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Impact of GST on the logistics sector

GST impact on Logistics sector

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Impact of GST on the logistics sector

  2. 2. GST • Stands for Goods & Service Tax • Broad based, single, comprehensive tax levied on goods & services consumed in an economy • Seen as the panacea for removing the ill-effects of the tax-on-tax regime
  3. 3. LOGISTICS IN INDIA • Interplay of infrastructure, technology & new types of service providers • Rapidly Evolving • Backbone for some key sectors like retail ,automobiles, pharmaceuticals etc. • Contributes to around 13% of Indian GDP • Top 10 Players in FY15: DHL, Bluedart, UPS, FedEx, DTDC ,Gati, Aegis, DelEx
  4. 4. GROWTH OF LOGISTICS OVER THE NEXT 5 YEARS Lets assume the same CAGR rate of 9.9% 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 1 120.4 132.3 145.4 159.8 175.7 2014 2015 2016 2017 2018 In Billion US$
  6. 6. 1) CHANGING FOR THE GOOD • Indirect taxes played a major role in deciding the supply chain structure of each business as some of the tax cost had no input credit option. • The GST precisely addresses this anomaly & therefore, going forward, tax may not be a factor for deciding on the supply chain /distribution channel of an organization
  7. 7. 2) WAREHOUSING • Any large LSP, manufacturer or CPG player maintains warehouses in all the states of operations • With 33 states in India, that accounts to 25-40 small warehouses (depending of regions & scale of operations) instead of 6-8 large warehouses which would be needed for geography of this size • Adding to this inefficiency is the fragmented structure in Indian Logistics industry which results in extreme competition
  8. 8. WAREHOUSING • Demand for warehousing is expected to grow at a CAGR of 18% in the next 4 years - thanks to the incoming investment in the retail sector & increasing import-export activity in India. • So, warehouses have a lot to do with the growth of logistics sector.
  9. 9. • With the advent of GST & Zero CST : The necessity of having a warehouse in each state to avoid CST & paperwork will be eliminated in a GST regime & network decisions would become purely cost & service driven. • So now, we can revisit the supply chain network & identify opportunities for consolidation of warehouses to gain from scale & save costs of double handling • We can club many of the small warehouses & have bigger + fewer warehouses.
  11. 11. BENEFITS : • The larger warehouses can benefit from technological sophistication by deploying state-of-art planning & warehousing systems which are not feasible in smaller, scattered warehouses • IT costs of having ERPs deployed at many small warehouses can be saved • Transportation lot sizes will automatically increase, making way for more efficient bigger trucks • Lesser numbers of stocking points
  12. 12. 3)TRUE “HUB-&-SPOKE” SYSTEM • Organizations will now be able to explore different distribution models such as setting up mother warehouse & regional distribution hubs . • Thus, it can possibly step away from traditional C&F & distributor based models currently adopted
  13. 13. 4) REDUCTION IN COST . I believe, with the introduction of GST, logistics & distribution costs in India could go down by 10% -15%. Zubin Poonawalla
  14. 14. • Cost drop will increase Profit Before tax by 10-15 % in turn increasing the PAT by around 7-11% . • (Assuming tax to be around 30%) • This means that GST will strengthen the bottom line for all the logistic companies & thus, better margins. • This also helps the company with better cash flows .
  15. 15. 5) TRANSIT TIME • GST would also improve our transit & consequently, delivery times because state border crossings would likely be uncomplicated. • Less of paperwork is also a big benefit.
  16. 16. 6)FAIR PLAYING FIELD • As a result of reduced tax liability, GST will reduce the share of the unorganized sector in warehousing. • Prices charged by the organized players will come down & reduce the price advantage that the unorganized warehouses currently enjoy. • Thus, GST will level the playing field & create an equitable development of the industry across India.
  17. 17. HOW CAN LOGISTICS ADAPT THIS NEW CHANGE • This can be done in various ways – • Designing a multi tiered distribution network where there is specialization in certain functions (storage + inventory mgmt) & some functions (software services, packaging, labelling) are outsourced. • Another will be to partner with a 3PL logistics provider to ensure optimal utilization of resources. • They will need to take a fresh look at their supply chain to cater to existing geography & should also look at the new business areas that this impending legislation is due to bring.
  18. 18. HOW CAN LOGISTICS ADAPT THIS NEW CHANGE • ERP System Changes • Pricing Revision • Revisiting Warehousing & Distribution Strategies • Revisiting Purchasing & Marketing Strategy
  19. 19. CONCLUSION • The impact or rather the opportunity is huge for both the logistic companies & their customers to completely relook at their supply chain. • This essentially means a significant opportunity for Logistics companies in India to revise their infrastructure to deliver as well as reverse logistics for spares & replacements.
  20. 20. Thank You