MUMBAI - A sharp rise in fuel costs together with an increase in insurance charges and tolls is set to reduce the competitiveness of the roadways for transportation of freight, and could even divert freight traffic to the railways during the current fiscal year, logistics service providers and industry analysts have estimated. The commissioning of some stretches of the dedicated freight corridors (DFCs), and the announcement of competitive freight tariffs by the railways could also prove to be challenging for the road transport sector.
Currently, just about 35 percent of domestic freight is moved via railways, while 60 percent is transported by road. The logistics industry believes that the share of the railways is bound to increase as more stretches of the DFC are commissioned and multi-modal logistics parks are operationalized.
Even in 2021-22, railway freight had grown at nearly thrice the pace of road freight transport. Indian Railways’ total freight loading rose 15 percent year-on-year (y-o-y) to 1,418.10 million tonnes (MT) in 2021-22, while the total freight transport by roads rose only around 5 percent to 2,500 MT, data from the Ministry of Road Transport and Highways and Ministry of Railways showed.
“The data shows that nearly 100 MT of freight goods every quarter was transported through the Indian Railways instead of by roads, when compared to earlier years,” a senior government official said.
The Indian Railways has further increased its freight loading target for 2022-23 to nearly 1,500 MT and could look to cannibalise on the rising freight rates on grand trunk routes due to rising fuel costs.
Freight rates on grand trunk routes have risen by 3-4 percent month-on-month in April, according to the Indian Foundation of Transport Research & Training (IFTRT).
“The incessant price hikes in small doses are like a ‘frog in boiling water’. If this continues, the freight rates will touch all-time highs by May,” said JasjitSethi, Chief Executive Officer, TCI Supply Chain Solutions, adding, this was hitting transporters of all hues.
Not Just Fuel Costs
However, the rise in fuel prices is not the only reason for the rising cost of transporting goods by roads. Higher insurance costs, more stringent emission norms, higher tolls across the country and the government’s push for electric mobility are also pain points for transporters across India.
Another reason for rising pressure on road transporters in India has been the more stringent pollution norms being enforced across the country. The switch to Bharat Stage VI emission norms and the fast phasing out of diesel vehicles across India have increased the road freight rates considerably in the last two years.
Data from IFTRT show that truck rental rates on popular routes like Delhi-Mumbai have risen nearly 50 percent y-o-y to Rs 1.49 lakhs in April 2022, compared to Rs 95,500 in April 2021.
Improving Railway Efficiency
In the last two years, the Indian Railways has also improved its operational efficiencies with the operationalisation of parts of its eastern and western DFCs.
“With the opening up of the Dadri-Khurja, Bhaupur-Khurja and ChirailaPauthu-Sonnagar sections of the EDFC (Eastern Dedicated Freight Corridor), the time taken to transport goods from Punjab, Haryana, and Uttar Pradesh to West Bengal has reduced significantly -- from nearly 30 hours earlier to 18 hours now,” an official from Gateway Distriparks said.
He added that once the EDFC is fully operationalised in the next few months, the time taken to transport goods will be reduced further.
The official added that with the increasing privatisation of the DFCs it is expected that nearly 60 percent of the freight from states will be transported by rail by 2028.
The Indian Railways has also increased the average speed of freight trains on these DFCs.
“The introduction of the Long-Term Tariff Contract (LTTC) scheme, Traditional Empty Flow Direction (TEFD) scheme, and Kisan Rail scheme introduced in the last two years has made freight movement by the Indian Railways very cost efficient,” a subject expert from Goldman Sachs said.
He added that in the last two years, the average tariff rates for transporting goods by the Indian Railways has fallen by nearly 20 percent compared to 2019.
