Logistics firms see more room for growth

29 May 2017

With the Goods and Services Tax regime less than two months away, logistics companies expect further growth, especially in the contract space. Established players in the market are eyeing to take advantage of the new taxation regime by capacity addition to their existing warehouse space as the contract logistics business involves handling goods on behalf of the manufacturer right from the moment it is produced at a factory.

For example, companies manufacturing water bottles hand over the bottles to a contract logistics player, for branding, packaging, warehousing and ultimately final distribution. It helps the manufacturing companies focus on their core competency of manufacturing. Logistics operations get outsourced, which helps in reducing the logistics costs of the manufacturer.

Currently, manufacturers base their decisions of sourcing and manufacturing on taxes such as VAT, excise duty and service tax.

In the GST regime, due to the fungibility of credits, these decisions would be made from a supply chain perspective.Market majors such as Avvashya CCI Logistics of the Avvashya Group plan to invest about ₹250 crore in the next three years for warehouse and warehousing automation capabilities. Apollo Logi Solutions, a part of the tyre maker Apollo Group, is also seeing huge opportunities in this space.

CEO of Avvashya CCI Logistics, V Balaji, said that the company has worked out strategies keeping in mind the contract logistics business and therefore, in the last three years, it has been focusing on automation enabled warehouses, which will handle the cargo better.

Today, the company has about 2.6 million sqft of warehouse space and by 2020, it could grow three to four times. The company has a land bank of about 700 acres, that had been invested earlier keeping in the post-GST opportunities, he said. For Avvashya CCI, industries such as auto, auto ancillary, chemical, FMCG, e-commerce and fashion garments, is driving the growth.

For some of its manufacturer customers, the company handles everything — right from hauling raw materials to the production lines to the post-production product handling and final delivery to the customers, Balaji said.

Vice-President (Business Development) of Apollo LogiSolutions, Anay Shukla, said that the company is keen to grow in contract logistics space. It currently runs a facility from Mehsana in Gujarat where it procures tyres and wheel rim for different vendors and then provides the finished wheel to Hero MotoCorp. There are many such opportunities waiting to be explored in the market, he said.

CEO of Mahindra Logistics, Pirojshaw Sarkari, said that the biggest change that the GST would bring in the market is the restructuring or reconfiguration of supply chains.

This will have an impact across transportation network design, warehouse consolidation and more optimal inventory and order management. Therefore, the company is already working with large auto, engineering and consumer companies to help them design, roll out and operate these fundamental shifts in supply chain and logistics systems, he said.

SOURCE: business standard