Cement is a high volume and low margin business. The city of Mumbai alone consumes around 6.5 lakh tonnes of cement every month, despite the slowdown in the construction sector. Like in the past, cement distribution happens in the same way as that of other building materials. Traditionally the distributors of cement have been functioning since generations.
ICR met up with two prominent distributors who have been in business for a very long time. Nikesh Parekh, who operates from south Mumbai, said that distribution is functioning in the same way as in the past, but volumes have increased. The role of a distributor has expanded. Expectations from clients are increasing day by day. Parekh says that the job of distribution has become more challenging, like the quantity of bags to be delivered. Smaller the quantum of distribution, the more difficult is it to serve the retailer or the consumer. Entry restrictions on road, traffic jams, and even bandhs called by political parties add to the problem. In addition, the cement is almost never used in a raw form; it is converted into some other product. Hence, cement stockists have to keep and deliver materials like sand, aggregates, steel and construction chemicals etc. When companies like UltraTech brought a range of products to the market, it was welcomed by many dealers and distributors.
Dhimant Mehta, from North Mumbai who is one of the top five distributors in Mumbai, says that the biggest challenge facing the distributor is financial management. Today when recovery of money from the market takes about 70 days, what is more important is cash flow management. Those who buy cement either for a project or for RMC unit depend heavily on credit terms. For selecting a distributor, one of the main decisive factors is the amount of credit that he can offer. "The major challenge today is recovery of money. We have to coordinate with everybody in the channel link. Cement channel is same as that of other product channels. The retailer is the last channel point in the chain. In the present trend, wholesalers may get eliminated. Bigger wholesalers will only stay in the business. Today it is a game of finance and only better financial management can help you survive in the business," says Mehta. On the advent of E-commerce both Parekh and Mehta echoed each other´s sentiment.
"E-business portal can come to the cement sector also. In steel and copper, prices are available online. Cement together with associated products will make sense. But it will not make a major impact on the business," says Mehta.
Distributors are not really worried about E-commerce for the simple reason that none of the portals that are in the cement business can offer credit, which only a known distributor will. In fact, considering the present business climate, the credit span has gone up to 70 days, creating additional strain on the entire distributor community. Manufacturers in the past have tried to have exclusive arrangements with distributors but such relationships have not been sustainable over the long run.
In the overall distribution of cement, a couple of manufacturers are setting up cement terminals to have better control. These are typically created for supply of loose cement through bulkers to captive users like Ready Mixed Concrete plants or any factory producing end products using cement as a raw material. Since such companies which are setting up distribution terminals are investing on these kind of assets, they are also trying to have an option of bagging cement. This helps the companies to optimise the resources created. Ram Manohar Sowbhagya, a freelance consultant, who has a long experience of being associated with ACC Ltd, which operates a bulk cement terminal at Kalamboli, feels that it´s extremely important for a cement distributor to have a terminal. "Terminals facilitate in supplying factory fresh cement with many advantages to the customers, which would have not been possible when cement is transported from a far away source," says Ram Manohar. Today Mumbai, Mangalore and Cochin have such terminals.
Gujarat Ambuja pioneered the concept of transportation by sea. It has taken the advantage of the coastal location of its plant and has constructed its own jetties at Kodinar, Surat and Navi Mumbai. It has thus insulated itself from otherwise poor port facilities. Gujarat Ambuja uses its own ships to move cement to markets in Gujarat and Mumbai. It enjoys a significant cost advantage by using this route. Worldwide, around 70 per cent of cement moves through waterways. In India, just 2 to 3 per cent of cement movement is through waterways.
Jimmy George of Cochin Port Trust says that the port has created infrastructure where five cement companies are going to have their terminals. These are UltraTech, Ambuja, Zuari, Penna and Malabar cements. Three companies have already commissioned their plants. In the last month, Zuari was the third company to start its operations. Penna and Malabar are in the process of setting up their terminals. UltraTech was the first to start operations at Cochin Port Trust, followed by Ambuja. The total cement handling capacity at the port is going to reach 3 million tonnes per annum, when all five terminals are commissioned.
Use of IT is also growing in the cement distribution business. For the management of fleet deployed for transporting cement, companies can use RFID and GPS. Some companies have already tried these methods, but have not implemented them on a full scale. This may happen in the coming years.
Due to the cost factor, Indian manufacturers have been using HDPE bags, which is a non-biodegradable material. Nowhere else, especially in the developed world, are HDPE bags used. There have been many attempts made to replace the cement bags with eco-friendly materials like paper bags or paper laminated HDPF bags. But due to cost considerations, these have not been successful. Johan Nellbeck, Senior Vice President Packaging Paper, BillerudKorsnäs AB, is one of the leading suppliers of paper bags worldwide. He says that the properties of HDPE bags can be easily matched by paper bags. "When making a total cost analysis, including the high loss of cement, higher maintenance costs, costs of pilferage, revenue loss and reduced goodwill due to poor image and pollution, then the paper sack is clearly the logical and economical choice," says Nellbeck.
The only problem is handling of paper bags. India still adopts the age-old practice of using hooks to unload cement bags, which will not work with paper bags. The user also has to be sensitive to the environment, only then the usage of paper bags will become successful.