Economy & Market

Logistics Untapped potential

Published

7 years ago

January 1, 2020

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There are many elements that can make "Make-in-India" thrive. A sound industrial policy is one of them, and logistics is certainly another. Right now, logistics costs in India are 13-14 per cent! How it can be brought down to 10 per cent or even below? ICR takes a look.

Logistics-moving goods and connecting producers with consumers-is a critical part of the modern economy. India’s logistics sector is highly defragmented and the aim is to reduce the logistics cost from the present 14 per cent of GDP to less than 10 per cent by 2022, according to an update from the Department of Commerce. India’s logistics sector is very complex with more than 20 government agencies, 40 partnering government agencies (PGAs), 37 export promotion councils, 500 certifications, 10,000 commodities, and 160 billion market size. It also involves 12 million employment base, 200 shipping agencies, 36 logistic services, 129 ICDs, 168 CFSs, 50 IT ecosystems and banks and insurance agencies. Further, 81 authorities and 500 certificates are required for EXIM.

India has been grappling with high logistics costs of 16-18 percent to start with making exports uncompetitive vis-a-vis China, which has lower logistic costs of 8-10 per cent, in the US and Europe it is 8-9 per cent while in Japan it is 11 per cent.

Completing the dedicated freight corridor (DFC) project will free up some of the existing railway network for passenger trains. As Procycon Mukherjee points out in his article, the existing rail network has been designed to move passengers and not freight. Therefore, it is need based to have such a kind of project DFC. Appropriate technology will be used to enable Indian railways to regain its market share of freight transport by creating additional capacity and guaranteeing efficient, reliable, safe and cheaper options for mobility to its users. This is one step in the direction of reducing logistic cost.

DFCs: Regaining market share
Currently, the Indian Railways has lost a significant portion of its goods business to the road sector and has hoped that it would be able regain market share once DFC is operational. Some of the positives of DFC, Indian Railways will run freight train at the maximum speed of 100 km/per hour against the current maximum speed of 75 kmph on tracks. The average speed of freight trains will also be increased from existing speed of 26 kmph on Indian Railways lines to 70 kmph on DFC.

The Dedicated Freight Corridor Corporation of India Limited (DFCCIL) is a public sector undertaking corporation run by the Government of India’s Ministry of Railways to undertake planning, development, and mobilisation of financial resources and construction, maintenance and operation of the DFCs. While the western DFC will cover 1,504 km from Jawaharlal Nehru Port Trust near Navi Mumbai to Dadri in Uttar Pradesh through Vadodara-Ahmedabad-Palanpur-Phulera-Rewari, the Eastern DFC covers 1,856 km from Ludhiana in Punjab to Dankuni, near Kolkata in West Bengal, and will traverse the states of Haryana, Uttar Pradesh, Bihar and Jharkhand. The Railways plan to complete more than 60-70 per cent of the work in the two corridors this financial year and make them fully operational by 2021.

The three new DFCs will cover 5,769 km. The preliminary engineering and traffic system study of these corridors has already been completed. After the cabinet approval, DFCCIL-a special purpose vehicle set up in 2006 under the railways ministry?will undertake a detailed project planning including plans for land acquisition. While the East-West Corridor (2,328km) will be built between Kolkata and Mumbai, the North-South Corridor (2,327 km) is planned between Delhi and Chennai and the East Coast Corridor (1,114 km) between Kharagpur and Vijaywada.

Inland waterways: Untapped potential
India is blessed with 7,551 km of coastline and about 14,500 km of navigable inland waterways. Yet this sector has remained neglected despite universal acceptance that transportation through waterways, both coastal and inland, is fuel efficient, environment friendly and more economical than rail and road. Of the navigable inland waterways, 4,503 km are national waterways, the development and maintenance of which is the responsibility of the Indian government and the remaining portion is with state governments.

Using waterways for transporting people and goods is nothing new for India. Until about 100 years ago, the Ganga River was a busy waterway that was used for the movement of commodities such as tea, jute, and spices. But with the coming of the railways, this watercourse fell into disuse. At present, according to a World Bank report, India’s freight movement traverses mainly on roads (65 per cent). Railways come next (27 per cent); waterways account for just (0.5 per cent) of the movement. The freight movement on waterways across countries is also much higher in the West and China than in India: In the US, it’s about 8.3 per cent; in Europe 7 per cent; and in China it is 8.7 per cent. There are several reasons why the Centre is so enthusiastic about the waterways project. According to the World Bank, which is financing the National Waterway Project, the cost to transport one tonne of freight over one km for highways is Rs 2.28. It is Rs 1.41 for railways and Rs 1.19 for waterways. Second, its greener means less polluting.

"As per RITES Report of 2014 on "Integrated National Waterways Transportation Grid", one litre of fuel moves 24 tonne km by road, 95 tonne km on rail and 215 tonne km on inland water transport. Third, ferrying goods via waterways is faster than on congested road and rail networks, which slows the movement of cargo, adding to uncertainties, and increasing the costs of trade. Fourth is the pollution cost of traffic bottlenecks.

