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The sharp rise in railway freight could hit the steel industry, which is already reeling under high raw material cost and weak demand. In the last six months, the logistics charges for the steel industry have gone up by 20 per cent to about ₹2,400 a tonne, and companies are not able to pass on the incremental cost to the end user due to weak demand.
To start with, the Railways increased freight rates by 6.5 per cent to 16.5 per cent in June. A few months back, it withdrew the discount given to transportation of goods on short distance even while increasing the short distance coverage to 125 km from 100 km.
The steel industry, which transports huge quantity of iron ore for less than 20 km from the mines to plant, was the worst affected. This apart, in November, the Railways levied 10 per cent congestion charge on base rate for moving goods from the ports to steel plants.
The recent increase in freight rates and withdrawal of short distance discounts have boosted railways earnings. Freight handled by railways last month rose 5.6 per cent, while revenue increased 17 per cent to ₹9,199 crore (₹7,880 crore).
Rail movementThe Railways transported 47.70 million tonnes (mt) of coal worth ₹4,468 crore, besides 8.56 mt of iron ore valued at ₹628 crore and 3.22 mt of pig iron and finished steel worth ₹540 crore from steel plants. It also moved 1.66 mt of raw material (worth ₹191 crore) to steel plants.
Seshagiri Rao MVS, Joint Managing Director, JSW Steel, said the steady raise in logistics cost has put additional burden on the steel industry, which is already paying more for iron ore even as prices in the international markets are falling.
Logistics cost in India is high compared to other BRIC (Brazil, Russia, India and China) countries. It is up 40-45 per cent when compared to China, he said.
“The Government should take a holistic view to bring down logistics cost if it wants to realise its Make in India dream. You can make a wonderful product at the lowest cost, but if you cannot transport it at a competitive price what is the use?” he questioned.
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