Sunday, March 11, 2012

Indian Rail Freight Rises Bring Accusations of Favouritism

Rates Simplified and Investment Sought Whilst Export Ban Lifted
Shipping News Feature

INDIA – Freight rate rises are always a cause of tension as the balance between suppliers, forwarders and carriers shifts and this is nowhere more evident than in the Indian sub continent where pre budget rail freight increases imposed have caused inter regional tensions with some geographical areas affected more than others.

The size and range of the country necessitates the movement of raw materials and finished products over huge distances making road haulage for the bulk portion of the trips impractical. Now freight agents in areas such as the Punjab complain that any hike in prices amplifies their costs disproportionately and, as is so often the case with Indian politics, accusations are being made that the Minister for Railways Dinesh Trivedi is acting to benefit his home state of West Bengal.

The problem with these particular rates is their complexity. The Ministry holds a monopoly over freight rail cargo transport and sets tariffs which vary not only by commodity carried but by distances travelled. This results in reports of an ‘average rate hike’ which can vary wildly from 15 to nearly 40% dependant on which commodity spoken of and how far it travels. Such a complex system is bound to result in accusations of bias from stakeholders who consider themselves unfairly treated, particularly when there is no viable alternative open to them to shift their goods.

The new rates have apparently been somewhat simplified with distance categories being reduced from an horrific 179 down to a more manageable, but still daunting 37 and some classes of goods have also now been parcelled together. Indian Railways (effectively the Ministry of Railways) obviously recognise the shortcomings with a report published last month saying:

“At present, Indian Railways is close to falling into the vicious circle of diminishing efficiency, falling safety standards, eroding shares in national freight and passenger traffic and possibly ending up as a burden on the national economy instead of being its bulwark and vital support. This downtrend must be arrested now so that the Indian Railways becomes operationally and financially sound, perform its due role in the national growth serving as a life line and making noticeable contribution to national GDP.”

The report recognises that there has been drastic underinvestment in key areas of rail infrastructure which has brought about this situation which needs immediate attention. It further suggests that if the fifteen recommendations the report suggests are implemented this will produce as much as a 2% jump in the country’s GDP. The report can be read in full HERE and suggests an immediate investment via Public Private Partnerships (PPP’s) to rectify problems in both the passenger and freight sectors with more investment in dedicated freight corridors and logistics parks.

So often we read of ambitious schemes emanating from the subcontinent yet the situation never seems to improve markedly, certainly to foreign observers. It remains to be seen whether the considerable increase in freight rates, in what after all is a single player market, can be used to improve services for customers who currently in many cases are running out of patience. Additionally the Government usually runs scared when passenger ticket prices are threatened throwing more costs onto the freight sector when upgrades are required.

In other news India has lifted its ban on exporting cotton after protests from farmers groups. The embargo was introduced a week ago to protect the country’s own processing and textile industry but led to complaints from the main customer, China, and logistics groups as well as the suppliers. India struggles with the conundrum of needing to maximise exports for a healthy economy whilst its huge population demands a constant supply of goods and services.