The Hindu Business Line : Effect of infrastructure initiatives on transport sector

If the cumulative impact of the infrastructural changes benefits one mode of transport more than the other, the whole economics of transportation business will change.

Rohit Chaturvedi

It is a commonly known fact that logistics costs in India (estimated at around 13 per cent of final product cost) are much higher than those in developed countries (estimated at less than 10 per cent of the final product cost).

To ensure competitiveness, the Government has woken up to the need for improving the transport infrastructure, especially rail and road.

Measures undertaken

Some of the widely publicised measures being undertaken by the Government are:

Improvement in rail infrastructure in the form of dedicated freight corridors and gauge conversion in the four regions;

The National Highway Development Programme (NHDP);

The Golden Quadrilateral programme; and

Introduction of VAT, etc.

Although much has been written on how these will increase the country’s trade competitiveness and improve efficiency through reduced wastage and faster delivery, little has been said on the impact these developments will have on the transport business.

freight corridors

Freight corridors are expected to decongest the existing routes along the four corridors. Currently, most of the important stretches are highly congested and passenger trains are given priority over freight trains resulting in long transit time. For example, a container train from the ICD facility in Delhi to Mumbai port takes more than 60 hours to cover the distance of around 1200 km. Construction of the four DFCs will enable freight trains to run along the trunk routes.

DFC in the western region, for instance, will not only enhance the capacity of the Railways to handle cargo but will also reduce the transit time. According to some estimates, the transit time between Delhi and Mumbai would come down from 60 hours to 36 hours.

It is also envisaged that the number of trains plying on many of the busiest corridors will increase manifold.

For example, even in the busy Ahmedabad-Marwar corridor, the number of trains plying one way is likely to go up from the current 15 to 72. And between JNPT and Baroda, it would go up from nine to 49.

Also, the freight corridors will enable plying of double stack container trains along the trunk routes.

It would also be possible to run longer rakes as against only 45 wagons in a rake today (90 TEUS). The impact of the resultant changes will be a massive de-escalation of transportation costs.

Besides DFC, the Railways has ambitious plans for gauge conversion in various stretches.

Coming to road transport, the NHDP, the Golden Quadrilateral and other such measures are likely to improve the transit time in a big way. The average speed is likely to go up from 45 kmph to 60 kmph.

The turnaround time for trucks, therefore, will come down enabling better capacity utilisation. Also, the running costs will be lower due to better fuel efficiency and less maintenance.

The improved capacity utilisation will also reduce the leasing costs, which form a major chunk of operating costs in road transportation.

VAT impact

The introduction of VAT is the other significant development. VAT will remove inefficiencies and encourage the setting up of more regional warehouses, which have been hitherto stifled by an inefficient tax regime.

This may lead to preference of rail transportation, which is not favoured because of the fragmented distribution of goods to small warehouses.

As regards road transportation, VAT is likely to have a positive impact, by helping save transit time hitherto lost at octroi posts, etc.

So, how are these developments going to affect choice of transportation?

If the cumulative impact of these changes benefits one mode more than the other, the whole economics of transportation business will change.

For example, consolidation of warehouses following the implementation of VAT may prove beneficial to rail transportation, by enabling point to point transportation with the benefit of scale economies. This development may see a modal shift happening from road to rail.

This apart, the haulage cost for one medium may come down more significantly than for the other. For example, if the haulage cost for rail is curtailed more significantly than that for road transportation, the threshold distance (which is currently more than 500 km for rail as preferred choice of transport) for the choice of transportation might also change in favour of rail.

As such developments are likely to bring bring about major changes, existing players in transportation (including trucking companies and container train operators) should revisit their business plan and strategy, else their very existence in the business may be threatened.

(The author can be reached at rohitc01@gmail.com)