Cost, time are crucial to make railways viable to carry automotive, say experts
For the first time in the country, a division of Indian Railways has introduced an ‘Auto Vision’ document. In its road map unveiled on Tuesday, the Southern Railway — which caters to the Chennai automobile cluster — has set a target of generating a revenue of at least Rs 500 crore in the auto segment in 10 years time. This entails growing revenue at a compounded annual growth rate of 30 per cent.
The vision document, released by Vashishta Johri, general manager, Southern Railway, seeks to enhance its share in exports and coastal roll-on/roll-off segment to 90 per cent, accruing a revenue of Rs 90 crore.
The division also seeks to take the rail share to 50 per cent in the container-based export market, generating annual revenue of Rs 60 crore. It will run two parcel express trains per day for maintenance spares and supplementary goods to leverage on the warehousing business. It eyes Rs 150 crore from this business.
However, higher freight costs deter auto industry players from using trains for transporting goods. V Anand, manager, Hyundai Motor India, which sends six per cent of its traffic through trains, says that cost is a major challenge.
Ajeet Saxena, Chief Commercial Manager of Southern Railway, said the division would bring down the cost to attract automotive cargoes. For example, it currently costs around Rs 1,500 to send a car by train, while it takes only Rs 1,000 via road. To bring down costs, the Southern Railway has signed pacts with Chennai and Kamarajar Ports. According to officials, these ports have agreed to bring down the cost in wharfage and handling charges, which will bring the cost considerably.
The limited availability of rakes and slow speed are some of the key reasons that have restricted the growth of freight movement through railway.
Last week, Southern Railway came out with a Vision Document which set a target of Rs 500-crore revenues over the next 10 years from the automotive sector. The first of its kind document has come out with various initiatives and schemes. But with the huge gap between road and train freight rates, lack of infrastructure, lack of rakes, the question is whether it is achievable?
Ajeet Saxena, chief commercial officer, Southern Railway, said the Division is working on bringing down costs to attract automotive cargoes.
Currently, to send a car by truck it costs around Rs 1000 per car, by train it will go up to Rs 1500 a car. Southern Railway has signed MoUs with Chennai and Kamarajar Ports to bring down costs. The Division claims this is a first of its kind in the country.
Without getting into any specifics, officials said ports have agreed to bring down the cost in wharfage and handling charges which will bring the cost close to road transport.
The official said they have also written to the Railway Board to reduce freight to become more competitive.
V Anand, Manager, Hyundai Motor India, which sends 6% of its traffic through trains, said that in India there are three major auto clusters including Northern – Delhi, Guragon and Faridabad; Western – Mumbai, Pune, Nasik, Aurangabad and Sanand and Southern cluster consists of Chennai, Hosur and Bangalore.
The South has got huge potential, considering major OEMs have their manufacturing base there. Today, sending the produced from South to West is not feasible.
For instance, the road freight from Chennai to Pune is around Rs 7,000 (door to door), where as total rail freight comes to Rs 11,700, nearly 67% higher. For Mumbai, while road freight is around Rs 9,500, by train it is nearly 38% more. To Sanand, road freight is about Rs 12,500, while by rail it is Rs 15,256, higher by 22%.
Cost is a major challenge. Additionally, there is also lack of dedicated freight corridors, absence of loading and unloading infrastructure, absence of connectivity to manufacturing clusters, complicated structure of freight rates without alignment to market dynamics and fuel price.
The limited availability of rakes and slow speed are some of the key reasons that have restricted growth of freight movement through railways. Also, private auto terminals are too expensive under the auto hub policy.
Ashish Bhat, general manager (operations), APL Logistics, which is one of the two companies that are operating dedicated trains to cater to the automobile industry said that rail coefficient is 70% in the US, 35% in Europe, while in India it is only 3.1%.
Automobile distribution across India cannot be met by road alone.
For OEMs, number one is cost, quality and delivery.
Today, transporting through trains is costlier. The other major issue is transit time. By truck, it takes around 96 hours from Chennai to Delhi, whereas by train it is 100-120 hours.
Besides, there is a penalty of minimum Rs 150 per day of late delivery per vehicle. There are 20 additional activities if a vehicle is transported through rail.