A rise in freight charges has seen a drop in cement volumes carried by Indian Railways. In August, cement volumes carried by rail fell 11.8 per cent YoY to 7.52Mt as rail fares saw an increase of as much as 24 per cent.
The Cement Manufacturers Association (CMA) said the decline was prompted partly by the rise in freight rates, although the general decline in the cement market also contributed.
In addition, the cargo does not have to be transported across long distances. "Today, a larger share of cement dispatches take place within 400km of the plant," said NK Pande, a senior deputy secretary at CMA. For shorter distances, road transport is more economical and allows for door-to-door delivery without multiple handling stages as in the case of rail transport. Only if the distance exceeds 700km, cement producers find it more economical to use rail, according to R Sivadasan, former Indian Railways CFO. "Even for certain long-lead dispatches, where return freight traffic is assured, road transport is being preferred for cement, as its overall cost of transportation is cheaper," he added.
The share of the railways in cement transportation has contracted, said Rajesh Kumar Ravi, a Mumbai-based cement analyst with Karvy Stock Broking Ltd. "The fact that the cement industry has grown at the rate of 7-8 per cent in the April-August period this year while volumes transported by the railways have remained almost flat means that cement manufacturers are preferring transportation by road," he said.
Because of regional price variations, cement manufacturers have an incentive to transport cement to adjoining regions and not over longer distances.