While there are several positives of the waterways project, any infrastructure development will have environmental costs, and those must be taken into account while evaluating the benefits of the project. This is because while the main infrastructure [waterway] is naturally available in this case, it needs to be "trained, maintained and upgraded" to ensure that the movement of cargo carriers is possible.

One important aspect of this "training" a waterway is dredging, which is required to ensure that the required water depth is maintained everywhere for the goods carriers to pass.

India has six national waterways: the Allahabad-Haldia stretch of the Ganga river (running through Uttar Pradesh and West Bengal); the Dhubri-Sadiya stretch of the Brahmaputra (Assam); the Kottappuram-Kollam stretch of the West Coast canal along with the Udyogamandal and Champakkara canals (Kerala); the Kakinada-Puducherry stretch along with the designated stretches of the Godavari and Krishna rivers (Andhra Pradesh, Puducherry); the designated stretches of the East Coast canal, the Brahmani river and the Mahanadi delta (Odisha); and the Lakhipur-Bhanga stretch of the Barak river (southern Assam). Ships that can travel freely through sea and river channels were first freed from a few provisions of the Merchant Shipping Act in 2011. Incidentally Merchant Shipping Act regulates the movement of ships in the river and in sea. This relaxation is now being significantly expanded to cover more ships. The changes in the Act on river-sea vessels were aimed at reducing the costs of constructing and operating vessels to encourage coastal shipping, inland water transport and trade. It was also designed to encourage the upgradation of existing inland vessels for coastal operations.

A seamless integration of river-sea trade using coastal ships is expected to provide an alternative means of quick discharge and dispersal of cargo from mother ships docking at big ports and their onward movement by sea to various smaller ports along the coast as well as inland locations. As ships built under the river-sea vessel regulations require very little depth to dock, they can load and unload cargo at smaller ports, which is not possible for bigger ships.

The Sagarmala programme is an initiative by the Ministry of Shipping to promote port-led development in the country through harnessing India’s 7,500 km long coastline, 14,500 km of potentially navigable waterways and strategic location on key international maritime trade routes. Sagarmala’s vision can have a potentially transformative impact on India’s logistics competitiveness and the wider economy.

Road transport and hurdles
There has been a significant increase in the commercial vehicles on the road in the recent times. Increase in commercial vehicles is a reflection of increasing demand for the movement of goods. According to surveys by the Indian Foundation of Transport Research and Training, one in every three trucks in the country is overloaded and they are to blame for 50 per cent of road accidents. In 2011, overloaded trucks accounted for 20 per cent of road accidents and in 2013, around 38,370 people were killed because of these overloaded vehicles.

Most trucks are found overloaded by 25-50 per cent. Senior fellow and coordinator of the Indian Foundation of Transport Research and Training (IFTRT), SP Singh, said: "When a truck is overloaded by 10 per cent, it’s steering and brake control is reduced by 50 and 40 per cent, respectively. Overloading also reduces the productive life of the road by 80 per cent and the productive life of the truck by 30 per cent."

But small-time operators and middlemen who run the majority of the country’s trucks consider overloading a necessary evil. Part of the problem is the industry’s skewed ownership pattern that makes accountability difficult. The problem lay in the lack of implementation of the Motor Vehicles Act. As an example, Singh mentioned the over 260 computerised weighbridges which has not stopped trucks in the capital from getting overloaded.

Around 5,000 cargo operators control the freight movement and only in about 2-3 per cent of the cases do customers access the truck owners directly to book for their goods. S Sriram, the professor of Transport Economics at Mumbai University, attributed the ownership structure to low capital requirements, easily available truck driving licenses, and easy availability of freight. He said the operators regularly loaded their trucks beyond the permissible axle load to maximise each vehicle’s earnings and the consignors of bulk commodities, like fertilisers, steel and cement, overloaded the vehicles in order to get freight service.

It’s a fact that when a truck is overloaded, the control on the steering and brake are reduced. In addition, frequent overloading reduces the productive life of the truck as well as the life of the road. In order to reduce the overloading of trucks and accidents, the Government has taken some major steps. For instance, a high penalty has been proposed in the Road Transport and Safety Bill for those who fail to comply with the new rules, with a suspension of permits for one month upon the first offense and a cancellation of permits if the offense is repeated. But these measurements are not enough to solve the problem as the truck owners or operators are still continuing to load their trucks beyond the permissible axle load to maximise each vehicle’s earnings.

Similarly, the consignors of bulk commodities like fertilizers, steel, and cement, overload the vehicles in order to save on the freight cost. Considering the trip economics, they are willing to pay higher prices to enter the city. In fact, there are a few states that have almost legalised overloading by issuing formal permits; illicit payments mostly clear the way for the vehicles. While there are weighing stations on the highways, it is surprising that many states or cities in India don’t even have check-posts to stop overloaded trucks from entering into the city or a dedicate area such as bridges. So, it appears that the main solution to overloading may lie in the proper implementation and enforcement of the Motor Vehicles Act.

