Impact of the GST Bill on Logistics & 3 Emerging Warehouse Location Strategies
Indian logistics has, for the past few years, indecisively toyed with the idea of new technological integrations. Struggling with fragmentation, operational inefficiencies, and randomly determined prices, it is predicted to take strides towards a transformational phase after the implementation of the GST bill… So, what kind of transformations are we talking about?
Overview of the GST Bill
The Goods and Services Tax (GST) is supposed to be a nationwide implementation that shall be levied on the manufacture, sale, and consumption of goods and services throughout India. It will have two components — Central GST (CGST) and State GST (SGST) which shall be handled by the Centre and the State(s) respectively. GST will be collected at each of the stages of sale/purchase of goods/services. This way, various levies and taxes on interstate movement of goods and raw materials will be minimised and shall come under a single umbrella of the GST with input tax credit at various stages.
This way, the GST bill will also have a considerable effect on the location of warehouses throughout India. How? Let’s see…
Probable Changes in Warehousing models after Implementation of the GST bill
There are certain changes that we can expect straight away after the introduction of the GST bill. Certain features and working models of warehousing and supply chain are set to become rather significant.
1.Favourable warehouse/manufacturing hub locations: Based on raw materials’ availability and/or regional customer density, the location of warehouses can be planned beforehand in the post-GST era.
Most companies can decide upon warehouse location for relevant target customers and regions with higher sales and better raw material availability. While the current system of states-specific tax rates and several taxes on various levels also transpires to numerous hours wasted by trucks at tolls; eliminating or reducing this wasted time will obviously make the transit flow smoother for logistics companies. Currently in India, most companies need to set up multiple warehouses in the most important regions, or in the states with the lowest tax-compliance requirements. However, after the introduction of the GST bill, there will only be the need for a single, zonal, mother warehouse and manufacturing hubs whose location will be decided based on efficiency thanks to a pan-India, cohesive tax structure and efficient transportation.
2.Cross-Docking Stations: Cross-docking is, to an extent, like a relay run of freight. Heavy-duty and larger trucks can move the goods to the exterior areas of the city across India.
Afterwards, smaller commercial vehicles can be loaded to move them to the interiors of the cities in a single relay run.
Favourable position of considerably smaller warehouses for freight transfer can cut down on the transportation times to a great extent, thus ensuring shorter delivery times.
3. Hub-and-Spoke Model: Zonal hubs, Sub-hubs.
This model emphasizes only the large mother warehouses at the most relevant points in the country which shall work in tandem with the ‘spoke’ distribution hubs.
This system employs minimal resources to manage the distribution from smaller regional hubs while also utilizing 3rd parties wherever required. This streamlines the utilization of the resources and hence brings in a more efficient system. This is all thanks to the reduced transportation hurdles and unification of taxes.
Final Thoughts.
In the existing scenario, distribution of warehouses based on vicinity has multiple repercussions on the decision-making for the financials of a business. Currently, a company which manufactures and supplies goods to multiple states, has to ensure tax compliance with all those specific states, and hence, it had to choose to set up warehouses in states with lower taxes.
However, with the eventual implementation of the Goods & Services Tax (GST) in the coming future, tax structure will no longer be a deterrent in choosing more economical hub locations.
The logistics industry has long awaited for the passage of the GST bill with bated breath. As it has now been cleared by the parliament, industry veterans are already trying to calculate the economics of the impact of the GST bill on warehousing, supply chain management, and logistics on a whole.
The GST regime is set to divide the burden of tax between manufacturing & services. The input credit system, on the other hand, will prevent overlapping tax payments for businesses across India. The details, however, shall be clear once the bill is actually implemented, and we shall be keeping a close eye on the ongoings.
To stay in the loop, keep tabs on our website. We, at Quikhop Logistic Solutions, are keeping a close watch on further revelations that shall also help us figure out the preemptive impact of the GST bill on the logistics sector here in India.
