Railway Act PDF

Welcome to a Lecture on
COSTING
&
PRICING ISSUES
IN
TRANSPORT SECTOR
By
Tele :
EMail
+911123382868
+919910487497
advrates@rb.railnet.gov.in
Tuesday, September 06, 2011
INDRA GHOSH, Adviser/Rates
INDRA GHOSH,
ADVISER RATES/RB
RATES/RB,
Slide No. 1
DISCLAIMER
Views expressed in this lecture are that

of the speaker and may not necessarily
reflect the official views of either
Commercial Directorates of Railway
B d or off the
Board
th Ministry
Mi i t off Railways.
R il
Slide No. 2
Outline of the Lecture
Indian Railway Act.

Functions of Rates Branch.
C t off service
Cost
i & Value
V l off service.
i
Traditional Freight Structure.
Classification of Goods.
Goods
Freight rates for different classes.
Container Train Operators.
p
Passenger Fares.
Slide No. 3
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
p
Passenger Fares.
Slide No. 4

Indian Railway Act.
Slide No. 5
Indian Railway Act
Railway Act 1989.

Chapter VI deals with Fixation of Rates.
S ti 30 (1)
Section
The Central Government* may
from time to time,
time
by general or special order fix,
for the carriage
g of ppassengers
g and g
goods,,
rates for the whole or any part of the railway.
Different rates may be fixed for different classes of
goods,
d andd
specify in such order the conditions subject to which
such rates shall apply.
apply
Slide No. 6
Indian Railway Act

Section 30 (2).
The Central Government may by a like order,
fix
fi the
th rates
t off any other
th charges
h
i id t l to
incidental
t or
connected with such carriage,
including demurrage and wharfage,
wharfage
for the whole or any part of the railway, and
specify
p y in the order the conditions,,
subject to which such rates shall apply.
Slide No. 7
Indian Railway Act

Section 31
The Central Government shall have power to :
(a)
( )
classify
l if or reclassify
l if any commodity
dit for
f the
th
purpose of determining the rates to be charged for the
carriage of such commodities.
commodities
(b)
increase or reduce the class rates and other
charges.
g
Slide No. 8
Indian Railway Act

Section 32
Notwithstanding anything said in this Chapter, a railway
administration*
d i i t ti * may,
in respect of the carriage of any commodity, and
subject to such conditions as may be specified;
(a)
quote a station to station rate,
((b))
increase or reduce or cancel a station to
station rate,
(c)
withdraw, alter or amend the conditions
attached
h d to a station
i to station
i rate, andd
(d)
charge any lump sum rate.
Slide No. 9
Indian Railway Act

As per Section 32, power of the Zonal Railway is
limited only to quoting of station to station rates.
However,
H
nothing
thi
i the
in
th Railway
R il
A t prevents
Act
t the
th
Central Government from delegating any of the powers
in respect of Sections 30,
30 31 and 32 to Zonal Railways.
Railways
Either some or even all of them can be delegated.*
Its a different matter that Zonal Railways
y dont want
these powers to be delegated.*
Central Government means Ministry of Railways.
Railway
il
Boardd is
i a separate entity.*
i *
Discharging of dual function.*
Defence Ministry and Army Hdqrts.
Hdqrts
Example of other countries.*
Slide No. 10
Indian Railway Act

Section 70.
A railway administration shall not make any or give
any undue
d or unreasonable
bl preference
f
or advantage
d t
to,
in favour of any particular person or any particular
description of traffic in the carriage of goods.
Slide No. 11
Indian Railway Act

Section 71 (1).*
The Central Government may if it is of the opinion
th t it is
that
i necessary in
i the
th public
bli interest
i t
t to
t do
d so,
by general or special order, direct any railway
administration
Slide No. 12
Indian Railway Act

(a)
to give special facilities for, or preference to,
carriage of such goods or class of goods consigned by
or to
t
the Central Government or the Government of any
State or
State,
of such other goods or class of goods.
((b))
to carryy such ggoods or class of ggoods by
y such
route or routes and at such rates;
(c)
to restrict or refuse acceptance of such goods
or class
l off goods
d at or to suchh station
i off carriage,
i
as may be specified in that order.
Slide No. 13
Indian Railway Act

Section 71.
(2) Any order made under sub-section (1) shall cease to
h
have
effect
ff t after
ft the
th expiration
i ti off a period
i d off one year
from the date of such order,
but may,
may by a like order,
order be renewed from time to
time for such period not exceeding one year at a time
as mayy be specified
p
in the order.
(3) Every railway administration shall be bound to
comply with any order given under sub-section (1), and
any action
i
taken
k
b a railway
by
il
administration
d i i
i
i
in
pursuance of any such order shall not be deemed to
be a contravention of section 70.*
70 *
Slide No. 14
Indian Railway Act

Section 72.
(1) The gross weight of every wagon when loaded to its
maximum
i
carrying
i capacity,
it
shall not exceed such limit as may be fixed by the
Central Government.
Government
(2) Subject to the limit fixed under sub section (1),
everyy railwayy administration shall determine the normal
carrying capacity for every wagon.*
Slide No. 15
Indian Railway Act

Section 73.
Where a person loads goods in a wagon beyond its
permissible
i ibl carrying
i capacity
it as exhibited,
hibit d
a railway administration may, in addition to the
freight and other charges,
charges
recover from the consignor, the consignee or the
endorsee,, as the case mayy be,,
charges by way of penalty at such rates, as may be
prescribed, before the delivery of the goods.
Slide No. 16
Indian Railway Act
Section 78.
Notwithstanding anything contained in the railway
receipt,
i t the
th railway
il
administration
d i i t ti
may, before
b f
th
the
delivery of the consignment, have the right to
Re
Remeasure
measure, re
reweigh
weigh or re
reclassify
classify any
consignment;
recalculate the freight
g and other charges;
g ; and
correct any other error or collect any amount that may
have been omitted to be charged.
Slide No. 17

