June 04, 2007	Monday	Jamadi-ul-Awwal 18, 1428

THE Indian government opened up a key sector of freight movement — the railway freight containers business — to private players about two years ago. But movement has been rather slow, in fact as slow as container movement on the tracks of Indian Railways.

About three-dozen companies showed interest initially when the government called for bids from the private sector. However, finally just 14 companies acquired licenses for movement of containers. Ten of them acquired a license for nationwide movement of containers (at a cost of $12 million each), while the remaining four obtained route-specific licences for $2.5 million each.

Railway freight container movement has been dominated all these years by the Container Corporation of India (Concor), a government of India enterprise. However, over the years the government has diluted its stake in the company, and now controls 63 per cent of it. Among the 14 new license-holders are two state-owned firms, Central Warehousing Corporation (CWC) and Krishak Bharati Cooperative.

The delay in rolling out the services was mainly because of the absence of a model concession agreement (MCA). Now that the MCA is in place, the government expects significant movement, both on the tracks and in the sector.

Last week, APL (formerly American President Lines), which is part of Singapore-based Neptune Orient Lines (NOL) – owned 68 per cent by Singapore government’s investment firm Temasek Holdings – became the fourth license holder to launch its container services on the Indian Railways network.

APL’s container train will carry freight from Loni in Uttar Pradesh – where CWC operates an inland container depot (ICD) with a private partner – to the Jawaharlal Nehru Port Terminal near Mumbai, the country’s largest container port. APL currently has just one rake, but is acquiring half a dozen new ones, which would enable it to launch container freight services from Ludhiana to JNPT, and also to the private port of Mundra in Gujarat.

APL’s container ships call at JNPT regularly and link it to ports in Europe, the US and other parts of the world. However, the movement of containers from north India to Mumbai will continue to be slow: while Concor takes eight days to transport a box from north India to Mumbai, APL will be cutting it down by about two days.

In terms of costs too, exporters and importers do not stand to gain much. Both Concor and the private players will charge nearly Rs30,000 for a twenty-foot equivalent unit (TEU) container from the northern ICDs to Mumbai, and about Rs40,000 for a forty-foot equivalent unit (FEU) container.

INDIAN Railways has been opening up some of the key sectors to private players, but it has been reluctant to cede full control. In the movement of containers, for instance, after repeated delays there has been some progress. But the three license-holders have still not been able to make a significant dent in the business; their combined share is less than 10 per cent.

According to industry sources, the private companies face a lot of problems. Indian Railways, for instance, is accused of arbitrarily hiking haulage charges frequently. Likewise, the Railways choose to ban the movement of some commodities – iron ore, coal, and coke – on private trains.

Besides these uncertainties, the new players also face a shortage of rolling stock (wagons), and lack of infrastructure such as ICDs. Wagon makers in India have not been able to meet the demands of the new players, some of who have had to import them from China.

But while wagons can be imported, the lack of ICDs cannot be met so soon. While Concor manages a network of nearly 60 ICDs, private operators have still to build up their depots. Land costs are huge, especially nearing manufacturing hubs, and acquisition of land takes a lot of time. Many of the new companies are planning to lease land, or build depots near railway terminals and sidings.

The new operators also lacked experienced personnel to manage the complicated operations, so they have started poaching on Concor, which is a subsidiary of the Indian Railways. Most of the top managers of Concor are railway officials who are deputed to the company.

In recent weeks, several top Concor and Railway officials have quit and joined the private firms.

While in many countries around the world, movement of freight is mainly by rail, India has been rather slow in catching up. Freight movement on Indian Railways has not grown significantly as many companies are not confident that their consignments would reach the ports – or manufacturing centres from ports – in time.

Containerised movement of cargo on Indian Railways represents less than one per cent of India’s logistics market.

Railway freight charges have traditionally been high, as populist railway ministers wanted the freight division to subsidise passenger fares. But Lalu Prasad Yadav, undoubtedly a populist politician, has back-tracked on many established practices, and has also brought about a remarkable turnaround in the railway finances.

ONE of the most ambitious plans of Indian Railways, under the stewardship of Yadav, is the development of high-speed dedicated freight corridors, initially linking Delhi to Mumbai and later to Kolkata.

The Railway ministry plans to undertake pre-feasibility studies and engineering-cum-traffic surveys relating to the development of freight corridors along the ‘Golden Quadrilateral,’ which links all the major metros of India – Delhi, Mumbai, Bangalore, Chennai and Kolkata. The National Highway Authority of India is executing the four-laning of the ‘quadrilateral’; once this is done, it plans to upgrade the network to six-lane highways.

Interestingly, Yadav has succeeded in selling the idea of public-private partnership, and a significant chunk of the billions of dollars needed to implement these projects will be through special purpose vehicles (SPVs) and PPP initiatives.

One of the first such SPVs, the Dedicated Freight Corridor Corporation of India Ltd, has already been set up to implement the Delhi-Mumbai and Delhi-Kolkata dedicated multimodal freight corridors.

The Railway ministry is now planning to increase its share of freight traffic, luring cargo movement from the road sector. It wants to raise freight loading from about 725 million tonnes recorded in the previous financial year, to over 1,150 million tones in about five years.

The ministry plans to offer concessions and discounts, especially to large firms. Similarly, it plans to introduce double-stack container trains on both electrified and non -electrified routes, primarily to transport automobiles. Each rake will carry about 360 cars. Private container operators will also be allowed to transport vehicles.

Most automobile manufacturers transport their vehicles across long distances by road. The Railways currently have less than 25 per cent of the automobile transport business. For the first time, Indian Railways is also considering designing special containers to transport vehicles, to meet the requirements of the auto manufacturers.

The Railway Ministry also has ambitious plans to set up about a score of logistics parks across the country. These parks would be located along the proposed dedicated freight corridors, and would cost about Rs100 billion. Again, the preferred option is for a PPP model, where the Railways would provide the land – each park would need about 600 hectares of land – and the rest of the infrastructure would be contributed by the private player.

The series of measures unveiled by the Railway ministry are aimed at winning over freight traffic from the road sector. Indian Railways is already facing pressure on the passenger front, with low-cost airlines offering no-frills service, successfully wooing thousands of first-class railway passengers.

Traditionally, the high-cost freight business of Indian Railways has subsidised the passenger segment, where fares are pegged at artificially low prices. But this disastrous policy had started taking a toll on freight movement. With better national highways and faster and sturdier trucks and other vehicles, there was the fear of the Railways losing a significant chunk of its existing business to road operators.

The new projects that are to be implemented soon should help Indian Railways to prevent the flight of freight traffic to the road sector and improve its own finances.