LOGISTICS: A sector which is on a HIGH FLIGHT

 

GST which was criticised by many is now a blessing, especially in this context for supply chain costs. GST will not just help in unlocking the much- needed efficiencies but has continuously complemented the market for an encouraging logistics environment.

 

We all know about the logistics sector which broadly comprises of the storage and warehousing sector, road transport sector and the last third- party logistics (3PL). These sectors are then classified into big and small players and asset heavy/light companies.

 

With the implementation of Goods & Services Tax (GST), India’s logistics sector is moving head to an evolutionary phase, this will also move forward with the government’s focus on transportation mix. With the increasing emergence of the technology-based startups, and the improving India’s transportation mix the profits can be sky ending.

 

 

If we talk about how GST has impacted or will impact the logistics sector, then clearly we can see development, as despite limitations in the sector from the landmark tax reforms to increasing interest among foreign investors the sector will undergo a significant change.

 

 

In the near future gradually one can easily forecast the changes because of the increasing tech startups, and this will certainly impact almost all the sectors, for logistics as well the government has proposed several investments in railways and seaways and this will for sure have an impact on the road transport sector logistics.

 

The change can certainly be seen today in the logistics sector, especially after GST the consumer preference and needs have changed and with their requirements the pure transportation business cannot sustain. The focus now is more and more in end-to-end services and winning a consumer base as well as retail sector. This was just the case with the old logistic sector, coming forward with the tech-led logistic services which are also known as third-party logistics (3PL) as well as the supply chain management (SCM) industry they stand as promising services which are gradually gaining a lot of markets. These sectors are not just serving industries like automobiles, pharmaceuticals or for that matter consumer durables they are also dealing with food and beverage industries and fashion industry as well.

 

In the light of development and the well-known notion “Make in India,” it is not just boosting the domestic market but is also boosting the logistics sector. The logistics sector companies are also making efforts to keep up with the pace of the increasing growth in the demands by using technology and by digitising their end-to-end solutions and are also providing with high-end online freight services. For real time-tracking, the companies are initiating services like GPS- global positioning systems, barcodes and even radio frequency identification (RFID).

 

The sector will indeed be an expected beneficiary of the GST system, it will impact the whole sector, including consolidation of warehousing network and a shift towards the ‘hub-and-spoke’ model and a higher degree of tax compliance with business moving away from unorganised transportation service providers to the organised sector, says expert.

 

LOGISTICS AND THE NEW TAX REGIME: GST
India’s logistics sector would gain the most from the goods and services tax as costs would fall by almost 20 per cent, road transport and shipping minister Nitin Gadkari tells ET. The minister says people are free to protest if they have a problem with GST’s implementation, but they should give the tax reform at least a couple of months. Gadkari said the Congress leadership was immature in criticising the tax reform.

 

The logistics sector will indeed gear for a lot of profits after GST, the logistics cost on a margin will come down by almost 20 per cent. Many of the companies have already started with their hub warehouse system rather than having multiple branches in the major cities. Since the check posts at the state border have been brought down, the difference will be quite visible. It can already be seen in states like Karnataka, Andhra Pradesh and Tamil Nadu and many other states; this has significantly brown down the hassles in the logistic sector.

 

After GST and the promotion of digitisation, the government is also going ahead with electronic way bills which is indeed a great start and a smart step. These electronic way bills on Goods and Service Tax Network will soon create a pattern in the sector and the logistics will be much easier for heavy vehicles.

 

These steps marginally will create an increase in the country’s GDP as well; in comparison to 14% share earlier in the GDP, it can now go up to 25-30 per cent of GDP. With the digitised systems the vehicles which earlier used to complete 200km a day can now easily complete 400km a day increasing the productivity and sustainability of the whole sector.

 

THE TAX AND THE COMFORT
Asking someone to give up their favourite food can make that person feel uncomfortable, GST is one tax system which has actively brought traders and many manufacturers under the radar and this has certainly made them uncomfortable. The never-ending complaints about higher tax slabs for the goods will always be a witty statement for the service providers. Although small traders will never come under the radar because of the turnover brackets, this can, for now, may sound a tax which is uncomfortable but will gradually make things easy and the steps taken will have a positive impact. Be it the tax slabs or the network taxes, all will bring in transparency in the whole system.

