Container Corporation of India Ltd is expected to revise its tariff from Dec. 1 following the hike in haulage charges for containers movement by Indian Railways, said a report by Edelweiss Securities.“Overall haulage rates per TEU for 20-feet containers will surge 31% for containers weighing 10-20 tons and 16% for containers weighing 20-26 tons (from Dec. 1) and above 26 tons from Feb 1, 2013,” said Mr. Niraj Mansingka, analyst with Edelweiss Securities.
Haulage charges are those paid by container train operators to Indian Railways for usage of tracks, locomotives and signalling infrastructure. This constitutes 60-70% of their operating cost.
“Announcing two rounds of hike to be implemented in two months is unprecedented. We have decided to approach the Ministry for lowering it,” said an official from the Association of Container Train Operators. Currently 16 companies have been allowed to operate container trains including CONCOR, Arshiya International and Gateway Distriparks Ltd. among others.
The tariff hike will increase consumers’ cost, but it can be passed on, except in segments which face competition from trucking, Mr. Mansingka stated.
Indian Railways’ move will make trucking attractive in 0-20 tons of 40-feet container segment, which accounts for 15% of Gateway Rail Freight Ltd volumes but 4% of its operating profit.
“We believe 40% of the containers are 40 equivalent units and would be subject to increased tariffs. The remaining 60% are 20 equivalent units, of which one fourth, i.e. 15% containers, may be carrying less than 10 tons weight and thus would not be subject to a tariff raise,” pointed out Mr. Lokesh Garg of Kotak Institutional Equities.
According to industry sources, cargo movement by rail is not competitive below 300 km globally. However, in India, even beyond 300 km it remains competitive ony if we get two-way traffic, else the empty container costs had to be added.
“Container Corporation is better placed 22% return on capital employed than Gateway Distriparks 5% and Arshiya at 13% that have limited ability to absorb higher costs,” Mr. Garg noted.
The risk, however, lies in volume, he added. Domestic volumes were down 5.6% year-on-year in July-September quarter impacted by lack of traffic for the return leg from South and East India. The tariff revision may see further shift toward road transport, he concluded.
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