In order to curb overloading, government or transport officers should more aggressively follow the Motor Vehicles Act and take strict actions against the rules violators. With such enforcement of the regulation, we can expect to see lower accidents, a lesser number of casualties and less damage on the Indian roads. All these will lead to higher productivity of the transport companies and that of the logistics sector.

Another problem which is often encountered by the truck operators is so called local truck owners not allowing "outside" truck operators to load consignment at few locations where local truck associations are very strong and classify themselves as local v/s outside. This results in the returning the truck empty after unloading the goods. It leads to waste of fuel and increase in transport cost. Turnaround time of truck is another pain point for easy truck movement. Normally at any factory gate you will find number of trucks parked in hundreds waiting to receive their load. Many factories call the trucks on ad-hoc basis, whereas very few have a system of first in and first out. Use of technology will only improve the scene.

After introduction of GST, crossing the border of a state has become little easy, yet at many places authorities still insist on paper documents creating stoppages to make quick money. Ministry can think of creating flying squads to arrest such harassments.

Rivigo experiment
India needs one million new truck drivers every year for the next 10 years to support the ecosystem and achieve our GDP growth aspiration. It is estimated that India will have 480 drivers for every 1,000 trucks on the road by 2022. The problem is not in the truck driver’s income or skill gaps but is deep-rooted in his terrible lifestyle away from his family. Long periods of absence leading to social disrespect, stigma and a risk perception of the job which makes their families push them to quit their job. Truck drivers play a vital role in freight transportation industry but unfortunately, drivers don’t get their fair share of economic growth. At Rivigo, a start up logistic company is working relentlessly to build a system that strives to improve their socio-economic conditions through couple of measures. It follows relay models that helps over 95 per cent of the pilots (drivers) get back home every day and spend quality time with their families. Rivigo has been an innovator and trend setter in logistics.

This supply demand gap has put pressure on the logistics companies. Every transporter or logistics company cites recruitment and retention of truck drivers as the biggest growth inhibitor for them. This has been also being highlighted in the draft National Logistics Policy council in their latest report.

Relay trucking model
The solution to curb the unprecedented shortage of truck drivers in India is clear -to make truck driving a regular day job using relay trucking. Relay trucking is an operating model innovation where drivers change over after every few hundred kilometres of driving through a network of change-over stops called "relay pit-stops" and then get rostered back to their home base to return to their families every single day. Relay Trucking is better service, more efficient and "Human."

Rivigo has been transforming the sector with their global-first driver relay model and cutting-edge technology to consistently provide unparalleled delivery times and reliability to clients. They are solving the challenges of the logistics industry using technology – be it problems like fuel analytics, route planning, human behaviour analysis or pure-drudgery elimination tasks like auto-alert systems and intelligent decision systems. Their technology obsession has resulted in simple, intuitive technology products gaining quick and easy adoption by the trucking ecosystem stakeholders.

Post demonetisation of high value currency, the logistics industry is grappling with cash shortage which has affected fleet operations across the nation and has crippled the Indian highways. Fleet owners have come to a bottleneck and cash shortage is threatening delivery of goods to consumers and businesses. 90 per cent of trucking spend and 40-50 per cent of the non-trucking logistics spend is rendered in cash.

About 85 per cent of the fleet owners who own less than five trucks spend hard cash towards diesel purchase, which comprises 45-50 per cent of the cost of trucking. Toll charges, which amount to 10-15 per cent of trucking cost and other overheads such as driver wages and vehicle maintenance, are also disbursed in cash. Only EMIs and replacement capex including tyre-related expenses are done to an extent through digital modes such as bank transfers and cheque payments. Overall, road logistics cash spend is estimated to be $100 to $110 billion or Rs 650,000 to 750,000 crore which would easily add up to 40 per cent of the cash in circulation in our economy. This is assuming the multiplier effect of currency that applies both ways, that is, the drivers who now get paid through digital modes will largely continue to spend through digital modes (also enabled by the current push towards cashless economy) Operations in the trucking sector can be made entirely cashless through the use of E-POD to get direct payment transfers from customers, automated bank transfers with the breakthrough same day settlement for brokers, integrated payment solutions with fuel companies for dealer payments and toll payments can be achieved through NHAI initiative on FASTag through RFID tags and wallet solutions. Also, fleet owners can remunerate truck driver wages, reimbursements and incentive payments directly through the Jandhan accounts.

Apart from digitisation and faster turnaround of trucks, cashless trucking economy will bring significant second order benefits. It will ensure less inefficacy owing to proper accounting of cash-related wastages (fuel, toll payments), eliminating instances of kerosene mixing by drivers and poor quality roads" usage to avoid toll cash, which also directly leads to the poor health of the fleet and poses a safety hazard. On the other hand, drivers will face less harassment from RTO and sales tax officers on highways and check posts. It will also improve road safety and adherence to regulations as it is a level playing field for non-compliant and compliant fleet owners, ending overloading and violation of safety norms. Truck drivers, loaders and all the large skill pools can be brought into the mainstream economy and will qualify for loans from financial institutions. Furthermore, it will also ensure employers and contractors pay minimum wages to workers in this sector. Lack of in-hand cash will reduce instances of substance abuse (including alcohol) and negatively impact the commercial sex worker trade on the highways which often leads to contraction of HIV amongst truck drivers.

