GST: mild early gains but complete transformation can be more potent

GST: mild early gains but complete transformation can be more potent

Sunil Nair
Starting July 1, 2017, India Inc. entered the long awaited GST regime. There have been myriad expectations across a variety of stakeholder categories covering the short term and long term periods post the Goods and Services Tax (GST). Against such expectations, anecdotes and some data are starting to flow in across products, as we complete a full month in the GST regime.

Apprehension leading to optimism over a month
In the run up to GST, the industry sensed significant challenges and was apprehensive of the multiple issues to be addressed. In combination to general business slowdown seen in June 2017, the short term impact was quite negative for warehouse and transport operators. In fact, business weakness continued in July 2017, when the new regime kicked in.
Yet, as July ended, the feeling is one of satisfaction and optimism, as overall clarity improved across stakeholders. I can say the cold chain industry truly embraced the reform and wholeheartedly implemented it. Overall outlook of the industry remains positive after the teething issues have been resolved.  

Immediate cost savings on rollout relatively mild
Based on internal process initiatives taken by players thus far, companies have improved efficiency of about 2-4 percent post GST as compared to earlier. With border check posts made redundant, transit times have improved. In addition, due to widespread stock liquidation seen in the weeks leading to GST there were fewer vehicles with loads on roads further improving transit times. Now since the volume is resuming back to normal, the usual transit hurdles (other than check posts) are expected to remain there.

Expectations of savings post GST are higher
While the observed efficiency represent a good start, they are much lower than some widespread expectations. Among multiple estimates doing the rounds, some consider that savings are substantial to the tune of 20-30 percent. This leads to a number of clients demanding industry players to cut costs. I believe such estimates are misreported or misunderstood and a rational basis of attaining such super savings post GST is still to be known.

Higher cost savings require more complete supply chain transformation
I believe, realistic higher potential cost savings exists. However, achieving the same would require holistic approach involving:

  1. Restructuring the distribution network.
  2. Reducing storage or warehouse locations by consolidating.
  3. Availing input credit on product or services which was not allowed during pre-GST time.
  4. Opting for single 3 PL partner for end to end requirements.
  5. Benefiting from transport efficiency due to better transit time.

Consolidation of warehouses is a key imperative, 3PLs can complement effectively
While companies operating in the industry conducted their studies well ahead, they are executing the same after the GST roll-out. Companies having national presence see merit in driving warehouse consolidation. In fact, this is the best time for companies to use 3PL service providers - to suitably complement their geographical footprint with the right solutions.

Sunil Nair is the chief executive officer of Snowman Logistics Limited. Snowman is a leading integrated temperature controlled logistics service provider operating across locations servicing customers on a pan-India basis. Incorporated in 1993, Snowman is a publicly listed company on NSE and BSE. Views expressed by the author are in his personal capacity as an industry expert and do not pertain to those of his organisation.