IT-related logistics solution provider Redington (India), which has been developing a third party logistics services business under the brand ProConnect, is expecting a better opportunity in scaling up transportation business, following the implementation of the Goods and Services Tax (GST). With the advent of GST, the company expects that the concept of Full Truck Load (FTL) will to shift to small cargos, which would improve the margins, said senior management officials.
With the implementation of GST, the company is expecting that certain businesses and logistics, particularly transportation is expected to scale up significantly. However, transportation, in terms of profitability will be lower, said Raj Shankar, managing director of Redington (India) Ltd.
"What we are trying to do is to see how we bring in some applications that allow us aggregation and consolidation. So in other words, our model continues to keep the capital light. However, at the same time, we want to make sure that these leased trucks are by and large dedicated for our purpose, our business and our cost, and now we are in the process of developing these apps that are going to become important for the business," he said recently in an earnings call.
On the implementation of GST, he said that the firm is expecting a cost reduction owing to the consolidation process post-GST. According to Shankar, efficiency levels are going to improve due to a time reduction of 20-40 per cent, which in turn will contribute to cost reduction.
The company hopes to benefit from the recent level-playing field available to them in light of the arbitrage being used with regard to the different taxes under GST across India. Given these factors, Redington India is looking to reap benefits in the coming quarters.
While there were initial hiccups after the GST roll-out on July 1 and its subsequent impact on the first and second quarter of FY18, benefits are expected to accrue from Q3 onwards. The company is also looking forward to gradual recovery in the long term, while keeping its hopes high on the distribution side of the business.
While earlier Redington was expecting consolidation in terms of bringing down the number of warehouses from 82 to around 45-40, now it is saying that the company is seeking consolidation in terms of warehouse space and there are plans of a hub and spoke model that would help in the increasing the speed of delivery from different locations.