Liberalization of container rake operators

On January 2005, The Ministry of Railways, India announced its new Container Train Policy with an objective to attract a greater share of container traffic for railways and for introducing competition in rail freight services. This policy allowed private operators to obtain licenses for operating container trains on Indian Railways (IR). This scheme was open to all Indian companies including subsidiaries of foreign companies that are registered in India having a minimum annual turnover of Rs. 1 billion. The validity of the following permission was for 20 years. It could be further extended to next 10 years on the basis of the performance of the CTO. The initial response to the policy was good. In the first round of registration (January 16February 15, 2006), 14 operators, including the incumbent CONCOR, signed an agreement with IR. Ten of these permissions were for category I routes, two for category II and the remaining two were for category IV. In addition, two more rake operators also entered into the market; making the early 14 to 16 players. These players wanted to shift their 3% (more than 97 million tonnes) volumes from road to rail. Operators can create the market by offering integrated, valueadded logistics solutions with last mile connectivity.

The names of the 16 private container rake operator are as follows: 16

Container Rail Operators Container Rail Operators

CONCOR

Sical Logistics

Gateway Distripark (GRFL)

Central Warehousing Corporation

Hind Terminals

Reliance Infrastructure Leasing

India Infrastructure Logistics Pvt. Ltd. (APL)

KRIBCO

ETA Freightstar Pvt. Ltd.

Inlogistics (B2B)

DP World Pvt. Ltd.

Boxtrans

Arshiya International

Delhi Assam Roadways Corporation

Adani Logistics

Pipavav Rail Corporation

Factors Influencing Growth in Containerization

Container rail is a highly capital-intensive and long gestation business with hefty investments required in rakes (capacity) and rail sidings (cargo consolidation and value added services, etc) to attract volumes. Hence, asset turnaround time and utilization levels assume greater relevance for an operator to derive economies of scale and be profitable. Huge Entry Costs: With all upfront and variable investments, the business has become highly capital intensive with a long gestation period for CTOs. They had to pay Rs 500 m/Rs 100 m as one time registration fee. It was mandatory for them to build an ICD within three years of getting the license. A medium sized ICD costs anywhere between Rs 750 to 1000 m. Initially, many CTOs tied up with CONCOR for using their ICDs. CTOs felt that the charges by CONCOR were high. CTOs have to procure their own rakes and containers. One rake, together with containers costs about Rs 140-150 m. It is estimated that a minimum investment of Rs 2000 m is required from a CTO to start the business, considering five rakes and one ICD. Pricing by Indian Railways: The major pricing element is the haulage, a charge that IR levies on CTOs for using its tracks, locos, and signaling infrastructure. Other elements are development surcharge, parking, and stabling charges. These prices have a significant impact on the CTOs operational costs. The haulage alone accounts for 70-75% of their operating costs. Haulage has been increased four times since the final policy in January 2006, with effect from November 01, 2006, October 01, 2008, July 01, 2009, and January 01, 2010, with a total increase up to 20%. Revenues earned through haulage account for only 3% of IRs total revenues. However, for CTOs, it is the most significant cost and any upward revision comes as a setback to them. Service Levels by IR: The policy did not provide CTOs any service level guarantees from IR. CTOs were demanding guaranteed transit time or a fixed time tabled schedule for container trains, which IR denied on the ground of network capacity constraints. As of now, IR does not have a time table for freight trains. In the absence of such a guarantee, CTOs were having difficulties in ensuring timely delivery to their customers, and managing their own logistics. Finally, in December 2009, nearly four years after the policy, MoR announced an Assured Transit Time (ATT) service on limited routes. This service aimed at providing scheduled container train services to interested CTOs for end to end movements at an additional 10% of the haulage charge, called premium ATT service charge.