There is short term pain to the sector due to lack of cash but in the long term, it can turn around the sector completely by making it efficient and safer and contribute significantly in making India cashless.

Now coming to cement specific, where subject is little different. In cement around 30 per cent cost is incurred on logistics, which is substantially higher than the general industry norms. There is enough scope to bring it down and companies like Shree Cement are setting an example. Cement plants need to make extensive use of technology to bring down the cost. In many places cement plant uses a mixed model of railways and road for dispatch of cement but there are few locations like Gagal (Burmana) where only road movement is possible since rail head is absent. Many of the hurdles explained above are quite pronounced in cement industry and need to be tackled on war footing. Taking advantage of present economic slowdown, there can’t be better time to undertake such initiatives.

– VIKAS DAMLE

Economy & Market

From First Mile to Last Mile

Published

1 hour ago

September 28, 2026

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Praveen Vashistha, Founder, Gxpress Solutions, speaks about building a holistic logistics network that encompasses latest technology and current challenges faced by logistics service providers.

Logistics may seem to only entail transporting a package from one location to another. However, there is more to this term than just that. Logistics refers to the entire process of controlling all movement, transfers and decisions in the correct way at the right time and cost and with the desired level of visibility.

People nowadays want to receive more than just the delivery. They want quick, efficient, reliable and transparent logistics service. On the other hand, companies are facing higher operating costs, broken supply chains, congested cities, changing habits of consumers and growing complexity of logistics services. In this situation, a full logistics package is gaining importance not only as a competitive advantage but also as a necessity for a successful business.

The main challenge lies in uniting the first mile, the middle mile and the last mile into one seamless process.

The journey begins before the package moves

First-mile logistics may be the least recognised part of the logistics chain, but they have a crucial influence on all that follows.

This stage starts from the moment the shipment leaves the manufacturer, supplier, farm, warehouse or distribution centre. Depending on the industry, first-mile logistics may involve grouping shipments from multiple suppliers, compiling paperwork and checking the inventory before sending the shipments to a central hub.

Flaws in first-mile logistics produce effects later down the supply chain. Delays in cargo pickup can affect warehouse operations; improper packaging can damage goods in transit; and incorrect inventory information may cause stockholding or unnecessary replenishments.

This is why building a reliable network involves simplifying the operations done at the beginning of the supply chain.

Companies require accurate demand forecasts, supplier visibility, standard procedures, and software to capture information from the moment a shipment enters the supply chain. Route planning and fleet management are also important at this stage, especially as it may involve contacting multiple suppliers.

The main goal is simply to make the first mile predictable.

The middle mile: Where scale meets complexity

When products leave the original site, they travel through the ‘middle mile,’ which connects fulfilment centres, warehouses, sorting centres, and regional distribution points. In this phase, logistics networks begin operating on a large scale. A shipment can pass through several facilities before reaching the final destination. Each additional transfer entails the risk of delay or damage and information losses. Accordingly, the ideal solution is not to minimise the number of transfers but rather to optimise them. The use of hub-and-spoke networks, regional distribution centres, and strategically placed distribution centres can help companies shorten transportation routes and optimise distribution costs. Besides, data can be used to determine the optimal placement of inventories.

For instance, a retailer may find that it takes more time and is more expensive to deliver goods to customers if everything is stored in a central warehouse. Meanwhile, regional distribution helps meet the customer’s needs quicker and more efficiently.

The last mile is where the customer judges you

When it comes to the logistics experience, the customer experience comes down to the delivery. While the last mile might comprise a small part of the entire journey in actual distance, it could also entail expensive and difficult processes. Delivery runs through densely populated cities, through traffic jams, through unsuccessful delivery attempts, and through changing consumer preferences and narrowed time frames.

Customers want to have control over their delivery. Delivery means that customers expect to know the exact moment when their order is delivered. They need to receive current updates about their orders and the ability to decide whether they want scheduled deliveries, or whether they want their order to be dropped off at a designated location far from their house.

As a result, last-mile logistics must incorporate both efficiency and experience. The technology may be used to ensure timely and accurate delivery, through such products as route optimisation and real-time delivery tracking.

However, technology is not enough to guarantee success in terms of last-mile delivery. Knowledge of the local area is still an important aspect that contributes to successful delivery.

One network, not three separate operations

First, the common mistake that organisations can make is treating the first mile, the middle, and the last mile separately.

An effective first mile of logistics does not matter much if the shipment waits in a hub for many hours. A perfectly working warehouse does not make a happy customer if the last-mile delivery fails. Therefore, even the fastest last-mile delivery can become an expensive operation if the supply is not well geographically positioned.

