Growth of cement demand in India is expected to be in double digits by the end of this fiscal. Till August this year, the industry had clocked growth of 14.66% according to the Department of Industrial Policy & Promotion (DIPP) data. For an industry which holds a 10% share of the global market, and is the third largest volume product loader of the Indian Railways, a high demand profile builds a case for multi-modal options for transport.
The industry’s transport intensive nature is driven by its inherent requirement to move raw materials as well as finished goods. Inward movement of input materials such as coal, gypsum, slag and limestone and outward movement of the finished product to consumption centres builds a huge demand for transportation. In addition, some prime raw materials such as cement grade limestone are available at limited locations in the country, which add to the transportation segment of the bill of materials. Little wonder then that transportation comprises about 20% of the retail price of cement.
Transportation comprises about 20% of the retail price of cement.
The industry’s logistics requirements have noted a changing trend in terms of popularity. Rail, which is considered to be the most economical and therefore logical form of transport, has been losing market share to road transport. Even though cement is the second largest revenue source for the Indian Railways, contributing US$1.2 billion per annum in freight revenue, its share in cement loading has documented a downward trend over the last few years.
Source: Ernst & Young, Indian Railways
Share of Rail Transport for cement loading is on a decline moving from 32% in 2011-12 to about 23% in 2018-19.
In order to incentivise the cement industry to use the Railways, the government has announced several schemes for cement transport. These include Long Term Tariff Contract Scheme; Freight Incentive Scheme for loading bagged consignments in open and flat wagons; Incentive Scheme for Auto Traditional Empty Flow Directions and General Purpose Wagon Investment Scheme. Last year, several cement manufacturers signed long term freight contracts with the Indian Railways to get preference in allotment of rakes and also to cut operating costs.
The impact of the move was visible in the 2017-18 numbers. Indian Railways recorded its highest ever total (cement and clinker) loading of 114 mt in a year and highest ever incremental loading at 9.26% in 2017-18.
The rise in road transportation share has picked up from 36% of total despatches in the 80s to over 65% now. A majority of cement plants now have their own fleet of trucks and could benefit from government’s enhancement of road infrastructure.
Also, the cement industry is keen on promoting bulk loading of cement and fly-ash for more efficient handling leading to faster loading as well as evacuation, thus improving turnaround time. It offers advantages such as reduction is loss of cement, no seepage due to multiple handling or bag bursts. Besides bulk wagons carry 40-50% more cement.
Indian Railways recorded its highest ever total (cement and clinker) loading of 114 mt in a year and highest ever incremental loading at 9.26% in 2017-18.
Rail: The Indian cement industry will gain from positive moves by Indian Railways to ease movement of goods, be it raw materials or the finished product. The development of mega stations worth Rs 1 billion, along with dedicated freight corridor projects would be useful in smoothening cement logistics. Work on the re-development of 400 railway stations into world-class facilities at a cost of Rs 96,000 crore has already started with the commissioning of work on Gomti Nagar Station; while work on other stations, such as Thane, Lucknow, Kota, Nellore, Ernakulam, Madgaon, Delhi Sarai Rohilla and Puducherry are next in line.
Road: The Government has approved the Rs 6.92 lakh crore 83,677 km ultra mega road and highways plan that includes 34,800 km of Bharatmala Pariyojana, that will cover 500 districts from the current 300, thereby aiming to raise the number of corridors to 50 from the current six, moving 80% of the freight traffic to national highways from 40% currently, by connecting 24 logistics parks, 66 inter-corridors, 116 feeder routes and seven North-East multi-modal waterway ports.
The government offers a transport subsidy scheme ranging between 50% and 90% of transport cost for transportation of raw material and finished goods to and from the location of the unit and the designated rail‐head. The scheme is valid in the Northeastern states, Jammu & Kashmi and union territories.
Cement manufacturers are signing long-term freight contracts with Indian Railways in droves, a development that would help the transporter reverse the recent trend of a decline in cement loading and allow manufacturers of the binder to cut operating costs significantly.