E-commerce & logistics

A symbiosis or challenge?


October 16, 2014

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India & You

Sept-Oct 2014

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E-commerce is a big opportunity and logistics companies are moving fast to build the right capabilities and capacity. But at the same time, using logistics companies has some challenges, which need to be handled as priority.

While the Indian online retail story is still being written, the industry body ASSOCHAM and research firm PwC are bullish about the effect of e-commerce growth on logistics. Recently, a joint report by both the bodies has shown that Indian e-commerce is expected to spend an additional $950 million to $1.9 billion on warehousing and logistics between 2017 and 2020. The study estimates that over the next three to four years, warehousing capacity could increase by up to 12 per cent. The growth of e-commerce will also see a boost to air cargo as India currently operates at a very low level of air cargo penetration, as the market grows there will be increasing demand to expand air cargo connectivity.


Timely delivery to attract consumers is a concerned area

Timely delivery to attract consumers is a concerned area

Saurabh Srivastava, director, operations, PwC said, “In our white paper, we have tried to highlight the spill-over effect of the growth of e-commerce on infrastructure and logistics investments which will include more warehouses, sorting and delivery centres and employment.” The opportunity in back-end logistics for online shopping segment is estimated to be about Rs 35-40 billion, a major part of which is last mile delivery.

Betting big

Delivering the product to your customer on time is a big challenge for virtual stores. Though they can use usual courier companies for delivering their product to customers, there are specialist companies that handle logistics and product delivery for e-commerce. Buoyed by increasing popularity of online shopping in India, supply chain and logistics solutions provider Holisol Logistics is planning to open two large multi-user Fulfilment Centres (FC) in Bangalore and Kolkata, along with seven smaller centres in other parts of the country to help e-commerce firms ensure faster and more efficient delivery. Founded in 2009, Holisol currently provides backend logistics to e-commerce players like Jabong, fabfurnish.com, freecultr. com and officeyes.com, among others. “Presently, we are running eight FCs servicing multiple clients. But, we are seeing a rapid growth in online shopping, which in turn is leading to e-commerce firms feeling the need to further expand logistics and back-end operations,” Holisol co-founder Rahul Dogar said.

Another well-known express distribution and supply chain solutions provider that delivers for Amazon and eBay, Gati sees opportunity in e-commerce. “We at Gati are dedicated to providing value-added and quality services, which once again have rewarded us with a good set of numbers. The boom in the e-commerce sector has brought a wave of transformation in the retail space,” said Mahendra Agarwal, founder and CEO of Gati, adding, “The new government’s proposed investment to boost the logistics and infrastructure sector and the relocation of Gati’s office to a new state-of-art space will act as a catalyst to uphold the quality of the processes and end results delivered by Gati.”

Two months back, to ride the global momentum in online retail, German logistics giant DHL renamed its old mail division as Post-ecommerce-Parcel (PeP), which focuses on both crossborder and domestic e-commerce services, including e-fulfilment and e-facilitation.

Similarly, Rhenus Logistics, a joint venture of Germany’s Rhenus Group and Mumbai-based Western Arya Group, has plans to start a unit to cater to e-commerce businesses. “We have secured a small part of handling the e-commerce business of a large online retailer. We are planning to secure more contracts. We are sending our executives to Europe to get specialised training to handle the logistics side of e-commerce business,” said Vivek Arya, managing director at Rhenus Logistics.

In addition, according to media reports, India Post is exploring the option of providing specialised logistics solutions for e-commerce. If the postal department can start such a service successfully, online stores would be able to service a large number of customers living in remote areas of the country due to their extensive last mile coverage of the country.

Gati’s Agarwal says, “E-commercerelated warehousing is designed to service the Tier 1 cities. There is need to expand in tier 2 and 3 cities. The implementation of a Goods and Services Tax (GST), expected in the beginning of 2015, will change this by encouraging the consolidation of distribution networks, which will grow the demand for larger distribution centre.”

The flip side

To attract customers by shrinking delivery times to same-day or even as short as nine hours, despite the hurdles in infrastructure and connectivity, outside the metros.

Up to 90 per cent of goods ordered online in India are moved by air, which pushes up delivery costs by around half, according to several online retailers and logistics companies.

Not only is it expensive, but it is also often unreliable as airlines often offload cargo to favour the last minute passengers, where they make much more revenues. “It is unfortunate, but offloading does happen and we have to make sure our delivery promises take that into consideration,” Rahul Chari, vicepresident, supply chain technologies at Flipkart told to a news agency.

The other means, road and rail transport networks, remain woefully underdeveloped and entangled in graft and bureaucracy, leading to long and often uncertain delivery schedules.

Logistics remains the biggest barrier to growth and transport troubles are just the tip of the iceberg. Using logistics companies has one major limitationreach. Most of these would be unable to deliver products to small cities and villages. Most e-tailers use sometime unreliable third-party delivery firms, more than half of sales are paid for with cashon- delivery, return rates are high and orders made to fake addresses are all too common. An official from Amazon, said, “The biggest advantage of e-commerce is the instant nationwide reach it enables sellers of all sizes, however, it is the delivery of that opportunity that requires significant focus and investment from the industry.”

With India’s perennial infrastructure failings far from being resolved, most e-tailers are focusing their investment on setting up their own capitalintensive logistics businesses. Flipkart is aggressively growing its logistics arm E-Kart. Amazon is pumping up the capacities at Amazon Logistics. That is in addition to existing partnerships with third-party logistics firms, including Gati, Blue Dart and FedEx. American e-tailer eBay, by contrast, is working with external logistics firms to cut back on multiple state taxes for products shipped by road and the excessive documentation required to move every parcel.

Railway logistics support – a new chapter

In his first rail budget presented in July, the new railway minister Sadananda Gowda said that the railways would extend logistics support to various e-commerce companies by providing designated pick-up centres at identified stations. Welcoming the move, Rohit Bansal, co-founder of online marketplace Snapdeal, told a daily, “The initiative is certainly a positive move forward for the ecommerce industry. The extension of this mode of transport to the ecommerce industry will further ascertain timely and faster delivery of orders to consumers.”

So far, ecommerce companies have desisted from using the rail due to issues like delays and pilferage. Companies have already begun discussing such possibilities. “We can set up a collections and returns centre at stations,” said Praveen Sinha, co-founder of Delhibased fashion portal Jabong, adding, “We can consolidate orders and book as cargo on trains which could then be picked up directly.” Amazon India’s Thomas said this will work well especially for daily train commuters “who can pick up their packages as soon as they deboard the trains at their regular stations”.

“It will also help us offer a separate product offering to our clients, giving them an option of a cost-effective alternative of using the railways for transporting shipments between cities, though the delivery might be delayed by a day or two,” said Sanjiv Kathuria, chief executive of logistics company DTDC’s ecommerce arm DotZot.

The silver lining

Though on the global map of logistics performance, India ranks at 46, compared to Germany at 4th, Japan at 8th, US at 9th, UK at 10th, France at 12th; the fast emergence of e-commerce in India has opened a new vista for logistics companies across the country, especially for the express logistics companies. So match up the international standards, they need to address issues of reach, cost, return pick-ups, etc. Only then can they really reap the benefits of this rapidly growing market.



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