Tariff Roadblock at DFC

DURING A REVIEW MEETING in August 2020, Prime Minister Narendra Modi quizzed the Ministry of Railways on the delays in the implementation of the Dedicated Freight Corridor (DFC) project — an exclusive corridor for freight movement at a higher speed and capacity. Deferment of the completion deadline of the eastern (Ludhiana-Dankuni) and western (Dadri-Mumbai) DFCs totalling 3,381 km from December 2021 to June 2022 had led to the meeting. Taking a dim view of the railway ministry's explanation citing delays in land acquisition by the state governments, Modi directed the office of the railway minister to hold a weekly review of the project and update the Prime Minister's Office (PMO).

With the project on the PMO's radar, the then railway minister Piyush Goyal shot off letters to governments of Bihar, Jharkhand, U.P., Punjab and Gujarat, where land acquisition issues were dogging the project.

Corridors Take Shape

Three years since Modi's intervention and follow-ups by the then railway minister Piyush Goyal and current minister Ashwini Vaishnaw with state governments and other departments, both corridors are finally taking shape. Vaishnaw was inducted into the Union council of minister and given the charge of the railway ministry in July 2021.

The operational sections of the western DFC are used mainly for export-import container traffic, and the eastern DFC for transporting coal from eastern India to power plants in the north. Out of the total 13 sections on both corridors, seven have been commissioned, connecting 2,196 km. While physical progress is 65%, financial progress (implementation of contracts) is 88%, according to data from the Dedicated Freight Corridor Corporation of India Limited (DFCCIL) — the special purpose vehicle implementing the project.

Out of the six remaining sections on both corridors, three will be commissioned by December this year and two will be done by this month; only a 109 km stretch between Vaitarna and JNPT (Mumbai) — crucial for the commissioning of the WDFC — will be left. It is scheduled to be completed by June 2024, according to the DFCCIL.

The operational section of 2,196 km, meanwhile, has redefined rail freight movement. According to DFCCIL data, from no trains operating in December 2020, the total number of trains on the Western DFC stood at 2,268 in March 2022. Similarly, the number grew from 17 to 816 on the eastern DFC. The total weight in terms of net tonne kilometres — payload of 1 tonne carried over 1 km — on the corridor went up from 9 in December 2020 to 982 in March 2022.

But now that physical progress is on track and bulk freight and container trains are already operating, it is time for both the railway ministry and the DFCCIL to take up policy reforms at a faster pace. Though logistics players acknowledge the benefits of the project, they also expect more clarity on issues, including the tariff structure. The railways also need to quickly set in motion reforms such as non-discriminatory access to the DFCCIL network, apart from the ministry of railways.

The Tariff Question

DFC's user industries, however, find the railways' intransigence on tariffs intriguing. The idea behind DFC was lower logistics costs. It was expected that due to bulk movement of trains, double stacking, and double length, tariffs will be lower. But in reality, things are different. The freight policy and tariffs rates are decided by the Railway Board, and, currently, the tariff charged by the board for movement of goods on the corridor is similar to what is charged on the railway network.

"The success of DFC will depend on the tariff policy. Double-stack containers at double the rake length and speed will lead to an eight time improvement in efficiency. Tariffs, too, have to come down to some extent. It cannot be at the same price. Ultimately, the objective is to bring down logistics cost," says Vineet Agarwal, MD, Transport Corporation of India.

DFC rakes have been designed for higher capacity than that of railways. The height of a double-stack container train on the DFC is 7.1 metre and a single-stack train is 5.1 metre compared with 4.26 metre for normal freight trains. And while the width is also greater at 3,660 mm vs 3,200 mm on the rail network, the train length on DFC, too, is almost double at 1,500 metre against 700 metre. The train load is 13,000 tonnes vs 5,400 tonnes for normal trains.

Given the unit costs, the ministry should rationalise tariffs, say experts. "Double stacking on the DFC has made railways more competitive, reducing unit costs by 25% across containers. One of the major bottlenecks in the growth of DFC is cost rationalisation. To ensure modal shift from road to rail, the tariff structure needs to be reviewed," says Girish Aggarwal, MD, APM Terminals Pipavav.

"Tariff policy for the corridor will help bring down logistics cost, which is high at 11-12% of GDP, compared with 8% in the developed world. A 3-4% reduction in cost will make Indian exports economical," says Prem Kishan Gupta, CMD, Gateway Distriparks.

No Competition

The DFCCIL, meanwhile, has made its stand clear on the tariff issue. "We are a subsidiary of the Indian Railways as clearly stated in the agreement. Secondly, we have been given the status of railway administration and zonal railway. Freight rules will be decided by the ministry. We have no say in this regard and do not want to be a competitor to the railways," says Ravindra Kumar Jain, MD, DFCCIL.

