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Rail operators have to look beyond being mere transporters to actually being a key link in the non-linear web of the entire supply chain. We have the opportunity to create a sustainable, non-linear logistics platform, which can take inter-modalism into unchartered territory.
Q You had a long career in shipping with a global carrier? Now you are involved with container rail operations- How did this shift happen?
Yes I had a wonderful and memorable shipping career with APL for almost 27 years; I always found the shipping industry to be dynamic and interesting. However, since 2006 till couple of years back, I became deeply involved in linking our Ocean product with key hinterland ICDS through APL/ NOL’s major Rail investment in India – brand name IndiaLinx, a Container Train Operator company under License I category. As Director, North & West India, I was given responsibility to expand APL’s hinterland footprint, and create density and synergy around different LOBs, of which Rail was an important part.
As I spent time selling both Ocean and Rail services, I became fascinated with the complexity and challenges of inland logistics operations in India. The domain is vast and solutions are unending. We’re lucky in a way since much of India’s logistics infrastructure is yet to be conceived and constructed. So we have the opportunity to create a sustainable, non-linear logistics platform, which can take inter-modalism into unchartered territory. Eventually, planning, policy and execution must ensure that freight moves in the most suitable mode, be that rail, road, air, inland waterways, coastal movement …keeping in mind demographic needs, cost, efficiency and environmental protection.
Moving from pure ocean to container rail operations gives me immense bandwidth to conceptualize and create solutions for complex modal movements, both EXIM and Domestic. Being part of APL Logistics, which is a member of the KWE Group, IndiaLinx is well positioned to be part of the entire spectrum of supply chain in India’s rapidly transitioning Logistics space. It’s an exciting time to be part of this change and journey!
Q What is your role and responsibility as Commercial Director at IndiaLinx?
Other than responsibility for the overall Commercial performance of the company, the role of Commercial Director, IndiaLinx, is to create and build Value around the company’s core business model and make it a leading landside logistics solutions provider. This involves development & execution of unique supply chain models which straddle geographies and commodities, both international & domestic. Another key aspect of the job is to strategize and implement entry of IndiaLinx into non-core, non-commoditised sectors in high cost/high return specialised industries.
Q Container Train Operations in the private domain has not been a happy journey for many operators? What is your view on current business prospects and what is IndiaLinx’s strategy? Interestingly, despite the many odds faced by private rail operators, you will find that almost every CTO continues to operate in the market. Most CTOs have started their own ICDs, and some ICD operators are now CTOs! Clearly, there’s some merit to being in this business after all! The challenges to being an ICD or rail operator today are the shrinking size of the cargo pie and fragmentation of the market. The premise on which so many companies bought rail licenses has somewhat changed, forcing CTOs and ICDs to change their business models mid-stream. What has changed? First, freight which traditionally moved by rail has shifted to road, primarily for three reasons – cost, transit and service reliability. Movement of cargo by road continues to rise sharply. Second, some shipping lines have systematically defocussed from ICD business and choose to operate more on port CY model. Third, in anticipation of brisk volume growth through increased industrialisation and manufacturing, investment poured into creation of additional terminal capacity. Net result is slower demand as compared to increased capacity. Obviously this puts pressure on rates, and some companies are forced to compete on wafer thin margins.
Current and future business prospects for our sector look good. The reason takes me back to my first answer – 2PL, 3PL, 4PL inland logistics in India is almost unchartered territory. Our sector has to look beyond being mere transporters to actually being a key link in the non-linear web of the entire supply chain.
Q Which are the regions and hinterland in your view that will be driving cargo growth? Demographics of population, high consumption areas, adequate power supply, law & order, political stability, availability of labour, friendly tax regimes, etc, are some of the factors which determine the location where EOUs, industry and manufacturing hubs will set up base. And what better example of Government and market confidence than the rapidly growing Japanese Industrial Corridor coming up in Neemrana region in the NCR? Coupled with the upcoming Dedicated Freight Corridors and Delhi Mumbai Industrial Corridor – it seems to me that North & Central India, with a link to Gujarat and JNPT, will be crucial regions to drive cargo growth in the coming years. In some ways, it’s good to create supply before demand, or else ‘supply’ is always playing catch-up, thereby forcing ‘demand’ to move somewhere else.
