In GST era, differentiated services key to domestic logistics companies

Illustration: Binay Sinha
Differentiated services and not just cost efficiency will be the mantra of domestic logistics companies going ahead. With the goods and services tax (GST) rolled out, domestic logistics companies are witnessing increased enquiries from customers for varied services, setting a new tone for revenue generation.

"Since with GST, the entire supply chain will iron out inefficiencies, an efficient product pricing alone will not help companies thrive and grow. In fact, good amount of competition is expected to show up (due to GST) and differentiated services would be a factor that would come to the forefront for the assured survival of logistics businesses," said Praveen Somani, director at Inland World Logistics. "For our company, we are expecting a revenue growth of about 30-35 per cent this financial year (FY) over the last one due to our differentiated services model being in place," he added. The Kolkata-based company had earned revenues of Rs 1,000 crore in FY17.

Noting the increase in enquiries for differentiated services in the logistics segment, the company will be investing about Rs 25 crore in strengthening its last-mile delivery.

"We are currently strong in the central and eastern part of the country and hence this investment will mainly take place in these two regions," said Somani.

Some industry officials are of the view that factors other than price points are bound to get stronger after GST's implementation. "There is a limit to how much a product's price could be brought down. After a point, differentiated services will become the key for logistics businesses," explained Vijay Kumar, chief operating officer at Express Industry Council of India (EICI). The EICI is an independent apex body of domestic logistics companies.

Some other industry players were also of the view that providing differentiated services is a parameter that always existed within organised logistics players but could not play a very strong role due to several loop holes and inefficiencies in the overall supply chain. Due to GST, however, organised players will be in a stronger position in terms of business growth prospects going ahead.

"Although this concept of offering value-added and differentiated services has been prevalent, it is now more widely practiced, especially with the GST implementation," said Balaji V, CEO Contract Logistics, Avvashya CCI Logistics Private Ltd. "Customers have moved away from transactional price comparisons to value propositions-based price comparisons," he added. However, cost efficiency will always continue to remain a pivotal point in any customers’ decision, Balaji said.

The company is planning a foray into domestic last-mile delivery and has set a revenue target of Rs 1,500 crore from the domestic segment of the Avvashya group companies by 2020.

A thrust on differentiated services has been a key factor in revenue generation for e-commerce companies for a while now. DHL eCommerce also has a similar plan in place. "We already have the broadest reach as about 5,600 pin codes have been covered in the India market. Going ahead, we plan to take this to over 7,000 pin codes, which covers 95 per cent from where population buys from," informed Charles Brewer, chief executive officer, DHL eCommerce. "Customer reach, quality of service, and alternate delivery methods, coupled with clever technology, is something DHL will lay thrust on to have an edge over competition in the market," added Brewer.

Most industry officials said that customer convenience and control, which would bring predictability of the transaction, would be the parameters within differentiated services that would keep logistics companies on their toes.