How to manage logistics & transportation in India.
In a logistic approach, transportation of goods seems obvious: you have to choose the best mix of transportation possibilities. But tools are specific to each country and can differ from a period, a region, a company to another. In India there are two main freight transportation means: road (that remains the most important logistic factor for a country), and railway. However, railway freight needs meaningful investments to be more competitive, but also to fully develop its capacities as a component of companies supply chains.
Railway freight is a unique and dynamic historical tool.
If railway is so efficient and recommended in India, it is thanks to its historical aspect. Indian railway has been a full part of the identity of the country, it has influenced it, it is the first employer in the world, it is used by millions of Indians every day and covers the majority of the country (it is also the largest railway network in the world). According to those aspects it is understandable that this tool has an importance in the logistic supply chains in India.
In fact, in India an effective logistic strategy can’t ignore the railway freight filled out with complementary components. This market demonstrates its effectiveness by its dynamism and growth.
Numbers speak for themselves. Between April 2010 and February 2011, the freight traffic increased of 29.25 million tones which represents an increase of 3.64 per cent. Indeed Indian railway has carried 832.75 million tones of commodities during this period, whereas there was 803.50 million tons for the last equivalent period. On a monthly scale, the month of February 2011 totalized 76.80 million tones of commodities.
Indian railway freight data, April 2011:
Nature of the commodities, its revenues (millions RS) an its sum in millions of tones:
Coal: 22781.4 millions RS – 37.37 millions of tones
Iron ore & steel plants: 7304.2 millions RS – 9.02 millions of tones
Cement: 5605 millions RS – 9.03 millions of tones
Food grains: 4362.2 millions RS – 4.09 millions of tones
Petroleum oil and lubricant: 2864.4 millions RS – 3.34 millions of tones
Fertilizers: 1611.3 millions RS – 2.28 millions of tones
Container service: 2652.3 millions RS – 3.02 millions of tones
Goods: 3918.7 millions RS – 5.68 millions of tones
A logistic strategy which implements railway freight has many competitive edges. As we can see this choice is consistent: goods and container represented 8.7 million tones of the railway freight in April, which is enormous in comparison with raw materials such as coal or iron in a fast developing economy. But Indian railway market share don’t overtake roads market share in the freight industry.
Is roads in India are a logistic bet?
Even with an amazing railway network, logistic solutions can’t avoid road freight. Indeed roads are more flexible than railway. Even if the Indian road network is well known for its bad quality, road freight asks for less investment: globally we can observe an explosion of the automobile industry despite of the slow improvement of roads.
The pivotal role of roads is tenfold by the rural aspect of India: 80% of its population still lives in the countryside, and the railway can’t serve every village or town. We can also notice (independently of the lack of infrastructures and risks of accident) that the adaptability of this logistic segment, its low cost and low investment requirements, have permitted to increase its freight market share. Thanks to a strong economical growth, roads have answered more efficiently than railway to the transportation needs. The “breaking point” occurred in the 80′s, when roads freight overtook railway freight because of a strong growth and demand for short distances.
This market evolution explains why raw materials represent such a strong part of the railway freight market. Due to economical changes and the superiority of roads, railways have preferred to target commodities asking for high quantities on a long run such has raw materials.
However, the government has recently decided to upgrade the railway system especially for freight. The objective is to solve Indian railway freight issues, which is a lack of infrastructure, despite of a strong demand for its services.
Indian railway freight needs investment.
According to the previous data, railway freight illustrates a great way to transport goods and optimize logistic strategies. But actually the network is saturated by the needs, which shows its weaknesses as well as its attractiveness. To illustrate the potential of this logistic tool, another aspect is the development of this sector thanks to recent investment.
Currently, the railway network is saturated because the domestic and commercial channels are using the same network and structures. The Freight Corridor Corporation of India Ltd (DFCCIL), a company set up in 2006 under the aegis of the railway ministry managing the Indian railway network, has been created to develop a framework dedicated to railway freight: the objective is to answer and capture the high demand for railway transportation of commodities.
The project is to create a new and more competitive network especially for freight between Delhi, Mumbai, Chennai and Howrah. This quadrilateral (and its two diagonals Mumbai-Howrah and Delhi-Chennai) represents more than 55% of the revenues generated by railway freight in India.
This project will be achieved step by step because of its enormous costs: as an example, the western part (Delhi-Mumbai) represents 1500 kilometers and 770 billion rupees of investment. The DFCCIL announced one month ago that before the end of the fiscal year, the project will start with 100 billion bids to civil engineering contracts for the western part. During the next six months, other bids will be done for electrification and signaling works. One of the benefits of this development will be the increase of average train speed, which will be treble.