Transformations in Road and Rail Freight Rates for Distances to Accelerate Transportation Demand in 2017

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The Logistics Headlines, New Delhi, 27th Feb 2017 : 
The demand for road freight movement has gone up compared to railways. The former is subjected to cheaper freight movement rates for short and long haul capacities and distances. However, railways are a safer route to commute to destinations and less accident prone against roadways. Also, trains are enviromental friendly because of negligible consumption of fuel.
The Union Budget 2017-18 has given rise to expectations for both railways and roadways with intensive plans for housing and infrastructure projects, along with adjustment in freight rates.

With large allocation of funds to revolutionize roadways and its freight movement, the opportunities are in plenty to explore for the road transport sector.

Why Roadways Transport Shows a Bright Future?

Despite all odds, steps to formulate connectivity between terminals and freight loading and unloading systems have supplemented to growth of revenues from road transport.

  • Focus in including rural road schemes to bridge the gap between infrastructure has long been a point of contention for India.
  • Projects for extending road lines, providing vehicle support, easing customs and wait-time for cargos as in turn helped the road freight movement and highway-sector in the recent past.
  • Moreover, implementation of GST in full-flow from mid-2017 is expected to l reduce long queues at the tolls, resulting in faster transit and cheaper transportation costs, directly influencing the freight rates effectiveness.

Road Freight Rates: Factors that Influence it and Demand Ratio

Recently there is rise in Freight rates by road due to increase in cargo supply sharply. Movement of goods has improved due increase in rate and incremental supply of vehicles. For example, the road freight rates for to-and-fro trip from Delhi to Chennai and Delhi to Mumbai in April 2016 had increased by 4.4 % and 6.7% for 25.2 tonnes at Rs. 128,500 to Rs. 134,200 and Rs. 81,500 to Rs. 87,000, respectively.

A broad variety of goods such as finished and intermediate products, raw materials etc. are moved by road freight, making truck freight capacity has better ability to sustain great extend, the market uncertainties of cargo offerings because of international and domestic factors, as said by IFTRT coordinator and senior fellow, SP Singh.

Road freight forwarders profitability depends on operation costs and freight rates, the latter is often determined by transport and capacity utilization. Cargo loading by road and rail freight of more than 250 Kms journey onwards stands at about 80:20. From 2011 to 2016, despite regularizing 10% overloading in trains, the scenario for railways had been disappointing.

Effects of Railway Freight Rates for Distances and Capacities

The rail share for long and medium haul has gone down from 35% to 20% in more than 10 years. For the road freight, hurdles on highways have been increasing even though lower freight rates with season concessions were provided. For time bound delivery of goods to traders/consignors, the freight forwarders generally keep a fixed retail freight charge for a number of items.

The profit margin ranges from 25% to 30% for different long and medium rail routes. According to Singh, the railways do have inefficiencies and rely on low revenue yielding bulk cargo basket. It has 50% reliance on single cargo such as coal, which needs overhauling. As per recent plans by the government, transporting goods via trains may get cheaper with launch of special freight schemes, as reported from the railways ministry.

The customers will be given attractive long-term contracts with 15% discounts for incremental freight loading. Some usage charges could be waived for important customers, and they will receive a price predictability that it will not increase for the next three years. In earlier two years, freight for different sectors went up by more than 20%, and offering discounts now will definitely reduce the logistics cost.

Government Plans Cut down Freight Rates in 2017 to Cover up for Losses in the Past

In August 2016, to boost freight revenues, the railway board changed the rates for distance slabs. The freight movement rates were increased by 19% for coal traffic per tonne with a levy of terminal charge: Rs. 55 per tonne at loading and unloading traffic for a distance more than 100 km. This incited fuel inflation but a rate cut plan was brought in and even then, road transport was more cost-effective compared to railways.

However, the national carriers missed their freight movement target for coal by 10.98% as estimated in the budget of 2016-17.

Mohd. Jamshed (the railway board’s member traffic) said that freight sector reforms would introduce several corrective measures for maintaining their share. One of the steps is to timetable the freight trains for offering better predictability to customers.

A three-year contract for the customers will see fixed freight movement rates. This step shall help railways to retain key customers and uplift the state-run carrier’s share in freight transportation. As per a study, freight contributes 65% of total revenues for railways, and assists in cross-subsidizing passenger segment. The Indian Railways estimates to earn revenue of INR 1.18 lakh crore just from freight movement and loading in 2017-18.

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