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Monopoly over, Concor forced to drop rates to retain market share

Monopoly over, Concor forced to drop rates to retain market share
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First Published: Wed, Jan 23 2008. 11 46 PM IST
Updated: Wed, Jan 23 2008. 11 46 PM IST
Mumbai: The state-run Container Corp. of India Ltd, or Concor, India’s biggest carrier of cargo containers by rail, has started offering incentives, even dropping rates, to retain customers, after private firms started operating container trains early last year.
India privatized container rail freight services in 2006 through a policy that effectively ended Concor’s monopoly in this business. Since then, the government has given rights to operate container trains on various routes to 12 private entities and three state-owned firms—Concor, Central Warehousing Corp. Ltd and Krishak Bharati Cooperative Ltd.
All through 2007, Concor did not hike its rates. In 2006, the firm increased tariffs four times. Concor’s rates have now become a sort of benchmark for private operators. In June last year, Concor actually cut rates for hauling forty-foot equivalent units or FEUs after the railway ministry revised the haulage charges for this segment of cargo containers.
“Earlier, the cost of moving an FEU by rail was twice that of a twenty-foot equivalent unit (TEU). But, in June 2007, the railway ministry reduced the haulage charges for FEUs by making it 1.8 times that of a TEU. We passed on the benefits of lower haulage charges levied by the railway ministry from us to our customers by reducing the rates,” said a Concor official who did not want to be named.
A TEU is the standard size of a container and is a common measure of capacity in the container business. An FEU is double the size of a TEU.
The railway ministry prescribes haulage charges for transportation of containers by rail from time to time. The haulage is charged in terms of rupees per TEU per 1,000km.
The haulage charges set by the ministry become the base rate to which operators such as Concor add their own capital and operating costs to arrive at the rates to be charged from exporters and importers. These operators pay haulage charge to the ministry for using the railways’ track, locomotives, signalling infrastructure and staff for running their container trains to ports from inland locations and back.
The railway ministry last revised the haulage charges for transporting containers on 1 November 2006, just two months before it signed an agreement with 15 operators, including Concor, on 4 January 2007 for running container trains. The agreement, among other things, allowed the ministry to revise the haulage charges to be levied on operators twice a year. Any increase or decrease in haulage charges is typically passed on to exporters and importers, resulting in higher or lower freight rates, as the case may be.
Since starting operations, private operators have weaned away 5,000-6,000 TEUs a month from Concor’s flagship inland cargo terminal located at Tughlakabad near Delhi, to Loni, which has now become a cargo hub for private operators till they set up their own individual inland cargo terminals. The Loni terminal, owned by state-run Central Warehousing Corp., is managed by World’s Window Infrastructure and Logistics Pvt. Ltd. The Loni facility is located near the Delhi border in Ghaziabad district of Uttar Pradesh.
Private operators are charging rates on par with those levied by Concor, but are luring customers by promising shorter transit times and better service levels. And Concor, 63% owned by the Indian government, is striking back by offering incentives and lower rates to hold on to its market share. Concor transported about 32% of the 5.43 million TEUs handled at Indian ports last fiscal.
“We are giving volume discounts, bulk discounts, rebates, lower rates for moving empty containers and longer free time for clearing loaded import containers to retain customers,” said the Concor official. The discounts and rebates vary from customer to customer, he said. A longer free time would mean importers get extra days to clear their goods moved by Concor from the port to inland cargo terminals without paying demurrage and ground rent.
Concor used to give volume discounts earlier also, but this was restricted only to a few major clients. “Now such incentives are being offered across the board to whoever commits certain volumes over a period of time,” the Concor official said.
“Market dynamics will start functioning if there is no monopoly,” said Yogendra Sharma, president, Inland Conware Pvt. Ltd, the container operating unit of the Adani Group.
“Effectively, all these incentives mean the logistics costs have come down by 5-10%,” said an official at Sical Logistics Ltd which will start container train operations in the next few days. India spends about 13-14% of its GDP on logistics costs. This figure is 7-8% in developed countries.
Concor moved 1,715,661 TEUs to and from ports in the 12 months to March 2007. Out of this, 20%, or 343,132 TEUs, was hauled on the Tughlakhbad-Jawaharlal Nehru Port (JN Port) sector alone. JN Port in Mumbai is India’s busiest container port handling more than 60% of the 5.43 million TEUs handled at all the ports in India through March 2007.
It costs between Rs16,450 and Rs27,600 for moving a loaded 20-foot container from Tughlakhbad to JN Port depending on weight slabs of 12, 12-20, 20-27 and 27-30 tonnes. For transporting a 40-foot loaded container on the same sector, the rates range from Rs31,200 to Rs34,700 depending on weight slabs of 18, 18-24 and 24-30 tonnes. The rate excludes a 2% development surcharge on freight levied by the railway ministry from container train operators from August last year. The surcharge is being recovered from the exporters and importers.
The rates for inland movement of containers have been historically more expensive than ocean freight largely due to the presence of a single player (Concor) and shortage of wagons.
Rail costs are high in India when compared with global standards. The cost of moving one TEU over a kilometre from Tughlakabad to JN Port by Concor is 50% higher than what it costs to move a TEU over 1km in the US.
Private players argue that they have no choice but to peg their rates on par with the dominant player. “Why should we offer rates that are lower than Concor? Our cost of operations is higher. We are procuring wagons at much higher cost than Concor and are investing in setting up inland cargo terminals. No private operator will like to eat into their margins. We are all trying to build a customer base and survive,” said an official with ETA Engineering Pvt. Ltd, which also holds a licence to run container trains.
“When it was the only player operating container trains, Concor would have hiked rates without thinking twice. Now, it can’t because if other players don’t follow, it will lose. The arrival of private players have at least ensured that the rates have not gone up. They have remained where they are. That’s been the biggest plus from the entry of private operators,” said the Sical Logistics official.
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First Published: Wed, Jan 23 2008. 11 46 PM IST