The Dedicated Freight Corridor's last mile challenge

Saad (0:01)

Hello, folks, you're tuned in to Finshots Daily. I'm Saad, and if you're new here, welcome. If you're returning, welcome back. In today's episode, we look at India's newly completed Dedicated Freight Corridor or DFC, and the hurdle that will decide if cargo actually moves on it or not.

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Last week, Prime Minister Narendra Modi declared India's 2,800 km Dedicated Freight Corridor as complete. The DFC, as it's called, is the Indian railway network built exclusively for goods trains, running in two halves. The Eastern Corridor from Punjab to West Bengal and the Western Corridor from Uttar Pradesh to Maharashtra's Jawaharlal Nehru Port Terminal or JNPD. And the idea for India's DFC was first floated in 2004 with a company called DFCCIL set up in 2006 to build it. To put the project into perspective, a single train on the DFC recently carried as much cargo from JNPD to Vadodara as 250 trucks or more would have. Now, the question is, why build a whole separate rail network just for freight? To understand that, look at India's regular railway network. Freight and passenger trains share the same tracks, and freight almost always loses that arrangement. A good train gets parked in a siding to let passenger trains pass. A siding is a short track branching off from an adjacent to the main track that allows trains to be parked, loaded or unloaded. It does the same thing again a few stops later, and then again after that. Repeat that a few dozen times, and those delays add up. At some point, shipping by road, despite the traffic and the fuel cost, is often the quicker option. That is where the DFC comes in. The idea is to give freight trains their own tracks, so that they can move faster, carry more, and most importantly, stop getting pushed aside for passenger trains. And the potential payoff is huge. A recent IIM Mumbai study estimates that DFCs, when combined with multimodal logistic parks, a large hub that integrates multiple modes of transport into a single location for moving goods, these could reduce India's logistic costs by nearly 7 lakh crore rupees every year. But here's the catch. A faster railway line only helps if the cargo can actually get to it on time. The real bottleneck lies on the roads and terminals connected to these tracks. In India, that means taking your truck is to reach the freight terminals, and taking another for the final mile delivery. A faster train doesn't help much if tracks still take too long to move goods to and from the terminals. So right now, the connecting road and terminal network remains the weakest link. This is a lot like the entire explanation for why India's railways, which move over 85% of the country's coal, iron ore and cement, carry only a sliver of everything else. Researchers studying the shift point to poor service quality and a lack of last mile connectivity as the two biggest reasons shippers stay away. You can see this play out clearly with consumer goods. Rails per tonne rate for moving goods is actually lower than roads, costing nearly 1.4 rupees per tonne kilometers compared to 2.4 rupees for trucks. Yet trucks still dominate with a 70% share of India's freight, while rail only handles about 25%.

That's simply because while railways can't reliably promise when a wagon will arrive, a truck can leave the moment it's loaded. But how did we come to this structural mismatch in the first place?

Well, it is built directly into Indian Railways' business model. Passenger fares are kept artificially low and cross-subsidized using freight revenue, leaving Indian Railways short on money for anything else. And when the railway budget does get allocated, most of it goes towards new lines, track upgrades and bridges, leaving only a small share for the freight terminals that decide whether the track actually gets used. The terminals that do exist were built for big, captive industries, like steel plants and mines, that could guarantee huge volumes for the railways. A small manufacturer, the kind of company that actually makes up India's general cargo, was never really who the system was built for. Even natural rail customers, the massive industries, barely used the system. As of 2018-19, only around 28% of India's cement was actually moving by rail. India has tried to fix this before, more than once. The Indian Railways' private siding policy let big industries build and pay for their own rail link, or private sidings, straight to the factory gate. In one sense, it worked. India now has nearly 1,200 private sidings, and they carry roughly about 75% of all freight that moves by rail today. But it mostly worked for companies that could already afford. A basic siding costs upwards of 20 crore rupees before land, which is exactly why it never reached the smaller manufacturer that corridor needs.