Signs of Revival: IR witnesses 98.42 MT Freight Loading in Jan’17 as movement of Cement, Steel, Coal gains momentum

After staring at empty wagons for most part of the year when it struggled to find goods to carry, the cash registers are ringing once again in Indian Railways.

Showing signs of waking up from the year-long slumber, made worse supposedly by demonetisation, core sector seems to be throwing up the kind of demand that justifies an unexpected upward swing in the volumes of goods carried by the country’s rail sector, whose loading activities have traditionally served as a reliable barometer for the state of the economy.

Since January, movement of cement and steel, iron ore and coal has gained momentum. The month saw the loading of 98.42 million tonnes (MT) of freight, the highest for any January in history. But 2015-16, although no less bumpy, was a better year. For most part of 2016-17, in contrast, it looked like the figures would lag behind. By August, they started to re-strategise. But, by the time plans were put in motion, a tepid economy had eaten into six-eight months’ worth of potential business.

Looking back now, Mohammad Jamshed, member (traffic), Railway Board, says those were crucial seasons of lull in 2016. “(It’s) a little late to make good the shortfall of larger parts of the year from April to October,” he says even as figures of a last-quarter upswing keep trickling in. By end-January, it was now just about seven million tonnes less than what it had managed to carry. Railways says the rise in loading figures is as much indicative of the economy rebounding as it is the various proactive strategy moves finally paying off.

Going along with demands from its varied clientele base, course correction and sector-specific interventions to gain back market share remained a permanent work in progress throughout last year.

Industry players of commodities wanted rakes (goods trains) made of wagons which could carry dynamic, even smaller quantities over minimum distances, which would make more sense for them financially. Granted. Some wanted large-scale revision of routes so that loading and unloading points could be connected faster through shorter distances. Done. Almost all had been pressuring for removal of the archaic Busy Season Charge, an extra up to 15 per cent levied on freight services during the busy season. That was done, too. This apart, rationalisation of coal tariff, lower freight rates for long-lead transportation and levy of coal terminal surcharge, merry-go-round policy, short lead discounts and elimination of port congestion surcharge, etc, were also granted.

Railways had embarked on a mission to dismiss old “impediments” like removal of port congestion surcharge and doing away with a dual frieght rates for iron ore and the like.

“One part of the gain has to do with railways doing far more intelligent structuring of their freight rates and giving incentives to movers of commodities. The other part is about certain external factors. If, for instance, there is increase in cement because of construction activities…. they are all benefitting them,” says Vinayak Chatterjee, head of Feedback Infra.

So, in commodities other than coal, Railways carried 23 MT more by end-January as against last year. Steel movement grew 4.95 MT above last year and iron ore 16.65 MT. Loading in raw material for steel plants, container sector, etc, have also surpassed last year’s figures. As per internal estimates, this is a direct impact of ‘freight sector reforms’ that have reduced logistics costs for rail clients by 20-30 per cent. There is a day less this February as compared to last February, due to which the month-end loading figures may not surpass last year’s. “As per the projections from all zonal railways… this momentum will continue in the first quarter of the next fiscal,” Jamshed said.

By mid-February, the average rakes per day carrying iron ore was 100 as opposed to 82 last year; cement has clocked 100 rakes per day, up from 96 a year ago. Containers have seen a jump of 109 rakes per day, against 99 a year ago. The trend continues in steel, raw materials for steel, foodgrains and coal. The rakes per day from Coal India Ltd (CIL) is a record 245. Taken into account coal from all sources, it is 404 rakes per day, up from 387 last year. This, despite not getting much business to speak of from coal for most part of last year, when shortfall in its coal freight business touched 50 rakes a day. In fact by the middle of last year, this figure had fallen to 185 rakes per day.

The business lost has now translated into in a shortfall of around 60 MT in overall figures.

Where is the money

There is still but one sore point: Money.

The tonnage figures may have started looking up, its earnings continue to remain sub-optimal when compared to last years. The various rationalisation and incentivising moves have not yet increased the average distance it carries its goods, or ‘lead’. The average distance railways carries good has remained plateaued for years and has even seen a downward trend with just about occasional spurts. As opposed to 599 km of lead achieved by January last year, the figure has now fallen to 562 km.

As per Railways assessment, one reason for shorter lead in coal, for instance, is the overcapacities in the power sector and generation schedules being decided on the basis of the “Merit Order Dispatch” policy wherein the plants with the least variable cost of power are given generation schedules while the plants with higher variable cost are backed down. As a result, it so happens that those getting more generation schedules are at shorter distances for railways to carry the coal to.

The leads in coal traffic have seen a decline this year from about 525 km last year to 499 km up to January. By January-end, Railways carried 908 MT of goods and earned around Rs 85,282.77 crore, against Rs 90,692.82 crore a year ago. So, in January, while it carried record high volumes than last year, the earnings figures for the period is around Rs 300 crore less.

“Power generation was up in November; iron ore market has revived, and India’s minerals production growth has been in the 20 per cent region. Steel production has picked up. So, all the external factors put together, tonnage growth in railways is not an issue,” says Neelkanth Mishra of Credit Suisse. “The bigger issue is growth in revenue.”

Railways plans to settle for what it has targeted in its revised estimates for the rest of the year, which is Rs 1.08 lakh crore from freight alone. Considering where they were even a few months ago, Railways calls it “pretty high”.

Jamshed said: “Earnings is not a cause for worry. With the 7th Pay Commission payments coming in and a subdued sector in the first seven-eight months, with demands not really coming for rail transport, and coal at around 50 MT down, we will still be in profit.”