Indian Railway Act.
Slide No. 18
Functions of Rates Branch

Decision regarding freight rates of different
commodities is a centralized function of Central
G
Government.
t
As per Railway Act this power vests only with Ministry
of Railways.
Railways
Independent of Ministry of Finance.
Railwayy Board need not ggo even to Parliament for
increasing/decreasing of railway freights.
This has been so legislated in order to ensure that there
i uniformity
is
if
i off freight
f i h rates throughout
h
h
the
h country.
Historical background of company railways.*
Provides for better seamless operations as far as
realization of freight charges are concerned.*
Slide No. 19

The first exception is in case of giving station to station
rates by zonal railways.
The
Th secondd exception
ti is
i in
i case off giving
i i off rebates
b t
under specified laid down schemes, where powers have
been delegated to Zonal Railways.
Railways *
In second case, maximum upper limits have been laid
down for g
givingg of rebates.*
Zonal railways as also our customers prefer it to be that
way.*
Slide No. 20

Rebates/Surcharges can either be across the board for all
zonal railways, or
they
th could
ld be
b for
f a particular
ti l zone.
Rebates/Surcharges can be :
either for all commodities or for a particular
commodity.*
Theyy could be either for a specific
p
pperiod* or could
be of a permanent nature*.
They could be either for certain distances or across all
di
distance
b
boundaries.
d i
For certain streams of traffic.
Fact remains that all rating activity is confined only to
Ministry of Railways.
Slide No. 21

Subject list of TC/CR branch are as follows :
Research and review of freight rates, passenger fares,
parcell rates.
t
Examine costing for freight, passenger and parcel
services.
services
Collection/compilation of information and data for
conductingg studies on different aspects
p
of commercial
working and all other ancillary matters.
Formulation of new schemes and policies for
maximizing
i i i railway
il
earnings.
i
Review of existing rules to bring in simplification,
transparency and to reduce the work of field offices.
offices
Slide No. 22

Conducting specific studies on commercial matters in
line with reports of various committees such as
Railway
R il
F andd Freight
Fare
F i ht Committee
C
itt andd
Rail Tariff Enquiry Committee etc.
Memorandum to the Board and Cabinet on proposals
received from other Ministries for revision of rates in
respect
p of specific
p
commodities.
Formulation of Budget Document Proposals for
adjustments in Freight Rates and Passenger Fares in the
Railway
il
Budget.*
d *
Slide No. 23

Subject list of TC/R branch are as follows :
Freight Incentive Schemes.
All types
t
off freight
f i ht concessions.
i
Classification of goods.
Packing conditions of goods.
goods
Miscellaneous charges.
Charges
g related to Port Trust.
Transport of relief materials to affected areas.
Chargeable weight for commodities.
Train
i load
l d benefit.
b fi
Distance for charge, Inflation in distance for charge.
Reweighment
Re weighment charges.
charges
Clubbing of consignment.
Slide No. 24

Subject list of TC I branch are as follows :
Free time and demurrage and wharfage rules.
Siding
Sidi & Shunting
Sh ti charges.
h
Through distance freight.
Military tariff rates.
rates
Notified stations.
All India Engine
g Hour cost.
PCO in CRT.
Railway Rates Tribunal Rules.
Agreements relating
l i to Port Trust.
Commercial aspects regarding Indo Pakistan, Indo
Bangladesh Indo Nepal traffic.*
traffic *
Slide No. 25

Rules for payment of freight Paid, To Pay,
Prepayment conditions etc.
Rules
R l for
f delivery
d li
off goods.
d
Undercharges in freight.
Weighbridges
Weighbridges.
Penalties for overloading of wagons etc.
Wagon
g Registration
g
Fees.
E Payment of freight.
Working of goods sheds.
Rules
l for
f carriage
i
off dangerous
d
goods.
d
Notified stations.
Licensing of railway land.
land
Slide No. 26

Indian Railway Act.
Cost
C t off service
i & Value
V l off service.
i
Slide No. 27
Cost of service & Value of service

There are two principles which mainly decide the
fixation of railway rates namely :
Cost
C t off service
i andd
Value of service.
Slide No. 28

Cost of service :
Such charges must in no case be less than the cost to
th railway
the
il
managementt off rendering
d i
th required
the
i d
service.
This should be the lower limit of the freight rate.
rate
Value of service :
Theyy must in no case be more than the value of the
service to the customers.
This should be the upper limit of the freight rate.
Slide No. 29

Railway charges ought to be based on the cost incurred
in rendering
either
ith a particular
ti l service,
i or
the entire gamut of rail services.
For services like transportation conducted under
monopolistic conditions, the ideal system of charging
would be
to ascertain the cost of each service rendered, and
to allow a reasonable margin of profit over and above
that
h amount.
But such a basis is impossible as no one knows as to
what is the exact cost of transportation.
transportation
Slide No. 30

This basis is difficult to implement, because it is
impossible to ascertain the cost of any railway services;
none off the
th fixed
fi d charges,
h
andd
very few of the operating expenses can be assigned;
except rather arbitrarily to the various services.
services *
Railway cost being uncertain and fluctuating, a rate
based ppurely
y on the cost of service rendered will have no
relation to the capacity of the commodity to bear it.
Thus it is difficult to find any positive, objective basis
f a system off railway
for
il
rates based
b d on costs.
Slide No. 31

