Why Freight Cost is High in The Cement Industry

The cement industry in India experiences several challenges in managing its supply chain systems and freight cost optimization. One of the biggest challenges cement manufacturers in India’s face is higher freight expenses compared to other developed countries. 

Additionally, low investments in technology solutions and digitization leads to less progress made by this industry. Improving business logistics operations workflow and costs with the adoption of technology framework is the need of the hour. 

This blog post highlights a detailed overview of a few primary reasons that led to the rise in freight costs in the cement industry, and how to reduce transportation cost in logistics.

A Detailed Analysis of Higher Freight Cost Challenge in The Cement Industry

The cement industry runs on thin margins, and the wave of high freight costs in recent years raises a significant challenge to this sector. The cost of transporting cement comprises a substantial portion of the total cost of cement. 

Here is a detailed analysis of the rising in freight cost challenge and how to reduce logistics costs:

Demand Variability

The demand for cement is often highly variable due to factors including seasonality, economic growth, the construction cycle, and government policy. Thus demand variability and seasonality poses a challenge to managing freight costs. 

When demand is high, cement producers pay a premium on freight services due to increased demand for transportation. 

In contrast, when the demand for cement is low, transportation resources might be underutilized, which leads to higher per-unit transport costs. 

Simply put, demand variability leads to cost inefficiency and increased freight costs.

Shortage of Truck Availability

The cement industry greatly relies on trucks for transport. A shortage of trucks leads to transportation delays from the production facilities to the final terminus, which in turn could result in lost sales or high shipping charges, both of which add to costs. 

This shortage could be a result of several factors, such as a boom in the economy, shortages of truck transporters, or even global disruptions which affect the entire supply chain.

Unreliable Transporters

Unreliable transporters are another significant challenge that leads to high freight costs in the cement industry. If a transporter fails to maintain the predefined time of loading or unloading, it can create problems in the entire logistics life cycle. 

Rising Fuel and Toll Costs

The cost of fuel is a substantial component of freight costs in the cement industry. With the rise in fuel prices, freight carriers commonly shift these costs onto their buyers, leading to higher freight costs for cement producers. 

The same applies to toll costs, which are a standard element of road transportation. Any growth in toll costs can greatly affect the total cost of road freight, adding to the overall freight costs in the cement industry.

What Are Organizations Doing to Save on Freight Costs?

Organizations are taking several measures for logistics cost control in the cement industry and as a whole. Here is a sneak peek of those crucial steps that can help you understand how to reduce transportation cost in logistics.

Onboarding New Transporters

It is divided into the following:

• Diverse Vendor Pool: Onboarding new transporters offers an opportunity of choosing freight carriers from a wider pool. Eventually, it creates a competitive environment, which can help to reduce shipping costs.

• Specialized Services: New transporters might offer specialized services or routes that lead to more efficient or cost-effective transport options.

• Risk Management: Having multiple transporters eliminates the dependence on a single service provider, thus reducing risks associated with problems such as strikes or capacity constraints.

Negotiation Pricing With Existing Vendors

It is divided into the following:

• Leverage Volume: Enterprises can negotiate prices by leveraging their shipment volume allows enterprises to negotiate prices. By promising a good business to a carrier, the organization can often achieve more favorable rates.

• Long-term Contracts: Long-term contracts usually benefit both the carrier and the organization. Such contracts offer security for the carrier and the possibility of reducing freight costs for the organization.

• Reevaluation of Services: A regular revaluation and negotiation of contracts ensure that the organization is getting the best possible deal and that the services provided align with the organization’s predefined needs.

Improving Internal Efficiencies

It is divided into the following:

• Process Optimization: This includes the entire lifecycle, from better route planning to more effective coordination of shipments. By detecting and improving inefficiencies in these areas, enterprises can often recognize significant cost savings.

• Technology Integration: Businesses can also improve efficiency by implementing technologies, such as logistics and supply chain management software, which helps with optimizing routes, managing inventory more efficiently, and providing greater visibility into the shipping process.

Plugging Leakage in Their Systems

It is divided into the following:

• Audit and Review: Frequent audits and reviews of the logistics and freight process helps in detecting areas where investment is being wasted. This could include not required or duplicated services, inaccurate freight charges, or inefficient processes.

• Accountability and Training: Ensuring accountability and training to employees specific to their role in the logistics process helps in preventing wastage and reducing costs.

Several organizations believe that by adopting these strategies, they can manage and reduce shipping costs. But results for many enterprises didn’t come out as expected.

Fretron Tech Framework Comes Into Play

Fretron tech solutions has segmented challenges into two broad categories to find out the best ways to reduce freight costs and overall logistics operations optimization:

– The first category is of enterprises that are shifting towards advanced technology adoption and digitizing their key operations. Their key challenges are achieving faster order fulfillment, getting more predictable and accurate ETAs, better visibility around return load, and achieving shorter payment cycles.

– The second category is companies that have already started their journey of digital transformation. For such enterprises, the key challenges are having 100% visibility of the in-transit fleet, tapping leakages around stoppages, detentions, and diversions.

One prevalent instance of above challenges is the initiation of a visibility project. This commonly involves installing GPS or other tracking devices in all the vehicles within their fleet. The inherent issue with this approach is that it assumes a one-size-fits-all model. 

To mitigate these challenges, Fretron tech solutions framework offers a comprehensive roadmap. It comprises four progressive stages, each dedicated to addressing a specific aspect of your logistics needs. 

Stage 1 – Definition the Objective: This stage helps identify the critical levers that directly impact your major goal of freight cost reduction. The framework helps in cost management and offers insights into secondary objective levers, including enhancing customer service and facilitating business management.

Stage 2 – Digitize: This stage focuses on digital transformation implementation in your entire logistics operations lifecycle, including sourcing, planning, execution, and settlement. At this stage, the goal is to leverage technology to streamline processes, optimize transparency, and finally achieve your pre-specified objectives.

Stage 3 – Control Tower: This stage consists of proactive monitoring. It comprises setting up a ‘control tower’ to spot and handle incidents in your logistics operations in real-time. This approach mitigates response time to manage problems, thus minimizing possible disruptions and maintaining service quality.

Stage 4 – Evolve: The final stage helps in focusing on continuous improvement. Based on the evolvement of your logistics operations, this stage involves setting up:

• KPIs, 

• Goal-oriented targets, and 

• Scorecards. 

By focusing on these stages and executing them in your operations can ensure consistent and reliable enhancement of your logistics efficiency, thereby optimizing your logistics freight cost.

What’s Next?

With more available and reliable data, organizations are leveraging analytics to sense the disruption, comprehend its magnitude and impact on the supply chain, and formulate a response. 

To succeed, they must choose the right framework that meets their business needs in the logistics industry. It is advisable to consult logistics tech solutions experts like Fretron before investing in any software or tech platform for your logistics operations in the Cement industry.