The Hindu Business Line : Players wary of Railways `hidden costs' in container biz

`We need to carefully consider the possible increase of haulage charges, land acquisition/lease charges, wagon acquisition, and maintenance costs before taking the plunge.'

New Delhi , Jan 25

WITH the Railways opening up the containerised operations sector, several players are closely examining the fine print before taking the plunge.

While they agree that the sector is attractive given the 15-20 per cent growth in Exim container traffic, but they have apprehensions about certain "cost elements" which are in the control of the Railways and can escalate to higher levels, affecting their profitability.

"We need to carefully consider the possible increase of haulage charges, land acquisition/lease charges, wagon acquisition, and maintenance costs before taking the plunge," said likely entrants.

The Railways collects haulage charges for letting operators use its infrastructure such as tracks and signalling system.

Several prospective players have said that the Railways can increase haulage charge as and when it wants. In November 2004, the Railways increased the charges by 15 per cent; in April 2005, they were further hiked by five per cent and again in November 2005, the haulage charges went up by 15 per cent.

"Suppose I obtain a permission now and take about 2-3 years to get the rolling stock and container depots in place. What if, by that time, the haulage charges have moved to a level that renders my business unattractive," asked a player, stressing on the need to have an independent regulator.

Many point out the same logic for wagon maintenance charges that they would be required to pay to the Railways. All players have to arrange for their own wagons but are mandated to get the wagons tested periodically for maintenance by the Railways.

Currently, the Railways wagon maintenance charges are at five per cent of the updated capital cost of wagon. Simply put, even if someone bought an old wagon for Rs 15 lakh, at a time when new wagons cost about Rs 22.5 lakh, they would have to pay five per cent of the current cost (Rs 22.5 lakh) to the Railways for maintaining wagons.

"There is no guarantee that the Railways would not hike up the maintenance charges," a player said, adding that wagons' depreciation cost of five per cent also needs to be taken into account.

Similarly, the per tonne haulage costs are much higher for lighter loads as per the prevailing rates. For example, the Railways haulage rates (which exclude the wagon costs) appear attractive only when the containers are loaded fully with 27 tonne payload. This is because the Railways charges haulage rates on a per container basis at present irrespective of the load.

But, hardly 5-6 per cent of the total container cargo has 27-tonne payload. In the Exim traffic, which constitutes 75-80 per cent of the total containerised traffic, only 15 per cent of the traffic is above 20-tonne payload.

The average payload in Exim traffic is about 12-13 tonnes and it could range from as low as 3-5 tonnes to a high of 27 tonnes.

With the average payload for container traffic hovering around 12-13 tonnes, the haulage cost to be paid to Railways works out to about Rs 1,000 per tonne between Delhi and Mumbai.

"Thus, if a player is carrying a container with 3-tonne payload, per tonne haulage charge to be paid to Railways is Rs 4,108 on Delhi-Mumbai route," a player said.

With the Railways not providing wagons, the next cost concerns acquisition of rolling stock.

"Remember that these haulage charges exclude the cost of arranging wagons, as the player is required to arrange the rolling stock. With the cost of each flat wagon hovering around Rs 22.5 lakh currently, rolling stock costs are going to be huge," said another player studying the sector.

On the possible land lease charges, a player said: "If you are on Railways land, one needs to look out how often the land lease charges can increase."

The Railways has increased the land lease charges for Concor by 25 per cent recently, with retrospective effect - from April 2004.

However, critics point out that all these rates would be equally applicable on all players and that the Railways is unlikely to raise these costs unreasonably.

"The Railways also has an interest in attracting containerised traffic to be run on its system. Its revenue growth is also linked to those of players," said a Ministry official.