Rough Ride: Rail freight segment reports declining numbers

Rail freight segment reports declining numbers

The railway sector holds a strategic position in India’s freight transport infrastructure. Besides being cost effective, it is more reliable as compared to other modes such as roads. However, despite these advantages, the modal share of Indian Railways (IR) has gone down from 89 per cent in 1950-51 to about 30 per cent at present. Reliance on roads as a mode for freight movement has been far greater than that on railways. This shift has been primarily atrributed to chronic underinvestment and network congestion. In addition, the central government has been allocating nearly five times the amount spent on railways to roads over the past 15 years. Cognisant of this situation, the Ministry of Railways (MoR) has introduced a host of policy initiatives to help regain the lost modal share of the railways.

Decelerated growth in traffic

During 2011-12 to 2015-16, freight traffic grew at a compound annual growth rate (CAGR) of 3.22 per cent from 970 million tonnes (mt) in 2011-12 to 1,101 mt in 2015-16. The year-on-year (YoY) growth of freight traffic stood at a mere 0.63 per cent in 2015-16. A major reason for this laggard growth has been the decline in cement and container traffic. Over the past five financial years, the share of cement in freight traffic declined from 11 per cent to 9 per cent, while the share of containers remained stagnant at just 4 per cent despite the recent surge in containerisation. IR’s freight output grew at a CAGR of 0.61 per cent from 640 billion net tonne km (ntkm) in 2011-12 to 655.6 billion ntkm in 2015-16. However, it recorded a negative YoY growth of 3.96 per cent in 2015-16. IR’s average lead (average distance each tonne of goods is transported) has also recorded a consistent negative trend over the past five years. In 2015-16, the average lead declined by 4.19 per cent from 2014-15.

Freight earnings trends

During 2011-12 to 2015-16, IR’s freight earnings grew at a CAGR of 12.11 per cent. Further, the YoY growth in earnings stood at only 3.42 per cent in 2015-16, much lower than the growth rate of 12.73 per cent recorded in 2014-15. With regard to commodities, iron ore recorded a massive negative growth in earnings which stood at -10.58 per cent in 2015-16. The decline in the growth of earnings can be attributed to the tepid growth of India’s core sectors, which resulted in lower volumes of freight movement as well as the hike in freight rates of 0.8 per cent for iron ore and steel, 6.3 per cent for coal, 10 per cent for grains and pulses, and 2.7 per cent for cement, that became effective April 2015. Meanwhile, IR’s freight earnings per mt increased by 2.77 per cent while average earnings per ntkm increased by 7.68 per cent in 2015-16. The CAGR for earnings per mt and average earnings per ntkm for the past five years stood at 8.6 per cent and 11.43 per cent respectively.


Two key reasons impeding the growth of freight traffic and thus earnings have been network congestion and underinvestment in railways. Over the past five fiscal years, the railway network (measured in route km) grew at a CAGR of only 0.8 per cent from 64,600 km in 2011-12 to 66,687 km in 2015-16. Moreover, nearly 141 of the total 212 sections on the high-density network have exceeded the 100 per cent line capacity utilisation mark. The evident congestion due to the slow expansion of the railway network has therefore led to IR’s inability to run more trains to enhance revenues.

Besides these factors, the recession and the downward trend in imports and exports (nearly 18 to 25 per cent) over the past one and a half years have further undermined IR’s performance. The recent reduction in diesel prices and heavy investments made by the National Highways Authority of India towards road development has also led to a shift from railways to roads as a medium of freight transport.

Game changers

To address the problem of network congestion and to boost freight transport through rail, the Eastern and Western dedicated freight corridors (DFCs) are being developed and are expected to be commissioned in December 2019. Moreover, three new DFCs, the North-South corridor connecting Delhi and Chennai; the East-West corridor connecting Kolkata and Mumbai; and the East Coast Corridor connecting Kharagpur and Vijayawada are in the pipeline. The DFCs will equip IR with corridors capable of running trains at 100 kmph and bearing a capacity of 25-32.5 tonne axle load, while offering enhanced volumetric capacity per wagon through the use of wagons with a high payload ratio; trains that are 3,660 mm wide and 1,500 metres long; double-stack containers on the Western DFC; mobile radio train communication systems; and automatic signalling within a 2 km intersignal distance.

