Bill of worries
Small and medium-sized courier companies have been gearing up to meet the challenges thrown up by the amendments to the Postal Bill that are likely to be presented in the forthcoming winter session of parliament.
The India Post Amendment Bill, '06 seeks to give India Posts (the new name of your neighbourhood post office) exclusive rights to carry and deliver letters weighing up to 300 gms, putting such letters out of the reach of the private courier companies.
Given that the letters are a mainstay of the courier business, the private courier operators, most of them small and medium enterprises (SMEs), are forced to look at other alternative avenues in order to stay afloat.
Experts believe that a direct offshoot of the amendments in the regulation would be a radical shift of express players into the cargo transportation segment. "Express players already have the network in place, so it will be most natural for them to leverage on that and set up a cargo operations business," said an industry expert.
However, this is easier said than done. "The shift is not going to be an easy one, as these SMEs would not have the requisite resources to invest in technology, warehousing and infrastructure, which are the core essentials of any efficient cargo operation business," added the industry expert.
Thus, these SMEs would be facing the challenges of investing an enormous sum in setting up a pan-India presence, in terms of distribution facilities, mechatronic warehousing space, wide array of collection and distribution centres to cater to a large number of clients.
Apart, from this a greater challenge would be to invest in state-of-the-art 'track and trace' facilities, which is the key to timely deliveries. Thus, such a shift would entail large investments that would not be possible or even justified for the small sized operators.
The move could lead to a consolidation in the courier sector. "It is possible that the bigger courier companies may acquire the smaller companies who may not be able to adjust to the changing landscape," said industry analysts.
According to a recent study conducted by Credit Analysis and Research (Care) advisory, the size of the Indian express industry is around Rs 7,100 crore (USD1.6bn) with 2,500 players, derived from their service tax payment of Rs 630 crore in '05-06. Of this, almost 70-80 percent are small and medium enterprises (SMEs).
The list includes prominent names like Blazeflash, Professional Couriers, Overnite Express, Prakash Air Freight, First Flight, AFL Wiz and Vichare besides a host of other semi-organised and unorganised players in other parts of the country.
If the bill in its current form does get through, then the industry could suffer a revenue loss of around Rs 670 crore a year, or a 30-35 percent reduction in business with the worst affected being SMEs. The losses in terms of employment will be even more worse.
"If the bill gets through, then the losses in terms of jobs would be somewhere around 1m and that is surely not going to be a very pretty sight, both for the government or the industry," says RK Saboo, chairman, Express Industry Council of India (EICI).
While the bill is tough on operators, it is likely to have an impact on consumers too in that the rates for courier services could increase. For instance, another clause in the bill seeks to charge a 10 percent tax on turnover on the registered operators as the Universal Service Obligation (USO) charge.
While the Bill had sought to exempt the small and medium operators from contribution to the USO Fund, but it had proposed levying a registration and renewal fee of Rs 25,000 and Rs 10,000 respectively for small and medium couriers. This is likely to lead to an escalation in the delivery service price charged by the private courier operator.
Industry experts believe that while the Department of Posts (DoP) can make good its falling revenues with the tax collected, the operators are unlikely to bear the costs for the same and would recover the costs from the consumers by hiking charges. "If we pay a 10 percent charge as a part of the USO, then we are obviously going to recover it from the customers," said an express service provider on request of anonymity.
However, the amendments to the Postal Bill is part of the DoP's effort to ensure postal coverage to financially non-viable areas at affordable rates for the common man. Hence the need to seek a monopoly over a specific part of the letter mail up to a certain specific weight, argues the DoP.
The department claims that the private operators have avoided setting up shop in rural areas, instead catering only to the lucrative urban markets and also indulged in evasion of service tax.
But private operators are worried about the loss of business, loss of employment and the huge investments required in setting up alternative business avenues. The representatives of the express industry have made presentations to the authorities to ensure the survival of the courier industry while addressing the concerns of the department.
