 "Rly could be losing its high rated cargo to roads, coal gives a breather")
The signs of trouble are already being witnessed with the high rated commodities like cement and white goods showing a shortfall of around 20 million tonne as compared to their target in the first 10 months of the current financial year.
Even though there was an incremental growth in coal and iron ore, which are considered as captive traffic for the railways, the overall freight volume is expected to fall short of its target of 1,025 million tonne by 18 million tonne in 2012-13.
Some experts believe the Railways has already ventured into the territory of losing market share in high rated commodities vis-à-vis roads. There was a drastic shortfall in average lead (distance over which the freight traffic is transported) by around 4% during 10 months ending January 31, 2013.
In the case of cement, for instance, Amey Joshi, analyst, India Ratings & Research Pvt Ltd points out that around 50-60% of the freight expense is on movement by rail.
"This is essentially 15-18% of total costs for a cement company.”
Almost 40-50% of railways' traffic that is coal is carried over long distance running more than 500 kms. For all the other commodities, the average distance is 500 km.
On longer distances, the railways still have the edge. Rail freight rates for distances above 800 km are nearly 60% 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 high rated goods traffic. With industrial units being increasingly set up near raw material centres, this lead enjoyed by the railways is also decreasing.
Hike in freight rates came with economic slowdown causing a 3% fall in the freight loading in third quarter of 2012-13. This was something which was not even witnessed during the economic crisis of 2008-09 when railway freight loading showed a growth.
Interestingly, around 98% of the 36 million tone incremental traffic of railways came from coal in first ten months of 2012-13. There was negative growth in cement and fertilizers and a meager 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 tariff.”
Moreover, food grain is another low-rated (subsidized) commodity which is moved by rail for long or medium leads. The cost of transportation is borne by the Ministry of Finance.
With the inclusion of Fuel Adjustment Component (FAC), the 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.
Though FAC will avoid further deterioration in railways’ financial health, it will not bring in any additional benefit. The cost of providing freight services was Rs 46,494 crore. Of this, the diesel component was 10.5%, while 5.64% went towards electricity charges. So far this financial year, diesel charges have risen 39% and electricity 8%.
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.
In India, 57% of the freight is transported by road, 36% by railways, six% by water and less than one% by air, according to a 2011 report by global consultancy firm McKinsey.
Despite these figures, transporters said 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.
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% 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% 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.
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% 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%, for Europe 10% and for Japan 13.4%. India’s emergence as a manufactured products outsourcing hub is also threatened by costly logistics.