Container Train Operations: Introducing Competition (B)

Abstract

Container train movement was the monopoly of the Container Corporation of India (CONCOR), a wholly owned subsidiary of Indian Railways (IR). The decision to allow the entry of other players was announced by the Minister of Railways in his budget speech of February 2005. To prepare guidelines for such a policy, RITES, another subsidiary of IR, was awarded the study. RITES submitted its final report in September 2005. The recommendations of the report included entry requirements, classification of routes into various categories based on existing and anticipated traffic volume, regulating entry for each route and minimum traffic commitment by the operators.

Subsequent to RITES recommendations, a number of interministerial deliberations took place involving Ministry of Railways (MoR), Planning Commission (PC), Ministry of Commerce and Industry, and Ministry of Shipping. Various aspects of the RITES report were discussed.

A final policy statement was released on 5th January, 2006. Fourteen parties subsequently bought licences to run container trains.

A next round of meetings was held to finalize the Concession Agreement (CA) between the MoR and container train operators. CA is a legal document that outlines the detailed terms and conditions between parties for the duration of the concession period.

This case focuses on what the salient features of the concession agreement should be, given the final policy statement.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

You are not authorized to view Teaching Notes. Please contact your librarian for instructor access or sign in to your existing instructor profile.

Resources

Exhibit 1: Summarized Terms and Conditions by PC for the Agreement

  • Level playing field: Same terms and conditions should be extended to new entrants as CONCOR in order to create a level playing field
  • Dispatch of trains: Dispatch of container trains should be done on a ‘first come first serve’ basis subject to operational contingencies and constraints in a transparent manner to allay the fears of discriminatory treatment in favour of CONCOR
  • Terminals: A new entrant would have to own or lease a rail linked terminal, which would be approved by the IR
  • Rail movement: Operator to provide requisite rail flat wagons for carriage of containers, depending upon volumes handled, and also decide the routes in coordination with IR
  • Loading and unloading: Loading/unloading of rakes to be arranged by operator on mutually agreed conditions with IR
  • Haulage and documentation: IR to provide loco power and operate trains between specified points in return for haulage charge payable by operator; operator to issue document of carriage to customer on behalf of IR, on the same lines/legal liabilities as CONCOR
  • Payments: Payments and accounting on fully computerized system; freight dues could be remitted on either daily/fortnightly basis; revision of haulage charges to be at fixed periodicity (minimum 2 years) and such charges to be fixed in a uniform and transparent manner; fuel surcharge may be imposed
  • Operator tariffs: Operator tariffs to be on market-determined basis and not regulated by IR/other agencies; Competition Commission of India to ensure against cartelisation though the operational presence of CONCOR should do so in the first instance
  • Information system: IR to provide operators with a ‘view only’ access to its freight operation info systems for ‘track and trace’ purpose
  • Coordination: IR to enable field level interaction between operators and railway operations staff to plan/monitor train services effectively
  • Supply: Operator to maintain wagon fleet as per IR safety norms at own cost and at a point nominated by IR in consultation with the operator
  • Demurrage: None will be levied unless operator-owned/leased wagons occupy IR premises beyond specified period
  • Maintenance: Non-railway agencies may also be engaged to maintain respective operator sidings, subject to IR inspection; wagons might be inspected by IR for uniformly applicable charges
  • Damages: Payable in line with IR Act
  • Transit guarantees: Minimum/maximum transits will be guaranteed by IR, suitably enforced through a premium/penalty clause
  • Time-tabled paths: Mutually decided between IR and operator
  • Dispute settlement: Through conciliation and arbitration

Source: Planning Commission (2005). Internal Communication.

Exhibit 2: Summary of Responses Given by the Stakeholders

Adani Logistics (a very large logistics operator with its own port ICD and rail operations) was in favour of an entry fee but not as high as was recommended by RITES. They agreed that an entry fee was required to discourage non-serious players. One of their suggestions was that credit must be given for investments already made. The company proposed that future freight payment of two years should be adjusted against 50% of the entry fee and CONCOR must also pay on the same basis. They were not in favour of a surcharge based on volumes since ‘multiple charges under various heads would complicate the commercial operations’. They also suggested that the number of players on any given route should be no more than 4. According to Adani Logistics, both technical and financial aspects needed to be considered in the selection of operators instead of bidding for selection. And to the question of whether a party with 200 flats should be considered as an accredited operator, they responded that anyone who owned 450 flats (ie, 10 trains) should be considered an accredited operator. Preference in selection, in their view, should be given to port/rail track companies, which also had trading and ICD operations. As regards train slots, they were in favour of ‘first come first serve’ basis of dispatch.