The three moments should work together as one whole system.

This implies having a common view on inventory, transport capacities, shipment statuses and demand. The Transportation Management System, Warehouse Management System and order management system should give information to each other instead of acting like separate islands.

That is where real-time information comes into play!

If something happens, such as a vehicle gets delayed, the company has to know that from the start. If not, someone from Customer Service should be informed about the situation.

Visibility is the new infrastructure

Previously, companies had to rely on physical assets, such as warehouses, trucks, and sorting facilities, to create their logistics networks. Today, they have an additional layer of technology providing visibility.

Command-and-control systems now include GPS tracking, Internet of Things devices, bar-coding, RFID, cloud computing, artificial intelligence, and analytics, which allow companies to know what the goods are doing, how well they are doing, and what is going to happen next.

Predictive analytics reveal possible delays. AI-powered forecasting increases availability. Digital dashboards enable the manager to monitor all operations in one place. The efficiency of such technologies is not measured in the amount of information they gather, but rather in their capability of converting data into knowledge.

Logistics managers should be able to answer the following questions: Where is it? When is it supposed to arrive? What causes the delay? What impact does it have? Can it be delivered some other way? How much will it cost?

The sooner the answers are given, the more resilient the logistics system is.

Resilience must be designed into the network

The events of recent years have highlighted the vulnerability of interconnected supply chains. Geopolitical tensions, bad weather, a lack of labour, poorly developed infrastructure and an unexpected spike in demand are some events that can cause problems for logistics systems without prior notice. Thus, companies should create an end-to-end network not just for normal times but also capable of functioning quickly in problematic situations. In order to create such a network, it is necessary to find alternative suppliers, use several means of transportation, create several routes of delivery, and establish inventory. It is also important to use scenario planning to define what to do if the main hub becomes unavailable or any means of transportation is blocked.

Sustainability: Part of the delivery equation

The future of logistics will also be shaped by environmental considerations.

As delivery volumes rise, businesses are under increasing pressure to reduce emissions without compromising service. Better route planning, load optimisation, electric vehicles, alternative fuels, renewable-energy-powered warehouses and consolidated deliveries can all contribute. The most sustainable shipment is often the one that does not require unnecessary movement in the first place.

Better demand forecasting and inventory placement can reduce empty miles and avoid repeated transportation. Consolidating deliveries can improve vehicle utilisation. Reverse logistics can ensure that products, packaging and materials return efficiently instead of becoming waste.

Sustainability, therefore, should not be treated as a separate initiative. It should be incorporated into network design itself.

The future belongs to connected logistics

An end-to-end logistics network ultimately seeks to close existing gaps between various processes.

Every mile of the process should be interconnected with the other miles. Warehouses should be aware of the restraints imposed by transportation. Delivery crews should be able to know at every moment the inventory at their disposal. Clients must have access to this useful information.

Companies that will be successful in this area will not necessarily be the ones with the biggest fleets or the most warehouses. They will simply be the ones that can employ their resources in the most effective manner.

The future of logistics will be represented by an ecosystem consisting of the combination of the physical aspect, digital intelligence, and personnel decisions. Every mile in the process of delivery is important. However, the key advantage here is getting those miles to work together.

For companies, it means having minimal resistance, enhancing their efficiency and improving customer care. For clients, it means simply having the right product delivered at the right time.

About the author: Praveen Vashistha, Founder, Gxpress Solutions,

Concrete

UltraTech Cement expands green logistics with 600+ electric truck fleet

Published

4 weeks ago

September 3, 2026

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The e-truck fleet will be used to transport five million MT of clinker and other key materials with potential of over 1,17,000 tonnes of net annual CO₂ reduction, displacing the equivalent of 39 million litres of diesel per year.

Mumbai

UltraTech Cement Limited, an Aditya Birla Group company and the world’s largest cement company by sales volume and capacity outside China, has announced that it will scale up its electric vehicle fleet in its logistics operations to 600+ EV trucks by December 2026.

UltraTech has signed service contracts with leading EV prime mover manufacturers including Tata Motors, Ashok Leyland, IPLTech, Energy in Motion and Sany, along with their subsidiaries and other third-party logistics providers, to deploy EV trucks.

The total fleet of 600+ EV trucks will transport about five million MT of clinker and other key materials per annum across Gujarat, Uttar Pradesh, Madhya Pradesh, Rajasthan, Chhattisgarh, Maharashtra and Odisha. Once fully operational, this fleet of over 600 EV trucks will enable a net annual CO₂ reduction of more than 1,17,000 tonnes, displacing the equivalent of 39 million litres of diesel per year.

K C Jhanwar, Managing Director, UltraTech Cement Limited, said, “UltraTech is expanding sustainability beyond its plants by adopting greener logistics solutions. This large-scale transition to green logistics underscores our focus on decarbonising every link of our value chain and supports our commitment to achieving Net Zero.”