In addition to above, rates must be fixed in advance
before the service is rendered, and
costt can be
b known
k
only
l after
ft the
th service
i has
h been
b
rendered;
that too only approximately.
approximately
Another problem is the system of joint costs.*
Since the railwayy system
y
is used for diverse ggoods and
services, it is similar to a plant that makes multiple
commodities and requires joint costing.*
It is
i impossible
i
ibl to base
b
railway
il
rates on the
h principle
i i l off
cost of transportation alone.
Cost is of secondary importance in any practical exercise
for pricing.
Slide No. 32
Following are some of the factors that used to be taken

into consideration in determining the cost of service :
Loadability.
L d bilit
Susceptibility of the commodity to damage and
railwayss liability for claim compensation.
railway
compensation
Special handling or special type of wagons
required.
q
Extent to which the commodity may cause damage
to other commodities.
Quality
li andd regularity
l i off movement.
Empty haulage involved in providing transport.
Slide No. 33

It is the value of service which determines the rail users
ability to pay.
In
I case off goods,
d the
th ability
bilit to
t pay depends
d
d largely
l
l
upon their value, and
in case of passengers,
passengers it largely depends upon ntheir
incomes.
If ggoods of small value and ppassengers
g
with lower
incomes are to be carried, low charges must be made.
This is why the ability to pay implies division of goods
traffic
ffi into
i
classification
l ifi i scales
l andd
passenger traffic into different classes of traffic.
Slide No. 34

Since alternative means of transportation is available to
rail users,
Railways
R il
cannott charge
h
up to
t the
th physical
h i l limit
li it off the
th
rail user can bear; but
only up to the limit of what he is willing to bear.
bear
Slide No. 35

It is the principle of joint costs which justifies
discrimination by the railways.
Commodities
C
diti classified
l ifi d att higher
hi h classes
l
are made
d to
t pay
not only their approximate share of general costs, but in
addition,
addition
that share of the joint cost which the low rated
commodities cannot afford to pay.
p y
Similarly, higher class passengers pay more because
they can afford to pay more, and
it
i will
ill enable
bl railways
il
to carry secondd class
l
passengers at lower fares.
Slide No. 36
Following are some of the factors that are taken into

consideration in determining the value of service :
Value
Vl
off the
th commodity
dit att the
th destination
d ti ti
as
compared with the value at the originating station.
Competition from other modes of transportation.
transportation
Potential competition from new sources of
pproduction and new markets.
Classification of comparable and related
commodities.
Slide No. 37

Studies in traffic costing and cost difference shows that
Average haulage cost per km. declines with distance.
Element
El
t off terminal
t
i l costt remains
i
th same
the
irrespective of whether the traffic is short distance or
long distance.
distance
These two factors together prove that the principle of
telescopic
p rates is most scientific and is jjustified on the
basis of the fact that
Rail user has limited capacity to pay for long distance
traffic.
ffi
It costs less to the railways to carry traffic for longer
distances
distances.
Slide No. 38
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Slide No. 39
Traditional Freight Structure

Country wide uniformity in tariff.
Uniform telescoping
p g of rates for all commodities.
No regional, directional, seasonal or segmental
sensitivity.
Tenuous linkage with input costs.
Cross subsidization across various commodity groups.
Unlimited subsidization of losses on Passenger services.
services
Driven by imperatives of revenue generation.
Adjustments
djus e s in tariff arduous
duous and
d timee co
consuming.
su
g.
Averse to business decisions and steeped in straitjacket.
Oblivious to market conditions and business
opportunities.
Slide No. 40

Ad hoc tariff adjustments with no comprehensive long
term view.
Unable to respond effectively and timely to customer
demands.
Slide No. 41

From the traditional freight structure IR gradually tried
to move to more commerciallyy based freight
g structure.
Introduce integrated tariff and incentive structure custom
tailored for each major business stream present and
potential.
Tariff should be based on input costs and leverage
railwayss strengths in long haul and bulk.
railway
bulk
Reduce cross subsidization amongst commodity groups.
Eliminatee tariff lines
es ope
operatingg be
below
ow cos
cost.*
.
Move towards FAK rates as far as possible with only
limited exceptions.
Slide No. 42

Quantum of cross subsidization of passenger business
from freight
g segment
g
should be explicit
p
and transparent.
p
Comprehensive recasting of tariff for military, postal
traffic etc.
Long term goal for tariff structure rationalization should
be spelt out.
Slide No. 43

Institutionalization of mechanisms for seasonal,
regional,
g
, directional and other variations.
Introduce differential pricing in the bulk segment to
drive revenue growth.
Promote long term arrangements with corporate clients.
Promote growth of business volumes through negotiated
packages.
packages
Promote cargo aggregators and other new business
sstreams
e s ass po
potentially
e
y high
g revenue
eve ue seg
segments.
e s.
Enabling mechanisms for revenue maximization from
idle assets and under utilized capacities with speedy
offer of rates.
Slide No. 44

Miscellaneous charges.
Inflated distance for charge.
g
Charges for Port Trust Railways.
Charges for haulage of engines.
Surcharge for To Pay traffic.
Slide No. 45
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
Slide No. 46
Classification of Goods
All commodities have been classified into 16 different
classes for the purpose of charging of freight.
Base
B
class
l is
i class
l 100.*
100 *
Lowest class whose freight is cheapest is LR 4.
This is equivalent to class rate of 60.
60
Highest class whose freight is maximum is 200 for
Petroleum products.*
p
All other commodities come somewhere in between.
Over the years railways have gradually reduced the
number
b off classes
l
f
from
59 to 15.
It has been attempted to fit all commodities into one of
these existing classes only.*
only *
Slide No. 47
Along with reducing the number of classes, the total
number of commodities which have been so classified
h
have
also
l been
b
reduced.
d d
Over the years railways have reduced the total number
of classified commodities from over 4000 to only 21
groups.
An over ridingg clause stipulates
p
that if anyy commodityy
does not figure in the list of commodities which have
been classified,
then
h it
i should
h ld be
b charged
h
d at the
h highest
hi h class
l rate.**
Type of wagon wise classification.*
Slide No. 48
Logic given was that railways are simplifying the freight
structure and will be easier for customers to
understand *
understand.
This reduction in number of commodities has been
incorrect.
After
Af all
ll if 4000+ number
b off commodities
di i were being
b i
transported by railways earlier,
then even today more or less the same number of
commodities are likely to be transported.
There may have been some reduction in commodities
d to
due
t block
bl k rake
k movement,*
t*
but such reduction would have been maybe 20%
30% at the most.
It cannot justify such drastic reduction.
Slide No. 49
As a result of number of classified commodities having
been reduced,
there
th
are large
l
number
b off commodities
diti which
hi h do
d nott
have any class at all.
Present rules stipulate that all of them are to be charged
at a uniform class rate depending on type of wagon.
As a result of the above some of these commodities have
moved to road.
Secondly, by reducing the number of classes from 59 to
15, the
h gap between
b
f i h rates off adjoining
freight
dj i i classes
l
h
has
substantially increased.
Any change of class even by one step increases the
freight rate substantially.
Slide No. 50
As of today the following classes exist :

