Empty runs hurt rail container firms

The imbalance in export and import (exim) trade has led to discrepancies in rail container movements.

Though exim volumes went up in the last 2-3 months, this was largely due to imports. As a result, container train operators are carrying cargo to the hinterland but don’t have enough export cargo while returning to ports. Due to this, more and more container rakes are returning empty, increasing costs by a great margin for operators.

P AlliRani, executive director (finance), Container Corporation of India Ltd (Concor), said, “With the imbalance in trade, empty running is bound to increase. But since we have enough wagons, we are not compelled to run all empty ones.” For Concor, the cases of containers running empty have risen to 18% in April and May compared with 16% in the January-March quarter.

Though growth in imports continues month-on-month, export volumes are still weak, leading to a 14% year-on-year fall in exim volumes in April.

Sankalp Shukla, managing director, B2B Inlogistics, conceded that the empty rakes repositioning is impacting operations. He, however, added that this was a temporary phenomenon. “The export stimulus will change the situation,” he said. Inlogistics, which runs container rakes primarily for domestic movements, has seen a ‘return journey utilisation’ of 55%. Its exim movements, which account for only 15% of its business, have a return journey utilisation of 90-91%.

Sachin Bhanushali, president, Gateway Rail, which is part of Gateway Distriparks Ltd, said the company calculates its empty running in terms of ‘fill factor’, which was 84% in May.

The haulage cost for running an empty rake in the most active Mumbai-Delhi sector can be 15-20% of the total cost. This greatly squeezes the operating margins of the companies.

An industry expert suggested that empty running has a severe impact on the net operating margins on a per-train per-month basis. “Every percent of empty running has an equal and negative impact on margins,” said Shukla of Inlogistics.

In a May 25 report, Bhoomika Nair, research analyst with IDFC SSKI, said a drop of 280 basis points in margins in the first quarter of FY10 and 70 bps in FY10 had been factored for Concor due to high empty-running costs.

Param Desai of Angel Broking, in his June 1 report, said that since engineering goods, gems and jewellery, chemicals, marine products, tyres, etc, anticipate negative or zero growth in FY10, exports will remain lacklustre during the first half of this fiscal. “This will lead to higher empties, which would impact Concor’s operating profit margin going ahead,” he wrote.

However, companies with a larger infrastructure base, like Concor, are well positioned to deal with the situation, AlliRani said. The largest container train operator runs 250 trains and has 58 terminals. It is working on cost-cutting measures to optimise its large infrastructure base. “We can optimise deployment of rakes, getting flexibility to operate trains based on the availability of cargo,” AlliRani said. Concor has also increased terminal usage charges at some of its terminals.

Gateway Rail also switches between exim and domestic cargo to increase its fill factor, said Bhanushali. “Combining the volumes at our three terminals, we can mix cargo,” he added.

Shukla suggested that even in exports, the less than container load (LCL) volumes have not fallen. “We are largely trying to focus on this segment and consolidate it,” he said.