GST rollout set to spur indian logistics growth

by / Friday, 09 October 2015 / Published in News & Updates

The approximate $166.73 bn Indian logistics industry is set to witness robust momentum in growth following the implementation of Goods and Services Tax (GST), says Logistics Sector Report 2015 of Singhi Advisors. Highlighting the array of advantages the logistics players billed to reap, the report adds that post-GST there would be reduction in number of warehouses, improved efficiencies, better control and reduction in inventory, increase in transportation lot size to bigger trucks etc.

Also, GST regime is dubbed to bring in bouquet of benefits including elimination of existing inter-state sales penalties, advantage of economies of scale, reduced capital deployed in business, large warehouses resulting in state-of-art planning and systems; IT cost of having ERPs deployed at small warehouses can be saved, hub and spoke distribution model; removal of C&F distributors.

Besides the host of benefits, GST would also re-organize countrywide networks that would decrease the cost of primary freight since warehousing locations are likely to be placed closer to manufacturing/import/export locations. This would have a cascading impact on secondary freight cost due to fewer warehouses.

Dissecting the $166.73 bn Indian logistics market pie in detail, the report avers that three segments namely logistic service, warehousing and transportation constitute $17.4 bn, $9.33 bn and $140 bn respectively. The three segments are also growing at a Compounded Annual Growth Rate (CAGR) of 10%, 7% and 83 % respectively. The sub-segment breakdown study reveals that warehousing market size encompasses Industrial/retail at $5.67 bn, agriculture at $1.4 bn and cold storage at $1.5 bn growing at a CAGR rate of 10-12%, 10-12% and 15% respectively.

Similary, transportation market size includes road at $84 bn, rail at $43.3 bn and ports at $11.2 bn registering a CAGR growth of 8.6%, 5.1% and 14% respectively. India contributes 4% to the global logistics industry that is pegged at $4 trillion size in 2013 representing 10% of global GDP. The global transportation services market is fastest growing sector with 7% y-o-y growth since 2011 notably US accounting for more than 42% of global transportation services sector.

However, it is predicted that focus will shift to Asian countries due to increasing intra-regional trade activities specifically to countries like India, Indonesia, Malaysia, Philippines, etc that are increasing intra-regional trade in combination with high GDP growth rate transforming Southeast Asia into a new regional cluster.

Demand and growth drivers:

Demand arises from across the spectrum of sectors including manufacturing where increased demand is sensed in textile, auto, steel, cement, FMCG etc; likewise, agriculture sector has appetite for temperature controlled warehousing and transportation; same applying to pharma where temp controlled transportation and storage aid to reduce the spoilage of medicines; spurt is also seen in e-commerce industry growing at CAGR of 35-40%. The report has identified 7 major areas where opportunities exist.

Those areas include outsourcing logistics, e-commerce logistics, express logistics, infrastructure investments, FDI, GST and increased PE investment.  In the outsourcing logistics line of business 3PL players are expected to grow at CAGR 21.16%; large players are introducing a dedicated e-commerce logistics business with example of companies like Gati launching e-commerce logistics unit; need for just in time delivery, time bound delivery and parcel/cargo tracking system is fuelling 17% growth in express logistics division; govt focus on infrastructure with investments pumped into golden quadrilateral, east-west and north-south corridors along with tax break for foreign investors in cold-storage, agri-warehouse and FTWZ is slated to stimulate fresh opportunities; FDI in multi-brand retail also provide the right impetus to logistics industry; Suffice to say GST will result in consolidation of warehouse and increased secondary transport; with signs of freight business stabilization surfacing in supply chain industry, Private Equity sector saw 43% growth with companies like DHL planning to invest 100 mn euro in express, ecm, and freight forwarding areas of business.

Critical success factors

An umpteenth number of critical success factors are driving the growth of Indian logistics. The successes are seen in investment in safety of products for damage free delivery, technology integration of supply chain partners and products delivered directly from manufacturer to customer rather than via distribution centers. The transformation is also seen in the industry due to technology and new business approach emphatically being the application of data analytics resulting in improved truck utilization, optimizing route selection and improving customer service. In the same vein, the success of contract logistics has reduced logistics cost and ensured the focus on core business. Lastly, consolidation of the industry is driven by customers favoring large operators.

See Article: http://www.sagarsandesh.in/logistic/gst-rollout-set-to-spur-indian-logistics-growth/

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