We are now living in the GST era. Straight off the bat I can say the GST regime will bring in an entirely new style of conducting business. It will be transparent and it will be a level playing field. We now have one nation, one market. Local check nakas and octroi points are all institutions of the past. The smooth movement of goods across the country will result in my estimation will reduce logistics cost by 15 per cent.
Warehousing as we know it will be transformed. Companies will no longer need to have warehouses all over the country. A major FMCG player is contemplating reducing its warehousing facilities from 37 to 9 large aggregation warehouses. This will result in economies of scale. Hopefully costs benefits will be passed on to the consumer.
GST will have double positive impact in transport sector in India. India moves by road and time spent at inter-state check posts due to difference in taxes between states accounts to idle time (60% of total journey time) which will get eliminated in GST regime. Hence, transport time would reduce by 30-40 per cent and transport costs by 20-30 per cent leading to fall in prices by 3-4 per cent which will, in turn, reduce costs for customers and logistics companies, making the latter more efficient and profitable.
Supply will also be able to match demand to a large extent. With lesser paperwork goods will be transported faster, with far lesser check points. Hence the ambitious GST would help the transport sector in improving its efficiency within India and exports besides reducing the logistics costs. However, since petroleum products are kept outside the scope of GST currently, and since nearly 50% of all goods transported is motor spirit, some of the benefits of GST may not reach end customer.
GST will offer a huge opportunity for both logistics companies in India and their customers. With the implementation of GST and phasing out of CST, provides a significant opportunity for logistics companies in India to revise their infrastructure because the decisions on location of warehouse and distribution is purely based on operational and logistics efficiency rather than tax consideration. Hence GST will lower the cost of logistics outsourcing and will boost outsourcing in supply chain. So there will be an increase in the role of 3PL and 4PL logistics service providers and more organized LSP will be emerging and the existing 3PL and 4PL in unorganized sector will be expected to improve their service levels because taxes will no longer be added costs for the businesses.
Like I mentioned earlier companies felt the need to build at least one big warehouse in different states because of different taxes being imposed in the states. This increases the storage cost and affects the warehousing structure in India. With GST in place, there would be uniformity in imposed taxes and companies would not require to pay for taxes in different regions. Companies would have one big warehouse at a central location which might serve multiple states leading to decrease in the number of warehouses. Alternatively, companies may opt for warehouses at specific locations on the basis of hub and spoke model. We can safely assume GST will have a direct impact on the total count of warehouses in a supply chain.
GST would have a huge impact on inventory efficiency as there would be lesser stocking points and case of stock outs would also be fewer. This will all be due to companies taking advantage of economies of scale and making better forecast for the upcoming demand, thereby ensuring that supply chain process is up and running. Surely, this will lead to a positive impact of GST on warehousing in India.
The consolidated warehouses will be larger in size for accommodating more inventory at a central location, these warehouses would definitely benefit from technological sophistication by implementing state-of-the-art planning and warehousing systems which are not possible in smaller and scattered warehouses. There would be indirect impact of GST on warehousing in India, as IT costs of deploying ERP systems at smaller warehousing locations would be eradicated.
But we can assume very safely that impact of GST on warehousing in India is going to lead us in the positive direction. Warehousing sector is bound to get more organized and overall profits are there to be reaped. There is an estimated growth of around 18% in warehousing until 2017, which will be above 20% in the coming years with GST’s implementation. These are certainly exciting times.
