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Cost efficiency in logistics

Published

11 years ago

October 31, 2012

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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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Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings

Published

2 years ago

October 21, 2021

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Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.

The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.

Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.

Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.

According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.

Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.

Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.

The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.

The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.

The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.

Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.

Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).

According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.

Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).

Source:moneycontrol.com

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Wonder Cement shows journey of cement with new campaign

Published

2 years ago

October 21, 2021

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The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…

ETBrandEquity

Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.

#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.

Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."

The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.

Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."

According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.

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In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)

Published

2 years ago

October 21, 2021

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Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint

Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics

UltraTech Cement
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.

Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.

But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.

The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.

Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.

Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."

Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.

Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.

However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.