Will GST drive logistics costs up or down?
Last month, ICRA released a study on the logistics industry. The bump in plans caused by destocking and restocking for GST seems to have left the industry positive overall. There is a projection of a 9-10% growth in the industry, significantly faster than expected GDP growth.
What does this mean from brands? Freight rates had declined in July and subsequently increased again in August once the transition date was passed.
Going forward, manufacturers will like to capture the benefits of faster travel times and look to consolidation of inventory locations. One of our clients has reported that transport times from Jammu to Siliguri has reduced from 10 days to 5. This reduction in good in transit inventory will lead to both a reduction in inventory held, but it will also improve responsiveness to the market. The more state borders there are to be crossed, the greater will be the benefit.
On the other hand, this will mean significant changes in infrastructure. Warehouse footprints will change. New, larger warehouses need to be located. Faster turnaround times will be needed to service the changing needs. Fleets can be modified to increase the load per trip, leading to lower unit costs. But for all this to happened, investment is needed. The report also talks about such investments putting pressure on the bottom lines of the logistics companies. While operational efficiencies can certainly improve, it is not clear whether overall costs will go up or down.
What is your view on this?