As per the estimates by the end of the 12th-Year Plan, the cement industry is expected to move about 407 million tonnes of cement, some 35 to 40 per cent of this tonnage as input materials. It is also estimated that one litre of fuel can move 24 tonnes/kms by road, 85 tonnes/kms by rail and 105 tonnes/kms by IWT This kind of movement makes it imperative to develop multi-modal transport systems - rail, road, coastal shipping and IWT to meet this huge challenge.
How cost- effective, energy efficient and environment friendly are the current modes of transport? Are there any constructive steps initiated to up the rail coefficient which has considerably dipped from 57 per cent to 35 per cent? How business / and investor friendly are the freight-related policies? Is there any scope for incentivising the promotion of bulk movement which stands a dismal two per cent of the total installed capacity? How are the cement manufacturers coping with the challenges? ICR looks for some answers from different stakeholders.
For the sustainable growth of any industry there are three indispensable pillars that support the superstructure: adequate demand, easy availability of input materials and efficient and cost- effective modes of transport. The Indian cement industry, which accounts for about seven per cent of global production, has made rapid strides not only in terms of capacity addition but also in producing world-class quality cement from state-of-the-art technology, is unfortunately confronted with major challenges on all these fronts.
The government has ambitious plans to enhance the share of manufacturing in the GDP from the present 16 per cent to 25 per cent by 2022, and this means that the cement industry has to grow by at least 14 per cent annually. However, given the fact that acute supply constraints of input materials and logistics support to the cement industry, which keep worsening every year, the experts feel that unless and until government policies create a climate which results in a committed increase of the demand, and measures are taken to ensure requisite supply of input materials and logistics support, as well as lowering the taxation burden on the industry, the ambitious plans will just remain as they are!
Multi-modal transport systems
NA Vishwanathan, Secretary, Cement Manufacturers Association, says, It is the need of the hour to develop multi-modal transport systems, rail, road, coastal shipping and IWTfor movement of cement and clinker, as it is not possible for rail and road transport alone to cater to the steeply increasing transportation requirement of the industry, given the practical constraints and also because the existing infra-¡structure is already at saturation level.
According to Vishwanathan, rail transportation is a major bottleneck for the cement industry. Although, rail transport is the logical and economical mode of transport, unavailability of wagons, particularly in peak season, coupled with infrastructure constraints at terminals and the slant in some of the policies of the railways, not only hamper the planned movement of cement to the consumption centres but also make the end-cost of rail transportation higher than road transport for a majority of market centres. This is one of the reasons for the continuously declining rail share for cement year after year. The rail coefficient in 2012-13 has come down to about 35 per cent now from 57 per cent about a decade ago. Vishwanathan adds, ´The railways, therefore, need to come out with simple, clear and investor-friendly policies in addition to assured and committed supply of wagons throughout the year. Apart from this, there is the need to promote bulk movement of cement which stands at about two per cent of the total installed capacity at present, by lowering tariff classification for bulk cement and also by providing a suitable freight discount to those who purchase special purpose wagons for the entire life of wagons, which is 35-40 years as against the current provision of 15 years.
Supply chain management
Speaking about the supply chain management Arvind Pathak, Chief Executive Officer, Reliance Cement, had this to say: Logistics costs account for almost 25 to 30 per cent of the total delivered cost of cement. Recent hikes in rail freight rates and diesel prices have put an enormous burden on the industry. On the other hand, service level expectations of the customers have risen significantly in recent years. Customers are insisting on timely deliveries, smaller loads and fresh material. The key challenge faced by the industry today is to strike a balance between cost and services.
Reliance Cement is building private rail sidings / terminals at all its upcoming integrated cement units. But when it comes to building private terminals, there are many issues. According to Pathak, obtaining design and engineering clearances, unavailability of land, and lack of station infrastructure are some of the major hurdles. He says, The process of obtaining design and engineering clearances from the railways is very cumbersome and takes a lot of time. Though the liberalised siding policy of 31 January 2012 stipulates a time frame of four months for the Engineering Scale Plan Clearance, there is poor compliance with these timelines.
He further comments,´Rail yard and signalling infrastructure at the existing stations is generally very poor. Due to the financial crunch faced by the railways, they are unwilling to invest in the connecting station infrastructure. Thus, the private party not only has to bear the cost of rail terminal but also the cost of augmenting the infrastructure at the connecting station. This raises the investment cost of setting up a private rail sidings / terminal very high.
b>Proper logistics plan
According to Ravinder Reddy, Head of Marketing - Vicat Group (India) and Director Marketing - Bharathi Cement, lowest delivery cost is the key criteria while formulating the logistics plan. Reddy says,´While designing our logistics plan, we first look at the need of the customer, the form and time- frame the customers wants the cement. Accordingly, we then make our plan. We also look at the market size and the distance to decide the primary mode of transportation. For larger distances, we plan the dispatch by rail and for shorter distances, we plan by road. We make our logistics plan based on demand forecasting and available infrastructure like the cement plants, warehouse and fleet.