LR 4
Bamboos, Coffee, Tea, Coir, Cotton.
LR 3
Charcoal, Paper.
LR 2
Fireworks.
LR 1
Jute, Organic manure, Timber.
Class 100
Leather Rubber & Plastic,
Leather,
Plastic Edible oil.
oil
Class 110
De oiled cake, Sugar, Salt.
Cl 120
Class
Cl Oil cake
Clay,
k andd Seeds,
S d Fly
Fl ash.
h
Class 130
Fertilizer*, Foodgrain*, Steel Pipes,
Wire rod coils.
Slide No. 51
Class 140
Class 150
Class 160
Class 170
Class 180
Cl
Class 190
Class 200
Caustic Soda, Slag, Edible Oils.

Cement*, Coal & Coke*, Clinker,
Molasses, Gypsum, Sand & Stones.
Minerals & Ore, Metal scrap, Pig Iron.
Bitumen.
Iron Ore for domestic*,
domestic* Alloys &
Metals, Iron & Steel, LPG.
Acids, Alcohol, Petroleum products.

Slide No. 52
Chargeable carrying capacity was made uniform with
effect from 1.4.2005, and
minimum
i i
weight
i ht condition
diti was done
d
away with.
ith
Consignments carried in any type of wagon will be
charged as per the Prescribed Carrying Capacity (PCC)
of that type of wagon.*
For example,
p , earlier bamboo beingg a light
g commodityy
was charged for a minimum weight of 22T.
As per the revised PCC, consignment of bamboo was
charged
h
d for
f the
h full
f ll carrying
i capacity
i off the
h BCN wagon
at 63T.
This resulted in substantial amount of idle freight being
paid for such light weight consignments.
Slide No. 53
In order to compensate for the idle freight and reduce the
same to a large extent,
the
th classification
l ifi ti
off light
li ht weight
i ht commodities
diti was
reduced in number of cases,
in order to bring down the overall freight.
freight
Slide No. 54
Previous/revised chargeable weight and class :
Commodity
Previous
MWC
Class
Revised
PCC
Class
Bamboo
22
145
63
LR 4
Ch
Charcoal
l
34
130
63
LR 3
Coir
12
190
63
LR 4
Jute
30
160
63
LR 1
Slide No. 55
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
Slide No. 56
Freight rates for different classes

Railway Board publishes a freight rate table which gives
class wise freight rate,
per tonne,
t
for different distance slabs.
It is a historical table and has been existing since times
immemorial.*
Over the yyears it has undergone
g
onlyy minor cosmetic
changes,
without any major changes having been attempted.
There
h is
i a taper with
i h increasing
i
i distance,
di
which is the same for all commodities in that class.
Slide No. 57

Freight/tonne for different classes and distance slabs
Distance/Class
100
120
140
160
201 210
147
176
205
235
264
301 310
202
243
283
324
364
401 410
258
309
361
412
464
801 825
494
593
692
790
889
1201 1225
719
863
1007
1151
1295
1501 1525
887
1064
1241
1419
1596
1801 1825
1033
1240
1446
1653
1859
180
Slide No. 58

Rates for different classes are modified based on
whether the rate is to be increased or decreased.
The
Th marginal
i l adjustments
dj t
t are done
d
d
depending
di on
whether same has been increased or reduced in the
last couple of years,
years and
our perception of what the traffic can bear.
No exercise has been done of makingg an ab-initio
analysis of the cost of operation and for fixing of rates
accordingly.*
In most cases it
i is
i not only
l difficult
diffi l but
b impossible.*
i
ibl *
Cost of hauling a foodgrain rake and a cement rake is
the same,
same
but they cannot be charged equally.*
Slide No. 59

There are two ways of changing the freight rates.
1st method is to change the base freight rate of class 100
att distance
di t
slab
l b 1 100 kms.
k
Thereafter base freight rate of class 100 across all
distance slabs will get changed automatically,
automatically
as per the distance multiplication scale.
This is Static Rating.*
g
2nd method is change the freight rate of a particular
commodity without disturbing the freight rates of other
commodities.
di i
This is Dynamic Rating.*
Slide No. 60

Theoretically, there are two ways of changing the freight
rate of any commodity.
In
I case freight
f i ht rate
t off a particular
ti l commodity
dit is
i to
t be
b
increased, then the same can be done
either by increasing the freight rate for that class,
class
in which case freight rate of all commodities in
that class will be uniformlyy increased;; or
alternatively, the classification of that particular
commodity can be increased,
so that
h the
h change
h
d
does
not effect
ff
any other
h
commodity.
Slide No. 61

