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Logistics: A look at the rail freight sector - Views on News from Equitymaster
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  • Sep 4, 2009

    Logistics: A look at the rail freight sector

    Rails are owned and operated by Indian Railways (IR), a government undertaking. Till 2007, Container Corporation was the only player who operated container trains. While in 2007 container rail freight services were privatized, Concor, which is a government undertaking still remains the dominant player. As per Wikipedia, Indian Railways is one of the largest and busiest rail networks in the world spread over more than 63,327 kilometres covering 6,909 stations. It is also the world's largest commercial or utility employer, with more than 1.4 m employees. It transports nearly 6.6 bn passengers per year and over 700 m tonnes of freight per year. The freight segment accounts for nearly 70% of the railway's revenues.

    The rail freight segment has grown at an annual growth rate of 8% and is likely to continue to grow at the same rate. While the freight earnings have grown at an annual growth rate of 12%.

    Source: Ministry of Railways

    Traditionally railways have favoured carrying passengers over hauling freight that led railways to steadily lose freight share to roadways. However, reforms such as privatisation of container freight services have boosted the growth in this segment.

    What has driven growth?
    The Container Freight Stations (CFS) and Inland Container Depots (ICD) were privatized in the 90s while in 2006, the government of India awarded fourteen licenses to private players to operate rail container services across all routes in India. Private players need to have their own terminals i.e. ICDs with rail sidings to load and unload containers. Opening doors to the private sector enabled infrastructure to be built up and increased share of the container cargo movement. The Railways' share in transportation was as high as 88% in the mid 50s which steadily declined below 30% prior to privatisation. Rail logistics now account for nearly 30% of the transport market in India.

    The road ahead...
    The privatization efforts in areas such as catering, wagon ownership and leasing and joint ventures for rail infrastructure projects have so far been limited in scale and scope. However, to catalyse growth further involvement of private players is necessary, which is something the Indian Railways has recognised too. IR prefers to liberalize its policy to sustain the productivity, efficiency and cost effectiveness. For the same it plans to sign joint venture agreements or leverage upon private capital through Public Private Partnerships (PPPs).



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    1 Responses to "Logistics: A look at the rail freight sector"

    Ravi Shah

    Sep 4, 2009

    Very insightful article on the rail freight sector logistics. Which are the other players, besides Concor?

    Equitymaster requests your view! Post a comment on "Logistics: A look at the rail freight sector". Click here!

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