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Weak Logistics Impede India's Global Steel Ambitions

India often likes to compare itself with China, but one of the main strengths behind its development is a superb supply chain that is the world's envy.

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Blessed with abundant iron-ore reserves and skilled manpower, world's second-largest steelmaker India has the potential to emerge as a global hub for the metal. Yet many of its inherent natural strengths are being overshadowed by a man-made one -- inefficient logistics.

Nearly 15% of the cost of steel manufacturing in the country is on account of logistics, while the same accounts for only 9%-10% in the United States. If the same cost proportion were to be brought down to 9%, estimates are that expenses on Indian steel could be trimmed by 15%-18%. 

In other words, efficient logistics could be a game changer. Indian steel industry has already got a taste of potential success in the wake of covid as between April and August exports of semi-finished steel and finished steel rose 69% and 28% on year respectively.

Though the bulk of it was consumed by China, other Southeast nations also bought Indian steel. Supply disruptions and high iron-ore prices were the main demand drivers as buyers found it cheaper to import semi-finished steel rather than make them from raw materials.

Time to drive home the advantage 

It is unlikely that the same situation would continue for long as raw material supplies from countries like Brazil and Australia are bound to normalize in coming months. Local supply disruptions are also unlikely to prolong due to easing lockdowns.

Yet it will be vital for Indian steel to maintain their exports edge. Domestic demand for main consuming industries such as automobiles and construction are unlikely to return to pre-covid levels for months, which means capacity utilization will remain challenging let alone expansion plans.

If India wants to drive home its competitive advantage, a multi-modal logistics logistic supply chain needs to be taken up on a war footing.

Around 60%-65% of raw materials needed for steel and 30%-40% of finished steel are currently transported by railways, while roads largely account for the rest. Unlike China, inland waterways have a minimal role in the country's steel logistics.

Despite having an extensive inland waterways network of around 14,,500 kilometres, the transport option is barely used in the country much except in Goa--where currently iron-ore mining is at a standstill-- though costs are about a quarter to half of road and rail.

Need for a coordinated approach

The concept of improving coordination between railways, roads and waterways has barely been explored. Railways can accommodate trucks on flat railway wagons especially on time-sensitive routes, which can easily be done by making certain design changes even on electrified routes.

Such changes can easily cut a three-day journey by road to a day, saving both fuel and time. The lack of proper inventory planning, the use of smaller trucks instead of bigger ones as well as inadequate rail connectivity across the steel value chain are other issues.

Just in time inventory management remains a sore point for Indian iron and steel industry. Partly this is also due to insufficient digitization because managing the flow of goods efficiently can't be done 

in today's day and age without online connectivity of each strand of the value chain.

It is not the size of a transport network alone that determines how swiftly goods can move from one end of the value chain to another. For example, in the US many fleet operators have no more than 10 trucks, but aggregators bring together different operators to create a seamless chain.    

Logistic parks located outside key hubs such as big cities or industrial townships also have a critical role to play in creating such supply chains. These provide room for adequate loading, unloading and fleet management on real time basis that are critical to shipments or import of materials.

Special economic zones that facilitate such integration and provide incentives for trade development  would also help to collapse a scattered supply chain. Besides strengthening rail, road and port networks, it's equally important to boost cargo flows at points of terminus or origin.

Journey times at these congested areas can take as much time as the entire route traversed prior to entering these points due to lack of planning. Dedicated electric mobility solutions within such zones can save time and the environment. 

India often likes to compare itself with China, but one of the main strengths behind its development is a superb supply chain that is the world's envy.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Biman Mukherji

The author is a former journalist and a minerals and metals expert

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