UltraTech has been a pioneer in advancing sustainable transport in the cement sector, being the first cement company to deploy heavy-duty electric trucks for long-haul transport of clinker and other materials at scale. The company was among the first in India to introduce green logistics, deploying CNG trucks in 2021 and electric trucks in 2024. UltraTech currently operates 850+ trucks as part of its green logistics operations, including CNG and electric trucks.

UltraTech, with a grey cement capacity of over 200 MTPA in India, operates one of the country’s most complex logistics networks. Its electrification strategy covers the entire supply chain—from mine-to-plant movement to inter-plant transport of clinker and other key materials.

The $ 10 billion UltraTech, the cement flagship company of the Aditya Birla Group, has a total Grey Cement capacity of 205.5 MTPA and White Cement/Putty capacity of 3.2 MTPA. It is a signatory to the GCCA Climate Ambition 2050 and has committed to the Net Zero Concrete roadmap announced by GCCA.

Concrete

Protect Your Margins

Published

1 month ago

August 28, 2026

admin

In a research-backed article, Dr SB Hegde examines why carbon-adjusted profitability and LC3 will decide the next set of winners in cement manufacturing.

The Indian cement industry has achieved world-class operational efficiency through lower specific energy consumption, high plant utilisation and a reduced average clinker factor of approximately 67.5 per cent. These traditional measures of operational excellence remain essential. However, they are no longer sufficient. Carbon now carries a measurable financial cost under India’s Carbon Credit Trading Scheme (CCTS) and under European carbon markets. Future leadership will be defined by carbon-adjusted profitability, the ability to generate strong returns while systematically lowering the carbon intensity of every ton sold.
Limestone calcined clay cement (LC3) offers a practical, scalable pathway to achieve this dual objective. By replacing up to 50 per cent of clinker with calcined clay and limestone, LC3 can reduce CO2 emissions by 30–40 per cent while delivering comparable or superior durability performance.
This article examines the technical foundations of LC3, European industrial practices, the emerging Indian carbon market and a concrete roadmap for Indian companies to embed carbon-adjusted metrics and LC3 into daily operations, incentives and commercial strategy.

Limits of traditional operational excellence
For many years, plant performance has been judged primarily by five indicators: specific heat consumption, specific power consumption, kiln and mill utilisation, clinker factor and overall equipment effectiveness. These metrics drove continuous improvement and helped the industry reduce energy use and increase the share of blended cement. Three structural changes have rendered them incomplete as sole measures of success.
First, carbon now carries a real or opportunity cost. Plants that improve volume or lower cash cost while raising or stagnating emissions intensity create a hidden liability that will surface as CCTS trading matures and as green procurement expands.
Second, lower-carbon products such as LC3 and high-performance blended cements are creating differentiated market segments. Customers in infrastructure, real estate and export-oriented construction are beginning to specify embodied-carbon limits.
Third, investors and lenders increasingly treat carbon intensity as a financial risk factor. Traditional KPIs can mask the divergence between short-term cash profit and long-term carbon-adjusted value.

What is carbon-adjusted profitability?
Carbon-adjusted profitability evaluates normal profit after explicit adjustment for carbon performance. A practical expression is:
Carbon-Adjusted EBITDA = Conventional EBITDA – Carbon Cost + Green Premium Income
Carbon cost may be an internal carbon price, the actual cost of purchasing Carbon Credit Certificates under CCTS, or the opportunity cost of high emissions relative to peers. Green premium income arises when customers pay more for verified lower-carbon cement or when the company sells surplus credits. Tracking both conventional and carbon-adjusted profit side-by-side gives management a clearer picture of value creation under evolving market rules.

Table 1. Traditional KPIs versus Carbon-Adjusted Leadership Metrics
Traditional Focus New Leadership Metric Why It Matters
Specific energy consumption Emissions intensity (kg CO2/t cement) Directly linked to future CCTS and CBAM costs
Kiln utilisation Carbon-adjusted contribution margin Reveals true value of incremental volume
Clinker factor Share of lower-carbon products sold (incl. LC3) Measures commercial success of the transition
Power cost per tonne Effective carbon cost per tonne sold Expose hidden liabilities
Absolute EBITDA Carbon-adjusted EBITDA + green premium Aligning profit with future market reality

