The Hindu Business Line : VAT forces cos to reinvent warehousing

WITH a countrywide value added tax (VAT) regime round the corner, companies are reinventing their warehousing strategies. Several of the bigger players are going in for consolidation of their depots, while some others are opting for outsourcing warehousing requirements to Third-Party Logistics (3PL) players.

Sensing the business potential, the 3PL players are increasingly lapping up real estate in major cities for setting up huge warehousing facilities. For instance, Safexpress Ltd has increased its warehousing capacity by 1 million sq. feet in Delhi, Mumbai and Bangalore, taking its total warehousing capacity to 3 million sq. feet. "We are planning to develop the new warehouses into multi-user facilities for accommodating more than one company in a single big warehouse," Safexpress' General Manager (Marketing), Mr Anil Syal said. The company's clients include biggies such as Wipro, Reebok, Colour Plus, NIIT and Compaq.

According to Mr Syal, while a significant portion of the growth in 3PL business is on account of companies gearing up for VAT, some of it is also on account of organic growth. In the current system of differential sales taxes across states, companies are forced to set up warehousing facilities in a number of states in an effort to avoid double taxation. Once VAT comes into effect, companies would not have to invest in clearing and forwarding to avoid paying taxes, resulting in express delivery companies replacing them.

"Many of the big companies are consolidating their warehouses spread across several states into a centrally located national hub, from where supplies would be transported to their factories and finished products to the markets," an analyst with Srei Finance said. This, he said, would allow economy of scale in operations, without locking inventory in warehouses. The Government's national highway upgradation programme has come as an added boost since the lead-time in deliveries is brought down considerably.

TCI, the other major logistics provider, is also working with a number of companies seeking total logistics solutions. A senior TCI executive said even though business was on the rise, companies were yet to outsource their entire logistics requirements to 3PL players and outsourcing is happening only in portions such as transportation or warehousing.

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