Poor infrastructure is the major culprit

On account of government, efficiency can be brought by fast tracking of critical infrastructure projects and policies and ensuring completion on time, says Vishal Sharma, CEO, Gateway Rail Freight Ltd, in an interview with Sumantra Das.

Do you think rail logistics in India is challenging?
Yes, the rail logistics in India is very challenging. This is due to multiple reasons such as lack of adequate rail infrastructure, imbalance at ports, fragmented market with multiple players, high cost structures with very low margins, tough competition by road in terms of pricing and transit times etc.

Why is India facing such a high cost in rail logistics? Is there a way out?
This is due to two reasons. Firstly, the high operational costs due to high rail haulage charged by Indian Railways (IR) for freight, which is because IR keeps its passenger fares low and cross-subsidises the loss-making passenger traffic with the profit-making freight traffic. Secondly, the set up cost of container train operators (CTOs) is extremely high due to land, rail linking, trains and added infrastructure.

Even after a huge business potential through rail logistics, why private players are shying away from this arena?
There are high entry barriers in rail logistics business. For the private players already operating in this industry, there are challenges on multiple fronts as mentioned above, ie, lack of adequate rail infrastructure, imbalance at ports, fragmented market with multiple players, high cost structures with very low margins, tough competition by road in terms of pricing and transit times.

When will the country’s rail logistics be able to see break even?
This is difficult to answer. The sector needs a lot of focus and protection from government in order to grow. The infrastructure projects such as dedicated freight corridor (DFC) and Golden Quadrilateral should be fast tracked by government and timely execution of plans should be monitored effectively. Specifically for rail, the containerisation is currently at ~50 per cent in India which is way below the developed countries’ levels of 70-80 per cent, so there is a long way to go.

Which are the major issues of concern in this business? Is there any need of policy to curb those issues?
The challenges are on two fronts – business environment related and infrastructure related. In terms of business environment, there are multiple issues such as high cross imbalance at ports, under stress industry cost structure, too many players in a slowing market resulting into high competition, arbitrary price cuts and heavy discounts to gain business, global slowdown, currency volatility, etc. In terms of infrastructure, the issues are congestion on rail networks, some rail network sections are single track and non-electrified, track structures are unable to carry freight trains at higher speeds, locomotive unavailability, long transit times, delayed projects such as DFC.

How can rail-logistics players increase their efficiency?
The efficiency can be increased with joint efforts of government, Indian Railways, CTOs and with technology intervention. On account of government, efficiency can be brought by fast tracking of critical infrastructure projects and policies and ensuring completion on time. On account of Indian Railways, efficiency can be improved by improvement in providing locomotives and teams for train checks etc. On account of CTOs, the yard management and planning should be done in such a way so that faster turnarounds could be achieved. All this should be backed up by technology such as ERP, RFID, internet and e-commerce so that wasteful processes and practices can be eliminated from the system.

Is the country’s poor infrastructure major culprit for this segment or lack of co-operation from other parties of logistics chain?
Yes, it is the poor infrastructure which is major culprit. The other parties of logistics chain try to work together in tandem with whatever is available.

Do you think DFC will be a game changer?
The rapid growth of Indian economy in the last few years has created demand for additional capacity of rail freight transportation, and this is likely to grow further in future. DFC provides the best way to build required capacity. It helps the rail freight sector in multiple ways – adds capacity, decongests the already saturated rail network, cuts down transit times, and reduces variability in transit times. This in turn will improve the service levels, save logistics cost and will promote the shifting of freight transport from road to more efficient rail transport.

What is the role of technology in cutting down rail logistics cost? What kind of technological advancement we can see in coming years?
The growing complexities of supply chain require constant visibility and accuracy of information for key stakeholders. Technologies such as RFID help in managing the logistics and inventory problems faced by companies, while ERP helps in integrating different functions and streamline operations of service providers. This is bolstered by internet and e-commerce which helps expand the range of information, delivery time as well as speed of information. All these technologies automatically reduce the wasteful processes and thus save on resources as well as cost.

Will implementation of GST make rail logistics more efficient?
The consumption tax system in India is complicated and multi-layered with levies both at the federal and state levels. GST is a broad-based, single, comprehensive tax levied on goods and services consumed in an economy. The GST system will allow manufacturers to use hub and spoke distribution model more effectively which in turn will mean that logistics will need to be realigned with the changing supply chains of customers and service providers will need to invest in scale, service focus and technology. All this will make the sector more efficient.

What does India’s future on rail logistics hold?
In today’s environment, the manufacturing and consumption are dispersed in order to derive the economies of scale. This means logistics will play an increasingly important role in future. Rail logistics will gain more importance as customers will start focusing more on service parameters in addition to cost.