Railway Transportation

Railway transportation is slower than road transportation but is less venerable to adverse weather conditions. They compete favorably with highways and waterways.

Industrial Structure

The Malawi railway dates back to 1908 when it was opened. The railway network is about 815 km, including an eastern link with Mozambique Port of Nacala. A western extension ends on the Zambia/Malawi border near Mchinji in Malawi and Chipata in Zambia. A 24 km link to Chipata remains uncompleted since it was started in 1979 under Canadian aid.  The eastern link to Nacala, some 615km from the border station Nayuchi is currently the shortest railway route to the sea for Malawi since the southern rail route to Beira Port has yet to be rehabilitated after severe war damage in the early 1980’s.

Prior to privatization in 1999, the railway transport was managed by Malawi Railways (1994) Ltd. Today, the new company called Central and Eastern African Railways (CEAR) Ltd operates railway transport in Malawi.

Cost Structure and Operating Characteristics

The cost structure of the railway may be characterized as a high fixed- cost and a relatively low variable-cost structure. Fixed costs include roadbed maintenance, taxes and depreciation, administrative expenses, equipment depreciation, and depreciation, maintenance, and taxes on terminal facilities. The two major contributors to fixed costs are roadbed and terminal fixed costs. Variable costs include such costs as non-administrative wages, equipment maintenance, and fuel costs. Furthermore, the fixed costs and many of the variable costs (such as equipment maintenance) are non traceable or shared costs i.e. costs that cannot be traced unambiguously to a particular shipment.
The percentage of total railway costs that is fixed or variable is not conclusive.

Economies of Density

With the fixed costs of railway being relatively high, the unit costs (or average total costs) of shipments are expected to decline over the range of a relatively large number of shipments (since fixed costs are being distributed over an increasing number of shipments). If short-run unit costs decline as the utilization of a fixed capacity (such as terminal or line-haul) increases, economies of density are said to exist; hence, the transportation firm's short-run average total cost (SATC) curve will be negatively sloped (see Figure 4.1). Measuring density as revenue tonne-kilometre per kilometre of railroad Harris (1977) concluded that "there are very significant economies of traffic density in the rail freight industry."

Decreasing unit costs related to increased density implies excess capacity in one or more of a railroad's fixed capacities (terminal and line-haul, for example). Unit costs will decline until full capacity utilization has been reached. If the volume of traffic increases further, congestion will set in at the fixed capacity and unit costs will begin to rise. Congestion at one capacity (such as line-haul) may occur before congestion at another capacity (terminal). However, as long as excess capacity exists for some fixed capacities, the possibility of declining unit costs exists.

Density (railway service units per unit of fixed capacity)
Fig. 4.1 Economies of Density

Returns to Scale

If the long-run unit costs of a transportation firm decrease, remain constant, or increase as the volume of traffic or size of firm increases, the firm is said to exhibit increasing, constant, or decreasing returns to scale respectively. There is need to investigate returns to scale for the Malawi railway industry

Operating Characteristics

The quality of rail service varies with the operating characteristics of a railway. For example, rail freight service may be differentiated according to such operating characteristics as delivery time, reliability, and susceptibility to loss and damage. The quality of rail service, in turn, is expected to affect the short-run and long-run costs of a railway as well as the modal- choice decision of freight users.

Delivery Time. The time it takes to move a shipment from its point of origin to its destination point is the delivery time of the shipment. From a delivery-time perspective, railways are more competitive with other modes on longer hauls than they are on shorter hauls, since the time required to make up and break up trains in terminals is a smaller percentage of delivery time for a long-haul movement. There are no statistics for Malawi so that studies need to be carried out.

Reliability. The reliability of rail service should is determined by consideration of the following:

• Derailments,
• Terminal congestion,
• Inefficient management practices,
• Train breakdowns.

Loss and Damage. The susceptibility of rail shipments to loss and damage is relatively high in comparison to that for truck shipments. Rail shipments are subject to greater damage from vibrations and rough handling. This has been due in part to the industry's maintenance, deferral programs and the use, of obsolete equipment, necessitated by the industry's low rate of return on Investment.

Freight Users

Freight users of Malawi railway service are primarily shippers (and receivers) of carload bulk commodities (such as maize, fertilizer, cotton, tobacco, tea, cement, salt and fuel) being shipped relatively long distances.

Commodities Shipped

For railway to remain competitive, there is need to determine percentages attached to each type of shipment i.e. maize, fertilizer and cement. Given the length of delivery time (or slowness) for rail movements, railways are not competitive as a transporter of high-valued shipments. The longer the delivery time, the greater will be the inventory cost (or inventory price) related to a shipment. The greater the value of a shipment, the greater will be the inventory cost related to a given delivery time. However, given their relatively high fixed-cost structure, railways are more competitive for long-haul than for short-haul movements.

Bulk Commodities. Railroads transport primarily bulk commodities not only because of the relatively low value of these commodities (and therefore lower sensitivity to long delivery times than high-valued commodities), but also because of the transportation capacity that bulk-commodity shippers require. The cubic capacity of railcars ranges from 110 m3 for 12-metre, 45-tonne cars up to 283 m3 for 64-tonne cars built to a 26-metre length; by comparison, truck trailers have a cubic capacity in the range of 85-102 m3 and a weight capacity ranging up to 27 tonnes.

Elasticity of Demand

A number of studies have investigated the price elasticity of demand for railway freight service. The price considered in these studies has been the rate or price charged by railways for transporting various commodities. However, freight users incur not only this price but also an inventory price (i.e., the inventory costs related to a shipment). The sum of the railway rate and the inventory price for a particular rail shipment is the full transportation price of the shipment to be incurred by a railway freight user.

Studies in the US (Ann Friedlaender (1980)) found that the price elasticity of demand for rail service was elastic for every commodity implying that these commodity freight users are sensitive to change in the full transportation price of freight railway service. For example, if the full transportation price increases by one per- cent, the amount of tonne-kilometres of commodities would be expected to decrease by more than one percent.