• With the ecommerce industry set to hit $100 billion by 2020, can logistics business be far behind?

    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 commercial and residential complexes. Founded 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 synchronous 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.

    Deepak Garg, co-founder, Rivigo, August 2014
    FOCUS AREA: Re-inventing long-distance truck freighting; INVESTOR: SAIF Partners;
    STATUS/PLANS: Has set up 40 pit stops across the country, has enlisted 200 drivers and owns 800 trucks. Expanding its fleet and headcount to be a national player.

    “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.

    Mayank Kumar, cofounder, OPINIO, June 2015 FOCUS AREA: Hyperlocal delivery INVESTORS: Delhivery, Sands Capital, Accel Partners STATUS/PLANS: Doing 50,000 deliveries a month, expects to increase this to one million in 12 months
    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-availability 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.

    Dhruvil Sanghvi, co-founder, LOGINEXT, November 2014 FOCUS AREA: Logistics optimisation platform INVESTOR: Paytm STATUS/PLANS: Working with 50 large enterprises and 150 SMEs; wants to treble this in a year.
    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.”

    Sapan Jain, founder, BLUBIRCH, March 2015 FOCUS AREA: Reverse logistics INVESTORS: Chicago Capital Ventures, Sanjay Mehta STATUS/PLANS: Works with 3,000-plus partners and is in talks to add more ecommerce companies to its platform
    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. 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 number 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 initiatives 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 businesses 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 frgmented 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 two- or 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. 

    Share This