Each class has an exact relationship to base class 100.
Hence, it is not possible to tinker with the class rate of a
particular
ti l class,
l
say class
l
120 without
120,
ith t disturbing
di t bi that
th t
exact relationship.
alternatively,
alternatively the classification of that particular
commodity can be increased,
Therefore,, the onlyy wayy of changing
g g the freight
g rate of a
particular commodity is by changing its classification.*
With reduced number of classes, even change of one
step from
f
class
l
100 to class
l
110 implies
i li an increase
i
off
10%, and
from class 190 to class 200 implies an increase of
5.26%.
Slide No. 62

This is the main drawback of reduced number of classes.
Logic given was that railways are simplifying the freight
structure
t t
andd it is
i easier
i for
f customers
t
t understand.*
to
d t d*
No customer deals in fifteen different commodities.
Neither do they deal over varying distances.
distances
Most of them deal with select few commodities and they
are aware of the classification of their own commodities.
Similarly, their traffic does not go all over the country to
hundreds of destinations.
there
h
are select
l
f
few
d i i
destinations
to which
hi h their
h i
consignment is despatched, and
all customers know the freight rates to those
destinations.
Slide No. 63

Another reason given was that by simplifying the freight
structure it will be easier for field staff to understand.*
When
Wh a customer
t
comes to
t book
b k his
hi consignment
i
t the
th
CGS first checks up Goods Tariff, Part I (Vol. II), which
is the book of classification in order to
verify the class of that commodity;
let us sayy the commodityy class is 140.
Thereafter the CGS will calculate the distance from the
originating to the destination station,
using
i the
h through
h
h distance
di
andd
the junction distance tables.
Let us say the distance comes to 763 kms.
kms
Slide No. 64

CGS will lastly open the freight rate table and check up
the freight rate per tonne for class rate 140 at the
di t
distance
slab
l b off 760 770 kms.
k
di t
distance.*
*
The freight rate at Class 140 for distance of 763 Kms.
comes to Rs.
Rs 648.10/tonne.
648 10/tonne
Having obtained the freight rate/tonne he finally
multiplies
p
the freight
g rate/tonne with the total load of the
rake to arrive at the total freight.
Let us say the total weight of the consignment comes to
2450 tonnes.
So the total freight is worked out as
Rs.
Rs 648.10
648 10 x 2450 = Rs.
Rs 15,87,845/15 87 845/
This is the complete cycle.
Slide No. 65

In this entire cycle the following activities are common
irrespective of whatever may be the class of the
commodity;
dit
Goods Tariff, Part I (Vol. II).
Through Distance table,
table and
Junction distance table.
Freight
g rate table.*
Even in this he has to finally consult a table,
Whether there are 15 columns in that table or 30
columns
l
i immaterial.
is
i
i l
The CGS has to see one column and one row in that
table
table.
Slide No. 66

As far as the CGS is concerned his workload remains the
same.
With FOIS things
thi
h
have
now become
b
muchh easier.
i
No CGS deals in fifteen different commodities.*
Most of them deal with select few commodities and they
are aware of the classification of their own commodities.
Neither do they
y deal over varying
y g distances.
Traffic booked from specific goods shed does not go all
over the country to hundreds of destinations.
there
h
are select
l
f
few
d i i
destinations
to which
hi h
consignment from each goods shed is despatched.
All CGSs know the freight rates to those destinations.*
destinations *
Slide No. 67

By reducing the total number of different commodities,
which have been classified, from 4000+ to 21 groups,
andd
by reducing the overall number of classes from 59 to
16;
Railways have made it practically impossible to change
the freight
g of an individual commodityy without changing
g g
its classification.
Perhaps the officials who undertook that exercise did not
realize
li the
h implications
i li i
off their
h i action.
i
Wanted to gain easy kudos.*
Slide No. 68

Comparison with the Wholesale Price Index (WPI)
which measures the annual inflation gives a good idea of
th change
the
h
i freight
in
f i ht rate
t vis--vis
i i the
th WPI.
WPI
Data has been collected for displaying changes in freight
rate of 7 important commodities over last 15 years.
years
The commodities selected are :
Food Grain.
Fertilizer.
Coal.
HSD.
Cement.
Iron & Steel.
Steel
Other Goods, which is basically a mixed basket.
Slide No. 69
Increase in Foodgrain freight (1177 kms)

300
% Increase >
259
229
246
216
187
200
156
161
167
206
196 227 227 227
176
185
141 145
166 166 166
133
127
155 155 155
122
149 149
142
113
100
20
09
20
07
20
05
20
03
20
01
19
99
109 109
19
97
19
93
100
19
95
100
Years
WPI
Foodgrain
Slide No. 70
Increase in Fertilizer freight (825 kms)

300
229
187
200
156
113
122 127
161
167
196
206
216
227
176
175 175 175
166 164 164 164

161
142
135 135 140
100
20
09
20
07
20
05
20
03
20
01
19
97
19
95
100 104 104 104
19
93
100
133
141 145
19
99
% Increase >
259
Years
WPI
Fertilizer
Slide No. 71
Increase in Coal freight (611 kms)

300
229
187
200
156
113
122 127
100
161
167
206
176
182
141 145
142 142
196
216
167 167 170 170 170
154 155 155

148 151
123
20
09
20
07
20
05
20
03
20
01
19
99
112
19
95
100 104
19
93
100
133
19
97
% Increase >
259
Years
WPI
Coal
Slide No. 72
Increase in HSD Freight (640 kms)

300
% Increase >
259
229
187
200
156
113
100
100
113
161
167
196
206
216
176
141 145
133
158 163 160
127
155
122
149 149
148 148 148
133
157
138
132
121
126
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
100
Years
WPI
HSD
Slide No. 73
Increase in Cement freight (561 kms)

300
229
187
200
156
113
122 127
206
176
141 145
144 141
154 154
154 154 157 157 157
150
148
147
168
20
09
20
07
20
05
20
03
20
01
117
19
99
109
19
95
19
93
100
161
167
196
216
129
100
100
133
19
97
% Increase >
259
Years
WPI
Cement
Slide No. 74
Increase in I&S Freight (1006 kms)

