In a first such move in the industry, State-run rail hauler Container Corporation of India (Concor) has decided not to raise rates for one year till March 2020.
By offering this price stability, the corporation hopes to attract more volumes. The decision, conveyed to the customers through a public notice dated April 18, will push smaller rivals into a corner and the higher volumes will compensate for any pressure on margins from holding rates for a year in an industry undergoing consolidation.
Concor revises rates twice a year to factor in the spike in diesel prices and haulage charges levied by the Indian Railways.
The move, according to people briefed on the plan, has its links to a Railway Ministry policy issued last year protecting customers paying advance freight for a year, from hikes in freight/haulage charges, effected during the year as part of a strategy to tame its high operating ratio.
The haulage charges are set to be hiked by the Indian Railways this year because the railways’ finances are in a “very bad shape”.
“Concor paid around ₹3,000 crore to the Indian Railways in early April as advance freight to avail the scheme in FY20,” said a government official briefed on the development.
This protects Concor against haulage-charge hikes by the Indian Railways for one year. This, in turn, will help it to keep the rates unchanged for a year. A few days prior to the April 18 public notice, Concor, a Navratna PSU, raised rates on April 1.
‘Committed to our word’
“There will be no change in our rates for a whole year, come what may. Our input costs may go up; diesel prices are already going up; there may be revision in rail tariff by the Railway Ministry, or the Railways may increase their rates. But we gave a commitment to all our customers that from 1 April till 31 Mar 2020, there will be no increase in our tariffs and other charges. There is complete price stability for one full financial year,” Kalyana Rama, Chairman & Managing Director, Concor, told BusinessLine on Tuesday. He added: “We brought this new feature to give advantage to our customers to plan their business and help control/reduce logistics costs. This is the first time in the industry any company has taken such a step.”
“There are no conditions attached to this; no agreement is required...no minimum volumes are required. Anybody who is offering one container, ten or thousand containers can avail of this feature,” he said. In FY19, Concor handled 3.83 million TEUs, both export-import and domestic. He said that the decision will not hurt Concor’s revenue, profit and margins.
“The immediate reaction will be that Concor’s margins are going to come under pressure. We are sure that we will improve our bottomline and topline. We will get more volumes because with our service levels, we will keep growing. In the last nine quarters, there has been a continuous rise in margins. Even with this price stability strategy, we will be able to maintain good margins because this will bring in more customers,” Rama added.
The real competition to Concor is from road. “The price stability will be a real challenge for road also. Our domestic business has been growing in double digits for the last three years. We are very competitive to road,” he added.
Industry experts said it will be tough for the rivals to follow the market leader on holding the rates.
“Concor’s strategy is to hit private rivals. If the Railways raise haulage charges, private players will not be able to absorb it and will have to pass on the hike to their customers to survive even if the move risks losing business. Concor can afford not to because of its strong balance sheet,” said an industry consultant.