Leading the Pack
With the ecommerce industry
set to hit $100 billion by 2020, the logistics end of the business becomes a
huge opportunity in itself
In the next couple of
months QikPod, a company backed by the likes of Flipkart and ace investor Accel
Partners, plans to unveil dozens of lockers across Bengaluru in information
technology parks and com mercial and residential complexes. Found ed by serial
entrepreneur Ravi Gururaj, this venture wants to recast how deliveries are made
in India's white-hot ecommerce industry.
The venture that is still
under wraps wants to do this by moving from a synchro nous system of parcels
hand-delivered by courier firms, to an asynchronous model, where shipments are
left in a secure locker to be unlocked with a code sent by text message to
users. Rather than fret about being at home or at work to receive a delivery
and deal with repeated calls for directions from delivery agents, QikPod's
lockers will aid ecommerce firms with more and faster deliveries.
QikPod's business model
also envisions aggregation rather than fragmentation of demand -Flipkart can
deliver 1,000 parcels to a single neighbourhood or IT park, rather than make
time-consuming and costly individual deliveries. “We want to have our lockers
where consumers live, work, transit and shop,“ Gururaj says. “In Bengaluru
alone, we will have 2,000 to 3,000 lockers operational soon.“
Three-and-a-half months
after launching, Qikpod is in the final stages of operationalising its
business, with its network expected to operate even on 2G networks. The company
is leaning on its investors Foxconn, Delhivery and Flipkart to fine-tune the
manufacturing and placement of these units.
Reach Every Pincode
Existing logistics
operators have failed to keep pace with the growth of an industry expected to
cross $100 billion in size by 2020.This has pushed entrepreneurs to devise
outof-the-box solutions. “We are solving the biggest headache for ecommerce
companies and their customers -the last 10 metres of the last mile,“ says
Gururaj.
Other ventures are focusing
on problems further afield. For example, Deepak Garg and Gazal Kalra founded
Rivigo a couple of years ago to recast trucking in India.
A broken road-freighting
system has ensured that ecommerce companies take a week or longer for products
to be shipped. So Rivigo has set up a series of pit stops across the country
for truckers and signed up a couple of thousand drivers. “Sensitivity to
turnaround is much higher in ecommerce and we can offer 50-70% faster
deliveries than our competitors,“ says Garg.
According to Garg, the
biggest impediment to speedy movement is low or non-availabili ty of drivers.
“In long-distance surface movement, a lot of wastage happens because drivers
are not available,“ he says. “We follow a driver-relay mechanism where drivers
change but the truck never stops.“ As per the Rivigo business model, a driver
returns home the same day and doesn't have to stay away from his family either.
On the road and the ground,
these refinements can make significant differences. For instance, apples
shipped from Azadpur Mandi in Delhi can reach Coimbatore in just three days,
compared with 10 days conventionally.Similarly, mango shipments from Vijayawada
in Andhra Pradesh can reach Guwahati in three days. Earlier, mango shipments
used to be restricted to a 1,500 km radius to avoid spoilage. With Rivigo,
high-quality mangoes can reach consumers across the country.These kinds of
numbers are attractive for ecommerce companies looking to squeeze more profitability
out of their operations.“Logistics is a key enabler for ecommerce,“ says Ashish
Chitravanshi, vice president, operations, Snapdeal. “It is a differentiator
from a customer experience point of view and an important growth driver for
business.“
In the last 18 months,
Snapdeal has expanded its warehouse footprint to 50 and has over 2 million
square feet in operation. Which means, it is now dealing with over two dozen
logistics providers and betting on technology to keep its operations
functioning smoothly.
“We now get orders from
distant parts of the country. We have 63 fulfilment centres in 25 cities to
keep pace. The northeast, a largely ignored part, accounts for 12% of our
business,“ says Chitravanshi. He says the firm leans on technology extensively
(to do realtime package tracking, for example) to stay ahead of the
competition. “We want to reach every pincode in the country,“ he says.
Parcel Grows Bigger
According to a recent
report by management consultancy KPMG, 1-1.2 million transactions happen daily
in India's ecommerce industry.Apparel (43%), electronics (24%) and books (22%)
account for most of them. From $200 million in 2014, KPMG estimates that the
opportunity for ecommerce logistics will grow by a CAGR (compound annual growth
rate) of around 48% to reach $2.2 billion by 2020.
The report says the
ecommerce logistics market is evenly split between in-house logistics firms
(like Flipkart's Ekart) and third-party providers. As the industry ventures
further into the hinterland -companies like Flipkart and Snapdeal get 60-70% of
their business from small towns now -the focus on logistics will increase. And
as the emphasis shifts from standard to specialised deliveries, logistics
providers will need to invest in newer capabilities and infrastructure, the
report notes.