The cement industry needs solutions to get transportation costs under control. And from this perspective, automation of key processes with respect to monitoring and controls can provide some savings in freight expenditure. Some of the initiatives could include transport planning using intelligent algorithms and smart monitoring of execution operations using GPS technologies. Nevertheless, it should be noted that the Indian transportation industry is completely different from that of other places. Fragmentation of the businesses, infrastructure issues, lack of professionals in operations/ drivers, skill shortages all plague the road transportation industry. Hence, at one end, we can have all possible automation interventions for operations and planning on transportation, yet on the other side, the execution of such strategies creates difficult change management issues. This is where freight auditing can help identify opportunities to reduce logistical expenses.
Venkatesh Hariharan, Executive Director and Co-founder of Audex Solutions & Technology, adds that ´Freight audit is a very common offering in the US and we are not doing something exclusive here. In India, however, the situation is different. Even the large cement giants do not use it. It seems that the industry is yet to appreciate the full potential of freight audits. The industry must allow a third party auditor to look into their processes and come up with saving estimates. There is huge scope for savings in logistics and a thorough freight audit will show you where it lies.´ The delivery cost of the cement to most of the big consumer centres, have been affected by rising railway transportation cost. ´There is dire need to set up transportation and logistics hubs near cement loading and unloading areas,-ö says Hariharan.
´The cement industry today faces varied challenges. Spiralling cost of raw materials, high and raising freight costs, high carbon-oriented production processes calling for investment in more green technologies, poor quality of input material getting into line rejections, supplier lead times exceeding originally planned date lines for critical input items, sub-optimal load optimisation, vehicle idling at customer premises due to delays in unloading, are some of them,´ says Ranjan Tayal, Senior Vice- President, Business Consulting Group. According to him, automating cement loading and unloading process is one of the initiatives that could help reduce logistic costs. Explaining the advantages of automation, Tayal says, ´With Ramco ERP on Cloud for the cement industry, one can automate the cement loading and unloading process. It is intended to bring about a Self Service Loading System (SSLS) to automate cement delivery processes. Using smart cards and kiosks, a lorry driver will be able to serve him, starting from the gate in and all the way to the gate out. Self- service loading will aid interface with ERP to keep track of the delivery events, as well as provide the necessary information to the drivers. This data provides useful repository for analysis and help improve the efficiency of delivery process, and reduce operation costs. The real-time tracking also provides an ability to take right actions at the right time.´
Speaking about the importance of outsourcing logistics functions, Rajesh Lihala, Chairman, Fourcee Infrastructure Equipment had this to say: ´The cement industry on the whole, runs on marginal profits and any loss in logistical activities relating to delays, pilferages, and damages, will lead to reduction in profits. That is where the requirement for specialised logistics players comes into play.´
´The cement industry as a whole runs on marginal profits and any loss in logistical activities relating to delays, pilferages, and damages will lead to reduction in profits. That is where requirement for specialised logistics players comes into play. Moreover, dedicated logistics players can offer economy of scale to their clients, reducing their overall logistics costs.´ says Rohan Mittal, Head - Strategy and Planning, Fourcee Infrastructure Equipment.
Cement being a low value and high volume commodity, transportation costs form a significant proportion of its total cost. Thus it is necessary to adopt the most cost- effective means of transport and as a result, rail transport emerges as the best choice. The long transit distance from production centres (which have to be adjacent to limestone mines, are in remote areas) to the consumption markets, further emphasises the dependence of cement transportation on railways.
To improve market servicing ability and reduce the transportation of fly ash, a lot of split-grinding units have come up close to key markets and fly ash sources. Thus, clinker which is again a bulk intermediate product needs to be transported for long distances in bulk from the production centres to various grinding units. The industry has innovatively adopted hazardous wastes viz. fly-ash from thermal power plants and slag from steel plants as important raw materials.
As these materials need to be transported from distant sources and in large quantity, they contribute significantly to overall cement production costs. The industry uses coal and other fuels which is around 50-55 million tonnes per annum; long distance transportation is involved. to move this large quantity of fuel from coal mining points / oil refinery (in case of domestic coal / pet coke) and from ports (in case of imported coal / imported pet coke) to production centres.
Thus, using a cost- efficient and environment friendly mode of transport for raw material, fuels and finished product is vital.
As per the report of the Working Group on Cement Industry for the 12th Year Plan, The Five Year Plan (2007-12) had set a target of 50 per cent of movement of cement by rail, but unfortunately, it didn´t happen. In 2010-11, the share of railways in cement and clinker transport dropped to 35 per cent and 50 per cent, from 38 per cent and 57 per cent respectively (2007-08 figures). With the increasing number of grinding units in the country, the rail coefficient in respect of cement may slide even further, if corrective measures are not taken on an emergent basis.
In order to meet the increasing demand of cement in the country, there is a need to encourage multi- modal mode of transport i.e. rail, road, IWT and coastal shipping. In this connection, the concepts of RORO (Roll On - Roll Off, where trucks are directly loaded on rail wagons and at destination terminals and can be unloaded for last mile road transport) and Road Railers on the entire network, as well as double stacking, would be a welcome step, provided all likely operational, technical and infrastructure problems are resolved and also multi-modal transportation is made cost- effective.
In the present scenario, roads carry about 65 per cent of cement freight. Even in case of rail freight, last mile connectivity is ensured by using road transport. Thus, it is paramount to ensure that issues hampering road transport are looked into and addressed as roads shall continue to be the backbone of cement distribution.
With the increasing number of grinding units in the country, the rail coefficient in respect of cement may slide even further.