Delivery Pangs

7/29/2019 Delivery Pangs

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Delivery PangsNewbies capitalise on courier firms apathy to e-tailers

Shrutika Verma (This story was published in Businessworld Issue Dated 16-04-2012)

A panel discussion on Creating a seamless distribution network' is winding up at TheClaridges hotel on a cold February morning in Delhi. The room is abuzz with questions,grievances and even heated arguments between the audience and panelists fromlogistics firms, including officials of Blue Dart and DTDC. Just then, a man shouts outover the din: "You cannot track documents I couriered seven days ago to Mumbai. How

can I then trust you with expensive items my e-tailing company wants to deliver?" It wasan inappropriate forum to raise personal grievances against a specific logistics company,but it was a deliberate swipe for maximum impact.

The man was only giving voice to a pet peeve: poor customer experience after shoppingonline, for which both the e-tailer and the online buyer blame logistics firms that areentrusted with the task of picking up the product from the e-tailer and delivering it to thebuyer in the shortest possible time. The grouse is: deliveries are delayed endlessly,tracking mechanisms are inadequate and e-tailing firms are left to face the customer'sire. Not without reason, though. "A delivery from Delhi to Noida was delayed by threedays and no one was able to justify the delay," says Pawan Gadia, CEO of flower e-tailerFerns N Petals.

All blame lands at the doorsteps of India's courier market leaders Blue Dart, DTDC,FedEx and Aramex. In an era of instant gratification where customers can go to theneighbourhood mall to satisfy their need within minutes, courier firms' lethargy spellsdoom for India's second e-tail boom. The Rs 7,000-crore e-tailing business is growing ata healthy compound annual rate of 85 per cent, according to Wirefoot, an online

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research firm. The industry is expected to hit Rs 45,000 crore by 2015. And the numberof deliveries is likely to grow from 200,000 a day today to 750,000 a day by 2015.

One would expect traditional courier firms to embrace the opportunity with both hands.But they have not. And that has thrown open a vast opportunity for new-generationlogistics companies dedicated to e-tailing. More on that later. Call it high-handedness or

haughtiness, but the reasons go deep and wide. For one, e-tailers were small, with littleor no bargaining power. Two, they were seen as upstarts who could fade away soon.Three, specific requirements of e-tailing firms (such as multiple-point tracking ofconsignment) required substantial changes in the processes of courier firms, which theywere unwilling to make. Four, traditional courier firms have an established b2b businessand document delivery network earning them big bucks already. And five, e-tailing is alow-margin business where profitability is a stretch.

"On a scale of 1-10 in terms of profitability from any business-to-business (b2b)customer, e-tailing would rate around six," says DTDC's executive director AbhishekChakraborty. Percy Avari, country manager of Aramex, emphasises e-tailing is only anaverage-margin business for the company. While Chakraborty and Avari are sticking

around despite low profitability, DHL Express's Asia-Pacific CEO Jerry Hsu is emphatic."It is a very low-cost domain that we do not want to be in at this point. We do not want tocompete with low-cost rivals. We are in the domain, but with caution," says Hsu. DHLties up with Blue Dart for local deliveries.

But is there more to it than just lack of interest or low profits? "Bigger players do not wantto invest in specific systems," alleges Dhruv Lakra, CEO of Mirakle Couriers in Mumbai."Traditional courier companies are oriented towards documents, not packages. Forthem, delivering in 72 hours was not happening for three years. Finally, a lot ofcompanies have started taking control of last-mile delivery," says Gautam Sinha, directortechnology and e-commerce at Indiatimes Shopping, which is now working closely withDelhivery.

There is more to it. "Larger courier companies charge more in India. And the worst partis they do not provide good service either," says Ishita Swarup, CEO of 99labels.com,who uses big couriers such as Blue Dart and First Flight. Swarup thinks these firms aretrying hard to catch up and will take some time since they did not spot the opportunityearlier. "Most of them are failing to provide transparency in tracking orders. There aredelays without explanations," says Healthkart.com founder Prashant Tandon.