300
229
187
200
156
20
09
20
07
20
05
114
176
20
03
19
93
100
106
19
95
100
206
136
131 133
130
128
126
125
124 124 124 126 126 126 126
20
01
100
133
161
167
196
216
141 145
19
99
113
122 127
19
97
% Increase >
259
Years
WPI
Iron & Steel

Slide No. 75
Increase in Other Goods (830 kms)

300
229
187
200
156
113
122 127
206
176
143
150
155 152 152 152 152 155 155 155 155
123
20
09
20
07
20
05
20
03
20
01
19
99
112
19
95
100 104
19
93
161
167
196
216
141 145
138 138
100
100
133
19
97
% Increase >
259
Years
WPI
Other Goods
Slide No. 76
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
p
Slide No. 77
Container Train Operators

In 2006 running of container trains was thrown open to
private sector.
Prospective
P
ti
operators
t
were required
i d to
t
register
it
themselves with IR and pay a licence fee.
There were two categories of Licence Fees.
Fees
50 Crs. for operating between NCR and JNPT.
10 Crs. for other sectors.
Licenses were granted to 14 Private Container Operators
(PCOs) for running their own trains
by
b paying
i hauling
h li charge
h
to railways.
il
In 2007 another 2 operators took new licenses.
Slide No. 78

Idea was that they would contribute towards cargo
aggregation, and
bring
b i back
b k partt off the
th piece
i
meall traffic
t ffi that
th t was
lost as a result of block rake movement.
Bring export traffic which in any case was being
moved in containers, either by
CONCOR,, or
by road.
Slide No. 79

PCOs are prohibited from carrying certain restricted
commodities,
suchh as coal,
l
petroleum products,
all types of ores and minerals
minerals* etc.
etc
Slide No. 80

Haulage charge is worked out based on a spread sheet
calculation.
The
Th following
f ll i
are included
i l d d in
i the
th calculation
l l ti
off the
th
haulage cost.
Basic data.
data
Documentation etc.
Line haul cost.
Provision and maintenance cost.
Total Direct Cost.
Fully
ll Distributed
i ib d Cost.
10% for loss of path to other trains.
Profit margin 20%.
20%
Slide No. 81

Basic data :
Type of wagon.
Life
Lif off wagon.
Number of wagons.
Capital cost of rake in lakhs.
lakhs
Pay load.
Tare weight.
g
Lead.
Wagon turn round.
Empty return ratio.
i
NTKM.
GTKM.
GTKM
No. of terminals.
Slide No. 82

No. of marshalings.
Train Kms.
No.
N off TEU.
TEU
Slide No. 83

Documentation Cost :
12 invoices per rake.
Terminal
T i l cost.
t
Marshaling cost per wagon per yard.
Slide No. 84

Documentation Cost :
12 invoices per rake.
Terminal
T i l cost.
t
Marshaling cost per wagon per yard.
Line Haul Cost :
Cost of traction per 1000 GTKM.
Cost of other transportation
p
pper Train Km.*
Cost of Signaling per Train Km.
Cost of Track per Train Km.
Totall Line
i Haull Cost.
Slide No. 85

Provision and Maintenance Cost :
Cost of repair and maintenance.
Interest
I t
t on capital
it l costt off wagon.
Depreciation element.
Total Provision and Maintenance Cost.
Cost
Slide No. 86

Interest
I t
t on capital
Cost
Total Direct Cost (sum of all of above)
General overheads.*
Central charges.*
Escalation for 2008 09 over 2005 06.
Fully
ll Distributed
i ib d Cost (FDC).
(
)
Slide No. 87

Interest
I t
t on capital
Cost
Total Direct Cost (sum of all of above)
General overheads.*
Central charges.*
Escalation for 2008 09 over 2005 06.
Fully
ll Distributed
i ib d Cost (FDC).
(
)
Reduced FDC for Special Wagons.
Slide No. 88
Add 10% loss of path to trains.

Profit Margin of 20%.
R t per Train
Rate
T i Km.
K
Maintenance charge at 5%.
Rate per TEU per Km with maintenance.
maintenance
Reduced FDC per TEU. Dynamic Pricing.xls
Slide No. 89

As per IRs agreement with PCOs,
They were required to develop their own terminals
within
ithi 3 years.**
Have been permitted use of Railway Goods Sheds
temporarily.
temporarily
Group III
Handling < 7 rakes per month.
Groupp II
Handlingg < 12 rakes pper month.
Group I
Handling > 12 rakes per month.
Terminal Access Charge of Rs. 34,000/- per terminal per
l di / l di off eachh rake.*
loading/unloading
k *
Being extended on a year to year basis.*
Problems of stabling.*
stabling *
Slide No. 90

They could be permitted Hub and Spoke system of
operation on case to case basis.*
Basically
B i ll for
f the
th purpose off cargo aggregation.*
ti *
Commitment regarding increase in volumes.
Benefit of Telescopic Rate.
Rate
Rating of Container Trains transferred to Rates branch
from Traffic Transportation
p
Directorate.
Application from one particular CTO.
Running of Exim traffic although they had taken licence
f domestic
for
d
i sector only.
l
Slide No. 91
CTOs is a powerful lobby.

