Soaring e-commerce has opened up a new dimension for the Indian logistics industry. Speed, accuracy and service quality are assuming key importance as companies gear up for last mile delivery.
Evolution of e-tailing has opened up numerous business opportunities for allied services like warehouse management, 3PL services, and first-mile and last-mile delivery. E-commerce has fast emerged as a sunrise industry for India and is expected to do a business of over $16 billion by the end of 2015, as per a recently released joint study by ASSOCHAM-Deloitte. Presently, an average of 8-10 lakh daily shipments are ordered and delivered through the new-age e-tailing sector. Jaideep Ghosh, Partner and Head, Transport and Logistics, KPMG in India, states, ´Logistics cost as a percentage of revenue for e-commerce retailers may vary from 5 to 15 per cent, depending on the category of products being offered. Further, returns in the sector are as high as 15 to 20 per cent.´
Gauging the opportunity, logistics companies are now creating e-commerce wings to cater to this proliferating business. ´We have set up DotZot as a dedicated wing for e-commerce logistics. It is a specialised organisation headed by a full time CEO. It uses special software technology and has special hubs which will help e-commerce companies to reach out to their customers,´ reveals Suresh Bansal, Director and Head of Supply Chain Solutions, DTDC.
The top notch e-commerce firms, on the other hand, are launching their own subsidiary logistics companies. ´Most of the e-commerce companies have launched their own last mile delivery companies, for instance- EKART of Flipkart, to ensure that efficiency is achieved. SaaS based tech platforms are also being launched to handle logistics operations,´ says Harish Singla, Founder &Director, Blubox.in, the Full Service Agency for Flipkart.
Conventional vs E-commerce
The emergence of e-commerce industry has led to a transformational shift in the traditional logistics model. ´E-commerce has made way to a dynamic logistics set-up where orders are unpredictable and not stable, order cycle time is hourly or daily and not weekly, the shipments are smaller and not bulk, and destinations are more widespread,´ remarks Varun Bhutani, Head- Logistics, AskmeBazaar.
Unlike conventional logistics, for e-commerce logistics players the unit is ´hours´. The SLA of keeping the consumer informed at every intermittent stage of the delivery process makes the DNA of new-age companies quite different from traditional ones. ´Technology is the main enabler to make e-commerce successful, particularly in India. Technology such as smartphones, e-payment and end-to-end supply chain management has revolutionised the space,´ says Adarsh Hegde, Executive Director, Allcargo Logistics.
Despite the higher investment in technology and human resources on one hand, and better service levels on the other, e-commerce logistics companies often quote below the conventional companies when it comes to pricing. This could be attributed to better productivity and efficiency, and the economies of scale.
´In e-commerce logistics, overheads cost is drastically reduced and the number of layers through which the product moves are also cut down,´ opines Anil Kumar Gupta, Chairman & Managing Director, CONCOR. This is the basic reason for high speed and competitive prices for products purchased through e-commerce.
According to Sunil Kumar Jain, Chairman & Managing Director, North Eastern Carrying Corporation, ´Many of the new-age e-commerce logistic companies are adequately funded, owing to easy availability of venture capital in the last 12-18 months, and thus are solely focussed on increasing their market share at the cost of break-even and profitability.´
Smaller companies and start-ups are also drawing mileage from this e-commerce boom. A Vasister, Founder and CEO, GoGoTruck- a Chennai-based company which has contracts with e-commerce majors like Amazon and BigBasket for dedicated trucks, states, ´For e-commerce companies to succeed, they need to have last mile delivery for the products.
This provides lots of new opportunities for truck aggregators like us.´
An e-fulfillment centre is fully equipped and in close proximity to the city, offering better connectivity. The positioning, size and kind of e-fulfillment centres are different from the traditional warehouses. Conventional warehouses were servicing B2B customers. Pre-packaged pallets would move out to wholesalers and distributors. E-commerce warehouses, on the other hand, cater to the B2C space.
E-commerce warehouses and processing centres are automated to handle automatic sorting and bar-coding. Automated sorting systems process a large number of shipments in a short period of time. The turn-around time of inventory is much shorter. ´E-commerce warehouses are advanced in terms of intellectual technology, specialised instruments, being driven by artificial intelligence, etc., which lead to higher throughput, better utilisation and turnaround in a limited timeframe,´ affirms Raaja Kanwar- Vice Chairman & Managing Director of Apollo International and Founder of Apollo LogiSolutions.
