Earnings On Ir: BY Sundar Ram Madduri Retd. Member/Technical/RCT/SC

EARNINGS ON IR
BY
SUNDAR RAM MADDURI
Retd. Member/Technical/RCT/SC
EARNINGS SPECTRUM OF IR
Profitability
 Low ROCE ( Return on Capital Employed- in railways CE is Capital at

Charge )
 Need for conventional accounting methods to arrive at Profitability
(accounts should be like all other companies)
 Profits needed for growth of this enterprise, modernization and
replacement of assets, Investment in R&D
 Profitability ensures optimized use of resources
 We can not cause drain on economy
Earnings Pie
Sundries
3%
Passenger
27%
Goods
67%
Other
Coaching
3%
Profitability by playing on volumes
Our products are transport of Passengers and Freight measured in PKM and NTKM
Profit = Earnings – ( VC +FC ) = (Earnings-VC) - F = Total Contribution-FC
Earnings is directly proportional to PKM and NTKM
VC – varies directly with NTKM and PKM
FC - Does not vary with out put level
Contribution per unit = (EPU – VCPU)
Total contribution = (EPU –VCPU) X no. of units = Total Earning- Total Variable
cost
As volume of sales Increases, Contribution increases to meet Fixed costs fully and further increase in
volume starts generating Profits.
The volume (PKM or NTKM) at which Total Contribution is equal Fixed cost is called breakeven cost.
If we produce and sell more than breakeven level we start generating profits
Break- even level = Fixed Cost / Contribution per unit
Example from Internet
Example from Internet ( Continued)
Chart method to find break even level
click here to see original website
Earnings-Sources
 Core business area – by generating higher and higher

volumes of PKMs and NTKMs (called Volume play)
- we try to keep FC at same level
- And try to increase PKM and NTKM by using our
assets to optimum level, provided demand exists.
- Higher PKM results in higher coaching earnings
- Higher NTKM results in higher Goods earnings
 Non-Core areas – Catering, Commercial Publicity,
Commercial exploitation of Real Estate.
Volume play in IR
 IR has multiple variables(like number of wagons , coaches ,manpower ,money etc.) which
constrain volume play
 Demand is needed ( we need to make our services popular) other wise generating service is of
no use)
 Demand Vs service mismatch ( some trains run empty others have dropped WL)
 Wagons/Coaches may be constraint
 Terminal capacity shortfall
 Locos may be in shortage / inadequate powering
 Line capacity may be inadequate
 Man power shortages – especially LP/ALP/BC
 All these factors are interlinked to each other
 Need to identify the constraining factors and selectively improve them
Characteristics of Freight Earnings
 Indian Railways lost share of freight traffic from 89% to 40% - POL in pipe
lines, Costly commodities to Road/Air , Cement to Coastal shipping
 IR is carrying mostly bulk commodities with low profit margin and not costly
items which can be charged higher fares – Parcel as alternative to lost
piecemeal traffic
 Volume of traffic increasing only in Coal, Cement, Food grains etc. but Iron
and Steel, POL , Fertilizers loading is decreasing
 Wagons excess in Monsoon and acute shortage in Peak season.
 No traffic for “empty direction”
 Will Increased freight rates result in increase in earnings-leverage price
elasticity of demand
What IR has been doing in Freight?
Operating Measures-1
• Increase routes with CC+6 and CC+8 to increase PCC
• Raise trailing load from 58 to 59 BOXN etc.
• Remove dummy wagons in POL rakes
• Resort to forming CC rakes etc. to cut Rake maintenance time
• Encourage siding owners to automate loading
• IB to increase line capacity/selective DL or TL
• More MUs towards right powering
 Schemes like TIELS, LWIS
 Connectivity to ports
 Increase line capacity in popular routes instead of political decisions
 Employ retired LPs and ALPs
Strategies to capture freight traffic-
Operating measures -2
 Offer Mini rakes, two point rakes, multi point rakes
 Facilities such as Rail side warehousing, private freight terminals

 Repair of unloadable wagons.
 Encourage container traffic through CONCOR and other CTOs
Commercial measures to improve
freight earnings -1
Station to Station Rates (RC 26 of 2016)
- Particular commodity, particular OD
- To be given for increase of NTKM
- New Traffic/Additional traffic
- Benchmark to be fixed
Commercial measures to increase
Freight earning-2
Liberalized Automatic Freight Rebate scheme for traffic loaded in
Traditional Empty flow directions ( Rates Master Circular /FIS/2015/0
- FOIS based automatic rebate
- Routes are defined.
- Discount for traffic above bench mark for some OD pairs
- Some commodities are excepted
- For BCN,BOXN and flats notified
Dynamic pricing-(RC-24 of 2013)
Rebate in freight for traffic transported in privately owned wagons
Commercial measures to increase
freight earnings-3
 Freight incentive scheme for Loading bagged consignment in Open and Flat wagons ( RC 27 0f
2016)
- for select commodities -20% to 30%
 Incentive Scheme for freight forwarders (Rates Master Circular/FIS/2015/0)
- cargo aggregation
- some commodities excepted
- multiple commodities can be permitted in wagon
 Liberalized siding rules
 Liberalized Wagon Investment scheme ( Freight Marketing Master Circular/LWIS/2018/2018/0)
- purchase/leasing of wagons
- High Capacity wagons encouraged
Characteristics of Coaching Traffic
 Lower profit margins than freight operations – especially in Ordinary
Trains
 Rates kept lower on non commercial considerations.
 Season Tickets kept at non commercial rates
 Many trains run with low occupancy but can not be discontinued
 Shortage of booking clerks and Ticket Checking staff
 High ticket checking effort needed.
 Train engines under utilized.
 Slow in speed and hence eat up precious line capacity, use up
crew who are always short.
 SLRs run empty or partially filled.
Measures to improve Coaching Earnings
 Ramp up Ticket vending capability ( Importance of UTS)
 Identify profitable OD and profitable class –Data ware house
 More SF trains-Surcharge earning, quick turn round of rakes
 Power Vs load Vs PF VS Demand matching
 Peak/non peak fares- if not earnings will leak
 Tatkal/Premium trains
 Leasing of SLRs/Parcel specials- Sound Contract management
 Encourage optimal Rake/Engine/crew links
 Selectively cut train halts
Passenger Earnings
 Increase number of coaches in popular trains

