Mumbai: Prices of some of the consumer goods that are moved by container trains may rise, adding pressure to rising inflation.
Freight rates for container trains are set to go up from 1 January. Both state-run as well as private companies plan to increase rates by 8-10%, following a 3-6% increase in haulage charges by Indian Railways from next month for using its tracks, signalling and telecommunications infrastructure. This, in turn, will force manufacturing firms to raise prices of consumer goods that are moved by container trains.
Many freight forwarding and manufacturing companies are considering diverting their cargo from rail to road because once the new rates take effect, transportation by roads will become at least 20% cheaper than container trains. India’s inflation accelerated to a 10-month high of 4.78% as food costs surged last month.
Growth track: Cargo trains at the Tughlakabad railway yard in Delhi. According to a recent report, the demand for freight transport is expected to rise from 2.8 billion tonnes now to 5.2 billion tonnes by 2015. Rajkumar / Mint
“The haulage charges constitute 75% of our operating cost and we have no other option but to pass on this rise to consumers. There have been frequent increases of haulage charges by Indian Railways and we cannot compete with road,” said Sankalp Shukla, chief executive and managing director at Innovative B2B Logistics Solutions Pvt. Ltd, the first private container train operator in the country.
“There is an increase of 66% in the freight rate since the new container train policy was announced in early 2006,” Shukla said. The rate for moving a standard 20ft container from Delhi to Mumbai has risen to Rs29,376 from Rs17,667 in early 2006.
Taking into account congestion on roads and delays in goods traffic, the government has been encouraging the trade to move the cargo by rail, considered safer and cheaper. Indian freight transport currently carries some 2.8 billion tonnes of cargo, of which rail transport makes up 30-32%.
The demand for freight transport is expected to rise to 5.2 billion tonnes by 2015, analysts Amit Adesara and Aanchal Jain at Emkay Global Financial Services Ltd, a domestic brokerage, wrote in a 15 December report.
“If there is a rise in rates, we will re-evaluate the options and might move the cargo by road,” said Rakesh Kumar Sinha, chief operating officer (marketing and operations), Godrej Consumer Products Ltd, the maker of Cinthol soaps and Godrej No 1, a Rs500 crore soap brand with market leadership in north India. He, however, said that his firm has not yet been told about the rise in container train freight rates.
Mark Fernandes, who heads the shipping and aviation committee of the Indian Merchants’ Chamber, sees a threefold impact of this increase in container train freight rates.
“Firstly, ICDs (inland container depots) will lose the business, as people will not opt for container trains to move the cargo. Secondly, more shippers will move their cargo by road since it is cheaper. Thirdly, there will be heavy congestion at the ports as the exporters directly take their cargo to gateway ports by road,” Fernandes, promoter of freight forwarding firm Sylvester Forwarders Pvt. Ltd, said. His clients include UB Group and Punj Lloyd Ltd.
ICDs, also known as dry ports, connect the cargo to a gateway port through a rail link.
India privatized container rail freight services in 2007, ending the monopoly of state-run Container Corp. of India Ltd, or Concor.
The government has since allowed 13 private operators and three state-owned firms— Concor, Central Railside Warehouse Co. Ltd, a subsidiary of Central Warehouse Corp. Ltd, and Krishak Bharati Cooperative Ltd—to run container trains on various routes.
State-run Concor has already informed its clients about the 8% increase in freight rates, according to its website. The list of private companies that run container trains includes Gateway Distriparks Ltd, Boxtrans Logistics (India) Services Pvt. Ltd, Hind Terminals Pvt. Ltd and Adani Logistics Ltd.
Anil Ambani-owned Reliance Infrastructure Engineers Pvt. Ltd and Krishak Bharati are yet to run container trains.
“We will inform the trade about the rate increase. The Indian Railways are even charging when we are moving empty wagons. The rail is getting more expensive and road movement is getting cheaper by 20%,” said R.C. Dubey, president of the Association of Container Train Operators.
According to the Emkay report, India has a 30% containerization growth rate, with containers fast becoming the preferred mode of transporting goods such as garments, auto ancillary, electronic goods, cotton yarns, granite products, leather and jute products.
“Globally, 80% of such cargos are containerized owing to its innumerable benefits and better economy. During FY07 and FY08 container traffic increased by 16.8% and 21.1%, respectively, compared to cargo traffic of 9.5% and 11.9% during the same period,” the report said.