Logistics, GST and Nagpur…of course, not to forget the Oranges!

The sleepy provincial town famous for oranges?

Nagpur has struggled while finding its character. Since decades Nagpur has been the sleepy town of Maharashtra despite being the 3rd largest city in the State, and the second capital of Maharashtra. More recently, it’s been in the limelight – after the NDA Government came to power - for being the Headquarter of RSS, and the home to the popular Chief Minister Devendra Fadnavis, and the central Road Transport, Highways and Shipping Minister – Nitin Gadkari. Nagpur has not been able to reach its potential – due to lack of political will as well as local work ethics. Tata Group started its first textile mill – Empress Mills – in Nagpur back in 1877. Sadly, 140 years since, no substantial industrial progress has happened in Nagpur. Industrially, Nagpur has fallen behind its smaller cousins in Maharashtra like Aurangabad, Nashik, and Kolhapur. Nagpur remains famous for its oranges and for the “Zero Mile stone”. Nagpur finds itself at the dead centre of the country. Previously, disadvantaged for being close to nowhere, that very drawback of being at the centre may get converted into the major economic advantage post-GST. Nagpur finds itself at the crossroads – in more than one ways!

Nagpur at Crossroads!

About 1000-1100 Kms from Bangalore, New Delhi, Chennai and Kolkata, and about 800 Kms from Mumbai, Pune, and Ahmedabad, Logistics companies are in the best position to take advantage of Nagpur’s strategic position. Hyderabad, which is even less than 500 Kms from Nagpur, in fact, competes with Nagpur for the Cargo Hub location.

Multi-modal International Hub Airport at Nagpur (MIHAN) has been in the making for 15 years. A lot of stumbling blocks, which often brought the hub construction to a standstill, are being handled on a fast track basis thanks to the conducive political atmosphere in the State. From SCM (Supply Chain Management) perspective the central location makes it attractive for fleet operators like Boeing, and Air India – with their MRO (Maintenance, Repair, and Operations) facilities, or for airplane developers like TAL Manufacturing Solutions (Tata Aeronautics), and Reliance Aerostructure Ltd.

Impact of GST

A recent news article from Bloomberg mentions:

“The country's biggest shipping companies including Container Corporation of India Ltd., Mahindra Logistics Ltd. and Transport Corporation of India Ltd. are all setting up facilities in Nagpur, along with the U.S.-based Deere & Co.”

GST is becoming a reality. It is set to remove many artificial barriers to trade and commerce, and turn the country into one marketplace. This could transform the fortunes of Nagpur which is already progressing as the logistic hub for consumer goods. For example, fast-moving consumer goods, (say, like from Patanjali) can be brought by flights to the huge warehouses that are being set up in Nagpur, and distributed from here by an efficient rail and road network to all the metro cities of the country within a matter of 2-3 days. The so-called “Hub-and-Spoke” model. No more halting of trucks in the unending lines at the State borders.

One country, one tax, one market

No industry within the country is poised to benefit more from the “One country, one tax, one market” vision of GST than the Logistics & Distribution industry. Agreeably, we have made GST more complicated than necessary. But our federal structure necessitates building in both - collection and distribution - aspects of the taxes in an intertwined manner. Also, the vast income disparity of our population demands a range of tax rates applicable to the products used by different strata of our society.

Logistics industry will benefit in following ways:

Logistics cost is about 14% of the product cost in India. The global average is barely 6%. GST could reduce the logistics cost to the industry by as much as 20%. An increase in competitiveness will lead to more commerce.

In interstate transport, we have huge stoppage costs. Our trucks on the trips spend as much as 40% time -  idling. This leads to huge operating costs, bureaucracy and paperwork, corruption and pollution. GST, while removing all these State and City barriers will lead to an enormous reduction in such costs.

The logistics industry is expected to get more organized and benefit from the economies of scale.

Transformation of Indian industry

Indian industry will experience huge changes taking place over the next years – due to GST, as well as due to the changed model of storage and delivery. Major beneficiaries will be FMCG and Consumer Durables.

• Industrial Supply Chain will be driven by the - need of and efficiency in distribution - rather than tax structure of the States. Need for maintaining depot in each major State will vanish. Different variations of “Hub-and-Spoke” models will be in vogue. Companies will move from smaller and scattered to fewer, larger and centralized warehouses.
• Companies will completely outsource logistics activity focusing on their core activities
• Larger warehouses and larger trucks will be used.
• While GST is the first step towards the improvement of the supply chain, the real benefit will come from an improvement in infrastructure. The growing scale will result in pressurizing the Government in the improvement of roads, rail, and ports.
• Use of physical technology will grow:  Better and faster material handling equipment, sensors and tracking systems, cold storages, refrigerated transportation and so on
• Use of digital technology will grow: Use of ERP within the better organized Logistics industry will grow. This will lead to better inventory control and reduction in wastage. The industry will also use SCM tools, algorithms, and big data analytics for identifying consumption and delivery patterns.

The organized industry and the Government will have to ensure that these benefits reach the bottom of the pyramid, enhance the life of the common individual, and create employment. Newer skills need to be developed, and masses - trained to reap benefits of this revolution.

Back to the Future

Coming back to Nagpur, the erstwhile sleepy city is bustling with a lot of construction activity – 1.3 billion USD metro project – partly financed by German Development Bank – KfW, clean water project, a number of smart city projects.

Recently a highly automated Distribution Centre was launched by Future Group (Big Bazaar) CEO Kishore Biyani. The High-Speed Sortation Technology is developed by Beumer Group of Germany. It’s a 400 000 Sq. ft. warehouse - the size of seven football fields which runs a 2.5-Kilometer spiraling conveyor belt that can sort and store up to  40 000 packages per day to be distributed to 1 000 Big Bazaar outlets all over India.

"Now you can invest in large scale," Biyani said. "You don't need to think small."

Warehouse of the size of seven football fields! Now that leaves me wondering – how many Nagpur Oranges can it take? :-)

(Source: CARE Research, Bloomberg, Future Group, ITLN)