Can Indian e-commerce logistics move into faster, deeper, leaner mode?
The industry is truly at crossroads as it attempts to deliver on the promise of e-commerce like never before.
Under pressure from consumer expectations to fast-evolving marketplaces, from cost to speed, from lack of manpower to channel conflicts- India's e-commerce logistics is truly at the crossroads as it attempts to deliver on the promise of e-commerce like never before.
As per the Indian E-commerce Logistics Industry Outlook 2025 by Ken Research, the e-commerce logistics industry of India is expected to reach ₹492.8 billion by FY25 with a CAGR of 23.6 percent in terms of revenue during the forecast period of FY20-FY25.
Despite being at the cusp of a great e-commerce boom, India struggles with having very low internet penetration (45 percent according to March 2022 Statista report) among its huge population on the one hand and on the other, the country has a huge digitally active population that is yet not making transactions online. This divide clearly shows the gap between the potential and delivery of e-commerce in India.
To galvanise the potential that e-commerce holds for India would also require a faster, deeper and leaner infrastructure to move these goods from the factories to the doorstep. ITLN delves into the complex structures shapeshifting the larger Indian e-commerce story and lays threadbare some of its faultlines.
What is the future of e-commerce logistics?
Mukesh Kumar, engagement manager at RedSeer Management Consulting identifies at least four different trends in the current e-commerce logistics which includes the emergence of non-Flipkart and Amazon e-commerce marketplaces, regional fulfilment centres, logistics aggregators and resource utilisation.
"Three years back, the majority of e-commerce shipments were delivered by Flipkart's Ekart and Amazon's ATS (Amazon Transportation Service). However, in the last three years, non-Flipkart and Amazon businesses grew exponentially along with many other D2C brands. Thus the share of third-party logistics in the total supply chain increased. Second is the increasing trend of getting regional fulfilment centres to ensure faster delivery of products. Third is the emergence of e-commerce logistics aggregators like Shiprocket, Pickrr, Nimbus Post and Shipyaari to help the smaller D2C brands and SMEs, who have lower e-commerce volumes, to deliver their goods. Four is the utilisation of resources. Almost everyone has been burning money over the last couple of years. But now, almost all of them are looking to utilise their existing facility more and more and hence, trying to cater to a wider spectrum of services," he said.
Logistics companies earlier used to say that my job is to attempt. It's vice versa today. Your job is to deliver it is not an attempt.
Harshal Bhoi, XpressBees
Cost, manpower key for express logistics players
Harshal Bhoi, chief business officer, XpressBees, predicts that there's going to be a huge cost pressure on the e-commerce companies. "Though consumers are ready to pay that extra delivery cost today, it is still a freebie for a lot of customers after a certain shipping value. And this cost has to be absorbed somewhere because logistics costs in India will go up due to the current fuel prices," he said.
"The volume has grown and there is a need for and enough space for new players like small logistics aggregators who can offer a platform to give customer experience," he added.
He also said that there is a huge gap in terms of supply and that manpower is going to be a key constraint and differentiator for express logistics companies going ahead. "This is going to be a major challenge. Irrespective of automation, the first mile and last mile is going to be purely manpower driven till the time of drones or something."
Customer satisfaction is key
Today, CSAT (Customer Satisfaction) scores and NPS (Net Promoter Scores) of logistics companies are routinely monitored, which was not the case before.
"Logistics companies earlier used to say that my job is to attempt. It's vice versa today. Your job is to deliver and it is not merely to attempt. There will be companies that come up and say that I will pay only if these (goods) are delivered. There is heavy pressure in terms of costs and consistent performance for logistics companies," said Bhoi.
Can more players stem the rut in e-commerce logistics?
With the growth slated to continue by 2030, Yogesh Dhingra, founder, managing director & chief executive officer, Smartr Logistics also feels that India needs a couple of more players to come into the market because of the growth. The unorganised sector is especially badly hit.
"Due to the rollout of the GST and the currency ban in 2016, a lot of unorganised players are slowly dying. The entire volume has moved on to the organised side, the economy is growing, the logistics sector is growing and e-commerce is growing. We need more players," he said.
Dhingra continued, "The existing players will have to keep investing so that they can grow at 20 percent plus The new players like us will come to share that burden and offer even more customised and innovative solutions."
This is the scenario despite the majority of India's e-commerce orders coming from Tier 1, 2 and 3 cities apart from high-frequency purchases from metros. Providing the same set of services to cities beyond Tier 2 however poses a huge opportunity for e-commerce, according to Kumar of RedSeer. "This is what will drive the market growth to close to 30 percent year on year," he says.
As India is focusing to become an air cargo hub for the region, we will see a lot of e-commerce moving through the air.
