Arshiya International has been one of the late—but profitable—players in the private rail freight segment in India. Its CMD Ajay S Mittal talks to Moneylife’s Amritha Pillay on the company’s rail freight business

Amritha Pillay (ML): While other players in the rail freight industry are grieving over low utilisation levels, Arshiya International has been able to turn the business profitable. How has this happened?
Ajay S Mittal (ASM): We decided to enter the rail freight market only when there was a demand from our customers. It took us about two years to understand and observe this industry and study its pitfalls. This was an advantage that we had as the last mover. It was the success of Container Corporation of India (CONCOR) that prompted many private players to enter the rail freight business. At that time, CONCOR used to have around 50-60 rakes but their market capital share was about Rs7,000 to Rs8,000 crore. Many players thought that if they can invest about Rs100 crore to Rs200 crore for 10-12 rakes and have a market capital of Rs1,000 crore, then it’s not bad at all. So today there are a lot of private players in the business, with Arshiya as the last entrant, probably.

ML: Being probably the last private player to enter the rail freight business, what was your focus and what were your strategies?
ASM: Firstly, our market segment was very different. We were focusing more on domestic routes rather than international ones. We still have not done a single rake on the Jawaharlal Nehru Port Trust (JNPT) to National Capital Region (NCR) route, on which other operators focused. Ours has been a purely domestic services operation for customers who were in the process of evacuation and shifting. Basically, evacuation is related more with moving your stuff by road freight services which ultimately involve dealing with multiple truck operators. Then there used to be delays and the overall evacuation would take more turnaround time compared with rail freight services.

Second, over the next three years, we ensured that all our customers use our rakes for their evacuations. For evacuations, customers prefer long-term solutions rather than one-day relief, so we focused more on that. At the same time, we increased the number of our rakes. There was no point in going to multiple customers with a single rake which would have probably solved their problem (only) for a single day.

ML: While your rakes were increasing in number, how did you ensure a return load with the company’s long-term contracts with customers?
ASM: Suppose we are transporting something from point A to point B. While taking the booking at point A, we ensured that there would always be some load at or around point B which will be transported back towards point A. We had a three-year traffic movement plan in place and knew the movement of rakes in advance. This helped us in making sure that we had return load as well. We developed infrastructure at all points where our rakes usually ply and used it for booking and transporting loads from one place to other.
 
ML: Arshiya is planning to add another 30 rakes by 2011. Other players are also planning similar moves. Do you think there would be demand for all these rakes in the future?
ASM: Last year, India recoded freight movement of about 2.8 trillion metric tonnes, out of which the share of rail freight was 30%. So even if the country grows at a modest 6% till 2020, the economy will also double, which may double traffic movement in the domestic market. Even at this modest pace, the railways will need to double capacity to meet the demand of rolling stock. So there would always be demand for more rakes. Looking at the potential, we are planning to increase our capacity to around 500 rakes over the next five to seven years.

ML: With the railways being a government-owned entity, how has its support been to private players in the freight business?
ASM: The Indian government has been providing good support to the railways. From the days of Lalu Prasad Yadav as railway minister, the Indian Railways has been showing increased interest in the freight business. The government has invested heavily in developing dedicated rail freight corridors across the country. Rail freight’s 30% share in the domestic cargo movement has been achieved at a fast pace mostly during the past four years. There is also a realisation about the (dynamics of) rail freight and how it can be more efficient in terms of time and money. There is also realisation over the need to improve visibility with better tracking methods and strict measures to prevent theft.

ML: Do you think the dedicated Mumbai-New Delhi freight corridor that is being planned would help cargo movement between these two regions?
ASM: With the dedicated freight corridor, we believe there would be improvement in cargo movement. As the corridor would allow trains to travel three times faster, it will also help us in reducing the total rakes on this route. Suppose if at present I have to deploy 30 rakes on this route, in future I may need only 10 rakes as the travel time would come down by a third.

ML: Though huge investments have been planned for rail freight, don’t you think that high rail haulage rates would be a serious issue for private players?
ASM: High rail haulages rates are a short-term problem and not a long-term one. Any industry that is being privatised in any country will always have its own share of initial problems. I agree as a private player I do face problems with the ministry. I feel the Indian Railways needs to understand the rail freight business at a macro level. Proper evacuation options through rail need to be ensured to meet the current pace at which India’s economy is growing.

ML: Other than Arshiya International, some other private players in the rail freight industry are facing problems like under-utilisation, no return load and high haulage rates. How do you expect this industry to perform in the coming years amid these shortcomings?
ASM: I don’t look at this business from a short-term view. I think looking at the business with a two-year or three-year perspective would be very wrong. While some players could not turn it into a profitable segment the first time, that does not mean that they are wrong in their decision to enter the segment. Every infrastructure project has a gestation period. In fact, India needs this sector desperately.