E-fulfillment centres are tailor-made to store and handle large number of SKUs. Real-time track and trace system leaves little or no scope for human laxity. ´In an e-fulfillment centre for e-commerce, the number of SKUs can be very diverse. The storage solution would be a little different. Flexibility is pretty high as the volumes go up and down. IT orientation is high and they focus on KPIs,´ asserts Vikas Anand, Managing Director, DHL Supply Chain India.
The hub-and-spoke model to speed up deliveries and reduce costs is being adopted. Under this model, cargo is collected from its source (the spokes) and is transported to a centrally located processing facility (the hub). The shipment is then either warehoused or distributed from the hub. Large-scale companies operate several hub-and-spoke systems. This model enables improved shipment tracking and better management.
´Last mile connectivity is presently constrained in our country due to saturation in rail and road infrastructure. It would not be right to say that e-commerce logistics is outdoing conventional logistics here because e-commerce logistics also partly uses the same infrastructure,´ states Gupta.
Infrastructure available for last mile delivery is very poor. ´We now have equipment like imported stair climbers to address this. The e-commerce companies need to appreciate the benefits of a good back-end, state-of-the-art e-fulfillment centres, trained delivery boys, good last mile equipment, which would be critical for their success. Road network, choked airports, and issues with long-haul vehicles are bottlenecks from an infrastructure standpoint,´ claims Anand. With respect to last-mile delivery companies, infrastructure challenge in terms of limited space availability in commercial airlines is a critical factor, and often leads to off-loading. Low highway per capita penetration ratio is also a big constraint.
According to Bansal, ´Logistics cost in India is one of the highest in the world at around 14 per cent, compared to 8-9 per cent in the US.´ Time wasted and inefficiencies in distribution mean more inventory cost for the industry. ´The industry is suffering from constraints like funding, infrastructure, check naka issues- a truck in transit is stopped at every 40-50 km for checks, driver´s training and quality, driving license issues, etc.,´ avers Bansal. Vasister adds, ´There are various limiting factors like volatility in fuel price, shortage of skilled drivers, toll charges, etc.´
Lack of standardisation and limited multi-client sites are other shortcomings. ´In an ideal environment, since we work with multiple partners, we would want each of our partners to have standardised systems to ensure we can work with one system across all partners. This is a challenge and we, in our own way, are standardising the systems of over a dozen LSPs through our systems,´ reveals Bhutani.
Other prominent loopholes in the system are paucity of land and the current tax regime. ´The land holding in India is very small. Availability of land without litigation is an absolute challenge. The new act still would require a large number of approvals, and paying fair prices is very important. The bill seems to be better and probably the warehouses can be built faster,´ says Anand. Lack of clarity on regulations and taxes with respect to e-commerce shipments is a matter of grave concern. ´Challenges are often witnessed in case of inter-state surface movement of shipments. Few states have imposed an entry tax on e-commerce shipments, while others have imposed requirement of maintaining books and records in-line with the requirements of the commercial tax department,´ asserts Jain.
Under the proposed GST regime, the whole country would be treated as one single region, as opposed to the present system of different rules, regulations and rates in each state. ´Implementation of GST would do away with time, energy and cost related to unproductive paperwork and unnecessary compliances. Locating a warehouse would be a function of logistical requirement rather than the present factors of tax planning and compliances,´ points out Jain.
Instead of running small inefficient warehouses, large distribution hubs are preferable and this will be a big change post-GST. ´GST will make transaction costs of doing business from India, especially EXIM, more competitive and make the logistics value chain more efficient,´ opines Hegde.
GST will alter the landscape for warehousing and 3PL services. ´GST will subsume all the taxes that are to be paid from manufacturing up to consumption.
It will enable the seamless movement of cargo and its storage from manufacturing area to consumption centres,´ affirms Gupta. According to Kanwar, ´GST reform will boost warehousing demand, approximately 9 per cent CAGR, implying addition of 520 million square feet by 2020.´
Multi-modal logistics parks will result in significant saving in terms of transit times, inventory costs, processing time and consequently, overall logistics costs. ´The difference between a standalone warehouse and logistics park is scale. The economies of scale come into play in logistics parks. A large logistics park is able to attract more players and create employment,´ remarks Anand. The logistics park is not just a modern warehouse, but a hub of value-added supply chain and manufacturing activities. ´Logistic parks will provide a one stop solution to a shipper in terms of ICD, Domestic Container Terminal and handling of break-bulk cargo. There will be cargo-specific and customer-specific warehousing in logistic parks,´ asserts Gupta.
