Indian railways announces new wagon policy August 24, 2007Posted by Ramnath Rangaswamy in Business, Emerging Markets, India, Indian Economy, Logistics.
The new wagon policy will reduce the entry barriers for customers to use the railways as a transport medium. Is this going to lead to a rush of customers queuing up to lease wagons? The answer is NO.
What is the change in the wagon policy?
Earlier, only IRFC [ Indian Railways Finance Corporation], a dedicated finance arm of the Indian Railways could lease wagons to customers. Now, private players too can lease wagons to customers. The new wagon policy will bring in customized and more efficient wagons. IRFC would focus on leasing general purpose wagons.
What does this mean for the supply chain?
This will reduce the supply chain costs, by reducing the cost of transportation. This is because rail transportation become cheaper than road for distances greater than 700kms. Also customized wagons would mean more efficient use of the wagon. Efficient use of wagons would imply more goods carried per wagon, faster loading/unloading and lesser damages.
An example of a customized wagon on the Indian Railways is the milk wagons developed for the NDDB [ National Dairy Development Board]. These wagons were designed to transport milk from Gujarat to Calcutta and helped the spread of the white revolution.These wagons were designed so that the milk temperature increases by less than 5oC per 24 hours.
Is the new wagon policy going to see the market share of rail transportation increase?
It is a step in the right direction. It will reduce the entry barrier for customers. So customers will of rail transportation as an option. Customers will look at the financial aspects;leasing costs, transportation rates. Customers will also look at the service aspects; do they have to wait for getting the wagons/rakes, what are the transit times. Customers will then do a financial analysis and compare the total costs of the rail and road option before making a decision
Who would be the first customers to lease wagons?
The cement industry, oil companies, automobile manufacturers would be the among the first to lease wagons. They are already using rail and would opt to lease wagons rather than buy the wagons or use general purpose wagons.
What is the future direction of rail transportation?
You will see many more customer friendly initiatives from the Indian Railways. The Indian Railways just announced the road railer programme.The intent is to grab market share from the road transporters.
For the Indian Economy, this move is very good one. It reduces the cost of the supply chain, thereby reducing the cost of doing business.
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