 Charge premium for popular services
 Lean season discount/ busy season premium – use of dynamic fares as
airlines do
 Make trains superfast
 Encourage long distance traffic instead of short lead traffic
 Increase tatkal quotas
 Increase in ac 3 tier services
 Identify removal of coaches from unpopular trains and shift to popular
trains
CONSTITUENTS OF OTHER COACHING
EARNINGS
 Parcel Traffic - SLR

- VPU
 Luggage Tickets
 Postal Traffic
Strategies to tap Parcel Business
 Chance to get back high value commodities

 Parcel vans in unpopular coaching trains to use full haulage capacity of
locomotives
 Full use of capacity of SLRs
 Strengthen tendering process for Parcel van/ SLR leasing
 Dedicated parcel handling platforms in freight terminals
 Agricultural products logistics – refrigerated parcel vans/terminals
 YOU VS ME between freight traffic managers and Parcel traffic managers-
merge Parcel trains with freight traffic for operations.
SUNDRY EARNINGS
 Rent on Buildings and Land- Including Retiring Rooms, Parking slots, Right of
way
 Catering Receipts- Static and Mobile Units
 Sale of Scrap and Unclaimed Goods/Parcels
 Advertisement Revenue
 STD Booths, Book Stalls, curio Items
 Sale Proceeds of Time-Tables
 Commercial exploitation of real estate
 Internet services on trains
UNTAPPED AVENUES
 Advertisements on web-sites
 Provision of Wi-Fi services
 On board Retail Sale, Railway Souvenirs
 Catering – potential for diet meals , Organic Foods
 Paid Tours of Railway Establishments
 Use of Railway Establishments for functions and fairs
CONTRACTS & TENDERS(Poor Contract
Management on IR)
 Contract- Legally Enforceable agreement – Oral, Written or Implied.
 GCC and SCC

 Tender- Specification for receiving proposals, evaluating offers and
determining best offers.
 Manual Tender Vs E-Tendering
 Tender Vs Auction
 Tender Vs Quotation
 Advertised Vs Limited Tenders Vs Single Tender
Essentials for success
* Home work before floating tender

- Study of market conditions
- Study of earlier success stories
- Quality of rate analysis
- Site Preparation
* Tender Document
- Specify scope with clarity
- Targeted publication of tender notice
- Adequate time for tendering depending on complication level
- Care in Schedule Preparation
- Clarity on Taxation implications
- Price variation Parameters
Essentials for Success- 2
 Tender Committee
- Technically sound committee members
- Properly briefed by convenor
- Prompt finalization and quick award
- Clarity in statement supporting decision
- Prompt Negotiations ( where needed )
- H1 syndrome – not at any cost
Happy & Prosperous Earning
 Long Term Measures

- Maintain All India web based data-base of suppliers
- Contractor Performance analysis data-base
- Report of Convenor after completion of contract with
remarks regarding pitfalls
- Web-based All India rates analysis
- Quick retender , if need be with redrafted tender conditions
REMEMBER TIME IS ESSENCE
GOOD LUCK
Operating Statistics
 Intensity of wagon usage

 Intensity of Engine usage
 Efficiency of money usage
 Intensity of Track utilization
 Line capacity utilization.
 Productivity measures ( Linked to Output in PKM and
KTKM)
 Fuel efficiency-SFC
Select statistical parameters
 Wagon Km per wagon day
 Ineffective percentage ( ineff = sick+workshops+departmental)
 % of Loaded wagon-Km to Total Wagon-Km ( empty wagons do not give NTKM)
 Engine Kilometers per engine day
 Average load of goods trains
 Average detention for loading and unloading
 Wagon Turn turn round
 NTKM/wagon day ( productivity of wagon)
 NTKM/Engine hour (productivity of Engine)
 PKM/Coach day
 NTKM/Million Employees ( productivity of manpower-very low in IR )

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EARNINGS ON IR

 Low ROCE ( Return on Capital Employed- in railways CE is Capital at

 Core business area – by generating higher and higher

 Facilities such as Rail side warehousing, private freight terminals

 Increase number of coaches in popular trains

 Parcel Traffic - SLR

 Chance to get back high value commodities

 GCC and SCC

* Home work before floating tender

 Long Term Measures

 Intensity of wagon usage

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