It has been 15 months since the rollout of what is considered one of India’s biggest tax reforms — the Goods and Services Tax (GST). But, we are already witnessing a major positive transition in the logistics sector.

Outsourcing and the value addition in the logistics sector is set to take off post-GST. Considering the double-digit growth, the logistics market would exceed $250 billion in the next two years. As per a recent survey, the Indian logistics sector provides livelihood to 22 million-plus people, which is expected to be over 40 million by 2020. The high rate of growth in the next couple of years is expected largely due to the implementation of GST.

GST has replaced at least 7 indirect tax heads and has eliminated the need for warehouse hubs across States. Further, GST has eliminated check posts across the nation and thereby waiting time, leading to at least 12-15% reduction in the turnaround time of trucks.

Better utilization of assets like vehicles and warehouses will lead to efficiency and increased productivity thus lowering overall cost. This would considerably benefit the supply chain directly and India’s growth indirectly.

The manufacturing and other services sectors have now started planning their supply chains, bearing in mind fleet cost and fast delivery, rather than tax structure and compliance.

Competitive edge

Pre-GST, the Indian logistics sector was struggling to add value to customers, compared to global peers. Indian firms were seen as labor contractors or mere transporters, which denied them the benefits of being a part of the supply chain. But the equation has changed now.

Manufacturers are looking to optimize supply chains and are willing to outsource value-added planning to logistics players, who have invested in technology and operate with a focus on quality and compliance. These logistics players are seeing a positive shift in the mindset of their clients and are gaining momentum. Further, small transporters can also now work with third-party logistics (3PL) providers and expand their fleet. GST has aided this move at a faster clip.

Post GST, there is a marked improvement in the use of technology and digitization by logistics players. 3PL players can become real ‘differentiators’ as they embrace technology to enhance the visibility of load carried, turn-around time, vehicle utilization, improvement in loading/unloading time by removing congestion at the docks, and the like.

Equipped with technology and software for load design solutions, vehicle geo-tracking, inventory (order/part level) tracking and route optimization, 3PL players add more value to their customers’ supply chain.

Logistics costs have been one of the biggest stumbling blocks for Indian manufacturers eyeing exports. At about 13-14% of GDP, India’s logistics cost is high and compares with about 8% in advanced nations that have efficient systems. This despite the percentage of outsourcing being higher in developed markets.

The Centre has made clear its intention to bring down this cost to less than 10%, which would make Indian manufacturers globally relevant.

The Centre created a new division in the Commerce Ministry to deal with the integrated development of logistics and urged all stakeholders to bring to India relevant best practices to enhance efficiency in logistics.

This is a good move as logistics firms used to deal with six different ministries separately and each would require separate paperwork and formalities. It is a big sense of relief to note there will soon be a system where a single document would be accepted for multi-modal logistics within India.

India has moved from the 54th position in 2014 to 44th in 2018 in the World Bank’s Logistics Performance Index.

Infrastructure status

The much-awaited ‘infrastructure’ status to the sector was conferred in November 2017, which is helping the sector avail cheaper finance (2% lower) for its warehousing and cold storage needs.

This will bring in a lot more players with an integrated service approach that would again help Indian manufacturers. New investments in this sector is good news as it could create a lot more jobs in the near future.

Together, the implementation of GST and other reforms have already started bringing efficiencies into the supply chain of various firms. Digitization, asset utilization, and visibility enhancement are facilitating better value-added outsourcing to logistics firms.

The government, too, has realized that aspirations for economic growth, employment generation, manufacturing, and exports are all inextricably linked to the efficient management of logistics.

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Source: The Hindu

Author: T V Sundram Iyengar