by Akshay Purkayastha, Director and Golesh Gupta, Manager, Transport & Logistics, CRISIL Infrastructure Advisory
The dedicated freight corridors (DFCs) set to crisscross the country soon can revolutionise freight transportation by making it cheaper and faster, and help railways wean back the modal share it has lost to roads over the years. However, for the DFCs to live up to their billing as a game changer, the stakeholders, including the Ministry of Railways and the Dedicated Freight Corridor Corporation of India Ltd (DFCCIL), have much work to do yet on several key areas.
Here’s a closer look at the issues at hand.
The shrinking share of rail in freight
From 86% in fiscal 1951, rail’s modal share of freight had dropped to 35% by fiscal 2017, while that of roads had gone up from 14% to 59%. Also, elasticity of demand for rail transport, estimated by Indian Railways at 1.2 times the growth in gross domestic product (GDP), has been at 0.8-1.0 times in recent years.
The reasons are not far to seek. Capacity constraints and a common railway network for freight and passengers – where the latter enjoy priority – have slammed the brakes on freight movement by railways. This has increased transit time and also amplified irregularity. Notably, as of January this fiscal, the speed of freight trains across railway zones was in the 17-30 km/hour range compared with 31-52 km/hour for passenger trains.
The Golden Quadrilateral, which links the four key cities of India, accounts for only 16% of the total track length but carries 60% of the total freight traffic with many sections operating above 100% capacity. This is a huge drawback for an economy that is largely dependent on rail-served core sectors such as minerals, power, steel, fertilisers, cement production and petroleum.
DFCs as the panacea
Taking cognisance of the capacity constraints and need of the economy, the Ministry of Railways conceptualised DFCs and set up the DFCCIL in 2006 for their development, operation and maintenance.
To start with, two DFCs are being developed at an estimated cost of Rs. 93,500 crore – the 1,504 km Western Dedicated Freight Corridor (WDFC) from Dadri in Uttar Pradesh to Jawaharlal Nehru Port in Maharashtra, and the 1,856 km Eastern Dedicated Freight Corridor (EDFC) from Ludhiana in Punjab to Dankuni in West Bengal.
After a slow start, both these DFCs have caught up and reported 68.5% physical progress (excluding the Sonnagar-Dankuni public-private-partnership or PPP section) as of November 2019. Trial runs have already been conducted across 190 km sections on both.
More encouragingly, the biggest hurdle, of land acquisition for the infrastructure projects, has been overcome – upto 99.8% for WDFC and 96% for EDFC (excluding the Sonnagar-Dankuni PPP section). As per DFCCIL, the two DFCs are expected to be commissioned in a phased manner by December 2021.
And what benefits do the DFCs offer railways? As highlighted by DFCCIL and industry experts, Railways stands to benefit from:
Reduction in operational costs: Given their advanced design and operational parameters, the DFCs are expected to reduce operational costs of railways by 40%.
Incremental traffic: The DFCs will help the Indian Railways to capture incremental traffic, projected at 2.2 billion tonne over 30 years.
Service enhancement for the passenger segment: The DFCs are expected to free up capacity on the existing railway network, facilitating enhancement of service for passengers, especially the punctuality and average speed of trains, enabling competition with the roads and aviation sectors.
Savings on greenhouse gas emissions: The DFCs are expected to save 457 million tonne of carbon dioxide emissions over 30 years, enabling the country to achieve its climate goals.
For the benefits to kick in, however, here are four aspects the stakeholders need to work on.
- Pass on cost savings to customers: The DFCs are expected to reduce operational costs by 40%. The railways should consider passing on these benefits to customers by lowering tariffs. This will enable railways to not only have a competitive advantage over other modes, but also help industry reduce its logistics cost through the reliable and cost-effective mode of transport. As per the Sagarmala National Perspective Plan, 2016, a 25% reduction in freight charges will shorten the viable distance for rail transportation of containers to 400-500 km from 1,000-1,300 km.
- Accelerate industrialisation along the corridors: Setting up of industries in the vicinity of the DFCs would be a win-win for railways as well as the players operating therein – the reason the Delhi Mumbai Industrial Corridor (DMIC) along the WDFC and the Amritsar Kolkata Industrial Corridor (AKIC) along the EDFC were conceived. However, though the DMIC was approved in 2007 and the AKIC in 2014, progress on both has been limited. Projects under both the industrial corridors should be accelerated in tandem with the commissioning of the DFCs.
- Develop logistics infrastructure along the alignment: The DFCs are expected to enhance punctuality. This will invite unconventional cargo segments, such as express logistics and perishables, which could become a necessity for railways given an expected decrease in coal requirement for power plants as the usage of renewables increases. This holds true especially for EDFC, which expects 50-55% of coal traffic.
- However, in order to tap these segments, aggregation infrastructure will be required to amass goods at specific loading points and help in their transition to rail. Though logistics parks and facilities have been planned along the corridors, there has been limited progress on these.
- To explore this area holistically and strategically, the DFCCIL may consider identification of specific locations across the entire alignment to develop build-to-suit logistics facilities, preferably through the PPP mode. This will also help in capturing the agricultural cargo due to the element of seasonality and resultant change in origins and destinations. Also, in order to be an end-to-end logistics services provider to its customers, the DFCCIL may consider joining hands with some of the private sector logistics players to offer last mile and end-to-end solutions.
- Allow private players to run trains on DFCs: As per the institutional arrangement envisaged for operation of the DFCs, Indian Railways will be DFCCIL’s sole customer and will pay it a track access charge (user fee) for using the infrastructure. Other customers/freight operators will be routed through Indian Railways. In order to instil competition in the sector, improve service and leverage private sector capital for induction of world-class rolling stock, railways may consider allowing private players to run freight trains on the DFC network by paying TAC to DFCCIL. This is one of the models followed in many countries and several international players maybe interested in investing and operating in this area.
Proactive action on these lines will strengthen the business case for the entire value chain, including Indian Railways, DFCCIL, private players and customers.