getting diverted to roads. Last year alone, there was the induction of around 300,000 HCVs and MAVs. With the construction of six-lane roads, there is better asset utilisation."
Despite these figures, a transporter admitted the bottlenecks faced in movement of cargo by road were huge. "Transportation by rail does not require any invoice or any kind of 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.
Besides, the roadways are highly competitive 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 published rates, says a transport agency employee on the condition of anonymity.
In the case of railways, the rates are fixed on a distance basis without any geographical, directional or seasonal variations. The pricing continues to be on uniform distance and commodity classification.