The special purpose vehicle for efficient rail evacuation systems to the major ports is also being lauded as a remarkable initiative by the government. ´SPV will reduce the cost of logistics and improve the turnaround time. It will help the primary movement of cargo from the ports to the master warehouses or distribution centres from where the deliveries can be made,´ says Bansal.
Despite having one of the largest networks of roads and rail, over hundreds of airports, 13 major and 200 non-major ports, last mile connectivity still remains a stumbling block in the logistics sector. Infrastructural loopholes are manifold. With the advent of e-commerce, the sector has got a new fillip, with better turnaround times and investments gaining traction. Governmental measures like GST, logistics parks, SPV for rail-port connectivity, Make in India, and emphasis on skill development are slated to boost the logistics value chain. Efficacious implementation, however, will be the key.
E-commerce Logistics Drivers
E-commerce has integrated technology-based solutions to cover challenges
- Adarsh Hegde, Executive Director, Allcargo Logistics
E-commerce has been creating waves in the country. How positive has this been for the sector? What are the opportunities that this will generate?
E-commerce has created a positive sentiment across our economy. It is bringing new money, technology and most importantly, job opportunities for our masses. Logistics, being the backbone of our economy, plays a vital role in ensuring e-commerce industry is successful in its entirety. It has definitely created opportunities for every stakeholder of the industry from private to public. Opportunities range from last mile delivery to imports of global products into India as well as increased manufacturing activity, thus leading to contribution to EXIM trade overall.
Would it be right to say that e-commerce logistics is outdoing conventional logistics?
Similar to a developing economy, India has its challenges, especially in the last mile connectivity space. But e-commerce industry has integrated technology-based solutions to cover most of the challenges. However, if we need to expand this industry further, we definitely need world class logistics infrastructure.
The Dedicated Freight Corridors are expected to improve connectivity. What is your take?
It will bring in the much-needed dedicated space for all the opportunities created. It will be a game changer for a demography like India because it will not be restricted by the usual passenger driven traffic that needs to be carried as a priority in our network of rail systems.
How will the roll-out of GST impact warehousing and logistics in India? Is the delay in the passage of the bill adversely affecting the sector?
GST will play a critical role in the next level of growth. For India to truly realise its potential as an international trade hub, we need globally accepted policies and regulations like GST to add efficiency to the system, along with cutting down unnecessary costs and making it affordable. From a macro-economic level, GST for the economy, if implemented to its fullest, will be a game changer. Infrastructure and logistics are India´s economic backbone; thus GST implementation will certainly help the industry.
How significant is the passage of the much-anticipated Land Acquisition Bill?
For India to truly realise its potential as a global trade and manufacturing hub, it needs a more globally benchmarked and simpler Land Acquisition Bill. But we also need to ensure that it is specific to our economic requirements and it ultimately boosts trade, thus creating new employment for our citizens.
E-commerce has carved out a broader base of B2C for logistics service providers
- Varun Bhutani, Head- Logistics, AskmeBazaar
E-commerce has been creating waves in the country. What are the opportunities that this is generating?
With an estimated growth rate of more than 20 per cent, India is expected to be a key market for global e-commerce companies. With the third largest base of internet users in the world, India is set to become the next e-commerce hub of the world.
How is e-commerce logistics different from conventional logistics?
E-commerce has carved out a broader base of B2C for the logistics service providers. The delivery timelines have become extremely critical as customers expect real-time deliveries. The customers have become more demanding than ever before and expect to receive real time updates on the status of their shipments.
What about last mile connectivity and end-to-end services? How do you operate with your logistic partners?
We face many challenges on an on-going basis and strive hard to cope up with the evolving customer demands. Some of the challenges include:
We have entered into a series of strategic alliances with our logistic partners to be able to cope up with the challenge of short delivery time-frames, not only in the tier-I cities, but also in the tier-II and tier-III cities in the country.
Are the e-commerce warehouses better equipped than the conventional ones?
The warehouses were built for a different purpose. In an e-commerce model, speed is of essence and thus, technology plays a major role. Through use of technology and automation, it is easy to scale a warehouse to meet the demands of an e-commerce model.
How will Dedicated Freight Corridors contribute to seamless connectivity?
It will reduce the time to service orders and thus lead to a better consumer experience.
How will the roll-out of GST impact e-commerce in India? Is the delay in the passage of the bill having an adverse effect?
It will help achieve standardisation and the resultant improvement in processes that will lead to efficiency. There might be some new challenges that emerge after its implementation as is the case with any change and we will deal and surmount them as they arise.
As for the delay, we are sure the government has reasons and we will strive to meet our customers´ expectations within the current legal climate.