Logistics

Will India’s bid to tame high logistics costs collapse at the altar of Concor privatisation?

P Manoj MUMBAI | Updated on November 26, 2019 Published on November 26, 2019

Intermodal transport currently is allowed to be done on the domestic sector by Concor on terminals developed by them on IR land. File Photo   -  PTI

A potential legal challenge to the planned privatisation of intermodal operator Container Corporation of India (Concor) is swirling in the air, particularly on the preferential access given to the state-owned rail hauler for running terminals built on Indian Railways land for its exclusive use.

India privatised the container train operating sector in 2007 and at least two of the dozen private operators who bought licenses from the government, have started preliminary work on mounting a legal challenge.

The legal challenge will also revolve around how the sale of Concor will upend India’s plan to cut high logistics costs for local and external trade which is hurting its competitiveness.

When Concor was formed as a wholly-owned subsidiary of Indian Railways, nobody grudged giving it a preferential and concessional access to Railways’ land.

Experts reckon that developing a strong intermodal transport segment require leveraging the existing network of Indian Railways.

Also read: Concor sell off sparks private monopoly concerns

IR operates three types of terminals: One, private rail sidings also known as industrial sidings set up by companies in steel and cement sectors to send and receive their own cargo.

The second category involves public sidings developed by Indian Railways to cater to its customers - commonly called public goods sheds- where any cargo could be booked subject to certain restrictions so that it can be used by multiple users for movement to multiple locations.

However, this facility has not been extended, for whatever reasons, in full extent by the IR to the intermodal operators, which is the third category.

The intermodal operators or container train operators (CTOs) essentially are third party service providers who are supposed to aggregate cargo and bring in efficiency, which primarily comes by reducing the empty direction movements and mix and match of cargo.

In order to do that, they need terminals.

For whatever strange reasons, the government envisioned that the licensed intermodal operators will develop their own terminals. It is impossible, according to experts, for any one or all the CTOs put together including Concor, to develop a network of 150-200 terminals across India at key locations where regular flow of inbound and outbound cargo is available.

Read more: Centre clears strategic divestment in five PSUs

Over time, Indian Railways lost its cargo share to road because it could not cater to the growing volume of manufactured products. This was seen more as a parcel size problem as IR runs on the concept of full train cargo.

Logistics cost

The country’s logistics cost is high due to the non-availability of rail transportation over longer distances which help cut costs because the economies of scale are available only for rail transport.

In case of road transport with every 20 tons, there is another truck on the road and more the trucks on the road, more roads are required, which in turn raise the overall infrastructure requirement as well as the unit cost of operations.

The logistics cost is high also because most of the transportation is done by road which is a high variable cost business. Second, because of imperfections in supply and demand side, there is an over-supply and since road transport is a very disorganised sector, it has not been able to contain the empty return costs, which are typically higher.

Thus, smaller parcel size, disorganised sector and empty return costs put together led to increase in the logistics costs.

“In order to bring down the logistics costs, intermodal transport has to be supported,” said an industry expert.

Intermodal transport

Intermodal transport currently is allowed to be done on the domestic sector by Concor on terminals developed by them on IR land. Whereas, these should be made available to anyone who is able to bring business, whether it is intermodal operator or anyone else, in order to promote large parcel sizes and long-distance movements.

The opportunity for that has come with the government looking to divest from Concor which will no longer be a preferred entity, says experts.

“Thus, the preferential access to IR land which is available to Concor for developing and using terminals has to be withdrawn and made available to all the operators including the new private owner of Concor without any exclusive rights over it,” says an industry executive.

“Those terminals which have been built on IR land under an agreement with Concor should come back to IR, become a part of public goods sheds of IR and should become available to everyone including the private entity that will own Concor,” he said.

“The basic principle of access to land not been made available preferentially to one of the operators, cannot be violated. It needs legal scrutiny but before we go for legal scrutiny, we have to give an opportunity for administrative/bureaucratic scrutiny,” said the CEO of an intermodal firm.

This is the premise, he said, based on which the government should act before developing the new model of private ownership of Concor. “Otherwise, we will be creating a privately-owned dominant player in the market, which will try and make as much money as possible by exploiting the trade,” he said.

Without this, the existing private container train operators will get an unfair treatment and from a trade perspective, privatisation of Concor will help create a dominant player which is not desirable from India’s competitiveness point of view, he stated.

“We are going to raise these issues with the Indian Railways and the Logistics Department in the Commerce Ministry before approaching the courts,” he added.

Published on November 26, 2019
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