FROM MAGAZINE: E-commerce logistics: where speed matches need

The logistics needs of the e-commerce industry is evolving rapidly with the changing business requirements. Air cargo is riding high on e-commerce, and the industry is building infrastructure to support it. Last-mile delivery that constitutes 40-50 percent of logistics cost in India is ridden with challenges. However the logistics infrastructure being built by e-commerce companies and 3PLs has allowed 100 percent timely fulfillment of orders in India even during peak sales period.
Nahida Jafferi

“Today will be bad, tomorrow will be worse, but the day after tomorrow will be sunshine,” said Jack Ma of Alibaba. This quite succinctly sums up the positive trade growth that e-commerce is delivering to the world since last year.

Air cargo industry got back its lost sheen after seven long years owing to e-commerce trade that relies heavily on express delivery. In 2017, airlines returned to freight profitability not seen since 2010. Air freight demand, measured in freight tonne kilometers (FTKs), grew by 9 percent, which was more than double the 3.6 percent annual growth recorded in 2016.

Alexandre de Juniac, director general and CEO, IATA, attributed the growth to buoyant consumer confidence, the growth of international e-commerce and the broad-based global economic upturn. It forecasts the demand growth to continue in 2018.

“We saw improvements in load factors, yields and revenues. Air cargo is still a very tough and competitive business, but the developments in 2017 were the most positive that we have seen in a very long time,” said de Juniac.
As per IATA, global industry net profit is expected to rise to $38.4 billion in 2018, an improvement from the $34.5 billion expected net profit in 2017. Interestingly, cargo volumes are estimated to grow by 4.5 percent in 2018, but down from the 9.3 percent growth of 2017. Cross-border e-commerce trade is expected to continue pushing demand ahead of supply in 2018.

China that accounts for one-third of global exports is leading the growth in cross-border trade. The desire of customers for variety of products from across the globe, faster shipping and front-door delivery has put the airlines, airports and logistics service providers in full swing of operations. Add to this, the record sales during sales days like Singles Day, Cyber Monday, Black Friday, Big Billion, and the e-commerce logistics potential is put to test.

In the wake of Chinese New Year, FedEx opened a cargo hub at Shanghai Pudong International Airport to open opportunities for customers in eastern China, particularly those shipping to the US and Europe. Karen M Reddington, president, Asia Pacific, FedEx Express, remarked, “The FedEx Shanghai Hub marks another milestone that helps support the economic growth of east China. By continuously enhancing our services and facilities, we can provide our customers an edge in the fast moving and ever-changing business environment.”

While e-commerce has proven to be a big game changer for the international trade arena, its sustainability relies heavily on logistics technology, increased modal flexibility and infrastructure set-up in cities closer to the customer.

Online sites reversed the routine of customers doing the work of getting to the outlets and returning with the goods. Now decentralisation of logistics is setting the benchmark ahead. E-commerce companies are lowering the logistics costs through innovative methods of tying up with local shops, setting up fulfillment centres for quick delivery; all this to tackle last-mile delivery constraints.

Linking online and offline
Retail firms have soon realised the potential of online presence and are facilitating the logistics network requirement by partnering with 3PLs.Dubai based retail MNC, The Landmark Group owned Lifestyle, and leading Indian retailer, Shopper Stop, owned by K Raheja Corp., have their physical stores as well as online presence where they offer home delivery as well as store pickup.

Traditional retail is here to stay and shall run in tandem with online retail. E-commerce companies are setting up stores for customers to understand the look and feel of the product shown on screen or TV and reduce last-mile logistics costs.

There is a rise in the new ‘webrooming’ phenomena. Most people research products online and buy it in store. Owing to this trend, India-based e-commerce and TV home-shopping company, Naaptol, started off as a product price comparison portal, has ventured into the brick and mortar space. It has announced plans to set up physical stores to establish a customer base of more than 10 million by end of 2018. Naaptol's first brick and mortar store has been set up in Thrissur, Kerala.

Manu Agrawal, CEO, Naaptol, said, “By expanding to tier 2 and tier 3 cities with brick and mortar stores and providing 100 percent internal dispatch of products to our customers with the help of our 11 fulfilment centers (FCs), we are building on our already massive network of delivering to 26000 pin codes in India.” He further added, “Naaptol aims to give its users the chance to select from a gamut of product segments by adding more lifestyle products especially for millennials, combined with great offers, exemplary delivery and customer support services.”

Around 50 percent of the e-commerce business in India comes from tier 2 and tier 3 cities, where logistics costs are high. The omnichannel approach by e-commerce companies shall lower the last-mile delivery cost and provide a seamless experience to customers.

More and more e-commerce companies have set-up stores where they stock up products that are in demand on website through location analytics data.

It is also important to consider that 59 percent customers look for personalised promotional offers. New Jersey based retail brand Toys R Us will be shutting 180 stores post filing for bankruptcy protection, In the face of stiff competition from Amazon and Walmart, it will now focus on improving the in-store and online shopping experience with compelling promotions and digital growth.