Kutch Railway Company (a JV of the MoR, Kandla Port Trust, Government of Gujarat, and Gujarat Adani Ltd) was of the opinion that JVs of Railways need not be charged entry fees, but a charge of `5 lakh per flat could be levied on all, and each route may be restricted to 4 to 5 operators. They were against stringent technical criteria but were in favour of those who had or could augment rail capacity. To schedule trains, they too were in favour of ‘first come first serve’ as the basis of train dispatch.

Central Warehousing Corporation (CWC), a public sector entity, pointed out its claim for container operations as it had already invested in 34 CFSs/ICDs and was handling 0.9 million TEUs despite not being allowed entry into container train operation for which its application since 2001 had been pending with MoR. It had been allowed a rail linked ICD at Loni (near Delhi) and a rail linked CFS near JN Port, Mumbai under the 1994 policy of MoR. In its response to the questionnaire, it felt that the new entrant should have at least 10 years experience in container related businesses, an annual turnover of `500 crores, investment of `100 crores in container related infrastructure, should be already operating ICDs/CFSs with 0.5 million TEUs handled, and should be making profit for the last five years. Each of these factors was to be given equal weight in selection of operators. CWC felt that there was no need of any entry fee and that if Railways required resources, it could levy a surcharge on the haulage charge uniformly. While no rationing of number of trains per operator should be allowed, CWC felt that no operator including the incumbent should be allowed more than 50% on a route. In case an entry fee is insisted by IR despite opposition from other Ministries and the PC, CWC wanted the investment in rail infrastructure to be set off against the proposed entry fee. It also felt that the permission to new entrants should be given for five years.

MAERSK, an international player in the business, felt that the concession agreement should be for 30 years considering the long life of the assets. It wanted the IR to specify both the available capacity on a route or corridor in terms of number of trains and the maximum and minimum number of operators on a route based on the capacity and viability. This would prevent chaos while allowing competition among few serious players. It felt that estimating minimum number of trains, which would ensure viability of an operator, is critical. Maersk argued that the additional capacity, once available, should be allocated to the players allowed entry on the route or corridor. On the selection of operators, it felt that the selected operators should have experience in train operations or should have an experienced operator as part of the consortium; the operators should have financial capability to undertake investments during the tenure of concession. Maersk was against any entry fee and suggested that, if imposed, the fee should be set off against haulage charges payable to IR over a period of time. It assumed that the IR would provide railway land at reasonable cost for development of rail sidings. It also suggested allowing common user rail sidings by the operators through SPVs (special purpose vehicles) so that each of them did not have to develop sidings independently. Another suggestion was that the tariff on haulage and all other charges be such as to enable operators to effectively compete with road; it felt that the idea of 10-15% share of the railways in additional traffic revenue was not justified and asked for the financial model used by RITES to be revealed and included in the RFP/RFQ. Finally, the company also wanted a level playing field vis-a-vis CONCOR.

One of the participants, NYK Line, a global shipping line, wanted clarification on whether the policy would only be for EXIM Traffic or for domestic traffic as well. NYK had proposed that if for a “particular route the number of operators that may be permitted is to be based on the capacity available, then a bidding process ought to be undertaken in which the companies will quote how much deposit they would make for being selected for operating trains. The total deposits of the successful applicants would be kept with an entity like IRFC/RVNL, etc who would pay to the applicants, interest on the balance portion of deposit at a predetermined rate which should be lower than the borrowing rate. This deposit will progressively get offset against haulage charges payable when the applicant starts running container trains”.

Among other stakeholders, Shipping Corporation of India (SCI), Sattva, Gateway, and JM Baxi were in favour of either charging no entry fee or considering fee as a deposit to be refunded completely. P&O Ports, CM & CGM Global Pvt. Ltd., NYK Line and PRCL supported a lower entry fee as compared to RITES proposal.

Source: Planning Commission (2005). Internal Communication.

