Multimodal logistics parks to enhance rail freight system

By Shardul Thacker, Mulla & Mulla & Craigie Blunt & Caroe
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India’s dynamic retail sector, one of the largest in the world, is set to see unprecedented growth over the next five years. Its success principally depends on efficient logistics and supply chain management. Logistics companies use state-of-the-art technology to provide the sector with vital access to the country’s vast transportation network (comprising railways, roads, air, sea, ports and inland water transport), enabling it to meet rising consumer demand. The Indian logistics sector itself is estimated to grow at an annual rate of 15-20%, with projected revenues of approximately US$385 billion by 2015.

Shardul Thacker Partner Mulla & Mulla & Craigie Blunt & Caroe
Shardul Thacker
Partner
Mulla & Mulla & Craigie Blunt & Caroe

As the nation’s predominant means of bulk freight and long-distance passenger transport, railways are widely considered the lifeline of the Indian economy. Railway traffic has shown substantial growth of 9% per annum for freight and 8% per annum for passengers over the last five years.

In order to play their vital role in the integrated multi-modal transport system of the country, railways need to augment capacity, and to develop complete logistics solutions for freight customers. In keeping with its ambitious target of carrying 1,100 million tonnes of freight and 8.4 billion passengers by 2011-12, the Ministry of Railways has launched various developmental programmes. Among the most significant of these is the dedicated freight corridor (DFC) project.

The Indian railways’ Golden Quadrilateral – which links the four metropolitan areas of Delhi, Mumbai, Chennai and Howrah, as well as its two diagonals (Delhi-Chennai and Mumbai-Howrah) – carries more than 55% of the whole railway system’s revenue-earning freight traffic. Several factors – saturation usage of the existing trunk routes of Howrah-Delhi on the eastern route and Mumbai-Delhi on the western route, surging power requirements necessitating heavy coal movement, booming infrastructure construction and growing international trade – contributed to the conceptualization of the DFC project. The US$8 billion flagship project entailed construction of approximately 3,300 kilometres of double, electrified, high axle load track (suited for high capacity wagons and heavy haul freight trains) between Jawaharlal Nehru Port Trust in Mumbai and Tughlakabad–Rewari on the western route, and between Kolkota and Ludhiana on the eastern route.

Funded by a combination of debt from bilateral and multilateral agencies and equity from the ministry, the principal objectives of the DFC project were enhancement of carrying capacity, reduction of the unit cost of transportation and substantial savings in operations. The Dedicated Freight Corridor Corporation of India Limited was incorporated to undertake the planning, mobilization of resources and execution of the DFC project.

While the DFC project has resulted in improved reliability and quality of services, it is now envisaged that the new facilities and infrastructure can be even more optimally utilized through the development of multimodal logistics parks (MLPs) to function as hubs that provide state-of-the-art integrated logistics facilities at selected locations along the DFC, thereby reducing overall logistics costs in the supply chain and further enhancing the competitiveness of Indian products in the world market.

Accordingly, the ministry has launched a US$4 billion initiative for setting up MLPs of various sizes. These are envisaged as rail-based inter-modal traffic handling complexes comprising container terminals, bulk/break cargo terminals, warehouses, banking and office spaces. They will include facilities for mechanized handling, intelligent inventory management, inter-modal transfers and sorting/grading of freight.

MLPs would be developed by project authorities in charge of special economic zones (SEZs) and industrial townships, or by prospective developers, and would be located at SEZs, industrial townships or on private land adjoining railway lines. To develop MLPs through the public-private partnership route, the ministry has invited expressions of interest from logistics service providers, real estate developers, third party logistics players, container operators, financial institutions and industrial houses.

The primary objectives of the ministry’s plan for MLPs is to minimize multiple handling, provide access to various logistics-related services in the vicinity of rail transport hubs and ensure improved integration with logistics and supply chains. This would increase the rail freight capacity in the country’s overall transport chain and provide cost efficient end-to-end solutions to customers. Through the provision of logistics-related services such as storage, processing of materials and goods prior to transshipment, unpacking and repacking, labelling, unitization, sorting and inspection of goods, assembly, minor fabrication, packaging and warehousing facilities, the MLPs will aim to facilitate timely distribution and transfer of cargo from rail to other modes of transport.

Apart from the revenue streams estimated from their logistics-related functions, these MLPs are also expected to usher in widespread business opportunities due to their multi-faceted real estate potential, including office and commercial spaces, hotels and restaurants, residential accommodation, trade pavilions and conference facilities.

Shardul Thacker is a partner with Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.

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