Cost efficiency in logistics

Cost efficiency in logistics

With the industry showing slow signs of improvement in profit margins, better logistics management proves beneficial. ICR explores various modes of transport, highlights key issues and the steps to be taken by the government to provide cost-effective means of cement transport.

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, which is an expensive affair. With all the cement majors facing a slump of 20-25 per cent in the first two quarters, the domestic market has been making continuous efforts to cut it logistic cost. Logistics cost in India is over 13 per cent of GDP.

Railway is a preferred medium of transport as compared to roads and seas. Though the companies have been opting for sea routes wherever possible. At present, for every 50-kg bag of cement, the logistic cost comes to around Rs 15-22 and Rs 10-15 by the road and railway respectively, depending on the distance.

Sea Routes

Today 70 per cent of the cement movement worldwide is by sea. In India, all the cement giants including UltraTech, Zuari, Ambuja have their terminals set in various parts of the country. UltraTech has set up a jetty, on Saurashtra coast (village Kovaya) between Jafrabad and the port of Pipavav (in Pipavav Port area). This captive jetty was built with an intention of taking the company's cement and clinker produced by its plant, to the international buyers for the export market.

This jetty is considered to be important for its cement plant, including of another plant, the Narmada Cement at Jafrabad. The captive berth today handles clinker and bulk cement cargo for outward movement and based on the availability of jetty's space. It then handles coal, gypsum, iron ore and so on, for inward movement for captive use only.

Cement giant, Ambuja currently has a fleet of seven ships with a capacity of 20500 DWT ferries bulk cement by sea and thus sustains cost advantage. The main material, limestone, is usually mined on site while the other minor materials may be mined either on site or in nearby quarries.

Inland waterways

Like sea transport, Inland Water Transport (IWT) too is cheaper, energy efficient, and environmental friendly. Usage of inland waterways relieves traffic burden on other modes. Hence, it would be appropriate to consider inland waterways also with Multi-Modal concept of transportation wherever waterways exist.

The table below shows the inland waterways, which have been declared as National waterways. However, as per information received from Inland Waterway Authority of India (IWAI) currently only three NW 1, 2 and 3 are operational. Fly ash is being exported regularly from Kolkata to Bangladesh for use by cement industry through the operational waterways.

Following aspects have been proposed by the Working Committee headed by PK Chaudhery, on cement industry which may be kept in mind while formulating program for IWT promotion:

  • Essential infrastructure needs to be created at the IWT terminals so as to integrate with other modes of transportations i.e. road and rail.
  • Wherever mode specific concession is applicable, the same may be made for IWT at par with the other modes.
  • If the waterway passes through more than one state, tax needs to be rationalised and collected at a single point.
  • Wherever Port-Hinterland connectivity exists through waterways, Multi-Modal transportation concept may be followed up to the river in ports.

Railways

Apart from the sea route, railways is another mode of transport that the companies opt for. The long transit distance from production centers to the consumption markets further emphasises dependence of cement transportation on railways. As per the Working Group report, 45 per cent of the cement is transported by railways and resultantly rail transport emerges as the best choice.

In the report of the 11th Five Year Plan (2007-12), target of 50 per cent movement of cement by rail was fixed. However, the loading of cement and clinker by rail of has been declining. As compared to the year 2007-08, the cement and clinker transport in 2010-2011 dropped to 35 per cent and 50 per cent, from 38 per cent to 56 percent respectively. With the increasing number of grinding units in the country, the rail coefficient in respect of cement may even go further down, if corrective measures are not taken on an emergent basis.

Recommendations

Non-availability of wagons being a major issue for cement logistics, and will always remain the key issue. Thus, the Working Group on proposes following changes :

Wagon supply agreement

At present, railways do not have any commitment for ensuring timely availability of wagons in requisite numbers. A committed obligation with financial implications on both parties for failure in meeting the obligations can improve the wagon availability. Therefore, railways should enter into annual agreements with cement manufacturers where it should commit to certain number of month-wise supplies of wagons during the year.

Loading of mini rakes (20 wagons) within 400 km

With the current practice of allowance of mini rakes for 200-250 km distance, usability of mini rakes is limited. Thus if the same are allowed for a distance of up to 400 km rail usage shall increase substantially.

