6 major changes in transportation sector, post GST Implementation – All you wanted to know.

Indian Logistics and transport industry is estimated more than $130 billion annually. But this industry is highly scattered and unorganised due to the nature of state level taxation. Though we have lived with this for past 60 years, the issues we are facing day to day is huge. The structure is so complex that today we spend close to 50% of time in tax compliance, interstate check points and paper scrutiny. Logistics and transportation are support functions which are supposed to make the core operations of the business more efficient. But due to the current interstate tax regime, the logistics industry is caught in a quagmire of compliance and regulations. The Transportation Industry in India is at present largely fragmented and disorganised due to operational barriers making it highly inefficient.

With GST getting implemented from July 1st 2017, we foresee major changes in the Indian logistics and transportation sector and here we present the same.

1.More regional hubs

With every state having a different tax structure, currently manufacturers are having multiple warehouses, just for the sake of billing purpose. The implementation of GST will facilitate emergence of key hubs in major locations to allow streamlining of processes. It will also allow manufacturers with the flexibility to have warehouses only in selected states. A warehouse in Delhi can cater to northern states, one in Bangalore can cater to southern states all together and so on. This will result in more goods are transported to regional hubs and goods are delivered from there to distribution centres.

Hub & Spoke model

Hub & Spoke model

2. Shift in truck segments

With Hubs in major locations, you will only have distribution centres in various locations. This means more the transportation will happen between hubs and will lead to explosion of tractor volumes. Articulated Vs Rigid trucksAs per the current sales data upto Jan 2017, the split is 19% and 81% between rigid trucks and articulated trucks. Due to implementation of GST, we may see ultra long haul goods, moved in articulated trucks. This will also lead to further increase in the sale of 40T tractor segment. Additionally the 37T rigid truck, which is presently the highest rated payload rigid truck, will also see sales going high. More variants in terms of Wheel base, load body will be available. Also, the 12T and 13T trucks in the lower end of distribution truck segment will see sales going north as more goods will be transported to spokes.

Articulated Trucks

3. Higher Power to Weight ratio trucks

Presently India has one of the lowest power to weight ratio trucks. Say a 16T truck is currently powered by an engine delivering 160hp as against trucks in West where a truck is powered by upto 280hp engine, which in India is equal for a 49T tractor. With increased traffic between hubs, seamless state border and with more goods to be transported, we may see more of higher powered trucks especially in the rigid trucks. Newer drive lines, more feature packed trucks will be available. Presently Ashok Leyland 16T BS4 variant is powered by 180hp engine and this is a sign towards GST implementation. We may expect every manufacturer to follow the same strategy. Bharat Benz, which has steered the concept of higher power to weight ratio, will reap its benefits in coming days.

engine4.Reduced Turnaround Time

Truck drivers in India clock an average of 250-280 km per day as compared to the world average of 500 km per day. When Prima trucks were launched way back in 2008 – 2009, it was positioned as a premium truck and can travel more kilometres per day. In fact the marketing team of Tata motors spoke in one language, that Prima will travel more average distance per day, compared any truck on road. Though the claim of Tata Motors was right with aspect of Prima, what Tata missed was the tax structures of various states and trucks need to stop at every state border to check for papers. Due to this, stoppage at various check posts, it didn’t make any difference in the turn around time and hence the entire concept of faster turn around time didn’t pick.

Turnaround Time

State-border check posts, which currently ensuring material scrutiny and location-based tax compliance, often stretch the transit time in the process. These unproductive transit hours, as well as regulatory hurdles, delay overall transit time of a truck. Presently due to various state borders, turnaround time between Chennai and Mumbai is anywhere between 72 hrs to 96 hrs. Majority of the time is spent in clearing papers in state borders and truckers easily spend nearly 40% to 50% of their travel time as idle time in check posts. Thus, lower interstate compliance and reduced paperwork is expected to result into faster turnaround time for trucks resulting quicker delivery of goods. This will also ensure road transportation nimble and agile and will be compete with rail transport head on. Because railways are currently exempted from interstate check posts as trains always travel between fixed destinations. So there is minimal impact on the railways.

5. Higher Truck utilisation

As trucks reach the destination quickly, which is atlaest 30% lesser than the present scenario, utilisation of trucks increases. A truck which now doing 4 trips a month between Kolkata and Delhi can do 5 trips a month. This eventually leads to better operating economics for the fleet owner and increases the profitability. With more the trucks on road means better fleet utilisation and eventually increases the overall profitability of fleet owner.

Unladen Trucks

6. Lower Cost per Kilometre

 As much as 65% of India’s freight moves by road, a fact which leads logistics experts to see GST as critical for India. High variability and unpredictability in shipments add to logistics costs in the form of higher-than-optimal buffer stocks and lost sales, pushing logistics costs in India to two-to three times global benchmarks, according to the World Bank. Above mentioned factors shall work together and will automatically result in lower cost of transportation. Its expected that a company can save upto 25% of their logistics cost post GST implementation.

Verdict

Its very interesting scenario ahead for transportation and logistics industry. We foresee a major consolidation in the logistics companies, with fleet size of companies increase multi fold. Truck aggregators like TruckSuvidha, and logistics companies like Rivego which have successfully launched truck relay will continue to move ahead swiftly post GST implementation.

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