GST likely to reduce the demand for smaller warehouses

While the roll out of the Goods and Services Tax (GST) regime from July 1 is expected to bring in consolidation in the warehousing space, logistics players also feel it might do away with the need to have smaller warehouses in smaller cities.

There will be requirement for fewer, but larger warehouses, they say.

Demand for larger warehouses will go up. E-commerce, automotives, consumer electronics, pharmaceuticals, FMCG players will — post GST application — own or lease larger warehouses at prime locations such as Mumbai, Delhi, Ahmedabad, Chennai, Bengaluru and Hyderabad, according to Apollo LogiSolutions. PSS Prasad, President, Apollo LogiSolutions, said owners and manufacturers with warehouses (owned or leased) in multiple States will own or lease large warehouses as per business requirements to avoid duplication of taxes .

“Smaller warehouses will be merged into bigger units at key locations with the aim of having higher efficiency. Warehouses in smaller cities will become idle or defunct through this process,” he said, adding that these are likely to be converted for residential or commercial use.

Abhishek Chakraborty, Executive Director, DTDC Express, said the GST will change the rules about what you do, where you do, how you do, where you record and whom you do business with. “The distribution centres will be located close to the consumption centres with need for larger warehouses. We will not need so many layers of agents. And we shall see a shift towards organised sector. People would realise that we don’t need so many C&F agents. There will be a principal company, a good logistics player and a last mile retailer.

“We will start adding services to our customers,” stated Chakraborty. Logistics players may start operating some smaller warehouses for distribution, he added.

GoBOLT’s cofounder Sumit Sharma also said that post GST, there will be demand for fewer warehouses.

TCIExpress, another logistics firm, which does not have warehouses but has 25 sorting centres across the country, said that it expects a reduction in the number of warehouses, and capacity expansion.

TCI Express’ Managing Director Chander Agarwal said that it is possible that lower sized warehouses may see a dip in demand as companies will need to get to a centralised model where they will look at large warehouses in strategic locations and play on the hub and spoke permutations.

“Regions such as national capital region, Mumbai, Bengaluru, Hyderabad, Pune, Chennai and Ahmedabad will see an increase in demand in warehousing space,” Agarwal said adding that we will wait to see the full roll out of the GST to see how it will impact the industry.

RS Subramanian, Senior VP and Managing Director, DHL Express, said that while companies will be looking at their supply chains from a fresh perspective, these decisions will be made considering the nature of their business, dynamics they face from their market and customers and the kind of investments they have already made in the supply chain.

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