Some way to go before the finish

The Railway Ministry’s plans to allow private companies to run freight trains from their own private terminals may lead to faster evacuation of cargo, but the proposed move is faced with multiple challenges, said analysts.

“The move may be widely seen as ushering of fundamental reforms in the stodgy behemoth but past experience does not exactly paint a positive picture,” said Rohit Chaturvedi, managing partner Kitzo Management Advisory, a logistics strategy and operations consulting firm.

Poor past experience

“Even less ambitious initiatives like allowing Private Container Terminal Operators (CTOs), Multi Modal Logistics Parks or most recently Private Freight Terminals (PFTs) have not met with desired success,” said Mr. Chaturuvedi, formerly director of Crisil Risk & Infrastructure Advisory. “To be fair, PFT has shown a glimpse of railways’ readiness to take necessary steps in the right direction, but not sufficiently,” he added.

As per the plans, companies and manufacturers that transport bulk of their produce through the railway network would be allowed to set up their own private terminals from where their own trains would ply to delivery centres.

These private trains will run on Indian Railways’ tracks and the operations of the trains will remain with the railways. This is as per the provisions of the Special Freight Train Operations Scheme of the Ministry of Railways.

At a more fundamental level, the problems being faced by Indian Railways such as creaky signalling infrastructure and the tracks needing maintenance will largely remain the same. The problem is compounded on congested routes such as between Delhi and Mumbai, which are already facing immense pressure from both passenger and freight trains, analysts said.

“This is a good initiative and can help players with bulk movements such as coal, sugar, cement and fertilizers for faster movement of their cargo,” said Ganesh Rewanwar, director & CEO, Saanvad Ventures Pvt. Ltd. which runs freightbazaar, an e-transportation marketplace catering to the trucking industry. “It will also help in multi modal infrastructure development and speed up investment in infrastructure,” he added.

He said the impact may not be immediate since it would require some more time to build up infrastructure.

“The major challenge will be land acquisition and terminal utilisation. It is not expected to affect long-haul road transport in a major way. However, it will be a boost for the first-mile and last-mile logistics sector,” Mr. Rewanwar said.

The Railways, under the current Minister Suresh Prabhu, may be undergoing massive transformation, but scepticism still persists.

“The move is seen [as] positive for large corporates with heavy volume of cargo as freight movement by railway is suitable for long distance over 500 kms,” said Kamal Podar, managing director, Choice Group which is into financial services and management consulting in the infrastructure space. “However, so far we have seen limited success in private container train operations since it was introduced in 2006, due to lack of conducive policies,” he added.

“The railway traffic is caught between subsidised passenger traffic and premium tariff for cargo which is benefiting other modes of traffic like road and shipping,” he added.

Besides, the precedence given to passenger trains is expected to cause uncertainties in running freight trains in a scheduled manner. This may defeat the very purpose behind the partial opening up of the freight transport arm of the railways.

Apart from the convenience of transporting cargo through own trains, the economic viability of any such operation would remain a major question for private operators.

Going by past experience, most of the Container Terminal Operators have either burnt their fingers or not started operations in a meaningful manner. In fact, there have been instances where some licence-holders operateonly a few rakes merely to prevent their licence from being revoked.

Charges and changes

Analysts said the main cause of unprofitable operations may be attributed to the charges by Railways and ad-hoc changes in tariffs in some of the profitable cargo (heavy cargo and long distance haulage). Also lack of guarantee of timely delivery of the consignment has repulsed the EXIM cargo, they added.

For example, the railways command less than one third of total container volumes at JNPT, the largest container port in India located in Mumbai. JNPT attracts most of the cargo from long distances from North and West hinterland of India. This situation is unheard of in any other country with advances logistics system. Long distances must mean competitive advantages to railways over the road.

Analysts believe that the problems such as heavy detention charges, fixed haulage charges, whether the rake is full or empty, coupled with the lack of certainty on timely movement of rakes would affect the private rail operators in the same way as they affected the Container Terminal Operators.

Another concern that bogs potential private operators is the lack of clarity on whether they would be allowed to run their rakes on the proposed Dedicated Freight Corridors (DFCs) being set up in the country.

In addition, there is lack of clarity on the approval process for rakes and the design specifications. As per existing rules, the approval from the Research Designs & Standards Organisation (RDSO) of the Railways is required for running any non-standard rake. It is feared that the approval process could take a long time and bureaucratic hassles would jeopardise the genuine intent, said industry sources.

The absence of a credible dispute resolution mechanism has also been red flagged by analysts. The Railways, being both the operator and regulator, meant that the dispute resolution system in place may not be adequately effective, they said. However, it is expected that the proposed Rail Development Authority may address the issues of effective and efficient regulation as well as dispute resolution.

Finally, although the intent to allow private operators to run their own rakes is laudable, ambitious and bold, it has to be backed by proper implementation mechanism, according to consultants.

“If implemented properly, it can begin the virtuous circle by freeing up the resources of Indian Railways and providing focus on basic infrastructure such as modern signalling equipments and robust rail network,” Mr. Chaturvedi said. “The result will be more capacity augmentation from existing infrastructure and more cargo movement... [and] thus more resources for the railways,” he added.

(This article first appeared in The Hindu dated May 1, 2017)

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