Investors have raised concerns on rail coefficient dip in 1HFY17 despite no tariff hike since April 2015. Our initial instinct is to suggest road-rail economics is moving in favour of roads. However, rising EXIM imbalance has been a key driver for destuffing container cargo at ports and transporting it internally through roads. Data corroborates this and shows an inverse correlation trend between EXIM imbalance and rail coefficient with a one-year lag.
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Global container trade is below 1x Global GDP growth vs peak of 4.1x in CY02. Globally, two major alliances have been formed in the past 12 months, apart from the recent Hanjin shipping bankruptcy (3% of global container trade) and the acquisition of Hamburg Sud Group (3% of global container trade) by Maersk. In this backdrop, cost savings is a top agenda for these companies.
Typically, Shipping Liners’ P&L does not get impacted by port charges, as they are a pass-through to clients. Given this and also as as tariffs at major ports are regulated by TAMP in India, port charges have been stable and not impacted by the downturn. On internal logistics costs, typically, this is also a pass- through. When a container is sent to the hinterland with cargo, the charges are passed on to the importing client. Similarly, when the container returns with cargo, charges are passed on to the exporter.