Logistics — understanding the sector and key trends — Part 2

In the previous article, we covered few definitions and took a brief overview of the sector.

Ecommerce as a megatrend

Let us do a deep dive on Ecommerce and how it is tied to logistics.

First lets absorb few numbers to understand the size of this trend:

source: GrantThornton report

The entire sector is poised to show a 3x jump in the next 4–5 years. Ecommerce penetration is just 6% in India compared to 25% for USA. Increasing disposable income leading to more smartphone adoption, will gradually increase the share of ecommerce.

Where does logistics fit in:

Before we start doing a deep dive, it is definition time:

• First party logistics or 1PL — logistics is owned by the company
• Second party logistics or 2PL( — Company hires a vendor to deliver goods
• Third party logistics or 3PL — Complete logistics function is outsourced

For ex: Flipkart, Amazon — 1PL. Flipkart owns Ekart and Amazon has its own in-house shipping. Meesho, snapdeal, ajio and D2C brands — 3PL since the logistics function is outsourced.

Below is a typical flow of an ecommerce transaction:

After the order is received by the ecommerce company, the logistics team springs into action. The below diagram depicts activities where logistics comes into play after order is processed.

source: Aviral logistics report

To summarize the above diagram in a shorter form:

Logistics cost for most of the D2C brands and ecommerce marketplaces accounts for 10–20% of total costs. The user experience depends on how accurately and quickly the user receives the product and how seamlessly they are able to return the product back. This is the 2nd biggest cost header after raw material cost for a company and hence enough attention is paid to make it as seamless and cost efficient.

For an ecommerce/D2C company following factors are important while choosing a vendor:

• Speed at which they can deliver parcels and also pick up return parcels( Remember user experience is dependent on this)
• Accuracy ( strong sorting mechanism so that parcels don’t get jumbled)
• Reach in terms of Pin code coverage ( user serviceability)
• Cost ( Service is a commodity, price plays a very important role)
• Value added services

— — — Parcel tracking

— — — Cash on delivery

— — —Product validation while picking up returns

• Technology ( level of automation and integration capabilities with the marketplace) applicable for 3PL

Lets take a look at few players present in this space:

1)Traditional/legacy players:

• Bluedart, TCI express, GATI-KWE, Safeexpress

2)New age tech-enabled and Venture capital backed players :

• Delhivery, Shadowfax, Expressbees, Ecom express amongst others

Below table will show the relative comparison amongst the listed competitors:

Lets also compare the profiles of new age players:

Below are the dominant categories along with the weight bracket they fall in:

source: Aviral logistics report

This end the section on e-commerce. This was a traditional and a fragmented sector and with the opening up of e-commerce, a lot of incumbents are also embracing technology.