If industry leader
Flipkart's unit has ambitious growth plans, the biggest churn could happen when
Amazon and Alibaba leverage their financial muscle to recast the ecommerce
logistics backbone in India (See The Amazon Way... And How Alibaba Does It). As
they slowly but surely expand in India, these two behemoths could reshape
ecommerce in India and the kind of logistics needed to support such an online
revolution.
Moving Up
Companies such as Snapdeal,
Amazon and Flipkart, which account for 70% of all deliveries, lean not just on
in-house logistics capabilities, but on external ventures too. For example,
Delhivery, a logistics venture backed by Tiger Global Management and Norwest
Venture Partners, processes over a million packages daily at its automated
sorting unit.
“The opportunity to service
ecommerce is gigantic,“ says Sahil Barua, CEO and cofounder of Delhivery. “We
have grown two-and-ahalf-times year-on-year and, even as we scale up, we think
we can sustain this growth.“
He proffers some numbers to
substantiate this bold claim. Delhivery delivered about 75,000 orders a day
last year; today that num ber is up to 205,000 and climbing. He expects it to
quickly cross the million-parcel mark.“We have the largest automated sortation
capacity in the country and have developed our own GPS mapping and address
system to enhance our capabilities,“ says Barua. “There is an opportunity for
three or four large companies, each worth a billion dollars or more, to be
built in this market.“
These initiatives can make
a substantial difference to the industry -shipping accounts for as much as 11%
of GMV (gross merchandise volume) on average and, Barua reckons, this should be
no higher than 6%.
While the opportunity may
be massive, the industry is split on how well the older logistics vendors can
serve the ecommerce industry.Executives at startups say companies such as
Amazon, Flipkart and Snapdeal deliver millions of consignments (some as small
as a USB drive) to its customers all over the country and have far more
stringent service-level agreements with their logistics partners.
TA Krishnan, co-founder of
Ecom Express, a specialised logistics provider for ecommerce sector, says
technology laces every step of the process: “The game in ecommerce shipment
delivery is different and far more complex than traditional B2B logistics.“
Changing Hands
This focus differentiates
newer players from legacy players such as FedEx and Blue Dart.While Ecom
Express has grown from 2,500 shipments when it started in January 2013 to
200,000 today (and from 30 locations to 500), the firm's growth may have only
just begun. “We aim to become the most favoured logistics player in the country,“
says Krishnan. “We are babies as yet... our real growth will happen over the
next few years.“
Executives from legacy
logistics companies rubbish the notion that they have been left behind. “Blue
Dart has been an alert, flexible and intelligent organisation across the
express logistics supply chain in the country,“ says Yogesh Dhingra, CFO and
COO, Blue Dart Express. “Today, Blue Dart is the market-leading service
provider for lastmile delivery for e-tailing industry in India.“
He says the company has been
on a par with, if not ahead of, competing upstarts, with initiatives such as
cash on delivery; onthe-move, hand-held devices; mobile point of sale solutions
and smart trucks, specifically for ecommerce. In 2014, Blue Dart inked a pact
with Deutsche Post DHL Group's PosteCommerce-Parcel (PeP) division.
Rather than be a millstone,
Blue Dart's ini tiatives have been a growth driver for the company. “Our growth
for this segment is nearly four-five times the other businesses and it
contributes close to 25% of our revenue,“ Dhingra adds.
In 2015, Blue Dart
commenced operations at its first eFulfillment centre in Delhi specifically for
the e-tailing industry. The facility can handle up to 12.4 million shipments
daily and 15 such centres are slated to be fully functional across India by
2020.
As logistics begins to
occupy centre stage, businesses mushroom not just in conventional ecommerce,
but in newer segments such as hyperlocal commerce too. Mayank Kumar, CEO of
Opinio, chanced upon the idea of hyperlocal delivery when he and his IIT-Kanpur
classmates Lokesh Jangid and Abhinav Jain were living in Bengaluru as young
engineers and faced with limited dining options. In Rupena Agahara in south
Bengaluru, where they lived, there were no good places to eat and no restaurant
would deliver. “We help fulfil demand within a 7 km radius of a locality and
work with a range of local businesses and online platforms (Zomato, for
example) to meet exploding demand,“ says Kumar about Opinio, which he cofounded
with Jangid and Jain. “Our ground pilots do an average of 13 deliveries a day
and we expect to hit a million deliveries a day in six to eight months,“ claims
Kumar ambitiously.
Kumar and Co dealt with a
set of challenges that all upstarts face. “In India, the address and mapping
systems are broken and require ground-up innovations to hasten delivery,“ he
says. Investors seem to think Opinio has a bankable business idea -the duo
raised their first round of funding within five weeks of launch and more is on
the way.“We play a vital role in helping small busi nesses survive and expand
their reach online,“ he says.