Temporary restriction on use of certain railway terminals

It has been observed that whenever there is traffic congestion, railways puts periodic temporary restrictions on use of railway terminals at specific centers. Alot of terminals are put under restriction for use by goods trains on a regular basis which is a major hindrance. Preferential treatment must be given to them if restrictions are necessary to be imposed. Railways need to plan for augmentation of traffic handling capabilities at all such terminals to take care of continuously growing rail traffic.

Revising downward the loading capacity of BCNHL wagons from 68 to 62 tonne

Due to less height of the door of Bogey Covered New metric High Axle Load (BCNHL) wagons, mechanised loading of cement bags up to the declared carrying capacity of 68 tonne per wagon is technically neither practical nor feasible. Thus the user has to pay for 68 tonne per wagon while the actual loading is less than 68 tonne per wagon. Also in current form, if the BCNHL wagons have to be loaded to full-capacity it poses safety issues for the labourers undertaking loading and unloading. Thus railway needs to find possible solutions with the help of technical experts to enable full loading of wagons to their stated capacity. Till such time the solution is found, realistic carrying capacity of 62 tonne per wagon is permitted due to safety reasons of the labourers.

Restoration of shunting time

Shunting time is required wherever loading is not being done in one shunt for one full rake. In such cases wagons should be separated and sent into batches on the loading line and post loading they should be collected for the formation of a single rake for handing over. Currently no separate shunting time is allowed and the time taken for shunting is considered within the allowed free loading/unloading time. A minimum of two hours of shunting time is required to be immediately promulgated by the Indian Railway.

Road

Roads are preferred for shorter distances. The present scenario road carries about 65 per cent of cement freight. Even in case of rail freight, last mile connectivity is ensured by using road transport only. Thus it is paramount to ensure that issues hampering road transport are looked into and addressed as road shall continue to be the backbone of cement distribution.

Following are the issues highlighted by the Working Group which can help improving efficiency of road transport

  • Construction of cement and concrete roads needs to be encouraged for national, state and district highways, city roads and the projects should be funded by Jawaharlal Nehru Urban Renewal Mission, PMGSY etc.
  • For several years, both State and Central Government have been spending thousands of crores every year to find ways to resolve the problems which are of national importance. In spite of this, the pathetic conditions of roads, increasing fuel consumption, colossal outgo of prestigious foreign exchange for import of crude, increasing pollution etc has affected the growth drastically.
  • In the national interest, if techno-economically superior cement and concrete roads are adopted in the country as a Policy, the country will not only get long-lasting and maintenance-free roads for 30-40 years, but also address problems like poor road condition, increasing fuel consumption etc. of the nation, to a large extent, for the rapid growth of the country.
  • Thus, Ministry of Road Transport and Highways (MORTH) needs to communicate to all State Government and local bodies and take up this task to give out at least 50 per cent of their total allocation for construction of cement and concrete roads.
  • Due to the Multi-axle feature of new generation trucks, the carrying capacity of trucks has increased significantly. Also it reduces the wear and tear impact on roads due to its uniform load distribution ability.
  • Thus government needs to amend the Motor Vehicle Act to increase the loading capacity of new generation trucks having Multi Axle features. This shall aid in adding economies and efficiencies to road transport of cement which remains to be the major share-bearer of cement transport.
  • To support cement plants being developed in remote locations, government should ensure faster linking of plant areas with key state/national highways. This will help in faster setting up of plants and efficient logistics of raw material and finished goods.
  • With a lot of highways being operated under toll arrangements, monthly passes scheme needs to be developed and implemented for reducing the toll collection time taken for trucks on such highways. Also lower toll should be made mandatory across all toll roads for return journey happening within 24 hours.
  • At planning stage of all road projects, it needs to be ensured that all major city/town crossings elevated path/flyovers are developed to ensure smooth and faster pass-through of trucks with least disturbance to the local population.
  • Good quality embankments need to be developed along all major roads as this simple step can bring major reduction in time linked deterioration in quality of roads and to avoid road accidents.
  • Rail terminals should be well connected to highways.
  • Major highways connecting important areas should have alternate routes to reduce load on a particular highway.

Looking ahead

Cement industry in India is here to grow and the demand is likely to go up with the month of October showing slight improvement. With the cement plants like JK Lakshmi adding up to their capacity it is obvious that the industry will pick up soon. However with the rising prices of raw materials and fuel the costs are likely to increase. The paucity of the railway wagons will remain the key issue. The Indian cement industry plays a vital role in the development of the nation, thus it is necessary to incentivise bulk transport,optimise cost, save fuel and ensure safe carriage.

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