LC3: Technical foundations and performance advantages
LC3 is a ternary blended cement that typically combines approximately 50 per cent clinker, 30 per cent calcined clay, 15 per cent limestone and 5 per cent gypsum (the classic LC3-50 formulation). The decisive technical advantage is that clay is calcined at 700–850 °C, far below the 1,450 °C required for clinker production. This lower temperature, together with the substantial reduction in clinker content, delivers CO2 reductions of 30–40 per cent relative to ordinary Portland cement (OPC).
Chemistry is synergistic. Calcined kaolinitic clay (metakaolin) reacts with calcium hydroxide from clinker hydration and with limestone to form additional C-A-S-H gel and carboaluminate phases. These phases densify the microstructure, reduce porosity and improve durability.
Field experience shows superior resistance to chloride ingress, sulphate attack and alkali–silica reaction. Early-age strength can match OPC with high-reactivity clays; later-age strengths routinely meet 42.5 and 52.5 grade requirements.
Importantly, LC3 does not require high-purity kaolin. Clays with 40 per cent or even lower kaolinite content can be activated successfully, expanding raw-material availability across India. Calcination can use adapted rotary kilns or dedicated flash calciners, making the technology compatible with existing plant infrastructure and far less capital-intensive than carbon capture.
Economic analyses show that LC3 can be produced at equal or lower cost than OPC in many locations because of reduced energy demand and cheaper clay. Life-cycle assessments consistently report 30–40 per cent lower embodied CO2 per tonne of cement.
Table 2. Comparative profile: OPC versus LC3-50
Parameter OPC LC3-50
Typical clinker content ~95 per cent ~50 per cent
CO2 emissions (relative) Baseline (≈0.85 t CO2/t cement process + fuel) 30–40 per cent lower
Clay calcination temperature Not applicable 700–850 °C
Key hydration products C-S-H, portlandite, ettringite C-A-S-H + carboaluminates
Chloride & sulphate resistance Good Superior
Production cost potential Baseline Equal or lower in most locations
Infrastructure compatibility Existing High (minor adaptations)

In India, commercial adoption has begun in earnest. JK Cement commenced the first commercial production of LC3 in the Indian subcontinent at its Mangrol plant in Rajasthan in 2025 under BIS standard IS 18189.
By early 2026, approximately 2,000 tonnes had been produced and sold, avoiding an estimated 500 tonnes of CO2. JK Lakshmi Cement followed with commercial launch of its Green PRO LC3 grade from the Jaykaypuram plant. As of mid-2026, two producers are supplying LC3 to the market. The first large-scale infrastructure application is the Noida International Airport (Jewar), where LC3 was used in the runway and a building complex, demonstrating full constructability and performance under demanding conditions. These early volumes are still small relative to national cement demand, but they mark the critical transition from pilot to commercial reality. Companies that scale capacity now will be positioned to capture both CCTS credits and emerging green-procurement demand.

Why the shift is accelerating
According to the World Bank’s State and Trends of Carbon Pricing 2026, direct carbon pricing now covers nearly 30 per cent of global greenhouse-gas emissions and generated more than US$107 billion in public revenue in 2025. The average global carbon price stands at approximately US$21 per tonne, although regional prices vary widely.
In Europe, the EU ETS price has traded near €80–85 per tonen in mid-2026. Free allocation for cement is being withdrawn in parallel with CBAM. European producers therefore face a clear signal: every tonne of avoided CO2 improves both compliance and competitiveness. Holcim has scaled calcined-clay production, including Europe’s first dedicated line at Saint-Pierre-la-Cour (France) and a second line in the Czech Republic (2026). Heidelberg Materials, Cementir (FUTURECEM) and others have commercialised low-clinker calcined-clay blends across multiple markets, showing that carbon-adjusted profitability is already reshaping capital allocation in the world’s most mature carbon market.India’s CCTS is now operational. Binding emission intensity targets apply to 186 cement facilities for FY 2025–26 and FY 2026–27. Average required reductions for integrated plants are modest (around 2.7 per cent by FY 2027), yet the direction is clear.
Trading of Carbon Credit Certificates is expected in the second half of 2026, with early prices likely in the `800–1,500 per tonne range. Plants that outperform targets can sell credits; those that underperform must buy them or face compensation. Cement is well positioned to be a net supplier of credits if clinker factor continues to fall through LC3 and other low-clinker systems.

Way forward for India
India starts from a strong baseline, world-class energy efficiency and a clinker factor already lower than the global average. The next competitive frontier is the deliberate reduction of process emissions through clinker substitution at scale. LC3 is uniquely suited to Indian conditions because suitable clays are widely distributed, the technology fits existing kiln and grinding infrastructure, and the resulting product can meet the performance demands of both infrastructure and building construction.
A practical national pathway contains five interlocking elements:

Standards and acceptance: Accelerated finalisation and promotion of BIS specifications for calcined-clay and limestone–calcined-clay cements will remove a key barrier to commercial uptake. Alignment with European practice (EN 197-5) can facilitate knowledge transfer and export readiness.
Supply-chain development: Investment in flash calcination capacity and systematic characterisation of regional clay deposits will secure reliable, low-cost feedstock. Existing rotary kilns can be adapted for initial volumes while dedicated calciners are built.
Incentive alignment: Part of variable compensation for plant managers, sales teams and senior leadership should be linked to emissions intensity reduction and to the volume of lower-carbon products (including LC3) sold. Without this link, traditional volume and cost targets will continue to dominate behaviour.
Product-level carbon accounting: Reliable measurement of emissions intensity at the individual cement grade level, supported by third-party verification where required, is essential for both CCTS compliance and credible green claims.
Demand-side pull: Green public procurement policies that specify maximum embodied-carbon thresholds for major infrastructure projects will create a predictable market for LC3 and other low-carbon cements, accelerating scale and cost reduction.
Companies that treat LC3 as a strategic product line rather than a niche offering will be better positioned to generate surplus Carbon Credit Certificates, capture any emerging green premium, and protect margins as carbon costs rise.

