‘GST can reduce transportation cost by 20-30 per cent’

The Hindu Business Line By SEETHARAMAN R October 17, 2016

Border-less transport can create a far leaner and efficient distribution network. GST will transform upstream, midstream and downstream points of the supply chain, says Rajeev Singh, Partner – Management Consulting, KPMG Advisory Services.

How do you see business-to-business (B2B) and business-to-consumer (B2C) segments getting reshaped after GST?

The B2B segment focuses predominantly on upstream to generate cost efficiency. Presently, even if a supplier across the State supplies goods at 1.5 per cent lower cost, the supplier’s landed cost does not work out to be as cost effective if one considers the additional 2 per cent central sales tax (CST). Earlier, the manufacturer tried as much as possible to buy material from the same State. But after GST, the manufacturer can streamline his procurement footprint and establish a lean supplier network that is cost-effective, irrespective of the location.

In case of B2C, the focus is largely on downstream. Overall, the supplier network will get leaner both in buying as well as on the distribution side. Manufacturers will prefer larger plants because of a reduction in logistics cost and ability to service greater geographical area from the same plant. So, for instance, today if I have a plant with a very bulky transportation network, the break-even distance could be around 250 km. But after GST the break-even distance will increase possibly to 300 km or more. People will set up larger plants and this will result in economies of scale for the manufacturer. Over a period of one or two years, the benefits will pass on to the consumer. Across the world, GST, though inflationary from a short-term perspective, has brought down cost over a longer term.

What is your take on increasing levels of containerisation after GST?

Usage of twenty, thirty and forty tonners will go up after GST. Consolidation will increase and demand for transportation using larger load trucks will be high. But this will have to be dovetailed well with infrastructure development because with bigger trucks you require better and broader roads. This infrastructure investment should be done by the Centre.

From an industry perspective it is good news because per km transportation cost will go down.

How do you see the cold supply chain market evolving after GST?

It is very similar to others. There are three types of supply chain: the ambient supply chain, chain that moves at 4 degrees centigrade and chain that moves at -20 degrees centigrade. In terms of consolidation, it will be a little bit more beneficial for a cold chain because the investment requirement in an ambient supply chain or a 4 degrees centigrade supply chain is lesser than in a cold chain. Rather than consolidation that is happening currently at 100-odd locations, after GST, investments can be made only in 60-70 locations.

After GST, will there be any change in the service levels for customers?

Service levels will improve as the depot and dealers get remapped. Customers can reap benefits from both cost and service levels. With GST, service levels will go up while cost will go down.

What will be the effect of GST in the creation of new jobs?

From a micro perspective, at every level there is an opportunity to rationalise and reduce the people involved. Even from a tax perspective, the number of authorities dealing with tax is getting simplified. So, overall, at a company level, greater efficiency is obtained with fewer number of people than in the earlier system. But in the overall perspective, Indian companies will become globally competitive. This should help improve growth of industry in India.

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