Railways looks to term contacts to augment freight revenue

The Indian Railways has adopted a policy of long-term freight contracts with major customers using pre-determined price escalation principle to augment its revenue. This is in line with the railway minister's proposal in the last Railway Budget for the 2016-17 fiscal.

Through long-term tariff-based contract with key freight customers, Railways hopes to ensure long-term gross freight revenue (corresponding to minimum guaranteed quantity) commitments from customers at pre-determined price escalation principle.

The policy provides for grant of incremental gross freight revenue (GFR) linked and absolute GFR (corresponding to gross volumes) linked discount to customers

Under the new freight policy, Indian Railways will offer discounts in freight rates based on a minimum guaranteed volume growth in gross freight revenue in return for minimum guaranteed volume of traffic.

The discounts will range from 1.5 per cent to 35 per cent depending upon the incremental growth in GFR.

Customers are required to offer at least one million tonnes of freight traffic per annum.

The minimum period of agreement shall not be less than three years and at not more than 5 years at a stretch.

New customer will have to offer more than 3-million tonnes of traffic during the agreement period and one million traffic in the first year itself.

In case of customers already offering more than 5 million tonnes of traffic discount would be granted on the basis of absolute GFR corresponding to the total volume of traffic offered by the customer during the previous 12 months subject to the same GFR being maintained over the period of the agreement.

The discounts here will range from 0.5 per cent to 5 per cent according to the volume of traffic.

Customers who are already offering more than five million tonnes of traffic can avail both discounts, subject to fulfillment of conditions.

However, all commodities such as coal and coke, military traffic and RMC are excluded for tariff contracts.

Under the pre-determined price escalation principle, any increase or decrease in freight rates will be implemented from the beginning of the next year of the agreement only.

Discount in freight under this scheme will be given as refund within 45 days.

Agreement will be signed at zonal railway level and in case of multi-zone operations of a customer, the agreement will be signed with the particular zonal railway, which deals with maximum traffic of that customer. Customer can also opt for single zone or multi-zone agreements or both.

Key customers such as cement, fertilizers, steel industries, etc, are expected to be the main beneficiaries of the new freight policy as it would ensure stability and certainty of long term tariff / freight rates to the customers while at the same time assuring supply of wagons/rakes to the customers through preferential traffic order (PTO).

For Railways, it would ensure incremental guaranteed volume of traffic and GFR.

The Railway Budget for 2016-17 has proposed an action plan to develop and expand the freight basket and recapture the traffic through either containerisation or new delivery models.

Indian Railways is likely to regain lost modal share and capture new traffic in domestic segment like petchem products such as low density / high density polyethylene, plastic granules, white goods, PVC and polyester fabric, etc.

The new freight policy is likely to attract additional traffic of around 3 million tonnes in the initial year.

Under the Railway Budget 2016-17, the railway ministry had launched several initiatives in passenger, freight and non-fare business segments over the last one year after several rounds of interaction with stakeholders.

The Business Plan 2017-18 details 50 actionable initiatives, including upgradation of the delivery system by initiatives like revamp of railway goods sheds through partnerships with stakeholders (pilot for 10 goods sheds followed by policy for scaling up), new delivery models like Ro-Ro, Dwarf Containers, Road-Railers (between Palwal and Melpakkam), new terminals.

Better freight services and rationalised tariffs to expand the freight basket (more commodities like bulk cement, steel etc to be taken out of restricted list for containerisation), long-term contracts with freight customers, end-to-end solutions (through partnerships at 10 goods sheds), rationalisation of weighment policy, timetabled trains with premium on assured transit time (50 paths to be carved out in 2017-18)  and procurement of specialized rolling stock for sectors like automobiles etc.

The railways propose to procure 3,000 box type wagons of 25-tonne capacity in 2017-18 to enhance throughput. It also plans to increasingly leverage IT and improve asset utilisation.

The railways also plan to boost international freight services  and as part of this policy, a demo train run between Bangladesh and India and a meeting of CEOs of railways of concerned countries is planned in 2017-18

In the passenger segment, it is planned to transform ticketing by migrating towards cashless, paperless ticketing (with 6,000 PoS machines and 1,000 ticket vending machines in 2017-18), Aadhaar-based ticketing and an integrated ticketing App by May 2017.

To make journeys more comfortable for passengers, the railways have planned to introduce new LHB rakes (about 2,300 coaches in 2017-18), with more comfort features, improvement in catering and converting 25 stations to Digipay mode in 2017-18 by digitising entire station transactions.

Fulfilling travel needs by scaling up the new train products like Humsafar (7 new services by 2017), Antyodaya (7 new services by June 2017), Tejas (3 new services by June 2017) etc.

To meet the demand surges, the railways plan to introduce adequate special trains and coaches.

A new policy for rail tourism, including development of Hill Railways through partnerships besides several new tourist friendly packages are also being envisaged.

Some of the new initiatives include enhancing parcel business through new partnership with the postal department to provide end-to-end solution in parcel traffic, and leveraging IT to provide efficient booking, handling and tracking including rolling out of PLUTO- The new Parcel Tracking App, New Courier Service between Delhi and Chennai etc; rolling out of parcel management systems to leverage IT and provide efficient parcel booking, handling and tracking etc.

In order to augment non-fare revenues by monetisation of Railways' hard and soft assets, it is planned to interlink Rail Display Network (RDN) connecting 408 A-1 and A class stations in 2017-18.

Besides, the railways expect the new policy on out-of-home advertising to generate Rs6,000 crore in 10 years. About 2,000 new ATMs, train advertising, content-on-demand and Rail Radio besides monetised apps for complaints / feedback and cab booking are expected to enhance the railways' revenue.