Organisational changes required
Technical capability alone is insufficient. Three organisational shifts are required.
Daily management: Emissions intensity must appear on the same daily and monthly dashboards as heat consumption, power consumption and utilization. Plant reviews should examine both conventional and carbon-adjusted results.
Incentives: A meaningful portion of bonuses for plant heads, technical teams and sales leadership should be tied to lower emissions intensity and successful commercialisation of LC3 and other low-carbon grades.
Commercial approach: Sales teams need clear volume and pricing targets for lower-carbon products, supported by technical service that helps customers specify and place the material correctly. Without commercial pull, excellent technical performance remains under-utilised.

Table 3. Three-stage roadmap to carbon-adjusted profitability
Time Horizon Priority Actions Expected Outcome
Next 12 months Add emissions intensity to plant dashboards; establish internal carbon price; initiate LC3 pilot production and customer trials Visibility and early organisational learning
12–24 months Revise incentive systems; scale LC3 and other low-carbon grades to key accounts; secure third-party verification capability People and sales aligned with carbon goals
24–36 months Embed carbon-adjusted metrics in board reporting and capital allocation; expand calcined-clay capacity Full system integration and competitive advantage

Questions senior leaders should ask
Boards can accelerate the transition by insisting on answers to a short list of questions:
• Is our carbon-adjusted profit improving, stable or declining relative to conventional EBITDA?
• Did recent volume growth improve or worsen our emissions intensity?
• What share of sales already comes from lower-carbon products, including LC3, and what is the trajectory?
• How exposed is our capital expenditure plan to rising carbon costs under CCTS and potential CBAM-related requirements?
• Do our incentive systems still reward only volume and cost, or have they been updated to include carbon performance?
Treating carbon with the same seriousness as energy cost or kiln utilization does not diminish operational excellence; it expands the definition of excellence to match the new competitive reality.

Looking ahead
By 2030 the gap between leading and lagging cement companies will not be decided by who records the lowest specific heat consumption. It will be decided by who delivers the strongest carbon-adjusted profits.
Absolute emissions may still rise as national production grows. That is not the issue. Companies that reduce intensity year after year and successfully sell cleaner products will pull ahead in both domestic and export markets. Those that do not will fall behind, even if their traditional efficiency numbers look strong.
Operational excellence built the Indian cement industry. It remains the foundation. It is no longer the complete picture. Carbon-adjusted profitability is the clearer measure of success.
LC3 is not a distant technology. It is available now. It cuts CO3 by 30–40 per cent, works with existing plants, and is already in commercial production in India. Companies that treat it as a strategic product, not a pilot, will protect their margins and generate tradable credits.
Leaders who act now will place carbon metrics on daily dashboards, link incentives to intensity reduction and LC3 sales, invest in calcined-clay capacity, and build commercial capability to sell lower-carbon products. They will shape the next chapter of the industry.

References

World Bank. (2026). State and Trends of Carbon Pricing 2026. Washington, DC: World Bank Group.
International Carbon Action Partnership (ICAP). (2026). India Carbon Credit Trading Scheme – Status and Coverage. Berlin: ICAP.
Ministry of Environment, Forest and Climate Change / Bureau of Energy Efficiency. (2025). Greenhouse Gases Emission Intensity Target Rules, 2025. New Delhi: Government of India.
Scrivener, K., Martirena, F., Bishnoi, S., & Maity, S. (2018). Calcined clay limestone cements (LC3). Cement and Concrete Research, 114, 49–56.
RMI. (2024). The Business Case for LC3. Rocky Mountain Institute.
European Commission. (2026). EU Emissions Trading System – Allowance Price Data and Free Allocation Phase-out Schedule. Brussels.
Holcim. (2025–2026). Scaling Calcined Clay for Sustainable Building – Corporate Updates on European and Latin American Capacity. Zurich: Holcim Ltd.
LC3 Project / EPFL. (2026). LC3 – A Guide to Best Practices for Scalable, Affordable and Sustainable Low-Carbon Building. Lausanne: École Polytechnique Fédérale de Lausanne.
Business Today / Industry Reports. (2026). First Large-Scale LC3 Application at Noida International Airport, Jewar. New Delhi.
NITI Aayog / Industry Analyses. (2026). Roadmap and Baseline Performance Indicators for the Indian Cement Sector. New Delhi.
Springer / Innovative Infrastructure Solutions. (2026). LC3 Systems: A Review of Chemistry, Performance, Durability and Sustainability toward Market Adoption.
Cementir Holding / Industry Sources. (2025–2026). FUTURECEM and Related Low-Clinker Technologies in Europe.
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EN 197-5:2021. Cement – Part 5: Portland-composite cement CEM II/C-M and Composite cement CEM VI. European Committee for Standardization.