#Asia As ecommerce booms in India, startups and giants rush to $300b logistics business

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A shopper in India can sign on to an ecommerce site and buy a product with the click of a button. How much does that click cost the store?

According to Indian consulting firm Technopak, India’s ecommerce startups spend as much as 30 percent of their net income on logistics. In the US, Amazon is reported to spend 11.7 percent. On Alibaba’s marketplaces, the cost is entirely paid for by merchants and buyers.

Flipkart and Snapdeal, two of India’s largest ecommerce companies, spend so much money on logistics that they don’t expect to be profitable for the next few years.

For T.A. Krishnan, founder of Ecom Express, a well-funded logistics startup, logistical planning is too big of a challenge for a company to handle alone.

“Outsourcing your strategy to a logistics company means that you can focus on your product,” he explains. “The challenge of logistics is difficult and needs to be handled by a dedicated player. Things like regulatory frameworks, airports, road networks, highways are all hindrances to growth in India. These are huge challenges that need to be tackled by a smart solution.”

Flexible journey

This “smart solution,” for India’s booming logistics industry – US$300 billion by 2020 and 14% of the country’s current GDP – can mean several different things.

Delhivery is an ecommerce logistics service in India that raised its latest round of US$85 million from Tiger Global. In laymen’s terms, the startup takes care of the things that happen between ordering something online and having it delivered to your place by creating a business strategy for its transport.

“Conventional logistics solutions don’t work any more in India,” explains Sahil Barua, CEO of Delhivery. “The old world of things like mail cargo and strictly B2B solutions are not flexible enough to fit a customer’s demands.”

delhivery

In order to create an efficient strategy, Sahil explains that a successful logistics supply chain company should solve three main issues:

  1. Visibility: A package’s journey should be transparent from end to end.
  2. Scale: The backend technology of a logistics model should be scalable and replicable across borders.
  3. Payment: Whether it’s offline or online, payment should not be an issue.

Sahil explains that there are two ways to approach these issues. “The first is to think about creating the largest possible logistics company for a specific vertical, like auto parts, where you figure out everything out from sourcing to delivery. The other is to take each of these verticals and create a common, flexible stack that can handle multiple demands. We focus on the latter.”

delivery happy shipping

These Storm Troopers got their shipment of new weapons right on schedule.

In order to create what Sahil calls a “flexible logistics stack,” the company has invested in several other logistics startups. “We’re backing players that are solving big problems and looking to find more,” he adds.

To envision Delhivery’s system at play, imagine that you’ve ordered a do-it-yourself lamp shade from a small crafts ecommerce site for independent sellers.

First mile: The lamp shade is picked up from the home of the seller.

Middle mile 1: It is then moved to a fulfillment center – a warehouse that makes deliveries easier – in order to process the route it will take to reach your home.

  • Because the site you’ve ordered from is fairly small, it does not have much of its own infrastructure. Instead, it goes to one of Delhivery’s fulfillment centers where it is checked, tracked, and placed on the most efficient route to your home.

Middle mile 2: From the fulfillment center, it moves to a local crafts store.

  • Delhivery locates a store close to your home and uses its shipping service to send it there.

Last mile: Your lamp shade is picked up by a delivery service and dropped off at your home.

  • Opinio, a hyperlocal delivery startup that raised US$7 million recently in a series A that involved Delhivery, operates in your town. The package is picked up by a delivery agent on a scooter with your GPS coordinates plugged into his phone.
  • You opted to pay by cash-on-delivery which means that the package can be paid for in physical money when it reaches your house. In 2013, Delhivery acquired cash collection service Gharpay, so this is not a problem. It uses this technology to collect the INR 6,000 (US$90) you owe for the item.

Post-trip analysis: Delhivery provides the company with a deep analysis of your parcel.