On their part, courier companies explain that they are overwhelmed by the sudden spikein e-tailing business. "Often, we are taken by surprise. A customer, who was giving me

2,000 shipments a day, suddenly says he has 5,000. So, the variance is high for anylogistics player to handle," says Aramex's Avari.

But all courier companies deny that they conceal tracking details. "We are fullytransparent with the customer. We have application programming interface (API, to trackand display processes) integrations in place," says Avari.

Price negotiation is another major challenge. As the industry is new and courier playersare too few, the variance in prices paid by different e-commerce players is appalling. "As

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a businessman, do I jump in now and compete with those little players and say okay wewill go down to your prices? asks Hsu. "No, we will continue to provide quality and hencewe will select the players in the e-commerce space."

But e-tailing is very different from traditional retail. "It is an execution business and sogetting all things right, including delivery, is vital for success," says Rajan Anandan, MD

of Google India. There is a distinct gap in the market right now no player is offeringthe breadth of services needed at a competitive price across a broad network demandedby e-tailing firms.

The Cash Woe

For several e-tailers, credibility is an issue. Many of them are not familiar among thepublic, except the likes of Flipkart, Snapdeal or Jabong, who have mass mediaadvertising campaigns. But for the lesser known, cash-on-delivery (CoD) is the naturallifeline. It addresses the consumer's anxiety over use of credit-debit cards by letting them

pay only when the product arrives. For e-tailers, it has been the biggest trigger inattracting buyers, as more than 60 per cent of all e-tailing transactions are based onCoD.

However, CoD is a huge challenge, whose import traditional logistics firms are yet tofathom. Firstly, chances of reverse logistics are high, if the delivery firms do not call thecustomer beforehand and ask them to keep the cash ready. Secondly, if delivery takesmore than 2-3 days, chances are the customer would have changed his mind. Returnrates are as high as 30-40 per cent. Quick delivery can be a huge differentiator only itis not in their control. Khairatilal, a delivery boy from online shop Myntra, has many suchstories to share. On his first day at work, Khairatilal biked down to the Delhi High Courtto deliver a pair of shoes to a lawyer, only to realise that the customer, who placed the

order eight days ago, had changed his mind. Not to forget, for e-com players, deliverycharges on CoD could be as high as 3 per cent of the invoice.

The other bone of contention is money collection and remitting it back to the seller.Traditional courier companies cater to b2b, but e-tailing is b2c (business-to-consumer)and is a tougher game. Companies do not just deliver to residence, but also collectmoney as per the customer's convenience and remit it back to the e-tailer fast so thatworking capital is not blocked.

It is this additional layer of communication with the customer that traditional courier firmswere not prepared for. "If you do not keep the customer informed about the delivery and

that he needs to keep the cash ready, the person might not be available or the cashmight not be ready," says Healthkart's founder Sameer Maheshwari. Like other e-tailers,Healthkart, too, faced troubles with long remittance cycles from traditional logisticsplayers. Some e-tailers complain that Aramex and Gurgaon-based Gati at times take upto 30 days to remit cash.

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A New BreedThe indifference of traditional logistics firms was just the perfect ground for small, nimbleand dedicated e-tailing logistics firms to prosper. At least five of them have sprung uprecently. Gurgaon-based Delhivery, Delhi-based Chhotu and Bangalore's ZwipeCommerce have not only come to the rescue of e-tailing firms in their hour of need, butthey have also captured substantial business. E-tailers, fully dependent on older firms

earlier, now give 20-25 per cent of business to these new entrepreneurs.

Much of it because of the fact that the innovation these new players have brought in wassomething traditional firms were unwilling to do. They are faster, have stringent trackingprocess and offer rates that are worth their services. Delhivery, for instance, allowscertain customers to open some of the products to check before payment. "Clients withprivate labels do not mind the customer opening the product as they already have a 30day no-questions-asked return policy. It eases everyone's job," says Suraj Saharan, co-founder of Delhivery.

