Supporting Project Cargo Moves via Rail
By Thomas Timlen
Approval of a US$245 million World Bank loan to support India’s efforts to modernize rail freight and logistics infrastructure proves the region’s appetite for shifting project and breakbulk cargoes from road to rail where possible.
Providers of project cargo transportation services regularly face challenges along India’s road network, where uneven surfaces, potholes (worsened by heavy rains and insufficient drainage), toll plazas, road construction works, and height limitations – all exacerbated by traffic congestion – impede the smooth movement of freight.
The alternative mode of transport that naturally avoids such obstacles is rail. As attractive as this alternative is, however, positive news relating to India’s railways is not frequently reported. It is more common to learn of the recurring mishaps along the country’s rail corridors in the form of derailments and collisions, and rail workers meeting an untimely tragic demise in the path of oncoming trains. These incidents involving loss of life and damage to equipment illustrate an urgent need for modernization and expansion of the rail network.
Adding to the urgency of improving India’s railway network is the global effort to address climate change.
Applying strategies that have been initiated in other parts of the world aimed at shifting the transportation of goods from road haulage to rail is seen as a solution for India that will result in a reduction of greenhouse gas emissions gained from the efficiencies provided by rail transport.
Fortunately, recent developments including new funding obtained from the World Bank and other initiatives taken at the national level appear to be enhancing the prospects of putting such strategies into practice.
Funding Shot in the Arm
India’s Ministry of Coal is presently pursuing thirteen railway projects under the National Master Plan for Multi-modal Connectivity, also known as the ‘PM-Gati Shakti’. With protecting the environment as the driver, the ministry is shifting the transport of coal from road to rail by enhancing rail capacity through planned construction of new broad gauge rail lines in greenfield coal-bearing areas and extending the rail links to newer loading points. The projects aim to develop multimodal connectivity and facilitate the movement of coal with rapid logistics and wider connectivity to all commercial mines.
Newly acquired funding from the World Bank will support plans. A US$245 million loan that was approved by the World Bank in June will be directed at supporting the country’s Rail Logistics project with the aim of assisting India to shift more traffic from road to rail, making transport – both freight and passenger – more efficient and reduce millions of tons of greenhouse gas emissions (GHG) each year. The project also seeks to incentivize more private sector investment in the railway sector.
Potential opportunities for transporters of project cargo and heavy-lift equipment could initially be realized in connection with the works related to the railway expansion itself, as equipment and materials will have to be transported to the multiple project sites. Once the lines are completed and operational, efficiencies in project cargo transportation can be realized as such consignments make the switch, where possible, from road haulage to rail transport.
The rail network set for expansion is already significant. Indian Railways (IR) is the fourth-largest rail network in the world having transported 1.2 billion tons of freight in the fiscal year ending March 2020. Despite this, 71 percent of India’s freight is still transported by road, and only 17 percent is transported by rail. Capacity constraints of IR have limited the volumes and reduced the speed and reliability of shipments. As a result, IR has been losing market share to trucks over the years; in 2017-2018, its market share was 32 percent, down from 52 percent a decade earlier.
Road freight is the largest contributor to GHG emissions, accounting for about 95 percent of emissions of the freight sector. Trucks also accounted for about 12.3 percent of road accidents and 15.8 percent of total road transport-related deaths in 2018. Rail emits about one-fifth of trucks’ GHG emissions, and with IR planning to become a net-zero carbon emitter by 2030, it has the potential to eliminate 7.5 million tons of carbon dioxide and other greenhouse gases each year.
Strategic Modal Shift
To achieve the net-zero goal, IR has developed a long-term strategic plan, the National Rail Plan, or NRP, that aims to build capacity ahead of demand to enable an increase in rail modal share. The NRP estimates that rail share can be increased to 45 percent by 2050 by adding capacity and reducing transit times and costs. The NRP has identified future projects with clear implementation timelines, including: creation of three new dedicated freight corridors, namely East Coast, East-West and North-South (6,600 km by 2030, 8,500 km by 2050); creation of 3,000 km of high-speed corridors by 2030 and 8,000 km by 2050; upgrades along the highly dense/utilized networks; enhancing inter-modal linkages, especially with ports and industrial corridors; and developing terminal infrastructure, with 50 cluster stations to be developed as multimodal terminals.