Yogesh Dhingra, Smartr Logistics
Balancing customer expectations
With e-commerce having disrupted the customer buying experience, there is a consumer expectation to receive e-commerce products faster and move to same day and next day delivery models. This prompted players like Zepto to promise to deliver groceries in 10 minutes, while Dunzo promised the same in 19 minutes and Swiggy and Zomato continue to promise to deliver products in 20 minutes.
Kumar said, "Our view is that most of the e-commerce orders for standardised products, for example, cosmetics, electronics, etc. would become faster in delivery. So, most of the companies will have to finetune themselves to a faster delivery expectation. Flipkart has already started doing that with Flipkart Quick, where you can get products delivered within 90 minutes."
So, where's the hitch?
Despite this shift, Prodipto Roy, co-founder, QuickShift, points towards the existence of a few conflicts in the marketplace between the traditional distribution channels and the new age e-commerce channels and the need to find a middle path.
"Two months back there was a lot of discussion about the channel conflicts coming into the market. We will see more of it, but there has to be some middle path because the traditional channels are getting impacted and it is at a crossroads with new modern retail channels. The middle path has to be figured out in which both the models can sustain because the consumption in India is good," he said.
Karan Shaha, CEO and co-founder, Vahak, opined that what India is witnessing currently is the rapid evolution of fully integrated and digitally-driven logistics startups in the country.
"The investor community is quite supportive of them, and heavy investments are being made in early-stage quick-commerce ventures, end-to-end logistics firms, and logistics marketplaces in India. Overall, the future of e-commerce logistics seems to be on a path of strong growth for the foreseeable future," he said.
"Unlike physical retail where a customer goes to an outlet, buys products off the shelves and carries them home, in e-commerce, every purchase is virtual and customer fulfilment is the seller's responsibility. If there is no robust, on-time, and safe delivery of goods then e-commerce can't flourish. That's where Indian logistics operators have been critical to the rapid surge in online retail in recent years," he added.
Many international brands are interested in marketing in India. But the moment they get their products, the challenge of distribution comes in.
Prodipto Roy, QuickShift
What's new in e-commerce logistics?
Move towards tier 2,3 cities/towns
The e-commerce sector is rapidly growing across India, and one of the major trends today is the growing presence of e-commerce in tier-2, tier-3 and locations even beyond that.
These markets have grown at a rate faster than the urban areas, and will steadily grow to become a dominant force in the e-commerce market.
Vahak CEO Shaha said, "To cater to these consumers, e-commerce operators are establishing regional hubs, and focusing more on establishing logistics supply chains in the hinterland or working with the transporters, logistics providers in these areas."
In an attempt to expand its footprint in the country, in February 2022 e-commerce logistics specialist XpressBees announced a $300 million fundraise in a Series F funding round led by private equity funds Blackstone Growth, TPG Growth and ChrysCapital.
Last year, Ecom Express had announced they have expanded its total hub and processing area to over 2.8 million sq ft across all major centres in India to enable a total processing capacity of over 3 million parcels per day.
Planning for its IPO, Delhivery had acquired the Bengaluru-based Spoton Logistics last year to further strengthen its existing B2B capabilities.
Meanwhile, Amitabh Singh, CEO, customised logistics solutions (CLS), at Stellar Value Chain Solutions, identified two different types of trends in metros and smaller towns. "Small towns have emerged as the growth drivers for the e-commerce sector as they are now driving volume-based demand. This trend has been leveraged by brands to aid their market expansion without physical presence which would have been very capital intensive. On the other hand, the large cities have moved a notch higher in indulging the consumers with 30 mins and 10 mins promised delivery," he said.
Technology-led hyperlocal deliveries in cities are here to stay
Singh noted that these trends in the Indian geography have brought hyper-local last-mile delivery economics into sharp focus and the challenge for supply chain and logistics players is to develop a sustainable model for e-commerce distribution and last-mile delivery in the non-metro regions.
"Technology adoption to achieve superior visibility and predictability ensures supply chain resilience and service delivery consistency," he added.
Airlines latest entrant in e-commerce fray
Dhingra of Smartr Logistics could see a few trends in the air cargo industry of India due to the growth in e-commerce. In fact, Smartr Logistics recently announced same-day interstate delivery in India and is looking forward to leveraging the airfreight capacity of Indian airlines on domestic routes to move these e-commerce goods.
Airports across India saw a 35 percent increase in cargo handled for the first ten months of the current financial year to 2.6 million tonnes. While international cargo handled was up 36 percent to 1.6 million tonnes, domestic cargo handled was up 32 percent to 977,760 tonnes, according to the latest numbers from the Airport Authority of India.
