New Opportunities that opened up to the Logistics Sector, post-GST
- Consolidation of Warehouse:
With the implementation of GST, Manufacturers had to bear an additional 1 percent tax on sales of goods in other states and this continued until 2 years post GST. Although painful in the beginning, then, it was predicted that Manufacturers will consolidate warehouses and set up warehouses with larger capacities, which eventually will save them 3 to 4 percent in warehouse costs.
- Reduction in Trade barriers
Earlier, there used to be a wait of 6 to 7 hours for inspection, filing waybills/entry permits and for paying entry tax and local levies, which altogether increased the overall freight time. With GST replacing quite many indirect taxes, the waiting time at check posts and freight delays, as a result, got eliminated to a large extent.
- Removal of challenging factors that improved the efficiency of transit:
Increased freight time due to trade barriers, however, was to get eliminated, with GST that replaced at least 7 indirect taxes. In addition, GST also eliminated the requirement for warehouse hubs across states. There was a decrease in check posts all over India, which in turn brought down the waiting time, increasing the turnaround time of trucks to 12 to 15%.
- Re-evaluation of sourcing:
Shippers, who usually sourced trucking at a regional level and multiple warehouses, evaluated the procurement strategies for logistics and transportation categories. They came to a decision for having consolidated and larger warehouses for an optimized logistics network for secondary transportation, increasing the capacities of the service providers in terms of fleet size, use of technology for the efficiency of Logistics and increasing the warehouse space and capacity.
- Expected decrease in logistics cost:
The expected shipment and transportation cost decreased by 1 to 2 percent in 2 years post-GST implementation, with improved warehouse facilities and having warehouses in closer proximities from manufacturing locations. There was at least a 30 to 40 percent decrease in smaller warehouses. This increased the scope for investment for having a good fleet profile and introducing backend technology for efficient logistics.
- Change in service provider landscape:
Logistics service providers were expected to reconfigure their current fleet sizing, in order to meet the growing needs of the market. Also, it was expected that Manufacturers will charge competitively with decreased penetration of organized players and with fresh and less organized newcomers. It was also predicted that there will be an improvement in the quality of the services.
- Sourcing of transportation service:
The Logistics companies in India evolved from being a first party logistics provider to then 2PL to 3PL and now up to 4PL, taking care of complete end to end shipment services including warehousing, pool distribution, management consulting logistics, services transportation, along with advanced supply chain facilities.
The logistics sector was seen as one of the main beneficiaries of the GST implementation. It was seen that there will be an increase in compliance and adjustment costs. The frequency of filing returns will increase and input tax credit will require compliance from every player in the entire value chain. Although these were prone to a few uncertainties and was also predicted that it will affect the profitability of the sector in the short run, in the long run, it was predicted that the operational efficiency would definitely improve.