Cement firms to cut logistic costs

The domestic cement industry is making continuous efforts to cut its logistic costs. At a time when the industry is entering into the downside of the cycle, with profit margins coming down to 20-25 per cent from 35-40 per cent, better management of logistics could prove beneficial to the cement manufacturers.

Using more railway routes than roads, shrinking lead distance (distance between the manufacturing facility and market) and opting for sea-routes wherever possible are some of the ways the industry can explore.
 

WEIGHING OPTIONS

• Using more railway routes than roads, shrinking lead distance and opting for sea-routes, wherever, possible are some of the ways the industry can explore

   

The sea-route will drastically reduce the transportation cost from Re 1 per tonne per km by rail and Rs 1.5 per tonne per km by road to 50-70 paise per tonne per km

 

Statistics suggest that less than 40 per cent of the cement produced in the country is being transported by the railway

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 the railway respectively, depending on the distance.

A L Kapur, managing director, Ambuja Cements, said, “Cement is nothing but a logistic business. If you have a perfect transportation model, you are the best cement producer.” The country’s third largest cement maker is opting for sea-routes to transport its cement from Gujarat to southern market.

The sea-route will drastically reduce the transportation cost from Re 1 per tonne per km by rail and Rs 1.5 per tonne per km by road to 50-70 paise per tonne per km.

“Logistics are critical for cement business. We will keep making efforts to keep a check on it,” said D D Rathi, whole-time director of Grasim Industries, country’s fourth largest cement maker.

Shailendra Chouksey, whole-time director, J K Lakshmi Cement, said, “Checking logistic costs is an ongoing process. We have set up a special cell which keeps a watch on it. We are trying to reduce our logistic costs by around 5-7 per cent by optimising the distance of transport.” The average cost of transport for the north-based cement firm is Re 1 per tonne per kilometer.

Statistics suggest that less than 40 per cent of the cement produced in the country is being transported by the railway. Cement makers prefer roads for shorter distances. A K Saraogi, chief financial officer of the Kanpur-based J K Cement, says, “There is a secondary freight involved which is higher for short-distance by the railway.” He said that the company is trying to reduce the lead distance so that the extra cost on transporation is saved. JK Cement’s rail and road ratio is 20:80.

For the ninth plan period, the task force had put a target of 60 per cent cement dispatches to be made through the railway which failed miserably with proportion dipping below 40 per cent.