China Railway Corp expected to raise freight rates
January 30, 2014 Category Logistics, Railway transport
China Railway Corp (CRC) is expected to raise freight rates early this year to relieve its massive debt burden and speed up market-oriented reform in the industry, which it monopolizes. However, such a move may further reduce the competitiveness of rail against road freight, which has rapidly overtaken it in market share. The rail freight rate in China may rise from CNY0.12 per ton per kilometer to an average of CNY0.15, which the railway operator said would be “more reasonable”. “Freight services are a major source of income for the railway operator. However, the freight rate has long been under the market value,” said Li Hongchang, Railway Expert and Economics Professor at Beijing Jiaotong University. CRC was spun off from the former Ministry of Railways (MOR) in March last year, taking over its entire assets and debts. A reform in the railway freight sector has since been at the top of its agenda. Statistics from the National Audit Office show that the new national railway operator was bogged down in debt of CNY2.9 trillion in June last year, while its total assets were valued at CNY4.66 trillion. “The primary goal for the company is to increase revenues and cut costs. To raise the freight rate is a natural solution,” Li said. A rise in freight rates would also be an important measure to make the highly monopolized industry more lucrative for potential private investors, analysts say. As the rail network expanded, the country’s annual rail freight volume increased from 2.04 billion tons to 3.9 billion tons between 2002 and 2012. The average freight rate rose from CNY0.08 to CNY0.12 per ton per km during the decade. The research shows CRC would be able to pay off its debts within seven to 10 years assuming the freight rate rose to CNY0.13 per ton/km and annual growth in railway freight and passenger volume remained at 5% to 8%. Over the past three decades, railway freight has lost market share to road transport. The railway network’s share of the country’s freight volume shrank dramatically from about 48% to 17% between 1980 and 2012, CRC General Manager Sheng Guangzu said earlier. By contrast, the market share of road freight jumped from 6.4% to 35%. One reason is the overtaking of “dark goods” by “white goods”. Dark goods, a term used in the railway industry to describe coal and other raw materials, are the principal type of railway cargo. While the volume of dark goods has remained steady in recent years, that of “white goods”, which are those other than raw materials, has been growing rapidly, and they are mostly transported by road.
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