Decentralised logistics to reduce delivery time
To do away with the poor or sheer lack of integration of last mile delivery with the logistics supply chain, e-commerce companies are pumping in billions in setting up fulfilment centres (FCs) in cities worldwide. Alibaba has pledged $15.2 billion in building a global logistics network with Chinese firm-Cainiao Smart Logistics Network where it has increased its stake to 51 percent.

It is only through decentralisation of logistics that Amazon can offer Prime Free one-day shipping and same-day delivery in 8000 cities and towns, and two-hour delivery in 30 major cities with Prime Now. Amazon expanded its fulfilment capacity by more than 30 percent in square footage worldwide in 2017, as more than 100 million of items are available for free Prime shipping. In India, Amazon owns 41 fulfilment centres (FC) that facilitate sellers to use the local infrastructure, improve the delivery time and save costs. The FCs bring under one roof, each processes from receipt of stocks, quality inspection, preparation for dispatch and return handling.

The investment in improving speed and decentralisation of logisticsis imperative for e-commerce sector, especially to cater to the requirements during peak sales period. In the US alone, Amazon put in place more than 6000 trailers and 32 Amazon air planes last year to serve the immediate shipping need of Amazon Prime members.

Making the last-mile efficient
A RedSeer Consulting report stated that last-mile costs are as high as 45 to 50 percent of the overall logistics costs In India. In more developed economies it is 25 to 30 percent. An estimated 40 to 50 percent of the actual sales in India, are Cash on Delivery (COD), of which around 40 percent are fraudulent orders which are found to be more in hinterland areas.

Last-mile issues like product snatched by customer, customer refused payment or customer was not available, add on to the cost. E-commerce companies are tackling the last-mile delivery issue by shortening the last-mile by concentrating more on automated warehouses and technology driven FCs for supply chain optimisation. A very good example is of Amazon that used big data and predictive analytics for anticipatory shipping of inventory from its 200+ FCs globally to nearest locations, to reduce supply chain costs.

E-commerce companies need an unbeatable logistics network to capitalise on the strength of internet penetration in the country. The local postal services in countries are relied upon for filling the logistics gap of delivering to hinterland.
For instance, India’s largest postal company, India Post, has unmatched network capacity. Amazon delivers to around 19000 pin codes through India Post, while Naaptol delivers to 26000 pincodes. India Post overhauled its services and went hi-tech with geo tagging solution to meet requirements of e-commerce companies in India.

Amazon keeps experimenting with various supply chain initiatives to improve last-mile performance. Amazon did a pilot with Bharat petroleum outlets for customers to pick-up their packages. This got extended into a pan-India network of 9000 kirana stores (local shops) to whom Amazon Transportation Services (ATS) staff deliver packages. The stores offer doorstep delivery or store pick up, in addition to storage space.

E-commerce platform gets wider in India
The most profitable e-commerce company with deep pockets, Alibaba, entered the Indian e-commerce market with investments in India’s premiere online shopping app- Paytm Mall, and online marketplace Snapdeal.

However, it is neither Amazon nor Alibaba backed Paytm Mall or Snapdeal that is winning the race in India. Flipkart, an India-based online shopping portal, outpaced arch-rival and global giant Amazon last year by claiming 70 percent in electronics and fashion in the country. Due credit to its strategic acquisitions of Indian fashion e-commerce brands, Jabong, Myntra along with eBay India. What’s more, Flipkart has made its entry into the global market in 2017. To facilitate cross-border delivery, Flipkart Global was launched to allow its sellers export their products through eBay India, which Flipkart bought last year.

However, Amazon claimed the top spot during Republic day sale battle in January 2018. In a bid to outrun Flipkart, it invested $306 million in its Indian arm, Amazon Seller Services. This almost doubled its authorised capital to $4.74 billion meeting its $5 billion investment commitment in India.

But, can India catch pace with the world’s largest e-commerce markets?
An online statistics portal, Statista claimed that with over 460 million internet users, India is the second largest online market, ranked only behind China. By 2021, there will be about 635.8 million internet users in India.

But India is way behind China in e-commerce spending. As per iResearch Consulting Group, the average annual e-commerce spending per consumer in China shall cross $1,800 in 2017; whereas RedSeer Consulting forecasts the same for India as between $120 and $140.

Analyst firm, Forrester, predicted that the value of online sales in India shall reach $48 billion by 2020, outpacing China and the US which currently dominate the world in terms of e-commerce expenditure. The magnanimous shift three years down the line would be a spectacle keeping in mind the current trend. On China’s singles day sale 2017 alone (similar to India’s great Diwali sale in magnitude), Alibaba made $14.3 billion in 24 hours, whereas Flipkart’s yearly sale is $8 billion.

However, e-commerce logistics which is the biggest segment of the overall logistics in India has to keep pace with the e-commerce growth in India. As per a Nielsen report, the Indian logistics and warehousing industry is anticipated to grow at a compounded annual growth rate of 10 to 12 percent from 2015 to 2019. On the other hand the global logistics market growth is estimated at CAGR 9.44 percent over the period of 2015-2019, as per research firm Technavio.

The e-commerce logistics’ current challenge is to make the customer experience better and meet the delivery deadline at a manageable cost. All this to stay afloat amidst huge competition.