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Rail freight volumes to go up, haulage rates remain a concern

While the growing economy is expected to drive rail freight volume growth, rail haulage rates continue to remain a serious concern

Rake capacity in the Indian rail freight industry is bound to grow from the present 300 rakes to 500 rakes by 2013. According to industry experts, looking at the expected growth in volumes, there is a need for more rakes. However, they pointed out that in the segment, rail haulage rates continue to remain a serious concern.

“Increase in rail haulage will weigh heavy on capacity utilisation. Private container train operators may not be able to pass on the hike to customers. They are actually competing with the road sector for the ‘fill factor’. Any increase in haulage rates will put off the customers and they might be tempted to go back to the road sector. Private operators will have little choice but to absorb the hike and margins will take a beating,” said an official from Sical Logistics Ltd.

Rail haulage charges are paid by container rail operators to the Indian Railways for using its track, signalling and telecommunications infrastructure. Such charges could add up to 80%-85% of the operational expenses of such companies.

On being questioned on what would drive the expected growth in volumes, the official said, “The growing economy is the main factor for the planned expansion.

“The present penetration level of containerisation is about 65% in India, which is far below the world average of 80%. And rail haulage of containerised cargo is hardly 8% of it. This presents a huge opportunity for the private container train operators to expand capacity,” the official added.

Sical Logistics is one of the many rail freight companies that will contribute to this expected expansion by 2013. Through its 100% subsidiary Sical Multimodal And Rail Transport (SMART) Ltd, Sical Logistics plans to add eight more rakes in the coming two to three years. Sical currently has five operational rakes. 

In a research report, IDFC SSKI Securities Ltd said, "While the number of operators appears high at 16, we believe there are enough volumes. With 500 rakes expected to be operational by FY12/13, players are eyeing only 3% (97 million tonnes) of the overall freight market. However, volumes are required to be shifted from road to rail, for which operators have to offer timely, reliable and value-added services with last-mile connectivity and customised solutions." 

Among the companies planning huge rake additions is Gateway Distriparks Ltd, through its rail freight unit, Gateway Rail Freight Ltd. The company plans to add three more rakes by the end of FY10. It is also expected to add more rakes in FY11 in order to capture higher volumes in both domestic and international markets.

Arshiya International Ltd plans to scale up to 30 rakes from the present 6 rakes in the next two years. State-run Container Corporation of India (Concor) similarly plans to add 20–25 rakes every year. Currently, Concor has 218 rakes.

The rail freight industry at present faces two major problems—utilisation levels and high rail haulage rate. Utilisation levels are highly dependent on return loads. The private rail freight industry has also been suffering due to high rail haulage rates charged by the Indian Railways.

The break-even level of utilisation depends on factors like distance moved and value-added services. IDFC SSKI has said that the break-even levels can vary from 65%-85% based on the above factors.

While the utilisation levels are expected to be taken care of with the expected growth in rail freight volumes, high rail haulage rates continue to be a serious concern.

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  • Economy wins slowdown battle but loses against prices in 2009

    During 2009, the Indian economy grew at about 7%, but at the same time, food inflation touched more than a decade's high of 20%

    India achieved the distinction of being the second-fastest growing economy amid the global recession in 2009, but the joy was marred by the decade's sharpest rise in food prices to the chagrin of the common man, reports PTI.

    For a country that continued to lose on its exports throughout the year that has gone by, the economy achieved a remarkable growth of about 7% (during April-September 2009) on the back of focused government stimulus in tandem with well-articulated interest rate-cum-monetary policy of the RBI.

    But it is a paradox of sorts that the price line, that dipped from a 13-year high into the negative zone at one point during the year, climbed sharply again, with food inflation touching more than a decade's high of 20%.

    From the growth focus, the government had to concentrate on fighting natural disasters ranging from drought to floods in different parts of the country that led to shortages of food grains, fruits and vegetables. The resultant spurt in their prices caused a political storm.

    To add to this roller-coaster, developments in the economy, including in the share market, the general elections in May that helped the Congress-led United Progressive Alliance (UPA) to retain power, lent further colour.

    In the New Year, fear of rising inflation will continue to influence economic policies, whether it is the monetary review to be announced by the Reserve Bank of India (RBI) on 29th January or the Budget to be unveiled by finance minister Pranab Mukherjee towards the end of February.

    Powered by strong doses of three stimulus packages, the Indian economy did well, only next to China in terms of growth. Despite widespread drought and devastating floods in parts of the country, the economy during 2009-10 is estimated to expand by 8%, up from 6.7% in the previous fiscal.

    India's growth during 2008-09 dipped from 9% on account of the impact of the global financial crisis.

    Stimulus, green shoots and exit policy will continue to remain the buzzwords as the government in the coming year will move forward to withdraw the extraordinary steps it took to fight the impact of the global meltdown, domestic drought and spiralling food prices.

    The focus of economic planners during the initial months of 2009 was to continue the stimulus to tide over the impact of the financial crisis triggered by the collapse of America's iconic banker Lehman Brothers in September 2008.

    Not waiting for the election results, Mr Mukherjee, while presenting an interim budget in February 2009, provided the third stimulus package to the industry by announcing tax cuts and raising public expenditure.

    These stimulus packages, backed by easing of monetary policy by the RBI, yielded some results which economists described as "green shoots". As the green shoots appeared, the economy started looking up and in the second quarter (July-September 2009-10) recorded a high growth rate of 7.9%, much more than anticipated by any analyst or think-tank.

    The impact, however, was not so visible on the external front as exports continued to remain in the negative zone for most part of the year. This has been on account of slow recovery in the external market.

    Now with the US economy recording a growth of 2.2% during the quarter (July-September), though less that the initial estimate of 3.5%, Indian exports too may look up in the future.

    After a gap of 13 months, exports in November registered a growth of 18% and the rise might continue with the global economy gradually recovering from the recession, described as the worst since the Second World War.

    Buoyed by the performance in the second quarter, the Planning Commission and the Prime Minister's Economic Advisory Committee have talked about revising their growth projections once the data for the second quarter was made public. Both these organisations had projected a 6.5% growth rate for the current fiscal.

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