Indian railways growing freight traffic

SEPTEMBER 26, 2012POSTED IN: ARTICLES, RAILWAYS & SUBWAYS

Freight has always been an important revenue generator for Indian railways and has played a significant role in neutralising losses incurred from passenger fares. More good news is on the way for the countrys railway system as according to the report from the Centre for Monitoring Indian Economy (CMIE), Indian railways is all set to witness a jump in freight traffic in the current financial year. This, however, is not first of its kind as in the financial year 2010 Indian railways also witnessed an unprecedented growth in freight volume which was around 6.56% higher than during FY 2009. CMIEs prediction states that in 2012-13 there will be a significant jump in Indian railways freight traffic and freight transportation is expected to grow approximately by 5.2%. In real terms this means that the amount of goods transported through railways will reach 1020 million tonnes. The main reason behind this growth is the heavy demand for coal and iron ores. Coal imports for domestic plantations will witness a major rise, as the production of domestic coal is not sufficient to meet the needs of the country, especially where the power sector is concerned. As a result the import of coal has benefited and is expected to grow by approximately 28.3%. Steel production is also witnessing major suppuration buoyed by infrastructural demand and the automobile industry, which in turn will require the importation of iron ores. The import markets for coal and iron ores significantly impact on freight volume across the railways network. It is only since June 2012 that this change of fortunes for freight traffic has been noticed. From April to June there have been significant shifts in the freight scenario for Indian Railways. Compared to June 2011, there was a jump in Indian Railways freight traffic by 4.8% with freight transportation reaching the figure of around 80.4 million. Last years freight volume equated to 233.66 million, 11.15 million tonnes less than this years figure. This figure has been reached despite fertilisers and iron ore witnessing a sharp decline of 13.7%. The latters demand was completely offset by the tremendous demand in steel plant for coal and iron ores. Freight traffic for coal rose by 39.7% during this period which resulted in the corresponding rise of about 29.2% in the overall freight revenue for railways, worth around 6,926 Crore (1,253,606,000 USD). Similarly, iron ores meant for steel plants registered a growth of 40.7% for this period which is approximately equates to 5.2 million tonnes; a significant shift from the previous year. If this level of demand is sustained, Indian Railways is certainly set to witness an upturn in its fortunes, bringing in revenues that will help make up for its shortfall in passenger traffic revenues.

Indian Railways Transportation Sector News June 2011

Indian transportation sector which caters to the needs of 1.2 billion Indians predominantly depends on roads, where it carry almost 80% of passenger traffic and 57% of freight. Railways on the other hand carries almost 14 million passengers a day and 36% of the freight traffic. Rail despite being the most efficient mode of surface transport is undoubtedly underutilized. The under utilization of this vital asset, if sustained, is likely to have a direct impact on Indias economic growth due to lower productivity and loss in competitiveness. Industry pundits believe that the Indian Railway is likely to see a capex jump due to the basic requirement to sustain trade and hence economic growth. This is over and above the passenger transport requirements which will also have to be increasingly met by a more efficient mode. Tonnes of freight carried per capita GDP in India is one of the lowest in the region hence indicating at the opportunity. Rail transportation costs th of road transport and with every tonne of freight shifted to rail would help reduce the logistics cost by a similar amount. The logistics cost in India are estimated to be 13% of GDP and are unlikely to see any rationalization until railways is utilized as a more integrated link. Internationally, the logistics costs of the developed countries account to 9% of GDP. However, it is pertinent to note that India has one of the most dense rail networks in the world providing a much deeper connectivity to the interior regions, which in many cases is not possible by roads. Nonetheless, it is also pertinent to note that 20% of 63,000 km tracks are metre gauge, hence of limited utility. Substantial growth in traffic The Indian Railways handles one of the largest volume passenger and rail traffic. The total approximate earnings of Indian Railways on originating basis during April 1, 2010 February 28, 2011 were $18.68 billion compared to $17.26 billion during the same period last financial year, registering an increase of 8.24%. The total goods earnings have gone up from $11.64 billion during April 1, 2009 February 28, 2010 to $12.48 billion during April 1, 2010 February 28, 2011, soaring 7.20%. The total passenger revenue earnings during the first eleven months of the financial year 2010-11 were $5.22 billion compared to $4.74 billion during the same period previous year, recording growth of 0.15%. The revenue earnings from other coaching amounted to $508.4 million during April 2010- February 2011 compared to $461.22 million during the same period last financial year, rise of 10.23%. The total approximate number of passengers booked during April 2010-February 2011 was 7206.30 million compared to 6777.13 million during the same period previous fiscal, surging 6.33%. Private sector participation vital Indian Railways has predominantly depended upon the revenues derived from freight transport to subsidize the passenger earnings shortfall. Passenger trains utilize nearly 60% of the track capacity though they contribute to only 33% of the traffic earnings. This cross subsidization has led to increase in haulage charges to an extent where the rail transportation of goods has become unfeasible. The passenger services have concentrated towards the lower revenue short haul routes due to subsidized rates. This overdependence on freight for earnings is likely to have an overarching impact on the current resource mobilization capability of the railways. The stress on the freight