The DFCs are expected to ultimately bring about a quantum jump in rail transportation capacity while significantly reducing operating costs. IR will also introduce scheduled time-tabled trains that will offer guaranteed transit time while providing connectivity to all the major ports, especially those in Gujarat and Maharashtra. Moreover, the new Delhi-Mumbai Industrial Corridor coming up along both sides of the Western DFC is likely to boost freight movement in the region further, especially that of containers.

Meanwhile, given IR’s declining modal share in freight traffic, the MoR recently announced a slew of initiatives as a short-term solution to increase the modal share to at least 35 per cent by the end of the Twelfth Five Year Plan.

Expansion of freight basket: New initiatives include undertaking a complete market study covering the demand and supply scenarios of select commodities; containerisation and implementation of new delivery models like roll-on roll-off; time-tabled freight containers, and parcel and special commodity trains being run on a pilot basis; expansion of the container segment to include all traffic barring coal and specified mineral ores; inclusion of 43 additional commodities in the commodity basket; and access to container traffic at existing terminals and sheds notified.

Ease of doing business: The MoR has initiated a number of reforms such as the introduction of a liberalised private freight terminals policy; the abolition of the dual tariff policy for iron ore; the withdrawal of the port congestion surcharge; tariff rationalisation of the merry-go round system; the introduction of two/multi-point loading in covered rakes which will be distance based rather than station based; short distance concessions; automatic freight rebate in empty flow direction; liberalised station-to-station rate policy; the introduction of the freight incentive scheme for loading bagged consignment in open and flat wagons; etc.

Building terminal capacity: IR plans to commission 100 new sidings, of which 62 will be commissioned during this financial year. It also plans to develop rail-side logistics parks and warehouses through the Central Railside Warehouse Company and public-private partnerships (PPPs). It further aims to provide last-mile connectivity for the freight business, make significant reductions in logistics cost, develop cold storage facilities on vacant land near freight terminals and commission new auto hubs.

Infrastructural improvements: IR is undertaking capacity augmentation of all freight routes and these are likely to be completed in the next two to three years. It is developing designs for 25/30 tonne axle load wagons and certifying routes that can carry long-haul trains with such wagons. To improve port connectivity, rail connectivity to Tuna port in Gujarat has already been commissioned while that to Jaigarh, Dighi and Rewas ports is still under implementation. Other rail connectivity projects including those for Nargol and Hazira ports are planned to be implemented under the PPP mode. IR will also be entering joint ventures with states to expand rail networks.

Future outlook

With the focus on decongesting and expanding the IR network, an estimated amount of Rs 4 trillion has been identified as the investment required. In the next two financial years (2017-18 and 2018-19), IR plans to add about 800 km of new lines and undertake doubling of 5,100 km and gauge conversion of 1,600 km of the network. It also plans to commission the Eastern and Western DFC, in December 2019 which is expected to change IR’s freight traffic scenario and augment its modal share.

According to IR, a major portion of the funds for network decongestion will be raised through extra budgetary resources including the implementation of projects on a PPP basis. Besides, laying of new tracks and modernising existing ones will be a key focus area in the future. The Expert Group for Modernisaion of Indian Railways has recommended the modernisation of 19,000 km of existing tracks to carry heavier freight trains of 25 tonne axle load at higher speeds of 75-100 kmph.

With the various measures being undertaken, the outlook for IR improving its share in freight traffic seems bright. Given the capacity constraints, investments in augmenting railway infrastructure will be key in reducing congestion and bolstering revenue growth in the sector.