Indian Railways has increased the freight classification for cement, coal and petcoke to 150 from 140. This means an increase of 7-8% in freight costs for cement companies. If cement companies decide to pass on the cost increase to consumers, a price hike of between Rs 1 and Rs 2.50 per bag is likely.
Railways’ move comes three months before the next budget. Industry body Cement Manufacturers’ Association (CMA) had asked the commerce and industries ministry and Indian Railways to bring cement under freight classification 130 in the next budget.The industry transports 39% of cement through the railways and 59% through roadways. However, this percentage varies from one company to another depending on its requirements. The average freight cost for transportation through rail is Rs 600-700 per one-tonne bag.
HM Bangur, president of the CMA and managing director of Kolkata-based Shree Cement, said, "Right now, mobilisation through the rail route is coming down and if the Indian Railways is increasing rates, we will have to organise trucks and other resources to shift the cost burden. The new despatches will happen three months later. We will see then how much can be shifted to roadways."
He said that the industry wants prices reduced. "But if we are charged 7-8% more, we will be forced to hike cement prices by Rs 2.50 per bag," Bangur added.
Shree Cement transports 25-30% of its cement capacity through railways for supply to the northern region. Bangur said that the move would add further pressure to the already ailing cement industry. "We are surprised that the government has put cement under classification 150 when we have been demanding it under classification 130 so we can reduce prices for consumers. We will speak to government and see what can be done," Bangur said.
The Kanpur-based JK Cement, which holds 8.3% of the market share in the northern region, transports 20% of its cement capacity through railways. AK Saraogi, chief financial officer, JK Cement, said, "We will rework our movement strategy to reduce input costs. The increase of 7-8% has to be borne by the company but we will pass on the price hike later to the consumer."
Cement biggie Grasim and its group subsidiary UltraTech transport about 55% of their cement capacity through railways. A senior official of the group said, "The cost increase would be around Re 1 per bag. At present, there is no question of passing on the burden to the consumer." One way out for many companies could be a shift to the road route from the rail route for shorter distances. JK Lakshmi Cement, which holds 5.2% of the northern zone’s market share, is looking at roadways as petroleum prices are expected to come down in the near future. Shailendra Chouksey, whole-time director and CEO, said, "We transport over 50% by rail. After the change in the classification, the increase in freight rates would be around Rs 40-70 per tonne, which means an increase of Rs 2.50 per bag."
Chouksey said the company would take a relook at destinations that can be covered by road. "It is cheaper for shorter distances," he said. JK Lakshmi uses the railways to moves cement to Mumbai, Punjab, Uttar Pradesh and Delhi and the road route