The world is working on sustainable development goals, as leaders of the nations have realized that we need to make this planet liveable for future generations and it needs to be done within the next 10 years. So there comes a framework of intensifying engagement process and implementation of various policies. And, we are surely witnessing a positive change.
So, its proven time and again that in order to transform any existing situation for drastic betterment and development we need to have strong policies in place. Our country’s logistics industry is worth around USD 160 billion but the gaps continue to be a major issue as there has been stagnation of the logistics industry in the past. We needed a paradigm shift.
The rollout of what is considered one of India’s biggest tax reforms — the Goods and Services Tax (GST) was passed by the Government of India in August 2016. Post that, the regulatory reforms, in the recommended GST bill, presented good chances for trucking companies, in addition to shippers for rationalizing and re-engineering transportation and strategies procurement.
Before GST implementation, cross border transportation within different regions of India involved issues such as multiple state taxation across borders, five to seven hours of wait in inter-state check, high variability and unpredictability in delivery of shipments. As a result, the logistics expenses shot up to higher-than-optimal in the warehouse, including expenses of lost sales. Strategies costs in India were usually two to three times more than the global average.
Also, during pre-GST, there was a huge penetration of structured players and increased business aide among newcomers. With GST execution, it was predicted that around the corner, strategies service provider and suppliers would revamp their supply chains, realign the area of warehouses and redraft their utilization of corridors, in addition to transportation options.
GST — The much-needed reform
GST was brought in to support and reform the growth of the Logistics Sector enormously. The Indian logistics industry required overall changes in all aspects, and modifications had to be adopted in the trucking industry and warehousing pattern as a part of post-GST implementation.
The shift was more towards fewer warehouses that were predicted for getting placed closer to the manufacturing places. Nevertheless, the shift within the warehouse strategy was anticipated to create additional freight spend. It was critical to perform a location-based comparative evaluation on freight preference and also identify a perfect warehouse place for secondary distribution.
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.
- Increase in Compliance:
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.
Overall model of Logistics sector, post-GST:
Indian Logistics has become one big market with larger and fewer warehouses.
- The number of vehicles on road has come down.
- Increased scope for savings, stoppage of wastage and faster shipment.
- It has led to more companies outsourcing their logistics operations.
- It has opened up more opportunities for employment.
How GST changed the face of Logistics in one years’ time?
In a year, the Indian Logistics transformed from what it was as an unorganized market to an entirely organized one. There was an increase in the flow of funds, which eventually encouraged adopting advanced warehousing facilities and upgrading the fleet profiles. The Service Providers began identifying the core industries that would greatly have an impact on the Logistics cost, post-implementation of GST.
Some of the major Logistics Customers that were identified to be benefited from GST are:
- Healthcare and pharmaceutical industry
- Auto and auto components industry
- Lifestyle and readymade garments
- High tech, engineering
- Mobile phones including base towers and mobile telephones
Depending on the demand for logistics needs, the service providers were able to invest in technology, fleet size, geographical expansion for servicing and the warehouse location.
Higher compliance costs related to GST due to technological up gradation, up-skilling of workers, penalty charges, etc, all did become an obstacle and caused a cost burden to transporters then, following the increase in diesel prices. All these factors did take a toll on their profitability.
However, despite these short-term pains, it was certainly expected that the reduction in truck turn-around time and setup of efficient warehousing networks would improve the overall efficiency in the Logistics system, which ultimately would bring down the reduction in logistics costs.
The implementation of GST and other reforms have already started bringing efficiencies into the supply chain optimization and that is how it has enabled Bigtruck Connect Applications to be an overall logistic solution in the supply chain space. With digitization, emerging technologies and visibility enhancement we are committed to facilitating better value-added services to our customers.
Overall, most of the companies that we have interacted with indicated that Bigtruck is helping them redesign and revamp their networks going forward. It is not only helping them with route optimization and return truckloads but also the smart connected ecosystem is helping them improve efficiency and effectiveness at every step and process through enhanced people skills.