 

The comfort will be provided to all, if not in two months but in the coming six months the country will see a growth seen never before. The tax on the logistics sectors will bring in benefits, especially the tax collections will increase drastically for both the centre and the states.
The emergence of digitisation and the GST system have made the logistics companies in India transit from indirect taxation to a systemised one tax system, this is not just benefiting the warehousing industry but has also significantly reduced the logistics cost, the cost has almost been gone down by 2.7 per cent. This initiation has brought a lot of improvements and will significantly bring Improvements in both the freight forwarding and transportation of all types.

 

 

In the meantime, while the country is already moving ahead there has been an increase in the invasion of LSPs which are the International Logistics service providers who are initiating third-party logistics as well as domestic LSPs. This is expanding the footprints and attention on transportation services, freight forwarding, and warehousing. This also improves the relationship between the countries and opens up many opportunities for not just business partnerships but a chance for all the domestic logistics companies to have an access to modern technology which is already being provided by global service providers. The services in India will highly be benefited starting from the development of their transportation system to their infrastructure related to logistics. Warehousing zones, freight station, freight corridors, free- trade warehousing zones and of course port modernisation.

 

Senthil Kumar Subbiah, Research Analyst, Supply Chain & Logistics Transformation Practice, Frost & Sullivan rightly said, “Another major influence on the logistics industry is the ubiquity of smart phones and internet, and the consequent rise of e-Commerce. As more than 30 per cent of the Indian population resides in tier II and tier III cities, e-Commerce sites receive more orders from these cities,” noted Subbiah. “To provide better services to customers, e-Commerce firms are demanding bigger and more efficient warehouses, faster delivery options and improved last-mile connectivity, which translates to a plethora of business opportunities for 3PL companies and logistics startups.”

 

I would second his opinion about the latest infrastructure and technology that is already there and the one that is being built by the government will probably be an advanced thinking and will bring out the modern world. These changes will go a long way with proper support from the people as the government is already striving for advanced services.

 

HIGHWAY TO PROFIT
According to V. Ramaswamy, Chief Executive Officer of Cargowings logistics, a leading transport solutions provider in Chennai, “GST will bring a lot of alignment of value-added services in the logistics sector. This will make way for cutting-edge investments and mergers and one will see a phenomenal increase in asset utilisation and increase in operational efficiency. There will be new investment opportunities for technology-enabled mini-warehouses along the highways and the sector will witness a fresh wave of technology-enabled start-ups.”

 

Without a doubt, the logistics sector can easily be termed as the mail beneficiaries of the Goods and Tax regime. In the earlier stage like we all know there is meant to be an increase in adjustment costs and agreement as the returns filing has increased and moreover, the input tax credit requires amenability of almost all the players in the entire value chain.

 

The GST system might not solve many hard-hitting issues of the transport network of India, but it will certainly reduce the cost of logistics for all the major companies and especially the companies which produce non-bulk goods by almost 20 per cent.

 

With the right rules and regulations now no logistics company will have to indulge into extra operational cost, as mentioned above the cost of opening multiple warehouses which decrease tremendously and no service provider will have to maintain something extra and indulge into heavy costings. All of the problems that are being created right now because of the new system will gradually get submersed under arguments which no more exist, bringing a unity and monotonous nature into the businesses.

 

India is already is a country with a single tax system, will now be a single market wherein all types of goods can be freely moved from one state to another without an extra tax. The money that would be saved can later be easily used either to increase the warehouse capacity or higher investments into the market. Like experts have said already, “As an outcome of GST, warehouse operators and e-commerce players have already shown interest in setting up their warehouses at strategic locations such as Nagpur, which is the zero mile city of India and is well connected throughout. We are sure to witness more transformations happening as we go forward. GST holds exciting time for all the stakeholders, be it logistics operator, e-commerce players, and the end consumer. It won’t be unfair to say that GST will disrupt the existing ecosystem and will make it more efficient and competitive going forward.”

 

At a broader level, many great initiatives in the area of both trade and industry promotion have made India stand as a favourable place in comparison to other unpredictable global economy. GST which was criticised by many is now a blessing, especially in this context for supply chain costs. GST will not just help in unlocking the much- needed efficiencies but has continuously complemented the market for an encouraging logistics environment.

 

By: ANKIT MITTAL,
CEO, EasySparePart.com

 

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