Q Under the special freight train operations scheme of the railways, private companies will be able to run freight trains. How do you see this scheme transform the rail logistics landscape?
In my view, companies should focus on their own core competencies. Even though private companies will be able to run freight trains, why would they want to be in the rail operating business? It’s not just about getting a license and buying rolling stock, or even getting a rail siding in your factory. It’s about running a completely new business model, which is costly, time consuming and complex – it’s like starting a completely new company! Sure some private companies will be tempted to avail of this scheme, but they may simply end up becoming one of the pack, a common-user transporter, competing with well entrenched players in the market. The focus for such policies should be to attract 3PL and other logistics players to invest and provide better services.
Q How do you intend to leverage on the National Investment and Manufacturing Zones proposed along the Delhi Mumbai Industrial Corridor?
With the global presence, strength and expertise of the KWE Group and APL Logistics, we expect to be one of the front runners to provide high end logistics services in the upcoming mega industrial and manufacturing zones along the DMIC.
Q What are the key concerns and challenges of Container Train Operators today?
The idea of privatisation in the freight rail sector was to incentivise private investment, create multiple options for customers, offer cargo clearance facilities near catchment areas, and give better service at lower costs. All of these good things have happened – but almost entirely at the cost of CTO profitability. Reason is the very high cost of rail services paid by CTOs to Indian Railways, leaving a small margin to cover other costs. Over supply & competition have ensured the remaining small margin shrinks even further. Another important point is CTOs have to deal with Indian Railways, both as operator and regulator. Such a model obviously reduces flexibility of CTOs to change their product according to market needs, which in turn, reduces their ability to serve customers who have more defined demands today than ever before.
Q The road transport sector is getting more and more organised, efficient and cost-effective giving stiff competition to rail. What needs to be done to bring modal shift in diverting more cargo from road to rail?
At the current rate of plans and investments, road transport may account for almost 70 per cent of freight movement by 2020! Yes, the road sector is certainly gaining more traction, getting more organised, and also receiving investments to improve service deliverables. That said, any planned economic model has to channelize cargo into the most suitable modal network to maximise efficiency, reliability and avoid massive environmental degradation. Ideally, rail is the right mode for medium and long distances, and road should be used for expressways, and to act as connectors to rail corridors and mega logistics parks.
In the present scenario, road and rail freight rates are vastly different, this needs to be addressed and rationalised on a war footing. We also need a uniform taxation policy for rail and road, along with carbon credit benefits to rail transporters.
Q What are your plans on the east coast? Both east and south belts are throwing up a number of interesting opportunities in the past few months. Much of it is domestic logistics, but the complexity of the business model will provide opportunities for unique solutions – certainly something worth waiting for; as they say, watch this space …
Q Repositioning of empty rakes remains a concern. How do you plan to tackle this problem? Importance of this matter cannot be overlooked anymore; it must be seriously addressed by the authorities. Railways must immediately consider differential pricing for movement of empties, and focus on loaded costs instead. Far better to change the entire pricing model by substantially reducing empty haulage rates for CTOs to position empties to locations which have high laden movement. Without this, certain ICDs will simply shrink to nothing because they predominantly attract export laden volume, but shipping lines and CTOs shy away from empty positioning due to high costs.
Q Do you see more doublestacked trains operational in future?
Double stack is perhaps the proverbial light at the end of the tunnel! Double stack is already a game changer; in future it will significantly change the aggregation, speed and cost of freight movement by rail, to benefit all stakeholders in the supply chain, especially the consignor or consignee.
Q What are your expectations from the Rail Development Authority being formed? Will it be of any help for the industry or is it another act of overregulation?
Several Railway Committees have suggested the need for a central regulatory body like the Rail Development Authority, latest being Bibek Debroy’s committee in 2015. It appears the RDA will take a comprehensive and holistic approach to recommend tariffs and guidelines, keeping in view the principles of social service obligations and market competitiveness. It is encouraging to note that the RDA will be responsible to set up global levels of efficiency and performance standards, including non-discriminatory open access to the Dedicated Freight Corridor infrastructure framework. Based on the stated profile and responsibilities, the Rail Development Authority is an idea whose time has come! A welcome move by the Government, the RDA is expected to create more transparency, encourage market development and create a positive environment for investment. If the RDA can achieve these significant milestones, I believe industry will be a major beneficiary of this regulatory authority
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