India's container cargo rail volume rises 17.63% YoY in FY22: Report

The rail co-efficient also expanded by 115 basis points (bps) to 26.70 per cent during FY22, mainly supported by partial connectivity of the dedicated freight corridor (DFC) with Mundra and Pipavav ports on the western coast, as per a press release by credit rating agency CareEdge Ratings. This marks the beginning of the modal shift from roads to rail.

Slated completion of the prestigious Dedicated Freight Corridor (DFC) project by June 2023, a growing movement of cost-effective double-stack container trains and incremental volumes of cement cargo through railways are prominent factors for the switch from roads to rail.

Transit assurance under DFC with a reduction in transit period by 40-50 per cent for some of the routes shall accelerate this transition, said CareEdge Ratings. Based on estimates, inventory carrying cost constitutes 43 per cent of the overall cost of logistics. Thus, a significant reduction in transit duration is expected to help in achieving Just-InTime based inventory management thereby boosting the cost competitiveness of domestic goods. Nevertheless, establishing end-to-end connectivity through the electrification of feeder routes, container freight terminal, and warehousing capacities are crucial for achieving the envisaged modal shift.

Thus, rail volumes are expected to be buoyant due to DFC benefits and cargo diversification in container volumes. CareEdge Ratings has estimated container rail volumes to grow at a healthy compounded annual growth rate (CAGR) of 15.60 per cent for FY2022 to FY2025 with steady improvement of rail-coefficient to 31 per cent and incremental volumes from cement.

Higher land lease payment to the railways is one of the hurdles for the rail logistics segment. However, in September 2022, the Union cabinet approved a reduction in the railway land lease fee from 6 per cent of the market rate of land per acre to 1.5 per cent. The lease period has also been extended from the prevailing period of five years to 35 years.

The new railways land lease policy is also a positive catalyst for the privatisation of the rail logistics sector and the development of 300 cargo terminals.

National Logistics Policy (NLP) aims to bring down the logistics cost of India to less than 10 per cent of Gross Domestic Product (GDP), in line with other developed countries from the existing level of 14 per cent.

The haulage rates are periodically notified by the Indian Railways and the charges paid by container train operators form 65-75 per cent of their total operating expenses. As per a World Bank report, while about 60 per cent of the capacity of the rail network is deployed for passenger transport, the segment contributes only around 30 per cent to Indian Railway’s freight revenue. This translates into extensive cross-subsidisation of passenger fares with freight fares reducing the competitiveness of rail freight over roads.

CareEdge Ratings opines the need for an independent regulator in railways from three key perspectives: (i) rationalising the freight tariff by determining the optimum level of cross-subsidisation of the passenger segment with the freight segment (ii) facilitating private participation by ensuring the protection of their interests, and (iii) transparent dispute resolution mechanism.

Fibre2Fashion News Desk (NB)