A seamless supply chain is a backbone of the cement industry
In the Union budget 2021-22, the government of India announced ambitious infrastructure developments projects like smart cities, expansion of Indian railways, upgradation of roads, affordable housing, and so on. The real state sector and housing development are the major demand drivers of cement and consume around 65% of the total cement consumption rate in India. To meet such an enormous demand, logistics play a vital role. The cement industry needs to strike a perfect balance between the supply and demand ratio. Logistics doesn’t mean to supply the final cement to the user site but also involves complete transit of materials right at the moment the cement manufacturing process starts. This includes bringing raw materials such as limestone, coal, gypsum, etc., from the mining sites or from the stockpiles to the cement plant. And then the finished product needs to be transported to its final destination on the required timeline. This is where having a great transportation framework comes into play.
The cement industry is expecting an 80 million tonne (mt) addition in its capacity over the coming three years during FY 2024. This will also be the highest capacity addition seen in any block of three consecutive years, during the last 10-year period, said Crisil Research in a report. With affordable housing schemes by the Indian government and ambitious infrastructure projects, the demand for bulk cement also seems to be increasing in India. To handle such huge demand, Indian cement companies have pulled up their sleeves to make logistics a seamless and cost-effective process.
Mode of transportation
It is estimated that the mode of transport holds up to 20% of the retail price of cement. The cement manufacturers are using multiple options to meet the high demand for cement, although railways and roadways are the most preferred medium. It is said that the Indian cement manufacturing industry is the second-largest revenue generator for the Indian railways. The government of India has launched schemes like long-term tariff contract scheme, freight incentive scheme, general-purpose wagon investment scheme, etc for the cement industry to make logistics economical and accessible. We see a trend where a few large cement manufacturing companies are signing long-term freight contracts schemes to cut down their operational costs.
However, Yogesh Mehta, Vice President of Shree Cement, believes that some of the policies needs revision to increase the rail traffic like at present in clinker, 25% freight discount is allowed for incremental traffic over and above previous year lead more than 1000 KM. “This scheme is not viable since, in cement industry, majorly average lead of clinker is less than 1000 KM,” he adds.
Talking about road transportation, in the past few years, we have seen a huge development in the quality of roads. The construction of new highways and up-gradation of existing roads have made it an easy mode of transport for all industries. In India, the majority of the cement plants have their fleet of trucks for seamless transportation of cement directly from the manufacturing plants to the required destination.
The cost of logistics in the cement industry constitutes almost 30-35% of the total cost, making it the highest amongst most industries. There are a few challenges though. “The end consumer doesn’t store cement; hence the cement supply chain needs to be fast. Secondly, transporters are less willing to carry cement as the transporters make lesser money on cement freight compared to some other high-value freight,” says Krishan Mishra, Cement Logistics Expert, Freight Tiger.
Bulk Cement transportation
Globally, cement companies are moving from bagged cement to bulk cement. India is picking the bulk cement adoption. With the current government emphasising on big infrastructure projects and special grants given by the Railway ministry on shipment of bulk cement, the Indian cement companies may head towards bulk distribution faster now.
The Ministry of Railways has decided to waive the standard haulage charge per twenty-foot equivalent unit (TEU) for the movement of empty specialised tank containers used for bulk cement transportation in order to encourage the shipment of bulk cement by rail. This comes as welcoming news for cement companies in India. According to a circular issued by the Ministry of Railways, the concession is valid for five years beginning August 1. It will be granted when the specialised tank containers are moved in one direction fully loaded and returned empty. The cement industry is a logistics-intensive sector. Since cement consumption is seasonal, the storage of cement becomes a vital factor to be considered. Transportation of cement results in significant loss due to bag burst, seepage, and multiple handling. Transportation, storage, and onward movement of cement are the key factors that determine the cost to the company. Approximately, logistics costs constitute about 30 percent of the total value of the finished product. Hence, cement companies are focusing a lot on deriving logistics efficiencies and cost reductions. This is where bulk cement plays an important role. Bulk cement helps in reducing bag cement percentage and associated costs, as well as reduces logistics-related challenges.
