High Freight Charges Lowers Cement Transportation By Railways.

The hike in the freight rate by railways has forced cement companies to lessen its dependence on rail transport. In January 2012 the Indian government increased the freight rate from 20% to 30%. The steep jump in the tariff rates impacted the profitability of the cement companies. It is to be noted that Fright alone constitutes 15-20% to the overall cost of the company therefore any hike in the tariff will have a direct impact on the profitability of the company. Cement companies have shifted to road transport which has become more economical for short distances.

From one of the media reports the Indian railways is carrying less cement than it used to carry earlier because of the hike in the freight charges. Cement carried by the railways fell by 11.8% to 7.52 million tonnes (mt) in August from 8.53 mt in the year earlier on the back of the rise in the freight charges.  

Most of the cement companies after the fright rate hike prefer road transport especially for the shorter distance within the range of 400 Km and use prefer rail for the longer distance of more than 700 km. For shorter distance the road transport is more economical provides door to door delivery service without any other cost such as multiple handling charges attached to it which is their in the rail transport.

The road transport is also preferred sometime for the longer distance when return freight traffic is assured, and makes the road transport cheaper than the rail transport. As per the Cement Manufacturing Association (CMA) the share of the railways in cement transportation has contracted in the last few years.  

If we look at the revenue of railway commodity wise freight traffic during last five months of the fiscal year the railways have transported 42.58 mt of the all the commodity, which is marginally lower from 42.76 mt in the same period last year.  Of the total freight revenue cement freight accounted for 8.5% of the total as compared to that of 9.47% in the same period last year.

The major revenue for the railway commodity wise comes from the coal transportation which almost accounts for the 50% of the total revenue.  Although total revenue-earning traffic grew more than 16% in the April-August period from last year, this has largely been because of a 15% increase in coal volumes transported. Coal accounted for nearly 50% of the total revenue earning traffic in last five months. And the other commodities such as steel, mineral oils, food grains and fertilizers have remained almost flat or are marginally lower in this period.