Economy

Logistics Sector: on a fast track

Seetharaman R BL Research Bureau | Updated on January 17, 2018 Published on August 04, 2016


The passing of the GST bill is expected to have manifold impact on the logistics sector. The single tax rate and seamless connectivity across the length and breadth of the nation should benefit logistics provider immensely. Apart from the reduction in transit time for goods transportation, the bill is expected to give a boost to the entire supply chain through creation of large warehouses in strategic locations. Larger warehouses are also expected to assist warehouse automation to manage the supply chain. A hub and spoke model, where big regional warehouses can provide services across neighbouring states will help optimize service delivery.

Typically, logistics sector largely comprise of fragmented and unorganized players across States. The fragmented State taxes across States will be abolished. With the capacity to garner higher volumes, GST bill is expected to give a boost to organized logistics service providers - especially third party logistics providers who manage clients’ inbound and outbound freight, customs, warehousing and distribution. The expected increase in service tax to revenue neutral rate of 18 per cent will increase logistics cost in the short-term. But, long term cost efficiency from efficient supply chain and tax-offset provisions for business-to-business (B2B) transactions should help the service providers. Himanshu Tewari, Partner, BMR & Associates LLP says “The clients will not intend to take the increased cost. They will expect the suppliers to make the supply-chain efficient at the earliest.”

Report on the Revenue Neutral Rate and Structure on rates for Goods and services tax states “There is ample evidence to suggest that logistical costs within India are high. Trucks in India drive just one-third of the distance of trucks in the US (280 kms vs 800 kms). This raises direct costs (wages to drivers, passed on to firms), indirect costs (firms keeping larger inventory), and location choices (locating closer to suppliers/customers instead of lowest-cost location in terms of wages, rent, etc.). Further, only about 40 per cent of the total travel time is spent driving, check points and other official stoppages take up almost one-quarter of total travel time. Eliminating check point delays could keep trucks moving almost 6 hours more per day, equivalent to additional 164 kms per day – pulling India above global average and to the level of Brazil. So, logistics costs (broadly defined and including firms’ estimates of lost sales) are higher than the wage bill or the cost of power, and 3-4 times the international benchmarks.” But, the worrying part is that GST is expected to increase compliance requirement.

“A manufacturer who manufactures and supplies to ten states should file compliance across all the states he is doing business in.” says Tewari.

Transport Corporation of India that operates close to 9000 vehicles and carrying close to 2.5 per cent value of goods by India’s GDP per annum is expected to gain from this. The company operates close to 11 million square feet of warehouse. Presently, it intends to operate close to half a million square feet warehouse GST ready by 2017. Similarly, Container Corporation of India, market leader in rail based containerized transportation, with its pan-India network and more than 60 warehouses is at an advantage to tap the Export-Import and domestic market. Some of the other players who are expected to benefit in the long run are GATI, Gateway Distriparks and VRL logistics.

Published on August 04, 2016
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