IR should implement Fuel Adjustment mechanism: APL Logistics

APL LogisticsNew Delhi: APL Logistics, which is present in India’s rail segment through APL Vascor, wants a level playing field for the rail segment.

APL Logistics Global Vertical Head-Automotive, William Villalon says rail is losing out to road in India on account of the Indian Railways doing away with fuel adjustment component (FAC) in the context of falling diesel prices, and lack of implementation of road regulations with regard to truck dimensions.

In 2012-13, the Indian Railways had introduced a fuel adjustment component policy to move tariffs along with movement in fuel prices, but it has not lowered freight tariffs despite diesel prices going down.

APL Vascor – a private investor in the Railways as an automobile freight operator – has four train sets, and the fifth one will be delivered this month. Villalon is visiting India to “evaluate” the path ahead for the company. APL Vascor is a joint venture between APL Logistics and Fujitrans Corporation.

DIESEL PRICE IMPACT

With diesel prices ruling low, the truckers have lowered their prices and with the railways not having lowered the fuel adjustment component (FAC) in line with the drop in prices, the rail based service providers have lost their competitive advantage.

Villalon admitted that the Indian market has not grown as per the company’s initial expectations due to the diesel prices going down, the government not implementing rules with regards to dimension of trucks as expected, and the delay in GST implementation.

POLITICAL RISKS

He is, however, aware of the political risks. “Vehicle length issue and the GST are in the political realm. (For) things in the political realm – and this is not just confined to India, this is for anywhere in the world – the time to have an outcome is unknown,” said Villalon.

Having the vehicle regulations with regards to truck dimensions implemented on ground – as that would lower the size of trucks resulting in fewer cars being fit into a truck — are a game changer on the upside for the company.

However, Villalon is confident that the path ahead is clearly “growth” for rail-based automobile transportation, given that hardly 2-3 per cent of automobiles are transported by trains. “This is way too low. The Government is targeting high growth for the automotive industry and that clearly cannot happen without increase in rail infrastructure,” said Villalon, adding that the automobile firms’ intention to go towards lowering carbon emissions will further drive the business.

APL Logistics Vascor Automotive India is also targeting the two wheeler market, Umesh Bhanot, Managing Director-India, said. “This is an adaptation to the Indian market as India is also one of the largest two wheelers market,” said Villalon.

EVALUATES ROADS

In another move, the company is also evaluating investment in trucks in India to meet the first and last mile connectivity, as it waits for a final notification regarding automobile vehicle dimensions. But even for this move, the company wants long term clarity on the trucks.

APL Vascor, while investing, had also taken into account implementation of goods and services tax (GST), a move which will change the configuration and location of stockyards. The “densification” of transportation between lower number of stockyards will also help the rail movement, said Villalon.

UPBEAT ON INDIA

That said, Villalon maintains that Indian Railways is much more open than the Chinese Railways. “China is yet to open up to private investment in the Railways, they have no scheme parallel to what Indian Railways has,” Villalon said.

“I remain excited for India. I don’t think you can compare India with countries – such as the US, Mexico, and Canada – where the railways are privately held. Compared with many countries where Railways are government owned, India compares favourably. India is at least open to foreign investment. But you have to have an economic structure that attracts investment,” said Villalon.

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