Online retailers jostling for a chunk of
India's $13 billion e-commerce trade are so desperate to avoid snarled roads
and inefficient railways that they fly their packages in the passenger cabin of
costly commercial flights. The cargo, however, often gets bumped off.
India's largest domestic e-tailer Flipkart
as well as bigger global rivals like Amazon and eBay Inc are widening their
supplier networks or racing to build multi-million dollar logistics networks to
circumvent crumbling infrastructure, keen to attract customers by shrinking
delivery times to same-day or even as short as nine hours.
In the meantime, they remain at the mercy
of commercial airlines, which frequently remove their parcels to make room for
passengers, highlighting one of the challenges to expanding in an e-commerce
market that consultants say is growing at a compound rate of 34 percent a year,
and which saw online retail sales of $1.6 billion last year.
"It is unfortunate, but offloading
does happen and we have to make sure our delivery promises take that into
consideration," Rahul Chari, vice-president, supply chain technologies at
Flipkart, told Reuters.
Up to 90 percent of goods ordered online in
India are moved by air, which pushes up delivery costs by around half, according
to several online retailers and logistics companies. Road and rail transport
networks remain woefully underdeveloped and entangled in graft and bureaucracy.
With a population exceeding 1.1 billion, a
burgeoning middle class and better Internet access, India's e-commerce
potential is huge. Online retail sales are expected to surge to $76 billion by
2021, according to consultants Forrester, and the segment is growing at a much
slower pace than other emerging markets, including China.
E-commerce is poised to get a boost as
early as next month, when the government is expected to allow online retailers
to sell directly to consumers.
Logistics, however, remains the biggest
barrier to growth and transport troubles are just the tip of the iceberg.
Most e-tailers use sometime unreliable
third-party delivery firms, more than half of sales are paid for with
cash-on-delivery, return rates are high and orders made to fake addresses are
all too common.
"The biggest advantage of e-commerce
is the instant nationwide reach it enables sellers of all sizes, however, it is
the delivery of that opportunity that requires significant focus and investment
from the industry," Amit Agarwal, Amazon's vice president and country
manager, told Reuters in an e-mail.
MOVING IN-HOUSE
With India's perennial infrastructure
failings far from being resolved, most e-tailers are focusing their investment
on setting up their own capital-intensive logistics businesses.
Flipkart, founded by two former Amazon
executives in 2007 is aggressively growing its logistics arm E-Kart. Amazon,
the world's biggest online retailer, is pumping up the capacities at Amazon
Logistics. That's in addition to existing partnerships with third-party
logistics firms including GATI, Blue Dart and FedEx Corp.
"Having a control over what customers
want is a big driver because now we are able to have a channel through which we
can gather a lot of feedback and tailor our services accordingly," said
Flipkart's Chari. The company counts South Africa's Naspers Ltd as an investor.
To reduce air shipments, Flipkart is
setting up regional warehouses and signing up more suppliers across the country
to ensure customers get orders delivered by the nearest supplier, he said.
Having its own network now means Flipkart
can handle delivery rescheduling requests better, manage product returns faster
and help customers exchange products, services that are time-consuming when
handled by a third-party operator.
Amazon is using a similar strategy. In
addition to building its own warehouses, it is trialing using neighbourhood
grocery stores and petrol stations as delivery points.
It also struck agreements with the Indian
Postal Service to reach far-flung places in the country, Agrawal said.
eBay, by contrast, is working with external
logistics firms to cut back on multiple state taxes for products shipped by
road and the excessive documentation required to move every parcel.
It is also intensively training its 45,000-strong
supplier base, which holds all the inventory eBay sells on its platforms, to
improve efficiency.
"In this business, it is important we
do what we are good at and let our logistics partners do what they are good
at," said Latif Nathani, eBay India's managing director.
FROM LAPTOPS TO REFRIGERATORS
The anticipated boom in online retail is
encouraging logistics firms to better their services, but it will take several
years before India gets an efficient network, said Bablu Tewari, chief operating
officer for e-commerce and international business with Gati. The company is one
of India's largest logistics firms, delivering for Amazon and eBay.
"Nobody shipped products which weighed
more than two kilos like say laptops and now suddenly people are moving
refrigerators," Tewari said.
For the many Indian e-tailers that lack the
deep pockets of Amazon and Flipkart, air freight and couriers are not an
option. Instead, they are altering their packaging and product lines to ensure
they can reach customers via road and rail.
Pepperfry, one of India's largest online
furniture and home products retailer, is training suppliers to make knock-down,
foldable products, similar to IKEA furnishings.
Flat-packaged goods reduce shipping costs,
said founder and Chief Executive Officer Ambareesh Murty. The company also
provides carpenters to assemble the items once delivered.
Industry consultants say companies like
Pepperfry that are able to adapt their business to the ailing infrastructure
are better placed to take advantage of the expected e-commerce boom. India's
roads and railways are not going to get better any time soon, and commercial
airlines can only carry so much cargo.
"The roads are where the action is
going to move to as volumes start surging," said Ashish Jhalani of
consultants e-tailing India. "Anyone innovating and building capacities to
deal with that challenge will benefit in the long term."
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