The Indian cement companies spend around 18 per cent of their operating income on logistics, both inbound and outbound. Top 30 cement companies spent more than Rs 10,000 crore to carry cement to the consumer in 2009-10 while the industry has been continuously making efforts to reduce logistic costs. The recent downtrend in cement business, which saw profit margins shrink to 20-25 per cent from 35-40 per cent, made cement makers refocus on logistics management. And this proved beneficial to many manufacturers.
Using more railway routes than roads, shrinking lead distance and opting for sea-routes wherever possible were some of the measures the industry explored. Currently, for every 50-kg bag of cement, the logistics cost comes to around Rs 18-25 by road and Rs 12-15 by railway, depending on the distance. The average cost of carrying cement by railways has also gone up over the years. From Rs 95 per tonne km in 008-09, the cost has almost touched Rs 100 in 2010-11. Road freights are determined by multiple factors, including the principle component, diesel. Thanks for the administered prices of this fuel, road transportation is a viable option up to a lead of 300 km. Above that, railway is economical. Sea route is limited largely on the western coast, where the draft is enough for bulk transportation. Worldwide, 70 per cent of the cement movement is by sea compared to just 1-2 per cent in India.
The cement industry believes that reducing logistic costs in isolation is not achievable, without considering the serviceability of the system. Large cement makers are focusing on an appropriate mix of the two. Efficiency and technology can make a large difference to cement logistics. Mechanisation (in road transportation) is the key that can make a huge difference to cement logistics. But this needs a collaborative effort and no company can solely take this forward.