Indian transportation industry is highly fragmented

DHL is the global market leader in the logistics and transportation industry. The company has expertise in international express, national and international parcel delivery, air and ocean freight, road and rail transportation as well as contract and e-commerce related solutions along the entire supply chain. It has a global network of more than 220 countries and territories and around 315,000 employees worldwide.

Vikas Anand, Managing Director – DHL Supply Chain India Pvt. Ltd told Sandeep Menezes that the implementation of GST will change the way supply chains are operated by most companies in the country.

Copy of _D1C2133Excerpts from the interview:

India is unique because transportation costs are high by virtue of the way the supply chains are designed against tax optimization and not transport optimization. Comment.

The Indian transportation industry is highly fragmented and poses several challenges with 80% of operators owning less than five trucks and most of them being lane specific. As there are very few regional or pan-India players, coupled with the different taxation and road permit regulations, large shared facilities can provide the leverage to use economies of scale as a competitive advantage in transport too. A well-developed Transport Management System (TMS) can achieve better fleet utilization and improve internal control through a centralized platform and enhanced reporting.

In fact, at DHL Supply Chain, we have already introduced our Full Truck Load (FTL) services across India, in line with our strategy to offer vehicles of various capacities and are offering customized solutions and support, in addition to tracking of shipments. Additionally we have also created a branch network across key cities to support the domestic trucking needs of our customers with strategically located offices, equipped with a team of professionals to support business requirements.

India spends around 13% of its GDP on logistics; this is higher than USA (10%), Europe (11%) and Japan (10%). Inefficient practices have inflated the industry size, how can we improve supply chain efficiencies?

There are several reasons for the high spend on logistics in our country, as a percentage of GDP. Logistics and supply chain is a highly disorganized industry in India. The condition of roads, the road network itself and vehicles (a large majority of which are owned by single individuals) that are not fuel efficient add to the supply chain cost. Everything from a shed, to a godown to large storage facilities are considered to be “warehouses”. More so, due to the current taxation structure, multiple warehouses exist creating several points of stock transfers, leading to inefficient distribution channels. A uniform tax will help India become a hotspot for manufacturing, reduce the cost of production, lead to consolidation of warehouses and increase synergies in the supply chain.

With the government’s renewed push towards GST implementation, tell us about the expectations from the logistics industry?

GST will be a game changer for business for players in the logistics and supply chain industry. The implementation of GST will change the way supply chains are operated by most companies in the country as it will bring upon the need to establish larger and more integrated warehousing operations and end to end solutions. These, in turn, will require more advanced IT solutions, larger and enhanced infrastructure along with better trained staff – both blue and white collar.

Current supply chain structures in India are engineered to harness fiscal benefits arising from difference in tax structures across regions. A single unified tax for both “goods” and “services” with the objective of eliminating tax cascades, will bring about a transition from the existing origin-based to a destination-based taxation regime.

India’s warehousing infrastructure both qualitatively and quantitatively is highly inadequate. Going forward, how do you foresee the scenario evolving? How can private participation assist?

The warehousing infrastructure in our country has been based on the tax structure, with different states having multiple taxes, leading companies to set up their production base according to this. With the impending introduction of GST there will be a marked change in the warehousing industry.

It will be possible to operate large scale shared facilities with multiple users which will set the platform for consolidation in the post GST scenario. GST will make large regional warehouses economically viable as opposed to the multiple small ones set up to deal with the current tax structure. DHL Supply Chain is in fact, well ahead of the curve; we have already invested in large Multi-Client Sites (MCS) in five metros, and are in the process of completing construction in three more cities. These offer a wide range of additional services that improve the performance of a customer’s supply chain. From sub-assembly, co-packing, customization, postponement, kitting, sequencing to pre-retail activities across all industry sectors, DHL MCS solutions will help businesses lower-costs, reduce inventories, and suitably match supply with demand.

With the government’s focus on its ‘Make in India’ campaign, there will be increased requirement for industrial projects transportation. Comment.

With the objective of increasing the share of manufacturing in the GDP of the country, the government has planned to develop smart sustainable cities, logistics hubs and residential townships. This will undoubtedly give an impetus to industrial projects transportation which will play a significant role in helping to create a sound infrastructure to support the economic base.

What is DHL Supply Chain’s future business strategy in India? Going forward, does the company intend to focus on any specific business segments?

DHL Supply Chain is creating specific competencies in its focus sectors, which include Life Sciences & Healthcare, Automotive, Consumer, Retail, Energy and Technology to add value to our customers’ end to end supply chains. We have invested in large MCS facilities and in increasing the number of our long-haul high-carrying capacity transport vehicles, which will place us in a good position to enhance the quality of our existing customer service with faster delivery and maximum reliability. Additionally, we realise that IT plays a very significant role in providing market leading innovative solutions. We offer end to end IT integration through world class WMS, TMS, Track-n-Trace, e-PODs etc which provide safe and compliant solutions and help companies improve productivity and reduce costs.

Last, but not least, we invest significantly in the development of our employees to ensure they are imparted with a consistent and standardized training so that we successfully differentiate ourselves from our competitors.

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