Logistics Sector Check - DFC To Increase Modal Share Of Railways In Freight: Motilal Oswal

Motilal Oswal Report

The share of freight movement has started to shift from roads to railways, with the phase-wise commissioning of dedicated freight corridors. The National Rail Plan expects the share of freight traffic by rail to go up to 40% by 2031 from ~18% in 2020.

A sharp rise in fuel costs (diesel price in Mumbai has increased to Rs 95 from Rs 75 over the last four years) together with an increase in insurance charges is set to reduce the competitiveness of the roads.

Additionally, the implementation of BS-VI and an increase in price of steel and other commodities has driven up the cost of trucks. Average cost of a commercial vehicle (medium and heavy commercial vehicle) has registered a compound annual growth rate of 6% to Rs 2.3 million as of Dec 2022 from Rs 1.7 million in FY18.

Hence, higher cost of operations of freight movement via road makes rail a more efficient mode of transportation.

Due to the aforementioned reasons, volumes of some of the key commodities have started to shift to railways. On a monthly basis, average domestic container volumes carried by Indian railways have increased to 1.5 million tonnes in FY22 from ~1 million tonnes FY20.

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