Exhibit 3: Policy to Permit Various Operators to Move Container Trains on Indian Railways

The policy to permit rail linking of Inland Container Depots (ICDs) by private parties other than M/S Container Corporation of India Ltd. (CONCOR) and allowing them to move container trains on the same lines as CONCOR for both international and domestic traffic has been under consideration of Ministry of Railways (MoR) for quite some time. In pursuance of the decisions taken on this issue, revised policy guidelines in supersession of the earlier letter No91/TC(M&S)/6/2/vol II dated 30.11.94 shall be as under:

1. Eligibility

1.1 The scheme is open to all registered Indian public/private sector companies/persons either individually or as a joint venture. It will include Indian registered companies of foreign entities.

1.2 EXIM Traffic

The prospective operator should have suitable access to a rail linked ICD with adequate handling capacity in the hinterland/inland location for handling of container trains.

OR

The operator should enter into an agreement with an existing rail ICD operator/rail terminal operator for using his facility for container train operations within six months of obtaining ‘in principal’ approval from MOR.

OR

The operator should give an undertaking that he will develop his own ICD with rail facility within a period of three years from the date of ‘in principal’ approval to operate container trains.

1.3 Domestic Traffic

The prospective operator should have suitable access to two rail linked ICDs with adequate handling capacity in two hinterland/inland locations for handling of container trains.

OR

The operator should enter into an agreement with an existing rail ICD operator/rail terminal operator for using his facility at two locations for container train operations, within six months of obtaining ‘in principal’ approval from MOR.

OR

The operator should give an undertaking that he will develop his own ICD with rail facility at two locations within a period of three years from the date of ‘in principal’ approval to operate container trains.

1.4 The applicant should have experience of the following, or should be engaged in any of the following activities:

  • Transport
  • Trade and Commerce
  • Infrastructure
  • Handling of Goods/Cargo
  • Port/Land Terminal operations
  • Logistics
  • Warehousing
  • Manufacturing
  • Leasing
2. Regulation of Rail Container Operations

In order to regulate the entry of new rail container operators on lR network, various routes have been grouped into four categories largely based on the existing as well as anticipated traffic volumes on different rail corridors serving gateway ports. These categories are as follows:

2.1 Category – I: JN Port/Mumbai Port – National Capital Region Rail Corridor and beyond

This category includes all existing/future ICDs serving JN Port/Mumbai Port in National Capital Region like Tughlakabad, Dadri, Gurgaon, etc. It also includes all destinations reached via National Capital Region like Dhandari Kalan, Moradabad, etc. This category includes all domestic traffic.

2.2 Category – II: Rail corridors serving JN Port/Mumbai Port and its hinterland in other than National Capital Region and beyond

This category includes all existing/future, ICDs serving JN Port/Mumbai Port at locations other than those covered in category I. It also includes all domestic traffic except on category I routes.

2.3 Category – III: Rail corridors serving the ports of Pipavav, Mundra, Chennai/Ennore, Vizag and Kochi and their hinterland

This category includes all existing/future ICDs serving these ports. It also includes all domestic traffic except on category I routes.

2.4 Category – IV: Rail corridors serving other ports like Kandla, New Mangalore, Tuticorin, Haldia/Kolkata, Paradip and Mormugao and their hinterland and all domestic traffic routes

This category includes all existing/future ICDs serving these ports. It also includes all domestic traffic except on category I routes.

