To avert coal woes, Railways to lower coastal shipping freight rates

First-mile, last mile rail freights account for 71% of coastal shipping costs

As the Centre sees coastal shipping as the silver bullet to avert logistics-induced power crises in the future, the ministries of coal and railways have finalised the framework for reduction of rail freight rates for transportation of coal in rail-sea-rail (RSR) mode, Business Standard has learnt.
 

The ministry of railways will offer lower rates for the supply of coal from mines to ports and then ports to power plants. This comes after several states complained that the rates of transporting thermal coal through RSR are higher than transportation solely through railways. This is despite shipping being cheaper than rail.

While there will be no changes in the base freight charged by the railways, the reduction will be achieved through application of telescopic rates, a government official said.

Telescopic freight would mean that the trip from a coal mine to port and then port to power house would be treated as one consignment. This would bring down the final freight cost.

Currently, freight is charged separately for rail transport from mine to port, and from port to power houses, making it significantly costlier.

An assessment of coastal shipping by the coal ministry had found high first-mile and last-mile costs by the railways as a key reason behind failure of the RSR model. 

In the draft Coal Logistics Policy of 2022, the ministry found through case studies that “the costs for first-mile and last-mile connectivity via rail on RSR routes constitute as much as 71 per cent of the total logistics cost for the RSR route. Thus, railway tariff rationalisation for first- and last-mile connectivity to and from ports can enhance viability of RSR routes for coal.”

“The ministry of coal has been asked to provide the details of ports, which will be beneficiaries of the telescopic freight scheme, following which the new rates will be officially notified soon,” the official quoted above said.

The coal ministry’s draft policy also said that high freight rate of coal transportation by rail is resulting in import of coal, particularly from Indonesia. This is cost-competitive vis-à-vis domestic coal. This is particularly true for power plants located in Southern and Western India, the ministry said.

However, rationalisation by the railways is likely to be only partial, with roughly a fourth of the cost benefits being passed on to states and private players using coastal shipping, according to sources.

The scope of the concession may not be enough to woo states and industry into changing their supply chains, according to experts.

While it’s a welcome initiative, there are several issues with shifting supply chains from all rail to RSR, and passing only partial telescopic benefits doesn’t help much, said an executive.

The Centre, after a Budget announcement by finance minister Nirmala Sitharaman, is also looking to increase private participation in coastal shipping through viability-gap funding and other incentives.

The transportation of coal through railways has not seen any major hurdles due to low coal demand this year.

The situation saw a stark contrast in 2022, when the railways had to cancel over 1,000 train trips over a month to ensure that coal stocks at thermal power plants don’t run out. The Centre wants to avoid this yearly affair, going forward.

The railway ministry did not respond to queries sent by Business Standard.

Chart 1: Coal Logistics Comparison
Coal Movement from Korba to Gujarat (Logistics Cost per ton in Rs)
Mode	Component Cost
All Rail Route		2196
Coastal Shipping Components

      First-mile (Rail from Mine to Port) 1363     Loading Port Charges 280     Shipping Cost 256     Destination Port Charges 280     Last-mile (Rail from Port to Procurer) 655    

Coastal Shipping

  2834 29% costlier than All-Rail         Source: Draft Coal Logistics Policy                   Chart 2: Coal Freight Rates of Indian Railways           Kilometres Rate per tonne (In Rupees)   0-100 216     Upto 500 216-1054     Upto 1000 1054-1891     Upto 1500 1895-2695     Upto 2000 2695-3065     Upto 2500 3065-3426             Source: Freight Operation Information Systems