Railways bets big on long-term contracts to regain its lost marketshare

It crossed 1000 MT of freight traffic in 2016-17, expects to achieve estimate of 1094 MT by March

Indian railways is betting big on the long-term contract plan to regain its lost market share in sectors like cement, steel and fertilisers. According to sources close to the development, in cement sector only the national carrier is targeting at least 110 million tonne cargo in the financial year 2017-18.

Railways is already in touch with companies like UltraTech Cement Ltd and ACC Ltd and also the Cement Manufacturers' Association (CMA). Railway minister Suresh Prabhu had launched a policy for long-term contracts with major freight customers on Thursday. 

"Our main focus is on sectors like cement, steel, fertilisers, grains, iron ore, scrap and pig iron. We are already in talks with a few companies. Initially, our focus will be on cement and steel sectors and expect to achieve over 110 MT on cement only during the next financial year," said Mohammed Jamshed, member (traffic), railway board.

Railways has already crossed 1000 MT of freight traffic in 2016-17 and expects to achieve its revised estimate of 1094 MT by the end of March. However, till February 20 this year, the cumulative revenue from freight for the financial year 2016-17 stood at Rs 1,42,487 crore, compared to Rs 1,45,503 crore during the same time in 2015-16 there by posting a drop of over 2 per cent.

According to railway officials, Indian railways lost at least Rs 7,000 crore shortfall in freight revenue, mainly owing to a 50 million tonne shortfall on expected coal traffic so far in 2016-17 and a drop in cement movement due to demonetisation till December this financial year. 

During the financial year, Kolkata-based Coal India Ltd had agreed to use 253 rakes per day, but it got limited to 205-210 rakes per day due to demand shortage.

The second biggest commodity cement too was expected to touch 110 MT in 2016-17, but is likely to fall short of target by at least 10-15 MT. As per the long-term contract policy, customers may get discounts to the range of 1.5 to 35 per cent based on the incremental growth in the volume of cargo. As per this, customers are required to offer at least 1 MT of traffic per annum. The minimum period of the agreement shall not be less than three years, which will also give these players insulation from sudden price rise.

While coal constitutes, 44 per cent of railway's traffic shares, the share of cement come to 8 per cent and food grains about 7 per cent. "We have not yet received the details of the policy. As of now, about 65 per cent of cement sector traffic is through road and 30 per cent is through rail route, while the remaining 5 per cent is owned by waterways. This is a clear effort from the railways to bring back its lost traffic," said a CMA official in terms of anonymity.

Over a period of 60 years, the share of railways on total freight traffic has declined from 89 per cent to 30 per cent, with a majority of the traffic moving towards the road.