3. Financial Capability
  • 3.1 In case of an individual or a single company, either the turnover or the net worth should be a minimum of `100 crores.
  • 3.2 In case a number of companies form a consortium for the purpose of operating container trains, each constituent member should have either annual turnover or net worth of at least `50 crores.
  • 3.3 Companies which have been declared sick under SICA Act will not be eligible to participate in the proposed scheme either singly or in association with the other companies for container train operation.
4. Approval Process
  • 4.1 If the proposed operator has to set up a new ICD, then for rail linking the ICD he must obtain the requisite permissions from the concerned authorities of the Government of India to set up and operate the same within six months.
  • 4.2 The proposed operator should submit his request in writing to MoR indicating therein his legal identity, intended scope of operations for the next five years at least, proof of complying with various eligibility criteria indicated in this policy, and willingness to abide by the terms and conditions laid down in the policy and as amended from time to time.
  • 4.3 Based on the documents furnished and clarification, if any, Railways will give their ‘in principle’ approval. In case the prospective operator fails to indicate his readiness to operate his container trains to Railway’s satisfaction within 3 years of grant of ‘in principle approval’ it will be deemed to have lapsed unless prior extension is given by Railways at its sole discretion.
  • 4.4 Before actually commencing operations, the operator will enter into an agreement with the Railways containing the detailed operating and accounting procedure: including the ownership of the new lines/assets and other relevant details. The agreement will have provision for suitable arbitration procedure for resolving any dispute.
  • 4.5 The scheme will be open for one month every year.
5. Registration Fee
  • 5.1 At the time of submission of requests to run container trains, every applicant would be required to deposit a non-refundable registration fee of `50 crores for applying for all categories of routes including category I and `10 crores for each individual category of routes except category I. Applications only for category I routes will not be accepted.
  • 5.2 The registration fees of applicants who are not found eligible will be refunded without any interest.
6. Modalities of Granting New Licences
  • 6.1 In case the successful operator opts for category I, he will get a flexible permission to run trains between any pairs of points in the entire country. This will include permission for all other categories also. In case the operator applies for a particular category (except category I), he will get permission to run trains between any pairs of points in that category only for EXIM traffic and in domestic traffic for all routes, except those in category I.
  • 6.2 There will be no limit on number of trains on any of the routes.
7. Terms and Conditions
  • 7.1 The container trains of various operators will normally be dispatched on a non-discriminating manner on ‘first come first serve’ basis, subject to any operational exigencies and/or restrictions from time to time.
  • 7.2 ICDs will be treated like private sidings with the extant rules and procedures laid down for private sidings’ applying mutatis-mutandis to them.
  • 7.3 Land and other related facilities required for railway operation and the .track connecting the ICD to the nearest rail head will have to be provided by the operator at his own cost. However, if railway land is available, he can apply for the same on the normal terms and conditions laid down by MoR.
  • 7.4 For movement of containers, the operator will procure his own rolling stock/containers according to Research, Design and Standards Organization (RDSO) approved design. The rolling stock will be inspected as per rules in force.
  • 7.5 Loading and unloading of containers in the ports/ICDs shall be the responsibility of the operator.
  • 7.6 Maintenance of track will be done by the operator at his own cost, with IR being paid for inspection/supervision according to the prescribed prevailing rates. Maintenance of rolling stock will be done by IR, for which the prescribed charges will be recovered from the operator.
  • 7.7 The operator will allow IR to enter any of its premises for inspection and for scrutiny of documents pertaining to rail-related operations and provide necessary and reasonable facilities for doing so.
  • 7.8 The operator can carry all goods subject to conditions specified in the goods tariff, red tariff and under provision of Indian Railway Act and any other instructions issued on the subject by MoR from time to time.
  • 7.9 The movement of containers/flats will only be in block rakes of prescribed standard sizes for different types of wagons as notified by the Railways from time to time.
  • 7.10 IR’s Freight Operation Information System (FOIS) will also cater to the party’s requirements for an integrated management and operations information service. The operator will provide all relevant data as required by FOIS. He will be given ‘read only’ access to this system at reasonable cost.
  • 7.11 The operator will pay to the railways haulage charges applicable uniformly to all operators, as notified/fixed by the Railways from time to time.
  • 7.12 For payment of haulage charges, the provisions of Commercial Manual and other guidelines issued from time to time will be followed.
  • 7.13 Documentation work, including issue of Railway Receipt (RR) for haulage charges will be done by Railway staff posted by Railways in the ICD. The cost of such staff will be borne by the operator and will be charged separately.
  • 7.14 The operator will charge his customers for rail haulage, terminal handling: ground rent, etc. on a market determined basis and railways will not exercise any control over such pricing.
  • 7.15 All operations like shunting, placement, withdrawal, formation, etc. within the ICD will be done on party’s advice and the party will be charged separately for such services: as per the agreement signed between the two.
  • 7.16 There will be no demurrage charges. Railway will however levy stabling charges as per rates notified from time to time in case rolling stock belonging to the operator is stabled on IR network.
  • 7.17 The rail operator will be a common carrier as defined under Indian Railway Act.
  • 7.18 Normal rules in respect of claims will be applicable according to the Indian Railway Act, 1989.
8. Period of Validity of Permission for Operating Container Trains
  • 8.1 The validity of permission will be for a period of 20 years from the date of operation of container trains by the operator. The permission can be extended by 10 years to the same party after expiry of the validity of permission subject to satisfactory performance and on payment of the fee as applicable at that time, which will be decided by Railway Board.
  • 8.2 An operator will be permitted to exit from the market or transfer the permission to another operator for container train operation subject to the latter fulfilling the selection criteria and subject to prior approval of the Ministry of Railways. This permission will however, be granted only one year after rail borne container traffic has commenced from his ICD
9. Cancellation of the Permission and Dispute Settlement
  • 9.1 In case the operator does not follow the rules laid down by Railways for safety of goods carried or of railway property or any rules laid by the Government for movement of containers, the operator can be penalized as notified from time to time or permission given to the operator can be cancelled by giving one month’s notice.
  • 9.2 In case the operator wants to terminate operation of container trains prematurely, he will give a request in writing to the Ministry of Railways with three months’ notice.
  • 9.3 On cancellation of the permission, no part of the registration fee will be refunded to the party.
  • 9.4 In case of any dispute on this issue between the operator and the Railways, the decision of the Railways will be final.
  • 9.5 Any dispute between the operator and the Railways will be resolved within the framework of the agreement to be signed between the two as per paragraph 3.4 of the policy.
  • 9.6 For resolving disputes on the issues pertaining to the siding for the ICD, claims for damages, haulage charges, etc, the operator can seek redressal by resorting to the relevant provisions of siding agreement, Railway Claims Tribunal or Railway Rates Tribunal.
10. This policy is in supersession of all earlier decisions on running of container trains on IR and shall be in effect from the date notified in the Official Gazette of India.

