With the changing business trends, global trade and economic development, how has been the role of a logistics service provider (LSP) diversified? Read here.
– Dr GBRK Prasad, Mentor and Advisor, Cargomen Logistics
As Internet breaks the barrier of physical distance, global trade happens due to continuous and efficient interaction of producer, logistics service provider (LSP) and customer. The point of production or manufacturing can be vastly at a distant place, whereas the LSP provides a service to producer to move to customer place. So the point is to view the role of LSP and see how best he can optimize and bring both the producer and consumer together by faster means.
LSPs role in B2B
All of us have seen a world where Amazon, Swiggy, etc and similar companies serving and improving service levels to a standard never heard of earlier. In this context, LSP provides services to both these two sectors: B2B and B2C.
Now this article looks at how and what best B2B segment can be better served by LSPs considering what their peers have done in B2C segments likes of Amazon, Swiggy, etc. The key differentiator will be in having right metrics to measure the service levels and constant effort to improve the same considering what is happening in global space including B2C. The key focus is on service levels as well as cost of services. These two parameters have inverse relation to each other and therefore require a balancing act by the management.
Right Infrastructure is the key
The art of management of LSP is really tricky and the key factor that measures success of a LSP is in having right infrastructure. For instance, if a LSP serves Pan-India basis transport of goods from producer to customer as a C&F agent; the question is what should be the transport budget for a big size company of stature. For say, Rs 250 crore is the transport budget. Then the next question is having a right rate contract for 2 years period with well defined movement matrix from production site to warehouse site or customer site in a matrix form. Deploying assets of movement of vehicles and owning or leasing at right places is very important.
Government’s role is vital
As companies have evolved their working rhythm over a period of years and fine tuned it, new LSP bidding for business have to play cards well by choosing right asset mix and skilled and efficient labour force. What is not realized is LSP business is game winner for political votes as it generates employment opportunities for masses over the country. This earning capacity is unmatched and ensures growth of economy. LSP business is much more employment generative. Amazon for example has 1.6 million on roll. Can you imagine this figure for other manufacturing company of this scale?
So my article focus is that Central /government finance minister, in this budget realized and stressed importance of Gati Shakti, clearly highlighting priority for LSP business, but corresponding incentives are not there in tax benefits for more employment generating companies. Investment is given incentive in taxes but employment and paying salaries also should get tax benefits, and I feel that right incentive scheme will galvanise both employment as well as generate profit for LSP businesses.
Air transport needs to be encouraged
Another parameter that government can influence is to encourage transport of goods by air. As this has galvanizing influence to move goods in shortest possible time to destinations across India, it is better that government reduces tax element in total air freight gradually over a period of time and not treat it as luxury. Government can do a sensitive analysis how much revenue increases by reducing the tax element gradually. This measure alone can trigger an economic growth beyond double digits which is what we really need. The two parameters can be linked and government should encourage balanced development of the nation through right incentives and punitive measures for promoting LSP businesses.
(The author has beneficial relationship with Cargomen Logistics India Private Limited.)