GST to bring big benefits to logistics firms

RAHUL WADKE Mumbai | Updated on April 01, 2015

With the Modi Government hoping to pass the Goods and Services Tax (GST) bill in the Parliament's budget session, transportation and logistics companies are preparing for changes in their operations. Industry experts feel that GST will not only make them more efficient but also reduce their actual requirement for commercial vehicles.

The GST is expected to be implemented by fiscal 2016-17 and is aimed at reducing multiple taxes. Inter-state sales transaction will become tax neutral, the whole country become one single common market without any state borders.

Logistics companies will therefore see a major change in transportation of goods and location of warehouses. In the past the warehouses were set up for avoiding state taxes at the cost of operational efficiencies.

Vivek Ganguly, Director (Investments), Nine River Capital, an investment banking firm, said that because of trade barriers such as entry taxes, local body taxes, octroi and other hurdles, trucks are sitting idle 30 to 40 per cent during their delivery schedule.

“When you remove these barriers, you will have 30 to 40 per cent, less downtime for vehicles, which effectively would mean companies would need lesser number of vehicles for carrying out the same business. Post GST implementation there would be a dip in the replacement demand for vehicles, at least for a period of 12 to 18 months,” Ganguly said.

There would also be a move for procuring higher tonnage trucks due to the new efficiencies brought about by the GST. Companies will consolidate small warehouses, which were set up for avoiding taxes. Trucks with load capacity up to 20 tonnes would be replaced by larger trucks for carrying additional cargo, Gangulay said.

Logistics costs in the country are about 14 per cent of GDP, while in developed countries they are nine per cent. In the logistics sector only about 10 to 20 per cent of the companies are organised. Rest of the space is taken by small fleet and warehouse operators, which leads to tremendous inefficiencies in operations.

Past president of All India Motor Transport Congress, Bal Malkit Singh, said that on an average a truck runs about 220 km per day. After is GST is implemented could run up to 300 km to 315 km, efficiencies of the logistics companies will also increase, leading to a reduction in demand for new trucks.

Managing Director of DHL Supply Chain Vikas Anand, said that in the post GST scenario, location of the warehouse would be more driven by the market forces of demand and supply. In the coming years the smaller warehouses of 15,000 to 20,000 sq ft would be merged and larger ones of over 2 lakh sq feet would be set up,

GST will transform the way goods are transported within the country. Today because of sizes of warehouses are very small, corresponding smaller inefficient trucks with a carrying capacity of nine to 20 tonnes are being used. In the near future, trucks with 40 tonnes plus carrying capacity will run on the highways, which will service large warehouses, he said.

Published on April 01, 2015

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