"As India is focusing on becoming an air cargo hub for the region, we will see a lot happening in terms of the air cargo traffic and a lot of e-commerce will move through the air and we have already seen the development of various airports in the country under the Udan scheme. So, more and more airports will emerge and more and more flights will go into these smaller areas," he said.
D2C, digitally native brands are the new norm
As per an Inc42 Plus report, the domestic direct to consumer (D2C) market is likely to treble to $100 billion by 2025 from $33.1 billion in 2020. Similarly, as per a report by Accenture, the social commerce market is projected to grow at a CAGR of 59 percent to $17 billion in gross merchandise value by 2025.
D2C and digitally native brands (DNB) are not just trends but the new norm in Indian e-commerce. Similarly, social commerce and reselling platforms have also joined the party. However, it is the logistics requirement of these models where it gets tricky.
According to Kumar, D2C and DNBs require three things. The customer should get the product faster, they should get the product in good packaging and it should be handled properly.
"Most of the D2C brands are small brands. So they cannot have the fulfilment from their central warehouse because it will take four, five, six days or even a week for them to deliver the product. That's where logistics companies come in and provide a shared regional fulfilment centre," he said.
These D2C brands are coming up with demands and requirements in an attempt to increase their customer experience and sales.
Bhoi said, "It is the new-age companies that have embraced the model of D2C logistics. Their requirements are not only about speed, but it is also about visibility and if the shipment is on the doorstep and the customer requires to shift from COD (Cash on delivery) to prepaid, can you do it? And you need to attempt the delivery between the timeline of nine to 12 only, for example."
Social Commerce-a passing trend or here to stay?
With the emergence of social commerce, people can make their products and sell them online through social media sites. However, it appears that the procedures followed by these sellers are not standardised.
Roy of QuickShift shared his experience in dealing with such sellers. "When you deal with someone who's been baking their product in the house, the processes are absolutely not standardised, but they can still sell on Facebook, Instagram and WhatsApp. So we need to streamline their processes and make them understand that we will be in a position to take their products only if certain things and protocols are in place," he said.
As an express company that uses domestic air freight capacity, Dhingra shared his experience with one of Smartr's D2C clients.
"One of the biggest supply chain brands of the country is working with us and they deal with very, very expensive items. Let's say that a piece is available in Bangalore, but not in Mumbai then we pick it up around nine o'clock in the night and early morning it's delivered at their Mumbai office or delivered to their end customer via air freight."
Singh of Stellar noted that the initiatives like co-location facility and network density have helped local small businesses to spread across and serve new markets.
"These initiatives bring cost and time efficiency which helps social commerce immensely. Brands in this space have a lean business model to keep costs low therefore supply chain companies have to tailor-make solutions for them without increasing the costs for themselves," he said.
The brands and SMEs are not just looking into the Indian domestic market but also globally outside their borders which can be accessed through the magic of e-commerce.
Now there are Indian customers who would love to order from a different part of the world to a remote village here into the comfort of their homes in the country. While this may be where the future of e-commerce in India is headed, this journey would be much more complicated as it would have to face many regulations as well as issues with multimodal logistics.
Cross border e-commerce is here right now, but will regulations ease?
QuickShift is a company that is trying to replicate its model in countries like Indonesia, Malaysia, Singapore and also the Middle East. They also help international brands in Vietnam and the Middle East to distribute their products in India.
Roy said, "India is a huge consumption market and it is growing. Many international brands are interested in marketing in India. But the moment they get their products in India, the challenge of distribution comes in. We can provide the entire backend chain to ensure that their products are made available in every state and they are able to service them."
Bhoi of XpressBees has found the regulations, taxes and the basic life cycle of Indian e-commerce is what stops India from playing big in the cross-border e-commerce sector.
"The overall life cycle even today for cross-border is about four to six weeks. However, the customer will not wait. Taxes for most of the shipments coming as imports from China or any other country are very high compared to other countries. Countries have customs-friendly governments where there isn't much of a hassle in terms of the regulations clearance, paperwork, taxes, etc, which unfortunately is not the case in India," he said.
The air freight capacity can be also used for the movement of domestic e-commerce goods and it is already happening even though the constraints caused by Covid-19 still exist.
Bhoi noted that "Once flight operations resume, there is going to be a heavy influx in the cargo business for commercial airlines. There is a requirement for one or two more major cargo airlines to come into India to have a supply chain across the metros at least. The air freight rates have gone up since the pandemic. But in the future, this will go down with a committed belly space being acquired by many players including us," he added.
Speaking about road transportation, Bhoi said that the Indian road network is also getting upgraded with next day delivery already available on all major corridors. According to him, the air cargo route will be increasingly used for far-away cities, for instance in the northeast which has less access to the mainland.
This article was originally published in Indian Transport & Logistics News' March - April 2022 issue.