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Home > All news > Railways > Container Train Operators ACTO seeks relief from Indian Railways

Container Train Operators ACTO seeks relief from Indian Railways

April 22, 2024
Reading Time: 4 minutes
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Mumbai - The Association of Container Train Operators or ACTO, has sought relief from the Indian Railways on stabling and underframe charges by treating it as a “force majeure” situation.

The lingering Red Sea crisis has started to bite container train operators as dwindling volumes force them to stable (park) trains and resort to a so-called underframe running to cut costs.

“The container train operating industry is facing a crisis,” Mr. Manish Puri, President, Association of Container Train Operators or ACTO, a lobby group for the sector was quoted as saying recently.

ACTO has sought relief from the Indian Railways on stabling and underframe charges by treating it as a “force majeure” situation.

Force Majeure is a clause that absolves firms from meeting their contractual commitments for reasons beyond their control.

Freight rates have soared after container ships started taking a longer route via the Cape of Good Hope instead of the Suez Canal since October last year to avoid attacks on commercial ships by Iran-backed Houthi rebels in the Red Sea.

The longer transit and sailing time and the spike in freight rates have led to a dip in import volumes in February and March.

“Now we are seeing that exports are also beginning to take a hit because whatever inventories/empties were available in India, they have been utilised and there is a shortage of empties for exports. As a result, pricing on exports has gone up because of the shortage of containers. Further, getting inventories/empty containers is becoming a challenge because of the high ocean freights and geopolitical issues in the Middle East,” said Puri.

Traditionally, empty containers are sourced from the Middle East or sometimes even from Europe.

“So, initially we faced a dip in imports; now we are facing a dip in exports as well,” Puri stated.

The soaring freight rates have also impacted the sourcing patterns of importers for materials such as low value wastepaper and scrap, which used to be imported in large quantities to feed the industry instead of relying on expensive wood pulp and steel pellets or pig iron.

“That cycle is beginning to change because things like scrap, wastepaper, handicraft rugs etc have become costlier and the importers are finding that they can’t afford to manufacture as their exports, in turn, will become very expensive. That has also started impacting the import volumes,” Puri said.

The high prices have become a challenge to the trade and when the prices go up significantly, the rail sector or the service industry also feels the pinch.

“In such a scenario, what the trader is willing to pay to transport goods is very low because he is already paying a huge amount in terms of ocean freight. So, the pressure has come on to the domestic market,” Puri explained.

“It’s a chaotic situation where one thing is affecting the second which, in turn, is affecting the third,” he pointed out.

Besides, the dip in volumes has also led to lower double stacking.

“When double stacking goes down, costs go up because double stacking is a cost reduction exercise. Secondly, almost all the container train operators have added to their fleets in terms of more containers and wagons over the last couple of years, particularly after the COVID pandemic. Now, with the volumes coming down suddenly, that fleet is beginning to become surplus, so the operators are having to stable some of it,” Puri said.

Aside idling the assets, stabling is also causing a cost issue as the Indian Railways levy stabling charges per train per day.

The huge imbalance in imports and exports has also led to empty and under frame running.

“All of these are cost to the system against which there is no revenue potential,” Puri noted.

“We have told the Indian Railways that the Red Sea situation is like a force majeure. It’s nothing that we can do anything about. The sector is facing a crisis, and the Indian Railways can see the numbers coming down because they have also been asking us the reasons for the volume decline. It’s not that we are not carrying the cargo, which is available, it’s simply that cargo itself is not available,” Puri said.

So, we are asking them for some short-term relief on stabling and under frame charges, he added.

Typically, when a surplus situation occurs, the Indian Railways, at the behest of the industry, took the trains to the old railway yards where there was space, so that they didn’t end up congesting the system.

“What is happening now is because the Railways is also under pressure to increase its loading and to get more volumes, so even when the operators are requesting the Railways to take the train out of service for some period of time, they are keeping the trains on the system. Now, what that ends up doing is, if it is standing in a port or in an ICD, it starts taking up capacity. And, a result, even though the volumes are down, we are getting these artificial chokings at either the port or the ICDs,” said a container train operator.

“So, operators are wanting to hold the train. Normally, if you bring in a train and if there is enough cargo, you can leave in 3-4 hours. Now they are saying let’s keep the train waiting for a day so that we have enough containers to at least make sure underframe and empty running is reduced,” the operator added.

The container train operators, Puri said, have been attempting to address the situation by seeking to ensure regularity of service by trying to reposition empty containers from surplus to deficit locations at low costs, continuing with regular services both in import and export directions even at the cost of negligible double stack moves, and increased underframe running.

“This, however, has been leading to considerable stress in the sector, and with the forecasted numbers for April and the coming few months continuing to look difficult, there is an urgent need for Indian Railways to recognize this as a force majeure situation and provide some support to the CTO sector in the form of relief on stabling and underframe charges,” Puri wrote in a 19 April letter to Indian Railways.

“This is essential to continue providing services to the trade and ensure that crucial imports continue to reach hinterland industries, and exports which are a priority area for the government continue to move to ports on a regular basis with no corresponding increase in the landed price paid by importers and exporters due to the significant cost increase we are facing as a sector,” Puri told the Indian Railways.

Disclaimer: This information has been collected through secondary research and Daily Shipping Times is not responsible for any errors in the same.

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