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The Unspoken Impact of GST on E-Commerce Logistics

GST impact on e-commerce logistics and whether SMEs and whether enterprises are ready to change their supply chain strategies.
BY Bhavik Chinai
Founder and CEO, Vamaship
Jul 31,2017

The Goods and Services Tax reform in one statement is the unification of over 30 tax regimes in India into one. There have been a lot of perspectives on the impact of GST on different segments of logistics and very few have mentioned the humongous impact it will have on e-commerce logistics companies (ECLCs). To understand the depth of its impact, let's first understand the current supply chain of distributed Indian enterprises. Today, enterprises have several warehouses in different states i.e. one warehouse in every state or one warehouse supplying to a few states. Despite being in effect in terms of cost, the core reasons for having several warehouses have been VAT compliance and faster fulfilment.

The usual number of layers between the manufacturer and consumer are:

  • CF agents
  • Master distributors
  • Sub-distributors (area based)
  • Retailers
  • Consumers

There could be more layers, depending on the size of the enterprise. Each layer has a large margin which has a large impact on the final cost to consumers.GST can potentially change this supply chain forever.

With a unified tax system, enterprises can have large regional or national warehouses and centralized delivery management to different layers. Because of GST, enterprises are evaluating a completely new supply chain with fewer layers and greater optimization of cost and service.

How does this impact e-commerce logistics companies?

Using Existing Infrastructure to Maximum
  • ECLCs have several hubs in each area of a city, master hubs in each city, surface and airline-haul capacity, fulfilment centres and most importantly, the deepest first and last mile reach. This is exact infrastructure needed by enterprises for creating on-demand supply chains.
Market Size Growing By 400%
  • To put this in context, in terms of market size, ECLCs currently have a potential of a few hundred thousand customers (website owners, marketplaces, marketplace sellers, social media sellers etc.) and due to GST, many new industry segments (FMCG, fashion, pharma etc.) open to becoming potential customers, with estimates stating the market size quadrupling.
Changing Supply Chain Strategies of Customers
  • Due to the possibility of shipping small quantities at extremely economical costs with fastest delivery timelines and minimal compliance, SMEs are gradually changing their fulfilment strategy and trying to become demand driven against being supply driven.

Are e-commerce logistics companies ready?

Though theres a long way to go, there are many examples of ECLCs preparing for this opportunity already.

  • Delhivery has introduced less than truckload service on its own network.
  • Ecom Express now has a network almost as deep as India Post.
  • Express logistics companies like Self-express are introducing quicker delivery timelines of e-commerce for B2B shipments.
  • Integrated logistics service providers have become a one stop for e-commerce and B2B shipping within India and international.

There are many other examples of ECLCs preparing for the leap, yet it's work-in-progress.

Are enterprises ready to change their supply chain strategies?

Large enterprises have been working on creating an on-demand supply chain for a few years and the Indian compliance will finally support its objective. For SMEs to leverage logistics cost advantages and create an on-demand supply chain would take a few years. Forward looking SMEs have already started testing in some regions and the mass SMEs are yet to focus on optimizing every touch point of their value chain.Though the compliance needs of GST arent as simple as expected, the objective of the government is in the right direction and itll create more organized players out of unorganized players, deeper tech adoption among mass SMEs and true value creation throughout supply chains.

The best days for e-commerce logistics are yet to start and were hopeful for a successful implementation of GST.

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