With the dedicated freight corridor, the shift from roads to rail picks pace

As per the report by CareEdge, a credit ratings agency, the shift of the freight movement from roads to rail in India has been initiated at a good pace, however, it has been posing problems due to the absence of a sector regulator.

According to the report, the containers transported via railways have increased 17.63% year-on-year to 74.38 million metric tonnes last year against 12.51% growth in container volumes. The report added that the rail ratio creased by 115 bps to 26.70% in FY22, mainly due to partial connectivity of the Dedicated Freight Corridor (DFC) with Mundra and Pipavav ports on the west coast.

The report noted that the planned completion of the DFC project by June 2023, increased travel by cost-effective double-stack container trains, and increased numbers of cement shipments by rail are important factors facilitating the shift.

As per the estimates, the inventory carrying cost is estimated to be 43% of total logistics consumption. Therefore, shortening the duration of transportation is expected to help achieve timely inventory management, which will increase the cost competitiveness of domestic products. CareEdge ratings expects container rail volumes to grow at a healthy CAGR of 15.60% from 2022 to 2025, with a steady improvement of rail-coefficient by 430 bps to 31%, with additional volumes mainly from cement.

According to the report, the challenges to this shift are higher haulage rates for freight traffic due to extensive cross-subsidization of passenger traffic and the lack of a regulatory body for the railways.
Transit assurance under DFC aiming to squeeze the travel period by 40-50% for some of the major lines and more than triple the growth in the movement of cost-effective double stacker container trains by FY25 will accelerate this migration.

Rajashree Murkute, Senior Director for Corporate Ratings at CareEdge Ratings said that the existing high haulage rates for operating container trains due to extensive cross-subsidization with passenger freight, encounters in establishing end-to-end connect, and the lack of regulator in railways are obstructing the modal shift of cargo from roads to rail.