A likely symbiosis or an unlikely challenge?

One of the many success stories of liberalization in India has been the advent of internet and the subsequent repositioning of various sectors around it. One such repositioning has been e-commerce, or the online market space. While it creates easy avenues for shopping for consumers at relatively lower prices, it provides for some significant cost advantages in terms of storage for the e-retailers. Competing on the prices, however, requires an efficient leveraging of the logistics to translate into cost advantages. This has, in turn created space and need for efficient logistics provider for such e-retailers. In conventional stores, customers were expected to travel to the store for purchases. This required the retailers to store sufficient in-store inventory to avoid any customer loss. Goods were transported from the suppliers to the retailers through Regional Distribution Centers. However, e-retailing has revolutionized this traditional model. Orders are placed at the Regional Distribution Centers and delivered through various logistics providers. The growing prominence of e-commerce with rising internet penetration and consumer confidence in online shopping has also come as a big boon for the warehousing solutions service provider. This is due to the fact that despite commerce moving online there is still the need to address the issues like warehousing, packing, shipping and tracking. E-commerce merchants are now increasingly relying on warehousing service providers. The e-commerce market clocked a CAGR of more than 54 percent till 2011. However, it still accounted for 0.1 percent of total retail sales in 2011 in India. The industry is currently valued at $2 billion. However, reduced margins puts a serious pressure on cost-side. This indicates a huge potential for growth, not just for e-retailers but also for allied sectors. Logistics, for example, is one of the key allied sectors. The express industry caters to multiple industry segments by providing time bound logistics services. The customers use express delivery services for shipment of various products, having high value like life-saving pharma products, electronic products, spare parts, trade samples etc. As a premium segment, the express industry in India is small but significant in the logistics industry and is one of the fastest growing segments of the industry. It has evolved rapidly and has increasingly added a variety of services and user segments in the domain of express deliveries. As per Crisil Report, 2012 the market size of express logistics segment during 2011-12 was estimated at Rs. 10,870 crores (about USD 1.8 billion). The industry is expected to grow at 17 percent per annum compared to 11 percent growth estimated for the overall logistics industry to Rs. 17,450 crores (about USD 2.9 billion) in the next three years . The express segment in India forms an important part of the logistics industry. By providing integrated, time-bound, door-to-door delivery services, the industry is catering to the requirements of businesses as well as retail customers to deliver shipments under tight timelines. Additionally, the industry makes significant contribution towards employment and exchequer. It is witnessing a demand boost due to the above average growth of industry segments like organized retail, e-commerce, consumer durables, electronic products and healthcare. The segment is also receiving a fillip from the higher level of consumption demand in the country for items like electronics, garments, etc, in turn creating additional demand for express industry. Typically, logistics accounts for about 10 percent of the total costs for e-retailers . However, the squeezed margins, makes bearing such costs almost economically unviable. Even this is only a partial picture of the criticality for logistics. Reverse logistics is also becoming more important. While the industry average is about 20 percent, some segments like apparel have an abnormally high return rate of 60 percent. In about 70 percent of cases of reverse logistics, the cost to pickup and return is greater than the value of the item. This has increased the challenges which the leading e-commerce players face in current operating scenario. Transformation of e-commerce would also facilitate the adoption of newer models for logistics. Large warehouses located outside the metropolitan limits reverses the trend of aggregation around large retail outlets. Moreover, growth of e-commerce is likely to help in leveraging economies of scale. Further, given that home delivery forms an integral component of the e-commerce experience, the cost of moving goods to the shoppers’ location has to be considered in the design of supply chain and relevant logistics. However, this has also created space for specialized logistics service providers like TCI, who can use technology and other efficient processes to bring down these costs. On-time delivery is another key parameter, and an important differentiating factor for e-commerce. Given the sensitivity of the customers to the time-bound delivery and the price, this forms a lucrative opportunity for specialized logistics provider to operate in the sector. TCI offers multiple services in both B2B and B2C categories. TCI XPS is fully geared to cater to the logistics requirement of e-commerce sector and can cater to the specific warehousing requirements of sector due to its ability to deliver products to customers in a safe, secure and cost effective manner across the country. For its B2B customers, it offers Forward Movement Service portfolio management which includes last mile delivery from warehouse and inter-warehouse transfer. It also handles Reverse movement Service Portfolio, which includes movement from vendor to warehouse, vendor to fulfillment centre and packaging from vendor locations. For its B2C customers, it offers Warehouse to customer, vendor to customer and bulk and break services through its unique Hub-and-spoke model for delivery. It also handles reverse logistics for its B2C category, which includes Customer to warehouse and customer to vendor movement. On an average, TCI handles about 10000-12000 shipments per month. TCI has also developed expertise in above five kilogramme weight category which contributes to about 9-10 percent of the total e-commerce shipments. Further, there has been an increasing focus on COD segment, which accounts for 60-80 percent of the total e-commerce servicing. While this is proving to be a challenge, mainly due to issues related to reverse logistics, it also offers a window of opportunity for differentiation and further innovation. E-commerce has, undoubtedly, made a strong presence felt. However, while the demand side continues to be strong, lack of necessary infrastructure is proving to be a major impediment in continuing growth. Whether the sector takes off, aided by necessary support from key 3PL providers, or ends up in a quagmire due to lack of necessary logistics backbone would largely depend on the ability of the existing players to respond to the changing needs of the sector.

The author is the CEO of TCI XPS, a division of Transport Corporation of India Limited