Market is not big enough for 16 players.
R
Recession
i has
h exposedd their
th i soft
ft underbelly.
d b ll
10% increase in haulage charges for domestic cargo had
to be rolled back.
back
Subsequently, from July 2009, this 10% increase was
finallyy implemented.
p
Roll back was also demanded for 10% increase in
haulage charges for exim traffic.*
Dont want to do
d hard
h d field
fi ld work.*
k*
Slide No. 92

Moving steel traffic from steel plants.*
Wanting to move cement in loose in bulk.*
Requirement
R i
t off smaller
ll transportation
t
t ti packets
k t from
f
th
the
customers point of view.
Reduced inventory cost.
cost
Haulage charge for container traffic is much less than
our class rate for the same type
yp of traffic.
Haulage charge for loaded containers is equivalent to
class rate of around 90.*
Haulage
l
charge
h
f empty containers
for
i
i equivalent
is
i l
to
class rate of around 65.*
Rating of traffic moving in containers.
containers
Slide No. 93

Loss of revenue.
Loss of line capacity.*
Full
F ll freight
f i ht to
t be
b charged
h
d as per the
th class
l
off traffic
t ffi
moved cement (class 150), steel (class 180) etc.
10% rebate for wagon ownership.
ownership *
Profit margin of CTOs.
For mini rakes and two ppoint rakes of IR wagons,
g ,
surcharge of 5% is being charged in busy season.
This will not be charged in case of container trains.
Extra charge
h
f door
for
d
to door
d
value
l added
dd d service.
i
Their profit margin can out of this and also by diverting
smaller transportation packets from road to containers.*
containers *
Slide No. 94

Loss of line capacity will get compensated by loaded
movement of container trains in both directions.
Additional
Additi l traffic
t ffi can gett generated
t d for
f medium
di
di t
distance
bulk traffic which is being road bridged at one end.*
Will be permitted on case to case basis.
basis
This will not be permitted from siding to siding.
Onlyy from Sidingg to ggoods sheds.
Slide No. 95
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
p
Private Train Operators.
Slide No. 96
Private Train Operators

Ever since the container sector was opened up for
private container train operators,
there
th
h
have
b
been
persistent
i t t demand
d
d for
f opening
i up the
th
sector for private train operators for other types of
wagons.
wagons
Private operators will own and maintain their wagons,
IR should merelyy charge
g haulage
g cost.
Their profit margins will have to come out of IRs profit
margins,
our bottom
b
li will
line
ill reduce.
d
We cannot afford to let go of our bulk traffic which is
our main bread and butter
What is your view?
Slide No. 97

IR has been having different types of privately owned
wagons for years.
BTAP wagons for
f transporting
t
ti Alumina.
Al i
BTCS wagons for transporting Caustic Soda.
Special wagons for transporting cement in loose in
bulk.
Permitted for end users only.
y
In all the above cases rebates were worked out on a case
to case basis,
without
ih
taking
ki into
i
consideration
id i empty haulage.
h l
Recent addition of Special Type of wagon for
transporting Foodgrain in bulk in loose.*
loose *
3rd Party ownership.*
Slide No. 98

Disadvantages,
Reduced profitability,
Loss
L
off line
li capacity,
it
Empty return ratio remains pegged at 100%.
Advantages of Privately Owned Wagons,
Wagons
no investment by railways,
diversion of traffic from road to rail,,
committed traffic for next 35 years.*
New technology for wagon design.*
Slide No. 99

These Special Purpose Privately Owned Train (SPPOT)
is meant for transporting commodities which are either
moving
i in
i low
l volumes
l
b railways
by
il
or nott moving
i att all.
ll
Category I (Light weight category)
Automobiles
Automobiles.
Category II (Low volumes)
Flyy Ash.
Chemicals.
Petrochemicals such as Carbon Black.*
Molasses.*
l
*
Caustic Soda.
Vegetable Oil.*
Oil *
Slide No. 100

Category III (Break bulk in loose)
Cement in loose in bulk.
Fertilizer
F tili in
i loose
l
i bulk.
in
b lk
We want to go a bit slow on this category III.
To begin with it should be permitted only to end users
and not to 3rd parties.
At a later stage
g based on our experience
p
opening
p
g upp of
this particular stream to 3rd parties can be decided.
Slide No. 101

Granting of licence to an operator does not mean that IR
will not move that traffic on their own.
PCOs
PCO andd CONCOR.
CONCOR
SPPOT will operate between private terminals.
SPOTTO must have tie up with private terminal/siding
for handling such trains.
Maintenance of wagons
g
mayy be undertaken byy IR on
payment, or
Privately maintained as per extent policy.
Slide No. 102

Most important question of freight rebate.
In class 100, 35% of empty haulage is already built in
th freight
the
f i ht rates.
t
Category I
Loaded movement in both directions.
directions
Loaded freight at 55% of class 100.
Empty
p y freight
g at 35% of class 100.
For 60 tonne weight per wagon.*
Railways generate additional traffic.
Adequate
d
profitability
fi bili is
i ensuredd to SPPOTO.
Slide No. 103

Category II.
Generally empty haulage is 100% even in railway
ownedd wagons.**
Full freight at public tariff will be charged with
permissible rebate for loaded movement.
movement
Empty movement of > 100% will be charged for empty
haulage
g at 50% of class 100.
Rebate :
15% rebate for wagon ownership, as against 10% for
IR.
For every 2% increase in throughput beyond 5%
increase additional 1% rebate will be granted.
increase,
granted
Subject to total rebate not exceeding 20%.*
Slide No. 104

Category III.
For cement wagons cement and fly ash can be moved
i two
in
t legs
l
off the
th same rake,
k
thereby generating high volumes and huge rebate.*
For these wagons also,
also extra rebate will be given for
inducting new technology of wagon design.
Everyy 2% increase in throughput
g p beyond
y
5% increase,,
additional 1% rebate will be granted.
Subject to total rebate not exceeding 20%.*
Slide No. 105

Commodities moving in volumes less than 1MT.
Maximum would be 20MT for all such commodities
combined.
bi d
If this traffic can go up to 100MT, IR gains, SPPOTO
gains.
gains
New design of wagon will ensure reduction in unit cost
of transportation.
p
Slide No. 106
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
p
Passenger fares for different classes.
Slide No. 107
Passenger Fares for different classes