Moving cement in smaller bags becomes expensive, especially in the case of grey cement. Another important factor to consider is the demand from the housing sector in India, which aids in buying cement in bulk. This is because, for household purpose usage, consumers tend to buy loose cement instead of bags. Growth in the use of ready mix concrete is gaining momentum, especially in major urban metros. With ambitious infrastructure projects, the demand for bulk cement seems to be picking up well.
Concessions on bulk cement to boost cement traffic
The announcement of concessions on bulk cement transportation is likely to boost cement traffic in India. With this announcement, the normal haulage charges for empty container transportation will be reduced by 50% in the first year, 40% in the second, 30% in the third, 20% in the fourth, and 10% in the fifth. For example, for the loaded movement of specialised containers from point A to point B, the applicable normal haulage charge will be applied. Discounts will be applied for empty return movements from B to A.
It is noteworthy that if these specialised containers are transported via any other route, a standard haulage charge for empty or loaded containers will be imposed.
Previously, the ministry announced a 5% reduction in the current haulage charge per TEU for the movement of loaded containers and a 25% reduction in the movement of empty containers and empty flat waggons until April 30, 2022. According to Indian Railways, tank containers for bulk cement transportation should be designed, manufactured, tested, and inspected in accordance with ISO container provisions.
The Indian cement companies are advanced in their technology adoption and have digitised their key operations. But the main challenge remains around achieving faster order fulfilment, getting more predictable and accurate ETAs, better visibility, and achieving shorter payment cycles.
Tracking the location of vehicles is important, especially during Covid times where processes are becoming touchless. With vehicle telematics solutions, cement players can monitor the location of each vehicle in the fleet, the payload carried by each vehicle, and the vitals of their crew members. Moreover, the solution helps in interfacing with the factory ERP systems to give ETA.
A few examples in the Indian cement are Shree Cement, Wonder Cement, ACC, which have embraced technology adoption for cutting down on supply chain delays and manual processes. For instance, Wonder Cement deployed an Integrated Logistics Management System encompassing its fleet vehicles, weighbridges, and production systems. This included IoT-based RFID tags & sensors, positioning sensors, cameras, LED displays, etc.
To address the logistic challenges, Shree Cement has created an innovative bidding system for competitive freight discovery. “The completely digital scheduled biding system provides a robust and seamless mechanism for both our empanelled transporters and us. It fits into our system of transparency in operations and also helps us to optimise our logistic cost,” adds Mehta.
To measure the health and performance of their logistics operations, Freight Tiger offers visibility to customers into their operational and commercial metrics. “These actionable insights and dashboards help customers make better business decisions and help reduce overall logistics costs by 10-12%, improve customer OTIF by 15-20% and increase margins by 2-3%,” claims Mishra.
“Our planning module helps club orders to maximise vehicle, capacity, and route optimisation. It helps customers plan multipoint pickup and drop deliveries in a cost-effective manner and helps with better decision-making using trip-level costs. We have seen immediate savings of as much as 3-5% of freight cost,” he adds.
ACC and Ambuja Cements brought breakthrough technology in Logistics. Holcim in India announced deploying its industry-leading Transport Analytics Center (TAC) in 35 plants of ACC and Ambuja to optimise its logistics for road safety, enhanced efficiency, and sustainability. TAC is currently tracking more than 20,000 trucks through various data sources like ERP, In-Vehicle monitoring system (IVMS), NFC, RFID, and others for advanced analytics and artificial intelligence applications. In India, TAC was implemented in 2018 to monitor road safety KPIs which helped both the companies to achieve nearly 75% kms without any safety violations and a 60% reduction in offsite incidents. In the journey along with ACC and Ambuja, TAC provided data analytics daily to the Driver Management Center (DMC) in all the 35 plants for focused intervention in the form of training and coaching the drivers to improve their driving behavior. This intervention has helped proactively act on ‘at risk’ drivers.
Cement is a low-cost commodity, and the cost of packaging and transportation adds a burden to manufacturers. Hence having the right combination of technology, policies, partnership, and mode of transport is vital for a seamless supply chain in a cement plant.