The Hindu Business Line : Integrated transport policy: Putting rail freight back on track

Needed is a transport policy that recognises the superiority of freight movement by rail and accords it a primary role. This will be in the national interest, as crude prices are expected to soar further, dampening the euphoria of double-digit growth generated in the last few years, argues VIJAYALAKSHMI VISWANATHAN.

Rail movement of freight is more energy-efficient, environment-friendly and safe, with a much lower land use than other modes. — A. Roy Chowdhury

With petroleum prices moving continuously northward, the moment of introspection for promoting public transport for passenger travel and Railways for commodity movement has arrived.

This is the most opportune time to evolve measures that will enhance the share of the Railways in the total transport output.

It is a well-known fact that railways are more energy-efficient, environment-friendly and safe, with a low use of land. The last point is tellingly demonstrated by the fact that every automobile put on the road requires land of the size of an Olympic football stadium for its running, maintenance and storage. An integrated transport policy that accords pride of place to Railways is the need of the hour.

Statistics, unfortunately tell a different story. Between 2001-02 and 2006-07 combined goods transportation increased from 2,046.10 million tonnes (mt) to 3,404.25 mt. But the share of rail cargo dropped from 24.07 per cent (492.50 mt) to 21.01 per cent (728.41 mt).

In other words, share of road sector had steadily increased from 75.93 per cent to 78.99 per cent. It is the responsibility of central government, not that of Ministry of Railways alone to restore at least the 40 per cent rail share which obtained in the year 2000-01.

Areas of Concern

There is a useful analysis of Indian Railways’ freight scenario in the India Infrastructure Report 2008: Business Models of the Future (3iNetwork, Oxford University Press).

The Report observes that while the Railways registered higher loading growth in low-rated coal and food-grains, the increase significantly fell short in the high-rated sectors. Iron and steel had a meagre growth of 1 per cent, while production rose by more than 8 per cent.

Cement traffic, to attract which a slew of measures was announced in the last Budget, also did not keep pace with the production growth (4.37 per cent as against 7.86). The petroleum sector, even now a Government monopoly, has been encouraging pipelines, leading to idling of the dedicated POL stock, much to the detriment of Railways.

The results of a joint exercise between the Ministry of Petroleum and Ministry of Railways to work out the cost economics, ordered a few years back, are not known. It is ironical that some of these pipelines have been laid alongside the rail track, for which land has been licensed by the Railways at low rates.

Loading growth in the petroleum sector has, naturally, been a low 3 per cent while production has gone up by 8 per cent. All these figures relate to the period 1991-92 to 2003-04. The resultant picture is an adverse earnings trend for the same effort. The Railways have, however, tried to arrest this trend between 2003-04 and 2005-06 through innovative initiatives and strategies, the Report observes.

Indian Railways’ share of earnings in non-bulk high-rated other commodities which was nearly 35 per cent in 1974-75 dropped to just 11 per cent by 2005-06 and contributed only 8.55 per cent in 2008-09. Cement, iron and steel, fertilisers and POL (Rs 13,380.52 crore) contribute 25.39 per cent, a marginal reduction from 25.46 per cent for the year 2007-08 (Revised Estimates). With reported shortages of fertiliser and diesel, the figures for 2008-09 may turn out to be lower.

Where lies the remedy?

Indian Railways have tried to overcome the adverse trend thorough a number of policy initiatives, such as freight rate structure rationalisation, commodity grouping simplification, dynamic pricing, composite rates, volume discount, empty flow discount, etc. The 4P model for freight business suggested in the Report (by G. Raghuram and Rachna Gangwar) stresses the need to concentrate on the four Ps of marketing, namely Product (service attributes), Price, Promotion and Place (logistics). The model examines the origins and destinations based on the attributes “that have implications for providing appropriate services.”

Origins are categorised as industry or collection centres (mandis, inland container depots and goods sheds) mines and ports. Destinations are similarly classified as industry, port and distribution centres.

While Indian Railways is comfortably placed in the mine-to-industry segment, which accounts for 51.5 per cent and comprises coal, iron ore, etc., it faces stiff competition in the second largest flow from industry/collection centres to distribution centres.

The share of this stream is 27.1 per cent and such commodities as cement, food-grains, fertilisers, iron and steel and POL fall under this category. The authors, while acknowledging the industry-friendly initiatives launched by Railways, state that since competition is very high, the Railways should be on par with other modes, in terms of service.

The authors exhort the Railways to evolve a culture of “generating its strategies rooted in an understanding of the customer”, duly focusing on the origin-destination perspective.

The traffic flow from and to the ports offers enormous potential that needs to be exploited by the Railways. Export growth that is averaging 20 per cent per annum, expected increase in imports, particularly coal for thermal plants and quantum jump in container traffic are all factors to be taken note of for special initiatives to capture traffic.

The Railways’ share of traffic to and from ports is 30 per cent and is anticipated to grow. As a corollary, the share of this traffic, which is 10.4 per cent to industry and distribution centres and 2.8 per cent from industry/collection centres, may show an upward trend.

Railways should aggressively woo this traffic through a blend of empty-flow discounts and marketing drives. Port connectivity work should be given impetus. Since container traffic will be a major contributor, speedy execution of the Dedicated Freight Corridor, to run double-stack containers, is crucial.

Need for route change

It is common knowledge that the Railways have initiated a number of measures to meet the challenge from the road sector. The rates have become competitive, service more reliable with IT initiatives such as Freight Operating Information System and removal of bottlenecks with infusion of Special Railway Safety Fund to revamp assets.

The supply-demand scenario is more balanced with greater fluidity, higher volume per rake and initiatives such as the wagon investment scheme, with assured supply. Despite these path-breaking steps, if the share of the railways in total traffic is dropping, one has to look for different and more far-reaching solutions.

The Railways have to make schemes such as Roll-on Roll-off (RoRo) attractive. Konkan Railway is the only Railway where the experiment is in position. Piece-meal traffic, as the less-than-rake-load movement is called in Railway parlance, may have to be revived, at least within the Zone.

With the opening up of the container segment to private players, there should be more innovative steps to capture high-rated consumer goods and other items that are at present moving by road through courier services, etc.

Funding projects

The Railways made out a powerful plea for a dividend-free grant of Rs 12,000 crore to wipe out the arrears in replacements and renewals and constituted a Special Railway Safety Fund in 2001-02.

The munificent gesture from the General Exchequer facilitated revamping of the system, imparting greater fluidity and enhanced capacity due to improved technology.

The Railways now has healthy fund balances, thanks to a vibrant growth in traffic output. Budgetary support has been steadily coming down and is only 17 per cent for 2008-09. The Planning Commission has been insisting that the Railways open up container traffic to private players, which has also been done.

Now it is the turn of the Government to reciprocate through policy initiatives which will boost Railways’ share in the total cargo traffic. The Railway Ministry should present a case for its rightful share in POL traffic, special incentives for rail-movement, particularly to and from ports for non-bulk high-rated commodities and concessions for total logistics solutions such as warehousing in goods sheds, inter-modal transport, etc.

Above all, a new transport policy that recognises the superiority of freight movement by rail from the energy angle and accords a primary role for it is called for.

It will be in national interest to do so, as crude prices are expected to soar further, dampening the euphoria of double-digit growth generated in the last few years!

(The author is a former Financial Commissioner, Indian Railways.)

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