Dedicated Freight Corridors: a real game changer for the Indian economy?

DFC

Rising fuel costs are inflationary… How often you hear that?

Indeed they are.

Skyrocketing petrol and diesel prices are not only affecting household budgets nowadays but they are also threatening to upset the supply chain maths of businesses.

As you must be aware, road transport dominates India’s freight movement, despite India having the world’s 4th largest railroad network. According to a CRISIL report, 60% of the network of Indian Railways is used for the movement of passengers at present. The contribution from passenger transport has been just 30% in the revenue of Indian Railways. 

The National Rail Plan (NRP), released in December 2020, has acknowledged the shortcomings in the rail infrastructure and has tried addressing the issues.

Running passenger traffic and freight traffic on different railroads is the way out. That’s the essence of Dedicated Freight Corridors (DFC).

Electrification of railroads offers a cushion against the vagaries of oil prices.

And there’s been some important developments on this front.

EDFC and WDFC are nearing their completion

According to the status report of DFC dated May 31, 2021, the Eastern Dedicated Freight Corridor (EDFC) and Western Dedicated Freight Corridor (WDFC) projects are expected to reach their completion in June 2022.

WDFC runs through 5 states—Haryana, Rajasthan, Gujarat, Maharashtra and Uttar Pradesh and covers 1,506 Kilometers. As on May 31, 2021, 42.5% of the project was completed.  The EDFC cuts across 6 states—Punjab, Haryana, Uttar Pradesh, Bihar, Jharkhand and West Bengal, with a total network length of 1,337 kilometers (excluding Sonnagar-Dankuni section) of which 33.7% has already been built.

Soon the NCR (National Capital region) will achieve railroad connectivity with strategically important ports such as Kandla, Mundra and Pipavav.

Experts believe DFC will be a game changer for the Indian economy. 

Advantages of DFCs

  • Faster movement of goods
  • Port connectivity with industrial areas
  • Decongestion of passenger traffic
  • Cost-effective, energy efficient and environment-friendly mode of logistics
  • Running heavy haul and double stack container trains will be possible now

How tangible will the benefits be for India’s economic growth?

DRC will speed up freight traffic on railroads.

Can you imagine a goods train in India beating the Rajdhani Express in speed?

If you thought it’s going to take years for this to happen then you might be in for a pleasant surprise.

A freight train recently clocked an average speed of 99.3 kmph on the 351-km Bhaupur-Khurja railroad on the EDFC.  Moreover, nearly 4,000 trains have already run on the newly inaugurated sections of the WDFC and EDFC. The average speed of the trains has been 55 kmph, more than twice the average speed of 24 kmph clocked by freight train on a normal route.

Any nation envisaging to grab a higher share of manufacturing can’t rely on age-old logistics infrastructure. DFCs can help India’s manufacturing sector immensely. They can also play a vital role in promoting exports. DFCs will make supply chains more reliable.

Which sectors are likely to benefit?

Coal, power, oil and gas, petroleum, fertilizers, cement, iron and steel, automobiles, agri-commodities and other bulk commodities which are not transported through railways at present.

To sum up…

You see, DFCs address two important concerns of industry, transportation time and logistics costs. Improved speed will help move goods faster and also bring down logistics cost by upto 30%. Now it remains to see how long it takes before Profit & Loss statements of listed companies start reflecting the benefits of DFCs.   

Disclaimer: The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances.  Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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