Growth in transit

When you finally receive the tightly-wrapped package at your doorstep, it’s hard to pay close attention to who delivered it, isn’t it? Sure, you may have been directed to a delivery company’s website while tracking your order, but that’s about it. For e-retailers, though, this backend function is assuming greater importance. According to a study by Assocham and PwC, the $13-billion e-commerce business in India is expected to spend $1 billion by 2020 on infrastructure, logistics and warehousing.

“Total spend on warehousing and sortation centres could be as high as 3-6% of topline revenue, which represents a cumulative spend of over $900 million till 2020,” the report adds, noting that logistics “may act as the biggest barrier to the growth of the e-commerce industry”. 

E-retailers are working overtime to ensure that doesn’t happen. Where larger companies such as Flipkart and Amazon have set up their own logistics arms to ensure greater control over the supply chain, others have opted for tie-ups with big logistics companies and even the state-owned India Post.

Certainly, the logistics big guns in India have understood the potential of this business. Blue Dart, Gati, DTDC, First Flight and even India Post have their own exclusive services to deal with e-commerce deliveries. While Deutsche Post DHL has just announced its decision to invest €100 million (Rs 800 crore) through its subsidiary Blue Dart over the next two years to create e-commerce infrastructure in India, DTDC’s dedicated service, DotZot, is aiming for a ₹100-crore plus turnover by FY16.

“There is huge potential in e-commerce. It has very distinct needs — such as cash on delivery and return policies — that need a dedicated approach,” says DotZot co-founder and CEO Sanjay Kathuria. Set up in March 2013, DotZot covers over 8,000 pin codes in 2,300 cities in India, focusing exclusively on the e-retail space, and has all major e-commerce companies in its kitty. 

With new e-tailers springing up every day, there’s also a ready market seeking affordable delivery solutions. Several third-party logistics (3PL) players have set up shop to make the most of this opportunity, and investors are also tuning in.

Delhi-based logistics company Delhivery got equity funding from Times Internet (₹6.6 crore) and Nexus Venture Partners (₹35 crore) and is believed to have received a third round of investment recently from Renuka Ramnath’s Multiple Alternate Asset Management.

Started in 2011, the company clocked revenue of ₹60 crore in FY14 and hopes to cross ₹220 crore by FY15. “In three years, we have become the largest company in the e-commerce fulfilment and logistics space and handle over 65,000 transactions a day across 180 cities for 25,000 merchants and more than 800 e-commerce companies,” says Sahil Barua, co-founder and CEO, Delhivery.

Another Delhi-based player, Holisol, recently received venture capital funding of $1.5 million, from Datavision CEO Sundeep Bhandari. Started in 2009, Holisol depends on e-commerce for 60% of its volume: clients include Jabong, Fabfurnish, Officeyes, Amway, Tupperware and Samsung’s e-store. The ₹25-crore company made a crore of profit in FY14 and hopes to get ₹40 crore in revenue in FY15. 

More in store

Warehousing requirement is expected to go up nine-fold by 2020

The heightened interest in the 3PL sector is not new, but e-commerce-related 3PL has been on the radar only recently. Says Manish Saigal, MD, Alvarez & Marsal, a business management advisory firm, “There is excitement because of e-commerce volumes growing at 30-40% annually, translating into business opportunity for logistics companies. While the business is currently centred on tier 1 cities, tier 2 and 3 cities are bound to take over in the next five years.”

Early days

Like all Next Big Things, 3PL is also prone to hype. E-commerce logistics player Chhotu, started in 2011, shut shop last year. The Delhi-based start-up had operations in Delhi, Mumbai, Bengaluru and parts of Punjab and offered warehouse and packaging services to e-retailers.

It had raised $500,000 in angel investing and closed down after failing to get further funding. “It is challenging for standalone players to survive in the booming market. Players should be able to spread costs and make money to be able to scale,” says Saigal.

That’s not the only challenge — logistics requires high capital investment to set up fulfilment and sorting centres, warehouses and a large network to ensure smooth delivery. Then, there are multiple pick-up points in online purchases — multiple sellers for larger e-commerce traders and product returns from customers — that are managed through the same network. Also, in India, 50-60% of the shipment volume is paid for by cash-on-delivery, which brings up issues of cash management and security. 

If that’s not bad enough, states such as West Bengal and Kerala have now imposed entry taxes on online purchases, impacting deliveries to these areas. Though the Calcutta high court has declared the local tax “unconstitutional”, delivery companies say the issue persists. “Entry barriers are unnecessary and a hindrance to business,” says Bablu Tewari, COO, e-commerce and international business, Gati.

Still, these are merely teething troubles in a business that has grown rapidly over the past few years: 35% CAGR from around $4 billion in 2009 to an estimated $13 billion in 2013. While the future looks rosy, the jury is out on how many logistics players will make the most of the e-tailing boom.