Warehousing costs to fall, transport demand to surge

The goods and service tax would change the way companies operate not just in terms of tax books but also logistics, making it a big positive for the logistics sector. They would be able to bring down their expenditure on warehousing through more effecient movement of goods.

Besides, GST would result in lower transit time and high rail-road utilization by way of seamless inter-state movement of goods, Anil Yendluri, Director & CEO, Krishnapatnam Port said.

Currently, logistics firms have to set up warehouses across all states but after GST comes into place they will set up facilities wherever best conditions are available. They would not need to set up warehouses in all states which mean that the inventory costs will come down. “For a logistics company, inventories comprise 50-60 per cent of total cost, with GST it will come down to 10 per cent,” Rivigo CEO Deepak Garg said.

These companies will be able to set up larger warehouses at locations favourable for them which will result in the overall logistics cost coming down by about 30-40 per cent. It would also mean greater movement of goods resulting in more business for transporters. The demand on infrastructure would increase requiring government to play a pivotal role in providing better rail-road infrastructure for seamless transportation of goods.

“This may lead to a need for broader roads leading to the hub, or even new rail connectivity,” said Biswanath Bhattacharya, Partner, KPMG in India.

With the formation of greenfield or brownfield logistics hubs, some of the transport linkages may need to be redrawn or their capacity expanded to align to future traffic patterns. Bhattacharya says small hub may be expanded significantly due to location efficiency considerations.

Also, distribution and warehousing services will be rationally structured and centralized, which will reduce the logistics costs for the benefit of the customers. “Organised and brand oriented companies will definitely benefit from GST. Organised companies will be indirectly benefitted by warehouse/logistics costs across the operational and non-operational segments. It will also expected to stimulate lower carrying costs for inventory,” Anil Rai Gupta, Chairman & Managing Director Havells India said.

Port sector, too, is looking at transaction cost coming down significantly. “Since there will be a blanket tax, cargo volumes will pick across states. That will be a huge benefit. Also we are expecting the transaction cost to come down by half,” said Hitesh Avchat, analyst with Care Ratings--Ports and Shipping

With uniform taxation, operational efficiencies are expected to come. “GST should help do away with sales tax checks at the borders of every state. Overall, transaction costs will come down and so will delivery time. This will push up efficiency in the system,” said Vijay Kumar, COO, Express Industry Council of India.