Meanwhile, rail infrastructure development is also being prioritized under India’s National Infrastructure Pipeline, or NIP, 2020-2025. The NIP has identified 682 investment opportunities for private sector and including public-private partnerships across three railway subsectors (track, rolling stock, and terminals), with investment needs of US$224.7 billion over the next five years. These include 609 rail track projects valued at US$174.9 billion, 40 rolling stock projects valued at US$47.3 billion, and 33 terminal projects valued at US$2.5 billion.
The direct recipient of the World Bank loan is Dedicated Freight Corridor Corporation of India Limited, or DFCCIL. As part of a long-term effort, DFCCIL is making significant efforts to decongest the already saturated road network and further promote the shifting of freight transport to more efficient rail transport. This shift is expected to offer significant reduction of GHG emissions in transport sector in India. One study conducted by Ernst & Young estimated that initiatives aimed at expanding dedicated freight corridors can save more than 450 million tons of CO2 during the first 30 years of operations.
“While reducing greenhouse gases, the new DFCCIL project will also benefit millions of rail passengers in India as railway lines get decongested with freight moving to dedicated lines,” said Hideki Mori, the World Bank’s operations manager and acting country director for India. “Integrating railways with the wider logistics ecosystem is also key to reducing India’s high logistics costs, which are much higher than in developed nations. This will make Indian firms more competitive.”
World Bank research shows that logistics cost in India represents about 13.5 percent of GDP, much higher than developed nations where the cost ranges from 8 to 10 percent. Furthermore, most of the freight in India is bulk commodities with long average leads, traffic that is suited to lower cost rail transport.
Supporting Logistics Growth
The World Bank clearly recognizes that India’s economic growth depends on its logistics sector, which has a current market size of US$150.1 billion. A study by the National Institution for Transforming India Aayog indicates that India generates about 4.6 billion tons of freight annually, resulting in a transportation demand of over 3 trillion ton-kilometers at the cost of US$124 billion.
The World Bank’s Rail Logistics project will strengthen India’s multimodal transport hubs and terminals, by improving rail links with ports and inland gateways, and building first- and last-mile connectivity to railways.
The new Eastern Dedicated Freight Corridor-3, or EDFC, also supported by the World Bank, is already helping faster and more efficient movement of raw materials and finished goods between the north and eastern parts of India. The Rail Logistics project will connect several other such infrastructure projects and bring in private sector efficiency to augment rail capacity, create and manage intermodal terminals, and improve service quality and value-added services through private train and terminal operators.
A major focus of the project will be on harnessing commercial financing by engaging the private sector and developing customer-oriented approaches. The project will also support institutional capacity strengthening DFCCIL as a commercial organization and equip it to provide multimodal logistics services.
“India is increasingly focused on multimodal transport, particularly with railways as the central pillar of efficient logistics in the freight transport segment,” said Saroj Ayush, one of the World Bank task team leaders for the project. “The project will help leverage private sector efficiency for integrating rail transportation into cargo supply chains.”
In addition to addressing decongestion of the roads and protecting the environment, there is also a corporate social responsibility aspect to the endeavor. Benefiting society in general, the project places special emphasis on tackling gender-based violence and will support regular awareness drives for the community on the issue. It will also undertake activities to systematically improve women’s entry and transition in the railways sector, including improving women’s presence in technical job roles; creating safe workplace environments for contracted women employees and non-contracted women workers; and prioritizing childcare for non-contracted women workers at construction sites.
With such investments and related initiatives well underway, there are multiple benefits on the horizon for the environment, for India’s economy, and for stakeholders in the project cargo transportation sector.
Thomas Timlen is a Singapore-based analyst, researcher, writer and spokesperson with 31 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.
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