Railway ministry to increase prices, withdraws 10% rebate

My recommended railway related counters like Kalindi Rail Nirman Ltd (at Rs.122 and Rs.114), Texmaco Ltd (at Rs.109), Kernex Micro System Ltd, Atlanta Ltd, etc. flared up today in the opening trade.

Mumbai / Bangalore: Beginning July, the cost of moving cargo in steel containers by rail within the country will rise following the railway ministry’s decision to withdraw a 10% rebate on domestic movement of containers in the weight category of at least 20 tonnes.

The rebate had been granted to the 16 licensed container train operators in the country since 1 November.

Executives from companies that operate container trains confirmed receiving the ministry notification.

Container train operators have to pay rail haulage charges to the Indian Railways for using its track, signalling and telecommunications infrastructure. Such charges typically account for about 80-85% of the operational expenses of such companies.

Container train operators say that they will have to pass on the higher haulage charges to the customer. “We don’t have any alternative but to pass it on to our customers,” said Sachin Bhanushali, president, Gateway Rail Freight Ltd, the container train operating unit of Mumbai-listed logistics firm Gateway Distriparks Ltd. “The increased haulage charges will have to be absorbed by the ultimate end-use customers.”

Analysts said the move will only benefit the road transport sector. “As a result of this development, one will see container cargo switch to road transport from rail,” said Mahantesh Sabarad, senior analyst at Centrum Broking Pvt. Ltd. He said with the overall container movement via roads going up, it will give the road freight companies an upper hand in respect to pricing and road freight rates could go up. However, he added, the impact will be confined to container movement and freight rates for general goods will remain unchanged in the short term.

Road transporters are less enthused. Charan Singh Lohara, president of All India Motor Transport Congress (AIMTC), the apex body for the transporters, said the move is unlikely to have a significant impact on the road transport sector. “Despite the withdrawal of 10% rebate, railway freight will continue to be more competitive vis-à-vis roadways by at least 20-25%,” he said.

The rebate to container train operators was initially given till December and was extended once till March and then till June, after operators petitioned the ministry of railways for a complete rollback of the 5-16% hike in rail haulage charges in some weight categories from 1 August. The discount was not applicable to movement of export-import containers of all weight categories.

Meanwhile, the Association of Container Train Operators (Acto), a body representing the 16 licensed train operators, has started lobbying the ministry to continue with the rebate. “The increase in haulage charges will defeat the objective of converting road cargo to rail cargo as containerized rail costs are higher than that of road costs,” said R.C. Dubey, president, Acto.

The railways has a 30-35% share of the total Indian freight transport system by volume compared with 65-70% of road transport. “We are trying to convince the ministry of railways to continue with the rebate,” said Bhanushali of Gateway Rail Freight.

Container rail freight services were privatized in India in 2007 through a policy that effectively ended the monopoly of the state-owned rail hauler of containers, the Container Corp. of India Ltd (Concor). Since then, the government has given rights to operate container trains on various routes to 13 private operators and three state-owned companies—Concor, CWC Ltd and Krishak Bharati Co-operative Ltd. The private container train operators say that a stable price regime is necessary to ensure the success of a policy that was aimed at breaking the monopoly of Concor, introduce competition, reduce rates and attract container traffic from road to rail.