Emerging Opportunities
For investors looking to
zero in on the next big thing in ecommerce, logistics is an emerging
opportunity. While ecommerce companies are hacking their way down a thorny path
to profits, risk capital investors are waiting and watching -and getting
increasingly frustrated -as they want their investments to turn a profit.
Meanwhile, investors may fancy backing logistics companies rather than another
uncertain ecommerce firm.
“We look at this sector as
a critical factor for the success of India's ecommerce industry,“ says Deepak
Gaur, managing director with SAIF Partners, a venture capital
company.“Historically, little capital has been invested in solving logistics
problems.“
As ecommerce companies
belatedly realise the value of logistics, Gaur expects a raft of deals to be
cut in this space. SAIF itself has backed the trucking-services provider Rivigo
and is on the hunt for more deals. “We are looking for founders solving a
fundamental problem,“ he adds. “They need to have a strong tech backbone and be
keen on exploring new business models to succeed in a fragmented market.“
Capital for fledgling
companies in this space may come from other sources too. For example, industry
leader Flipkart's founders had to set up their own logistics arm, Ekart, when
they started delivering books almost a decade ago. Now, the Bengaluru-based
company is an aggressive investor in the field, having backed the likes of
QikPod, Blackbuck and MapMy India.
“Logistics has been
historically a fragmented operation, inefficiently run by owners of one or two
trucks, with little technology intervention,“ says Neeraj Aggarwal, a senior
director with Flipkart. “That's changing as technology will drive consolidation
and organisation in this sector.“
In ecommerce, Ekart is
looking to build its own brand and business -it recently tied up with rival
Paytm -and hopes to wean its business from Flipkart substantially. “Newer
players targeting business in ecommerce are better placed, given the unique
demands of this industry,“ says Aggarwal. “If you have cracked the challenges
of logistics for ecommerce, you are much better placed to target other
industries.“
Tech Inroads
Others think they have a
winning idea around technology as well. Two years ago, Dhruvil Sanghvi and
Manisha Raisinghani founded Loginext to build a software platform for logistics
and since then they have netted $15 million in funding from Paytm and are today
processing 50,000 shipments daily.
“Technology can help
redefine logistics efficiency for ecommerce companies and hasten their path to
profitability“ says Sanghvi.“We automate route-planning by analysing location,
time, traffic and carrying capacity of logistics providers.“ Loginext's
software, he claims, provides 3-4% cost saving to customers, from fewer
kilometres travelled to more deliveries and fewer missed deliveries. “We can
provide a 4-10% improvement in operating cost,“ he adds.
Sanghvi and Raisinghani
have shown this business can be viable -Loginext is already operationally
profitable and expects to grow its business twoor three-fold in the next 12 to
18 months. “We were convinced of our business model from the beginning,“ says
Sanghvi. “We never offered discounts to try to grow our business.“ Even as
companies jostle to grow their innovative logistics businesses in the ecommerce
industry, Sapan Kumar Jain cofounded Blu Birch, a company focused on reverse
logistics. This is an under-served market, which has been getting plenty of
attention recently, as companies led by global leader Amazon look at returns
and exchanges to improve their customer experience and bottom line.
“Reverse logistics has all
the ambiguity absent in conventional logistics,“ says Jain.“Quantity, packaging
and condition of the package are not certain,“ he says. “We don't know who the
owners are and how to deal with them either.“
He sees an opportunity to
use technology to improve efficiency across the reverse logistics chain. While
the industry has been traditionally dominated by e-waste handlers (in the case
of consumer electronics, the largest slice of ecommerce industry) and sundry
middlemen, most incumbents focus only on the liquidation part and not on
eliminating why returns happen in the first place.
“We want to give our
customers `actionable insights' to reduce or eliminate this problem,“ says
Jain. “Ecommerce companies focused on the cheapest and best for years, but now
this has shifted to easy returns.“
Firms such as Blu Birch
have profited from this. This Chicago Capital Venturesbacked company says it
works with five big ecommerce firms, 200 smaller startups and 1,000 retailers.
“The issue of returns is a massive -and insufficiently addressed -challenge for
ecommerce companies of all sizes,“ he says.
Despite this promise, it
appears that companies aren't content with being in ecommerce. For example,
Delhivery, which is closing in on $150 million in fresh funding, is eyeing an
expansion into two new verticals.Opinio, which is attempting to recast the
trucking system in India, thinks its solution can have ramifications beyond
ecommerce.And executives of Ekart, which is as yet a Flipkart business, harbour
ambitions of scaling it into much more.
Ecommerce seems a good
place to start.
|
Rahul
Sachitanand
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ETM17APR16
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