Jain, in fact, has a point. DFCCIL was set up in 2007 as an SPV under Companies Act, 1956, wholly owned by the Ministry of Railways, and having a mandate to only build and operate freight corridors. A concession agreement governs the relationship between the ministry and the DFCCIL, according to which, the ministry would route the traffic from its network to the DFCCIL by paying a track access charge. The DFCCIL does not have powers to decide freight rates unilaterally.

So then, what is the way out? "The status of the corporation as a zonal railway is a constraint. But if enabling amendments are needed, so be it. Looking at the larger picture such as capital deployed, lower carbon emissions, etc, an administrative mechanism can be put in place. It is for the railway ministry to decide," says Jagannarayan Padmanabhan, senior director, consulting, Crisil Market Intelligence and Analytics.

But then, tariff rationalisation is not the only recourse for logistics cost to come down. "Logistics cost does not come down only as an impact of lower tariffs. Reliable and scheduled services will help increase efficiency of operations. This will result in reduction of logistics cost," says Jain. Once JNPT is connected, the transport time between the port and Dadri will come down to one day, against the current three-five days on the rail network. Also, port evacuation will be much faster, he adds.

"Take, for example, a 50,000 tonne ship has to be evacuated by the railways. A normal rake has 5,000 tonne capacity. A DFC rake has more than 10,000 tonne and will take it to the destination in one day. So, it will be 10,000 tonnes on the DFC in a single day versus 5,000 tonnes in three days on the normal network. Ten multiplied by three equals 30 trip days. We will take five trip days. That way we will enhance efficiency by six times," says Jain.

Another policy reform related to the freight corridor on which the railway ministry needs to set the ball rolling is non-discriminatory access to the DFCCIL network. As of now, the Indian Railways is the only authorised user of the dedicated freight corridor. The concession agreement between the ministry and the DFCCIL allows for multiple authorised users on a "non-discriminatory basis" depending on qualification metrics and standards. But for competition to set in and optimum utilisation of the asset, kick-starting these follow-up reforms are essential. The time is right as a section of logistics players has already started coming forward to use the asset.

Logistics Industry Set to Benefit

Sections commissioned in the last couple of years have fulfilled the need for speedy movement of freight. Companies benefiting the most out of it are those that deal in container traffic for exports and imports. The DFCCIL is in talks with e-commerce players to transport freight and set up logistics parks. The talks are in preliminary stages though, says Jain.

"DFC is a game changer for container operators. Once it is fully commissioned, the actual benefits will be much more," says Gupta. Gateway Distriparks is upgrading infrastructure at three of its inland container depots — Garhi Harsaru (Gurugram), Faridabad, and Viramgam (Ahmedabad) on the WDFC alignment, he adds.

"Once terminals are compatible for higher loading capability, incoming containers from Punjab and Kashipur will be dispatched on double-stacked trains to Pipavav port," says Gupta. For meeting DFC standards and double stacking of containers on the rakes, a number of upgrades are needed such as high-rise overhead electric wires, and adjusting to the rake dimension of DFC, which is wider than normal ones.

Distriparks plans to expand existing terminals and add new locations. "We have 67 acres in Faridabad and 60 acres in Ludhiana. An ICD is under development near Jaipur, which will be operational in FY24. We are looking at two or three locations in northern and central India also," says Gupta.

APM Terminals Pipavav, which is connected to the WDFC and moves bulk, liquid, and RoRo cargo such as ceramics, container petroleum (including LPG), spices, agricultural commodities and metal, says DFC decreases turnaround time. The company says trains from Khatuwas in the Haryana-Rajasthan border arrive at the port in less than 24 hours, compared with the previous transit duration of three-four days.

"We already have double-stack trains running on this route providing hinterland connectivity to north Indian ICDs. Last year the port handled 1,901 trains. The infrastructure at the port relevant for DFC includes high-rise overhead electrification, which offers the benefit of single terminal-bound trains, thereby removing the need for inter-terminal transfers," says Aggarwal of APM Terminals Pipavav. The company plans to invest around $90 million in a new liquid berth. "The port's capacity to handle 2 MMT of liquid bulk will increase to 5.2 MMT," adds Aggarwal.

Mahindra Logistics, on the other hand, will consider the corridor for north-bound movement of manufactured vehicles once the JNPT stretch is complete. "Once that line opens, we will have three auto plants in the 100-200 km range. It will facilitate our consignment to north India, which contributes 30-35% of consumption for the Mahindra portfolio," says Prasanna Pahade, vice president, auto and farm business, Mahindra Logistics.

Centre's Call

There is need to revisit the tariff structure, especially at a time when the Central government is looking at ways to lower logistics costs in the economy to almost half from the current estimates of 12-14% of GDP.

But then, it is not only a question of tariff reduction, but also policy dynamism. If the DFCCIL cannot override the tariff regulation set by the Railway Board, the ministry will have to step in.