GST in India is critical for logistical players

Patel Integrated Logistics Ltd is a leading India-based logistics company which operates through the following business divisions: Patel Roadways, Patel Retail, POBC and Patel Airfreight Domestic and POBC and Patel Airfreight International.
Areef Patel, Vice-Chairman – Patel Integrated Logistics told Sandeep Menezes that better transport infrastructure will cut down operating costs which in turn will reduce costs of production as well as the prices of commodities in the market.

Areef Patel

Areef Patel

Excerpts from the interview:
What is PIL’s future business strategy in the warehousing and logistics segment? Going forward does PIL intend to expand services especially its warehousing capacities?
In coming 4-5 years there is going to be a tremendous rise in demand of goods and a considerable chunk of the same could emerge from E-Commerce. Warehousing is going to play a vital role. For us, warehousing will be a key driver of growth too. Demand will be on the higher side from the Tier 2 & Tier 3 cities. Delivery of goods has to be time-bound which is possible only with adequate storage capacity with modern amenities and technology at a suitable location. In view of this, we have come up with E-commerce division. To support this, we are planning new warehouses in Delhi and Mumbai. We already have warehouses in Chennai and Bangalore.
However, the rollout of GST will be a determining factor for the supply chain management in the country. We are also waiting for it to decide on the future strategies in warehousing sector. But, we are firmly on the track of expansion, by opening more units in several states. We have added 200 new offices in the southern part of India in the recent months, taking the overall number of offices to nearly 800. That makes us the only domestic player with such wider network on the ground.
Tell us the main reasons for PIL reporting Top-line growth of 6.5% while improving margins to 4%?
Overall, the past two quarters have been very good. If you compare the results of the last quarter ending December 31, 2014 with that of the previous year, the top line growth is 11.25 per cent. Profit before Tax has increased by 237.43 per cent, showing an increase of 3.81 crore, compared to the previous year. PAT has increased by 218.31 per cent on year-on-year basis to touch Rs 3.65 crore.
One main reason was the cut in diesel prices, as in the case with other logistic players. But we also took concrete steps to focus on businesses that can give a healthy bottom line. One of them was e-commerce and we tied up with Amazon to their preferred partner for express delivery of goods. Besides, there was a concentrated effort to cut the costs in operations and improve operational efficiency. The company has right sized itself and has started reaping the benefits of an integrated back office.

India Spend around 13% of its GDP on logistics.This is higher than USA (10%) Europe (11) Japan (10) Inefficient practices have inflated the industry size. How can we improve supply chain efficiencies?
In India, only 20 per cent of the sector is organized. There are a plenty to be set right in the unorganised sector and this is one side of the problem. This will improve organically as order will set in gradually. As the sector becomes organised, the best global practices would be adopted to improve the efficiency.
There are plenty of grey areas externally too. There should be uniform rules and regulations pertaining to transportation. One cannot wait for 4-5 days for the delivery from one state to another and the main barricade in this regards is the clearance and toll booths. The infrastructure is the other reason. GST and transport policies are the current two expected mechanisms which will bring a huge difference to the entire supply chain system in the country.

Government is focused on its make in India campaign. Do you feel that transportation infrastructure will be crucial if manufacturing costs are to be reduced?
Infrastructure is the backbone of any economy, as we know. Likewise, the transportation infrastructure is spine for manufacturing economy. How can we develop manufacturing hubs without having good roads? If the campaign needs to be meaningful, the government has to drastically improve the infrastructure system.
Almost 70 per cent of the cost incurred by a logistic company is in its transportation. Better transport infrastructure will obviously cut down the operating costs which in turn will reduce the costs of production as well as the prices of commodities in the market. Like `Skill India”, the government has to plan a `Infrastructure India” campaign before pushing `Make in India.’

With the government renewed push towards GST implementation tell us about the expectations from the logistics industry? How will GST implementation influence the logistics industry and PIL in particular?
Implementation of GST is not as simple as it looks. If implemented, that is going to take away lots of our headaches, even if it does not improve our bottom line in the short term. First thing is that we will save our precious time now wasted along the check-posts. I don’t have any problems in paying tax but the time wasted for understanding, reworking and settling them is not accepted. Almost 65 per cent of the freight moves through road and hence GST in India is critical for logistical players. It will definitely cut down the operating costs.
In our case, apart from cutting down operating costs, GST will also guide our strategies in warehousing sector as I explained above. The unorganized sector in the logistics industry too will benefit with the implementation of GST as it will open up new opportunities for the unorganized players to do business. The organized sectors can definitely hope to cash in, as I feel, this will go down as one of the biggest reforms in the history.

Shipping and road transport minister Nitin Gadkari recently announced that the central government was working on a new multimodal transport policy. Do you have any suggestions?

Yes this policy is a refreshing change – which is welcomed. However there is a need for implementation of the policy and it needs to be ensured and that is the key issue. Many such schemes have been discussed before however there must be commitment & time frames duly defined & implemented.
Currently India faces a need for at-least another 123 million tonnes of warehousing including cold storage capacities. How can this huge shortfall be met? Tell us about the role of private participation in this initiative?
Country needs not only warehouses of high capacity but it should also have modern technology to make it effective. Government spending on infrastructure is going to rise tremendously in the nest 3-4 years. I cannot see a 7 % growth with the existing infrastructure. Warehouses are needed considering the expansion India is going to witness mainly in the rural areas and in Tier 2& 3 cities. India doesn’t have a good cold storage warehouses. Business is going to increase and when you deal with different regions of the globe the requirements will also equally increase. To cater to such requirements one should have such services like cold storage, bonded warehouses, etc.
Private players will have a huge role to play as it is will turn out to be one of the revenue models for companies. Private players will invest heavily in warehouses and probably rent it for other players who are more into business which requires such an arrangement. Setting up warehouses will marginally decrease the cost of operation and can give a competitive advantage to companies. Many of the Large E-tailing firms have started setting up their own warehouses for their business needs.

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