earnings has significantly increased haulage rates which makes the cargo movement by rail unfeasible without achieving utilization levels beyond 80%. Hence, it has become a natural barrier for entry for the private sector players to enter the segment. Introduction:

Indian Railways has 114,500 km of total track over a route of 65,000 km and 7,500 stations. It has the world's fourth largest railway network after those of United States, Russia and China. The railways carry over 30 million passengers and 2.8 million tons of freight daily. It is the world's 2nd largest commercial or utility employer, by number of employees, with more than 1.36 million employees. Indian Railways operates long distance and suburban rail systems on a multi gauge network of broad, meter and narrow gauges. It also owns locomotive and coach production facilities. As for rolling stock, IR owns over 240,000 (freight) wagons, 60,000 coaches and 9,000 locomotives. Railways were first introduced to India in 1853. By 1947, the year of India's independence, there were forty-two rail systems. In 1951 the systems were nationalized as one unit, the Indian Railways, becoming one of the largest networks in the world. Product Offering: Passenger Services Indian Railways transports 30 million passengers daily across India. Indian Railways generates 30% of the revenue through passenger services. Sikkim and Meghalaya are the only states not connected by rail. A standard passenger train consists of eighteen coaches, but popular trains can have 26 coaches or even more. Most regular trains have coaches connected through vestibules. Provision for purchasing tickets via online mode (website of Indian Railway) and offline mode- purchasing tickets from the ticket counter at each station is well set up. Reservation against cancellation service is a provision for shared berth in case the travel ticket is not confirmed. All current passenger service is provided using electric or diesel

locomotives.Several long trains are composed of two to three classes of travel, such as a 1st and 2nd classes which have different pricing systems for various amenities. The 1st Class refers to coaches with separate cabins, coaches can or cannot be air-conditioned. 3-tier nonAC coaches and 2nd class seating coaches, which are highly popular among passengers going on shorter journeys. In air-conditioned sleeper classes passengers are provided with sheets, pillows and blankets. Meals and refreshments are provided, to all the passengers of reserved classes, either through the on-board pantry service or through special catering arrangements in trains without pantry car. Unreserved coach passengers have options of purchasing from licensed vendors either on board or on the platform of intermediate stops. The amenities depend on the popularity and length of the route. Lavatories are communal and feature both the Indian style as well as the Western style. Freight Services Indian Railways carries a huge variety of goods such as mineral ores, fertilizers, iron & steel, petrochemicals, agricultural products, etc. 70% of revenue comes from freight services. Freight is a profit making business segment of Indian Railways and is the backbone of railway revenues. But, recently it is seen that the market share of Indian Railways has been consistently shrinking and railways is losing out to road. Achievement of projected freight targets largely depended on the manner in which the Indian Railways reshaped its policies and strategies not only to regain the lost share in freight traffic but also to provide value for money to customers in terms of better facilities and improved services.