Stands for Goods and Service Tax
Broad based, single, comprehensive tax levied on goods and services
consumed in an economy
Seen as the panacea for removing the ill-effects of the tax-on-tax regime
LOGISTICS IN INDIA
Interplay of infrastructure, technology and new types of service providers
Backbone for some key sectors like retail ,automobiles, pharmaceuticals etc.
Contributes to around 13% of Indian GDP
Top 10 Players in 2014
DHL , Bluedart , TNT Express , Agarwal Packers and Movers ,UPS ,FedEx,
DTDC ,Gati , Aegis ,All Cargo Ltd.
GROWTH OF LOGISTICS OVER THE NEXT 5 YEARS
Lets assume the same CAGR rate of 9.9%
2014 2015 2016 2017 2018
In Billion US$
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 and therefore, going forward,
tax may not be a factor for deciding on the supply chain /distribution
channel of an organization
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 and 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
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
and increasing import-export activity in India.
So, warehouses have a lot to do with the growth of logistics sector.
With the advent of GST and Zero CST :
The necessity of having a warehouse in each state to avoid CST and
paperwork will be eliminated in a GST regime and network decisions would
become purely cost & service driven.
So now , we can revisit the supply chain network and identify opportunities
for consolidation of warehouses to gain from scale and save costs of
We can club many of the small warehouses and have bigger and fewer
The larger warehouses can benefit from technological sophistication by
deploying state-of-the-art planning and 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
3)TRUE 'HUB-AND-SPOKE' SYSTEM
Organizations will now be able to explore different distribution
models such as setting up mother warehouse and regional
distribution hubs .
Thus , it can possibly step away from traditional C&F and distributor
based models currently adopted
4) REDUCTION IN COST
I believe, with GST, logistics and
distribution costs in India could go
down by 10-15 per cent.
Reiner A. Allgeier, MD, Schenker India.
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 and thus ,better margins.
This also helps the company with better cash flows .
5) TRANSIT TIME
GST would also improve our transit and, consequently, delivery times
because state border crossings would likely be uncomplicated.
Less of paperwork is also a big benefit.
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 and reduce
the price advantage that the unorganized warehouses currently enjoy.
Thus, GST will level the playing field and create an equitable
development of the industry across India.
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 and inventory
management) and 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 and should also look at the new business areas
that this impending legislation is due to bring.
HOW CAN LOGISTICS ADAPT THIS NEW CHANGE
ERP System Changes
Revisiting Warehousing & Distribution Strategies
Revisiting Purchasing & Marketing Strategy
The impact or rather the opportunity is huge for both the logistic
company and their customers to completely relook at their supply
This essentially means a significant opportunity for Logistics
companies in India to revise their infrastructure to deliver as well as
reverse logistics for spares and replacements.