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Organised logistics firms will reap greater GST benefits than traditional transporters

Organised transporters will benefit more from GST

In their efforts to unify and optimise the exchange of goods and services, GST frameworks pointedly credit organised transport businesses and disincentivise inefficient logistics networks. The uniform national levy will install input tax credits to offset transport service taxes, spur consolidated warehouses and smooth cross country transits to optimise supply chains, thereby increasing demand for organised logistics solutions providers and leaving unprepared players far behind the competition.

Input tax credits cripple price-based competition

Before the GST rollout, transporters applied a 4.75% service tax on each consignment. The GST standardised this to a 5% levy on all commercial transport. Furthermore, tax paid on the purchase of specific items such as vehicles, tyres, insurance covers and other transport related goods and services can be offset by input tax credits, which reduce the cost of freight transport by 4-10%. Manufacturers may also write off levies paid on individuals components to reduce tax burdens on the final product, which would reduce the cost of goods and the consequent value of some consignments. Collectively, streamlined transport taxes incentivise compliance through credits and reduced freight costs.

Only 10-20% of India’s road transport sector is organised. A majority of the industry is fragmented and continues to operate within analogue, inefficient and non-compliant models. Several disorganised transporters evade taxes to undercut the competition with abnormally low pricing models. Under the GST, all logistics solution providers will play on a level price field, incentivising quality based competition. In this regard, organised companies with smart operating models can sustainably scale operations to cost-efficiently meet increased demand. For traditional players, the transition to a GST governed transport network will be significantly slower, resulting in loss of market share and revenues.

Speaking to Livemint, “Sandeep Mathew, an analyst at SBICAP Securities Ltd, reasons that “smaller players will have to start focusing on niches (eg. underserved markets) to effectively compete with larger players.”

Consolidated logistics hubs demand organised transport chains

Under a multilayered tax web, manufacturers and distributors chose to locate go-downs and fulfilment centres in tax friendly zones rather than strategically viable areas. Setting storage spaces in these suboptimal locations increases inefficiencies, for instance extending delivery times and fuel costs. The GST subsumes replicative taxes permitting companies to strategically consolidate their supply chains. As such, optimised transportation links are essential to support organised warehousing models. Seeking to reduce costs, increase capacity and lower risks, businesses will seek out logistics providers with fleet visibility and structured processes to support their operations.

Traditional transporters running trucks or trips which they cannot monitor will increase the liability of delay or damage to customers who are investing in upgrading their endeavours. Organised logistics providers will, therefore, see increased demand for efficient transport chains. Disorganised players will again lose market share and face marginalisation, losing pace against increasingly dynamic and smart supply networks.

Optimised cross country transport boosts productivity and revenues for organised fleets

The GST inadvertently catalyses digitisation in India. The transport of goods across the nation, supported by electronic facilities and digital processes, is now faster, cheaper and easier than ever before. The standardised 5% transport tax further simplifies freight movements. As a result, trucks that previously drove 200 kilometres will now travel between 300 to 315 kilometres daily. Increased fleet utilisation boosts productivity across all operating nodes. Organised transporters with accurate data on delivery trends and costs are better equipped to match this increased capacity with increased customer demand to scale operations sustainably in a shorter period of time. Disorganised transporters would continue to accept jobs without accurate knowledge of feasibility, a tactic that capitalised on a previously chaotic and price sensitive environment. In the GST driven, simplified and consolidated logistics arena, however, organised players would transition more easily to scale operations and accommodate growing demand.

The era of smart supply chains has been fast approaching for at least the last decade. With the arrival of increasingly intelligent solutions to improve visibility, measure previously unseen metrics and accurately inform evolving strategies, Indian businesses demand logistics providers that can compete with innovative operating models. According to the Economic Times, “The logistics sector is to grow at 9-10 per cent in the medium term on GDP expansion, and the GST era will see benefits accruing to organised players.”

As analogue markets shrink, so does the window of opportunities for traditional logistics providers.

The organised sector, data-driven and tech enabled, will remain consistently better positioned to navigate and exploit change – whether that is demonetisation, new Union budgets or the GST rollout.

At Numadic, we believe that you cannot manage what you cannot measure. With our smart sensors that pair with analytical dashboards, logistics providers can track assets in real-time to analyse patterns, predict trends and optimise operations to match any market change.

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