Currently at crossroads, India's logistics sector is heading towards an evolutionary phase with implementation of Goods & Services Tax (GST) and the government's focus on transportation mix, a report today said.
"The domestic logistics sector is currently at the crossroads. From the implementation of the GST to the government's focus on improving India's transportation mix and the emergence of technology-based startups, the road logistics sector is heading towards an evolutionary phase," rating agency ICRA said in a the report.
According to ICRA, these developments are likely to challenge the conventional business models and prompt stakeholders across the value chain to adopt changes.
"Despite limitations, the road transportation sector is in an attractive spot right now. From landmark tax reforms to increasing interest among foreign investors, the sector is expected to undergo significant developments over time," ICRA Senior Group VP, Corporate Ratings, Subrata Ray said.
He said in ICRA's view, the GST implementation and emergence of technology-based startups would start showing its impact in the sector in the near-term, while the government's focus on improving India's modal mix through proposed investments in railways and seaways will have a long-term bearing on the road transport sector.
The rating agency said due to changing customer needs and depleting profitability in pure transportation business, the organised players are transforming into end-to-end service providers.
The report said currently third-party logistics (3PL) and the supply chain management (SCM) industry is still at the nascent stage but are steadily gaining traction, especially in industries such as automobiles, pharmaceuticals, consumer durables and FMCG.
It further said the logistics sector is expected to be the key direct beneficiary of the GST regime and it would have three major implications on the sector, including consolidation of warehousing network and a shift towards the 'hub-and-spoke' model and higher degree of tax compliance with business moving away from unorganised transportation service providers to the organised sector.