There are no signs of road transporters cutting freight rates, despite the recent cut in petrol and diesel prices by the government, say cement manufacturers. This, added to an 8% increase in rail freight charges effective Monday, comes as a double whammy for cement makers.
The cement industry transports approximately 60% of its products by road. Freight costs account for about 18-20% of the operating costs of cement companies. According to experts, diesel prices have increased about 9-10% year-on-year in FY09, which has led to an increase of Rs 1.50-2 per bag of cement this fiscal.
The government had, on December 5, cut petrol and diesel prices by Rs 5 and Rs 2 per litre respectively, with immediate effect. According to Assocham, this will help moderate inflation by 2% in the next eight weeks. However, the cement industry has not yet received any intimation from transporters about a cut in freight rates.
Players like UltraTech, Shree Cement, JK Lakshmi and Binani Cement, whom FE spoke to, said there may or may not be any reduction in freight rates by transporters. HM Bangur, CMD, Shree Cement, said, “We enter into monthly contracts with transporters and hence our new contract will be from January 1, 2009. Freight rates depend on demand and supply. If economic activity increases, transport prices may go up as well.”
Currently, freight charges are about Rs 1.25 per tonne per km, with an average of about 450-500 km for a company.
“The 8% hike in freight rates by the railways at this juncture is unfortunate, given that the government is trying to relax prices to control inflation. Nevertheless, we are negotiating with transporters with respect to the diesel price cut and hope this will help bring down freight charges marginally,” said Shailendra Chouksey, whole time director and CEO, JK Lakshmi Cement.
KC Birla, president and CFO, UltraTech Cement Ltd, said, “We have not received any intimation from transporters about a rate cut as yet. This will, however, not impact prices in a big way.”