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Container train firms now need some relief

Container train firms now need some relief
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First Published: Thu, Nov 13 2008. 10 40 PM IST

Updated: Thu, Nov 13 2008. 10 40 PM IST
Private firms operating container trains are seeking a government bailout after their fortunes fell in the wake of the global financial crisis and slowing demand for goods just 20 months into their existence.
Since September, international traffic has dropped by almost 20% on a year-on-year basis, forcing container train operators to park some 12 rakes (one rake comprises 90 twenty-foot equivalent units, or TEUs, the standard size of a container) a day on an average due to lack of cargo.
The operators have now petitioned the railway ministry for a rollback of the steep increase in rail haulage charges ranging from 5% to 16% depending on various weight slabs, that came into effect from 1 August. These operators have to pay rail haulage charges to the Indian Railways for using its tracks, signalling and telecommunications infrastructure. Such charges typically account for 80-85% of the operational expenses of a rail operator.
Since allowing private firms to operate container trains from early 2007, the ministry has introduced several new charges and increased some others that have resulted in higher overall cost of operations for these firms. These include 2% surcharge on haulage charges, an increase of 50% in parking charges to Rs13,500 per rake per day from Rs9,000 earlier and access charges for using the goods sheds of the railways to load and unload containers.
In the seven years between 1998 and 2005, the total quantum of rate increase for rail haulage charges on containers was 51%. Whereas, in the brief period between November 2005 and October 2006, the haulage charges were raised by 21-55%, just a few months before the railways signed agreements in January 2007 with 15 new firms to run container trains across India.
The revenue from rail haulage of containers represents just about 3% share of the total freight revenue of the railways.
In comparison, during the last four years, there has been no increase in rates for transportation of six major commodities on wagons of the railways that account for more than 75% share of its freight revenue.
In fact, the rates for a consumer goods product such as edible oils have been reduced by around 33% during this period.
Since the railways has been able to maintain price stability for all the major commodities, which account for at least 75% of its freight revenue share, the need to increase rates for container traffic that represents only a 3% revenue share does not make any economic sense. Such an increase will have a negligible impact on railway finances, but will have a significant impact on the prices of containerized traffic that is still in a nascent stage in the domestic market.
In the export-import sector, India’s inland rail haulage charges (the rates for moving cargo containers from inland locations to the ports and back) are already among the highest in the world, and a further increase has hit export competitiveness, on the one hand and raised input costs through higher import prices, on the other.
The impact of the August hike in haulage charges and the waning demand for cargo have had a debilitating impact on the 15 new licensed container train operators, which had invested at least Rs1,200 crore to buy around 60 rakes and set up inland cargo terminals. In addition, state-owned Container Corp. of India Ltd, or Concor, the erstwhile monopoly rail hauler of containers, owns an additional 180 rakes.
Some private operators facing huge losses may soon go out of business. The plans of a few others to buy 130 rakes more with investments worth Rs1,600 crore may have to be shelved for the time being.
The private container train operators say a stable price regime is necessary to ensure the success of a policy that was aimed at breaking the monopoly of Concor, introduce competition, reduce rates and attract container traffic from road to rail.
But the current pricing structure does not enable these companies to compete with road as the additional cost to the operator tends to raise the cost to the customer, making it difficult to wean away container traffic from road to rail.
The railway ministry, headed by Lalu Prasad, which believes in the volumes game to garner more revenues, needs to act fast before the crisis deepens to derail the policy.
The ministry had recently effected a 10% reduction in haulage charges for domestic movement of containers that account for 30% of the total containers that are transported by rail. This is for two months from 1 November till 31 December.
But international cargo, the major chunk that accounts for 70% of the share of containerized rail traffic, is still without any relief. India’s exporters and importers, working with tight budgets in these tough times, would only stand to gain from a cut in rail haulage charges.
P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday.
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First Published: Thu, Nov 13 2008. 10 40 PM IST