The 2018 Economic Survey had a small chapter on the logistics sector. Among other things, it predicted that with implementation of the Goods and Services Tax (GST), the Indian logistics market is expected to go from $16 billion in 2018 to $215 billion in 2020, growing at 10.5 per cent annually. The growth in the previous five years had been 7.8 per cent.
Even before the GST was implemented, one sector that looked to benefit most from the new indirect tax regime was logistics and transportation. It was supposed to reduce transit time of trucks, increase fleet utilisation, drive formalisation in the transportation industry and trigger consolidation in the logistics sector. After all, GST has consolidated as many as 17 state and Central levies, including octroi/entry taxes, a reason for massive delays in truck movement. Also, the same countrywide tax on similar goods means companies do not have to open warehouses in different locations for tax arbitrage.
It has been almost two years since the GST was implemented. Most of the fine-tuning required has been done. Tax rates have been rationalised, rules clearly spelt out and clarified, and most missing links such as anti-evasion measures (e-way bills) put in place. Have the promised benefits materialised? Or is there still ground to be covered before we can become a seamless, frictionless market where goods are transported in the most efficient way possible?
Despite many complaints that truckers and motor transport associations have with the GST and the e-way bill - a mechanism for generating electronic challans for passage of vehicles across state borders - they also admit that after the GST implementation, the movement of trucks/consignments has become faster. Jai Praksah Singla, CEO, All India Transporters Welfare Association (AITWA), says the time taken by trucks has come down by 10-15 per cent. He says there are still issues in complying with e-way bill norms, but once these are settled, the movement of goods can be expedited further.
Faster movement of goods has resulted in savings for companies. A survey by Knight Frank - a real estate consulting firm - last year found that removal of checkposts led to average savings of 3-7 per cent for transporters. A reduced turnaround time means transporters can manage with a smaller fleet, though after some initial restraint by state governments, checkposts are reappearing at some state borders.
B. Ramasubramaniam, Co-founder and COO, Strategic Initiatives, BalckBuck, an online trucking company, says initially they witnessed a 20 per cent reduction in time taken to transport goods. However, he says, some states are coming up with new pretexts to keep trucks waiting at their borders. "These checkposts are appearing again. From Delhi to East, some of these check-posts are coming back. In some states, RTO (Regional Transport Office) check-posts are reappearing. The original plan was that RTOs would do random checks for e-way bill compliance, but that is not the case in some states. RTO checkposts have come up in these states," says Ramasubramaniam.
E-way Bill Niggle
Certain e-way bill provisions are creating problems for transporters and the logistics industry. "In case of a discrepancy, both goods and conveyance are seized. In a number of cases, goods as well as vehicles have been seized on smallest of discrepancies in e-way bills and even on suspicion of undervaluation," says Singla of AITWA.
In many cases, when a single truck is carrying many consignments, and there is a discrepancy in documents of a single consignment, it results in detention/seizure of the vehicle, delaying delivery of even consignments whose paperwork is in order. This results in undue costs and delays, necessitating extension of validity of e-way bills of other consignments. Small technical errors, even if not related to tax evasion, can lead to hefty fines. Transporters are demanding that taxes and penalties be levied only if the intention of tax evasion is proved.
The e-way bill was supposed to expedite fast-tagging (facility to pay toll online) at highway toll plazas, but has not made much headway. Ramasubramaniam of BlackBuck says while most toll plazas on national highways have the facility for online payments, state highways lag on this front. So, on state highways, truck drivers have to be given cash to pay toll charges. This deters adoption of RFID tags among truckers as they want only one solution (online or cash payment) and not both. He says only 8 per cent trucks are using RFID tags.
Consolidation of Warehouses
Consolidation of warehouses has been going on at a slower pace, unlike what was expected before the GST implementation. One reason could be frequent changes in GST. "It (consolidation) is still slower because, I think, there are customers who are still assessing the impact of GST as there have been changes. They were looking for stability to take a call. A lot of research has been done already as to where they want to set up their warehouses and those have started getting executed," Vineet Agarwal, Managing Director, Transport Corporation of India, said in an analyst call recently.
However, irrespective of the pace, the GST has forced companies to look at aggregation. Faster movement of goods has resulted in reduction of inventory and as a result fall in requirement of warehousing space. But this has not been uniform across sectors.
Knight Frank research says the level of consolidation will vary across industries. Its survey reveals that consumer durables manufacturing companies envisage up to 40 per cent reduction in number of warehouses in the near future. However, same level of consolidation won't take place in the FMCG sector. "They will continue operating warehouses close to the consumption cluster, but intermediate warehouses between factories and feeder hubs may be consolidated. As FMCG is a volume business and shortage of stock can lead to loss of sales and customers, the companies will continue to retain their key warehouses near consumption clusters," says the report.
Vikas Anand, Managing Director, DHL Supply Chain, says that after implementation of GST, India is attracting bigger players in the logistics industry, to establish larger, consolidated warehouses in the country's key strategic locations, while offering economies of scale at regional hubs. "We find customers have slowly begun consolidation which gives opportunities for larger warehousing to be introduced. Over the past few years, DHL Supply Chain has built over eight million square feet of warehousing space as the company has stepped up its foray into emerging markets." Each of its "big boxes" contains more than 200,000 square feet - more than 10 times the average size of warehouses in India.
Nonetheless, the GST has already given a boost to multimodal logistics parks (MMLPs). Peeyush Naidu, Partner, Deloitte India, says the industry has started responding to the need for aggregation and development of large hubs rather than spread out facilities across the length and breadth of the country. "We have seen the Ministry of Road Transport and Highways (MoRTH) encouraging such initiatives. The private sector is also taking keen interest in scaling up," he says.
According to Naidu, the MoRTH is planning MMLPs in 35 cities with the highest freight movement (covering more than 50 per cent road freight movement in India) to improve efficiency. Private sector players are also participating. Prakash Tulsiyani, CEO, CFS and ICD Verticals, Allcargo, said in a recent analyst call: "We continue to witness consumption-led growth which is driving demand for specialised logistics services. The company is taking steps to participate in MMLPs, including grade A warehouses, where demand is growing due to consolidation of inventory, specifically after GST."
The Economic Survey report last year pointed out that the logistics sector "is marred by high cost of logistics, impacting competitiveness in domestic and global markets, underdeveloped material handling infrastructure, fragmented warehousing, lack of seamless movement of goods across modes, lack of integrated IT infrastructure/modern technology." With GST bringing cost efficiencies by reducing transit time and pushing consolidation in warehousing, the sector can hope for better days ahead.