The proposed introduction of GST from July 01, 2017 is poised to usher in major changes in the way India does business. One of the biggest impacts is expected to be on the logistics, supply chain and transportation sectors because the new tax structure is going to iron out glitches in movement of goods across the country.
Experts believe that GST will provide a mandate to redesign the supply chain without worrying about the hitherto complex tax considerations and thus, it has significant implications on logistics costs. Among other things, it is expected to consolidate primary movements and the entire chain will require fewer consolidated warehouses. This would mean that primary movement can be consolidated by allowing the use of bigger vehicles and more frequent FTL movements. As far as the secondary movement is concerned, more distributor points would be served from one warehouse. In fact, there would be a higher number of geographically dispersed distributor points which would be served from one warehouse.
When trucks travel longer distances, it calls for lower and more reliable transit time to maintain the agreed service level. In the post-GST scenario, lower transit time is expected due to lower scrutiny at State borders with simplification of taxation and related documentation.
As a result, the buffer inventory, kept for delays and/or uncertainties arising out of transport delays, can be reduced, contributing to overall profitability. A company can operate more efficiently by opening larger but fewer number of warehouses. Consolidation of warehouses will also contribute to lowering of inventory costs; and consolidation of freight operations will lead to need for larger and fewer trucks and thus operators will be able to reap benefits of economy of scale. As a result, transportation systems need to be reconfigured not only to synchronize business operations with the post-GST regime but to also obtain optimum benefits from the new reality.
The industry will have to thus think of creating new logistics dispatch models, thereby creating more opportunities to explore alternative distribution models. These models will require larger trucks for primary transport. It will also imply reduction in primary freight cost due to consolidation of freight.
The industry experts also foresee the following key changes:
In summary, overall impact of GST on transportation will be
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