Source: MoR (2006), New Delhi .The Gazette Notification dated 26th September, 2006.

Exhibit 4: Entrants

S No

Name of Company

Promoter Group

Promoter’s Other Activities

Category

Licence Fee Paid

(`Crore)

1

Adani Logistics

Adani Group

Ports, container terminal, railways, CFS

I

50

2

Central Warehousing Corporation (CWC)

PSU under Ministry of Consumer Affairs, Food and Public Distribution

Warehousing, CFS

I

50

3

CONCOR

PSU under Ministry of Railways

Incumbent

I

50

4

Emirates Trading Agency

Emirates Trading Agency

Shipping and port services

I

50

5

Gateway Rail Freight

Gateway Distriparks

CFS

I

50

6

Hind Terminals and MSC Agency

Hind Terminals (subsidiary of Sharaf Group, UAE), Mediterranean Shipping Company (Geneva)

Shipping, freight forwarding

I

50

7

India Infrastructure and Logistics

APL India (subsidiary of NOL, Singapore), Hindustan Infrastructure Project and Engineering

Container shipping, infrastructure entrepreneur

I

50

8

Container Rail Road Services

DP World

Ports, container terminal

I

50

9

Reliance Infrastructure Leasing

Reliance (ADAG)

Industry in general

I

50

10

Sical Multimodal And Rail Transport

SICAL Logistics Ltd

CFS, container terminal, shipping agency

I

50

11

Delhi Assam Roadways

Delhi Assam Roadways

Trucking

IV

10

12

Innovative B2B Logistics Solutions

Bagadiya Shipping and Bothra Brothers (P) Ltd

Shipping agency and entrepreneur

IV

10

13

Boxtrans (India) Logistics Services

JM Baxi & Co

Container terminal, CFS, stevedoring

IV

10

14

Pipavav Rail Corporation

Gujarat Pipavav Port Limited and MoR

Ports, railways

III

10

Source: Compiled from Various Sources:

www.arshiyainternational.com, accessed on April 7, 2010.

www.hindterminals.com, accessed on April 7, 2010.

www.inlogistics.in, accessed on April 7, 2010.

www.darcl.com, accessed on April 7, 2010.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

locked icon

Sign in to access this content

Get a 30 day FREE TRIAL

  • Watch videos from a variety of sources bringing classroom topics to life
  • Read modern, diverse business cases
  • Explore hundreds of books and reference titles