Gati Shakti National Master, a digital platform plan for multi-modal connectivity, was introduced by the Indian government in order to bring together 16 Ministries, including those for roads and railways, for integrated planning and coordinated implementation of infrastructure connectivity projects. Although this policy is intended to address the development of integrated infrastructure and network planning, the next step is to have a successful logistics ecosystem. As a result, on September 17, 2022, the Indian government unveiled its National Logistics Policy. This policy, which focuses on the infrastructure development initiatives of various agencies, will aid in enhancing logistics efficiency and lowering logistics costs. For smooth movement of people and goods, it will also guarantee connectivity for the first and last mile. The main goals of this policy are to lower logistics costs in India and place it among the top 25 countries in terms of Logistics Performance Index by 2030. Additionally, this policy aims to develop data-driven decision support systems for a successful logistics ecosystem.
Logistic Cost in Cement Sector
We discussed how transportation costs significantly increase overall costs in the Cement Sector report. Since cement is a low-cost, high-volume good, the cost of transportation has a significant impact on the company’s profitability. The major companies listed on the Indian exchanges are represented in the table below with their transportation costs expressed as a percentage of Revenue from Operations.
As we can see, transportation contributes 20% to 25% of total revenue. This table only displays the costs associated with shipping cement, the final product, to the client. Additionally, there is a cost for inbound transportation when receiving goods and raw materials from suppliers to manufacturing plants, such as coal, limestone, and gypsum.
The director of marketing at Bharati Cement Corporation Pvt Ltd, M Ravindra Reddy, stated in a well-known interview that “If we combine both inward and outward logistics, it contributes to more than 35 percent of total cement cost.”
How National Logistics Policy will benefit Cement Sector ?
Cement manufacturers face difficulties with regard to revenue due to the logistics costs for the cement industry. In the recent past, inefficient logistics and higher freight costs caused cement plants to operate at reduced capacity because cement plants located far from limestone plants increased the cost of inward logistics. According to data from 2019, there were about 170 million tonnes of cement production capacity that was not being used, or roughly one-third of the total capacity for cement production.
However, the National Logistics policy solves this problem. One of the target of this policy is to reduce the cost of logistics from 14%-18% of GDP to global best practices of 8% by 2030. The improvement in logistics infrastructure and efficiency in the supply chain will help reduce this major expense. As a result, the profitability in among the cement sector will poise to increase and the idle time of the plant should reduce. Also it is uneconomical to transport this bulk commodity over long distances, which makes it a product of local sales. With the reduced transportation cost, the companies can tap uncovered market thus improving their sales.