Passenger fares are decided more or less on the basis of
political compulsions rather than for administrative
reasons.
While some of the upper class services are priced on the
higher side,
side
our sleeper class fares, and
g
general second class fares are under ppriced.
IRs Monthly Season Tickets (MSTs) and Quarterly
Season Tickets (QSTs) for suburban services are
probably
b bl the
h cheapest
h
i the
in
h world.
ld
Slide No. 108

In case of most commuters using IRs suburban services,
the cost of their MSTs/QSTs are being reimbursed by the
organizations
i ti
where
h they
th work.*
k*
Today a passenger spends more in traveling by Auto
from a suburb of Delhi to the New Delhi railway station,
station
than what he spends on his sleeper class ticket from
New Delhi to Lucknow.
Despite knowing all this we are not willing to
increase passenger fares.
While
hil some marginal
i l increases
i
h
have
taken
k place
l
b way
by
of reservation charges, Tatkal Seva etc.,
across the board revision of fares has not taken place
for quite some time.
Slide No. 109

Suffers from absence of corelation between tariff and
input cost.
Upper
U
Cl
Classes
rendered
d d uncompetitive
titi by
b repeated
t d price
i
hikes in the past.*
Inadequate appreciation of what customer
customer can pay
pay.*
No formalized mechanism to identify customer needs
and perceptions.*
p
p
Consequent unfettered expenditure on passenger
amenities with loosely defined standards.
Losses on passenger services
i
are not transparent.**
Suburban services and MSTs highly subsidized.
Slide No. 110

Spread between the highest and the lowest fares needs to
be reduced.
Suburban
S b b fares
f
should
h ld be
b indexed
i d d to
t input
i
t costs.
t
MST fares should be increased from 15 journeys to 25 in
steps of 2 journeys per year.
year
Second Class Mail/Express fares to be increased @ 5%
per yyear to eliminate losses.
p
No subsidy to Second Class Ordinary Fare.
Suburban subsidy to be limited to MSTs only by way of
percentage discount
di
off fare
f
d i d from
derived
f
Secondd Class
l
Ordinary fares.
Variable pricing to be introduced for revenue generation
from popular trains.*
Slide No. 111

Non suburban business must be self sustaining.
Fares for Second Class Ordinary and Sleeper Class need
t be
to
b indexed
i d d to
t input
i
t costs
t to
t eliminate
li i t losses.
l
Suburban business may continue to need partial and
controlled subsidization.
subsidization
Subsidy to suburban business must be capped in
financial terms for transparency.
p
y
Suburban fares should be indexed to fuel costs.*
Products and prices need to focus sharply on the target
segment.
Slide No. 112
Increase in I AC fares (893 kms)

300
229
187
200
100
176
198 198 198 198
167
162
153
141
141
20
07
20
05
20
03
20
01
106
134
117
19
99
19
93
100
206
128
19
95
100
196
216
20
09
113
122 127
161
188 156
188 188
141 145
133 163
19
97
% Increase >
259
Years
WPI
I AC
Slide No. 113
Increase in 2 AC fares (781 kms)

300
229
187
200
206
176
167
195 195 195 195 195 195 195
185
149
20
09
20
07
20
05
20
03
121
20
01
110
19
95
19
93
100 100
196
216
133
100
100
133
161
183 156
183 183
141 145
19
99
113
122 127
19
97
% Increase >
259
Years
WPI
3 AC
Slide No. 114
Increase in 3 AC fares (858 kms)

300
229
187
200
122
176
167
195 195 195 195 195 195 195
185
149
20
09
20
07
20
05
20
03
121
20
01
110
19
95
19
93
100 100
196
206
216
133
100
100
133
161
183 156
183 183
141 145
19
99
113
127
19
97
% Increease >
259
Years
WPI
3 AC
Slide No. 115
Increase in Sleeper class fares (751 kms)

300
229
187
200
156
133
144
20
09
20
07
20
05
126
20
03
111
117
19
97
19
95
19
93
100
106 106
176
138 138 138
100
100
206
150 150 150 150 150 150 150
20
01
113
122
127
161
167
196
216
141 145
19
99
% Increase >
259
Years
WPI
Sleeper Class
Slide No. 116
Increase in Second class fares (349 kms)

300
229
187
200
156
119 119 119 119 119 119
111
106
20
09
20
01
112 112 112 112
19
99
19
97
19
95
19
93
100 105 105 105 105
176
141 145
100
100
206
216
20
07
133
196
20
05
113
122
127
161
167
20
03
% Increase >
259
Years
WPI
Second Class
Slide No. 117
Review
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
p
Passenger Fares.
Slide No. 118
Costing & Pricing Issues
Any
questions
please
l
?
Slide No. 119
Thank You
Slide No. 120
COSTING
&
PRICING ISSUES
IN
TRANSPORT SECTOR
By
INDRA GHOSH,
ADVISER RATES/RB,
Tele :
EMail
+911123382868
+91 99104 87497
+919910487497
advrates@rb.railnet.gov.in
Slide No. 121
Slide No. 122
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
p
Passenger Fares.
Slide No. 123
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
p
Passenger Fares.
Slide No. 124
Review
Indian Railway Act.

C t off service
Cost
i & Value
V l off service.
i
Goods
p
Passenger Fares.
Slide No. 125

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Welcome to a Lecture on

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Views expressed in this lecture are that

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Outline of the Lecture

Indian Railway Act.

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Outline of the Lecture

Indian Railway Act.

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Outline of the Lecture

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Railway Act 1989.

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

INDRA GHOSH, Adviser/Rates

Indian Railway Act

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Indian Railway Act

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Outline of the Lecture

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Functions of Rates Branch

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Functions of Rates Branch

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates

Functions of Rates Branch

Tuesday, September 06, 2011

INDRA GHOSH, Adviser/Rates