In the last Union Budget, the CST rates were brought down to 2%. This gives a confidence to government's commitment to phase out CST by March 2010.
This decision will obviate the existing need of maintaining CFA or Depots in every state to avoid double taxation. This is going to change the entire logistics landscape in the country. This will provide a huge opportunity to reduce logistics cost (10% - 15%) by consolidation of warehouse infrastructure. Currently, all consumer goods companies operate 20 to 40 warehouses in the country, that can come down to 5 t0 10 progressively. This would also mean that small players will be out of the scene and big 3PLs will take over the majority of logistics business.
Is the logistics industry preparing itself for the change, well in advance? The logistics players must start planning & building the infrastructure "now". The Planning requires mapping the demand pattern of major consumer goods companies, creation of logistics hubs, looking at the high volume / high speed trucks, container handling facilities, railways connections etc. The role of 3PLs in the supply chain will increase to customer service, route optimization instead of just shipping goods.
With reduction in number of warehouses, servicing small customers /orders will become difficult. So, 3PLs will have to create cross-docking facilities to operate efficiently, like a relay-racer end to end. The order servicing time to distributors or customers will increase, so this will need a mindset change. However the service reliability will improve with professional 3PLs and stock-outs will reduce due to consolidation of inventory.
This will also open doors for greater multi-modal transportation opportunities using road, rail & even ships for long distances. Railways will be an important mode for the consumer goods companies and not just for bulk items. Also, containerized movements will get a fillip and container requirement will go up substantially.
However, it is not known if the things like differnt forms for different states , octroi, road permits, toll gates will also be done away with. If these bottleneck remain then the entire benefit will not be realized. The industry or CII should represent to government to already take steps in abolishing non value adding procedures.
We propose to form a work group of people who are interested in it.
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