  • Because Delhivery’s IT services have tracked your package from the moment it’s been picked up to right when it’s reached your hands, it can provide the seller with a detailed analysis of the trip. During the journey, your package stayed at a fulfillment center for an extra day because of bad local weather. The seller decides that this situation requires more transparency and implements a notification system that will alert a buyer the next time there is a similar delay.

moving shipping truck delivery

Sahil explains that Delhivery’s core focus is to strengthen the seamlessness of its IT solutions and act as puppeteers connecting different power players around the world. It is currently operational in Sri Lanka, Bangladesh, Turkey, and Dubai. “We’re a global company, and when I say this, I don’t mean that we go into different places and do deliveries,” he explains. “Each country is different and we’re looking to set up fulfillment centers with our IT backup to transportation providers around the world.”

Nothing new

On the other hand, Ecom Express founder T.A. Krishnan explains that his firm handles logistics in-house. “We don’t outsource to anyone and keep our supply chain tight,” he says. “We’re a one-stop-shop solution.” Functional across 455 cities in India, the startup was founded along with Sanjeev Saxena, K. Satyanarayana, and Manju Dhawan. It received a round of funding worth US$133 million in June from Warburg Pincus.

Ecomm Express includes options like a “cash before delivery” service for cash payments before products are dispatched and a “reverse logistics” service for returns. “Logistics is a core business,” Krishnan explains. “It’s not a secondary thing for companies to focus on.”

Several other firms have existed for years in the one-stop-shop, independent logistics space, although they have not always been focused on ecommerce. Germany’s Blue Dart, owned by DHL, has warehouses at 79 locations across India. It’s a domestic courier service that also provides cargo shipping through its aviation arm with a fleet of five Boeing 757s. It’s been flying high since DHL bought a 70 percent stake back in 2004. Twenty percent of last year’s revenue came from ecommerce and it occupies a market share of 30 percent in India’s ecommerce logistics industry.

Another is Gati. Launched in 1989, it was an early contender in the logistics space. With the advent of ecommerce, it launched Gati Connect, a logistics arm for online sales.

Ecommerce sites join the battle

India’s two biggest ecommerce sites, Snapdeal and Flipkart, are divided when it comes to partnerships for shipping versus in-house strategies.

Snapdeal’s main logistics partner is GoJavas, a startup that it has invested in twice. Along with the usual cash-on-delivery and tracking services, GoJavas also offers things like “try and buy,” wherein customers can try out products at their doorsteps and only pay for them when they are satisfied. Together, the two have launched instant cash refunds for those that want their money back immediately.

Flipkart, on the other hand, started its own in-house logistics arm, eKart, that was then spun off in order to work with other ecommerce companies. It recently bought it back.

Amazon has also entered the game in India with Amazon Transportation Services. It hopes to rely entirely on its own logistics network for product delivery by next year.

All three have hundreds of fulfillment centers around the country. Amazon launched seven in September, bringing its total number to twenty and allowing it to provide the “Fulfilled by Amazon” mark of product verification to small and medium-sized merchants.

Challenges for the future

india truck delivery

Despite a booming industry, there’s still a long way to go before ecommerce logistics in India are smooth.

“There are still a ton of problems to be solved,” explains Sahil. “Take warehousing, for example. There are barely any large-scale warehouses in this country. I can’t walk up to someone and say ‘give us 5 million feet of warehousing in the next five years’ and expect it to get done. I don’t like the word disruption, but it’s inevitable that a whole bunch of interesting players will come up to solve these problems. We’re looking forward to working with them.”

In China, with the Singles Day shopping spree – which is now the world’s biggest sales day – around the corner, cloud warehousing has been discussed as a possibility to take the strain of hundreds of millions of packages going out in a 24-hour period… but comparing the two countries in terms of logistics is like apples versus oranges.

At times like these, I remember an important lesson from the bitter rivalry in America between UPS, FedEx, and DHL – rarely in the history of the logistics industry has a single company dominated the market. In India, it is yet to be seen if that will hold true. But one thing is for sure: without streamlined logistics, the country’s ecommerce industry will have a difficult time maintaining growth.

Who do you think will win logistics in India? What key moves will they have to make?

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