A specialised courier and warehousing services provider for e-tailers, Delhivery wasoriginally started by Sahil Barua and Saharan in April 2011 to cater to restaurantdeliveries. The sudden surge of e-tailing drew their attention. The company was quick tobuy six bikes, six vans and rented five 500-600 sq. ft offices in and around Delhi to caterto the e-tailers. Barua and Saharan were joined by Mohit Tandon, Kapil Bharati andBhavesh Manglani as partners. It already has operations in Chennai and Bangalore, andwill soon be seen in Mumbai, Jaipur and Chandigarh.

Zwipe Commerce will start operations in a few weeks, and will have a 24-hour deliveryconcept. While the entire industry is struggling with poor tracking systems of couriers, allthe products in Zwipe's warehouses will have quick response, or QR, codes (mobilephone readable barcodes) so that a customer or an e-tailer will be able to track the order

live on a city map. "We will have GPS-enabled low-end Android phones given to onedelivery boy per van who will scan the products with his phone before heading fordelivery. This will help us not just track the real-time location of the van, but also theproduct," says Vimal Vijayakumar, co-founder of Zwipe Commerce.

break-page-breakChakraborty rues the industry is just looking at whether logistics firms are prepared ornot, "but what it needs to understand is the challenges faced by logistics companies tosatisfy the needs of the e-tail customer". According to Mahindra Swarup, president ofIndian Venture Capital Association, "last-mile delivery is where a lot of investment needsto go in".

Indeed, e-tailing firms that have the wherewithal are going ahead with setting up aparallel logistics organisation of their own. Flipkart, Myntra, Yebhi, Jabong and soon-to-go-online Croma are among the few who have set up in-house delivery teams andsupply chain. Flipkart, which currently has the biggest in-house delivery system in India,manages 60 per cent of last-mile delivery on its own through 2,000 people in 20 cities."You go to courier firms with a proposal (of delivering within 8-24 hours of order), theywill stare back at you blankly," says Flipkart founder Sachin Bansal.

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Says Mohit Tandon of Delhivery: "Since we do not come from a document-deliverybackground and do not have that baggage, we understand what clients want and thencreate a model specific to their needs."

Navneet Singh, co-founder of Chhotu, says he realised traditional courier companies do

not have the technology to append the orders. "If you have to stop an order that hasbeen dispatched for delivery or if you have to make changes to the time of delivery,there is no solution which is integrated with the systems of (e-tailers). One has to do itmanually by calling them or mailing them."

Though traditional courier players such as DTDC and Blue Dart accept that there is ahuge lag between their operations and e-tailers' expectations, they disagree that theyare late entrants to the game or that their technology is dated. That said, most of thelogistics providers have the capability to service only in 25 per cent of India's 20,000 pincodes. For instance, Aramex serves about 4,000-6,000 pin codes, while First Flightserves about 7,000 of India's pin codes. This is the reason why most e-commerceplayers end up working with almost all possible courier companies and even use state-

run IndiaPost for remote areas, despite high rates of pilferage.

"We have made huge investments in technology. We have the capability where thedelivery boy can key in details of product delivery in real time," says Avari of Aramex. Ithas 500 specialised point-of-sale machines in 10 cities, which help update real time.

Aramex plans to add 4,000 machines in 200 cities in six months.

A Change Of Heart, May Be...

Stung by the sudden emergence of newer players who are slowly but surely taking awaybusiness, the traditional firms are making some late moves. DTDC, which has been

serving the e-tailing sector since 2002-03, created a separate vertical for e-tailing one-

and-a-half years ago. "Initially, e-tailing used to be just another customer, but now wehave the infrastructure and dedicated manpower catering to their requirement,"

Chakraborty says. "By 2015, we expect a minimum of 5x to 6x growth in e-tailing,"

Chakraborty adds. The vertical still has only 500 people for e-commerce delivery.

"We are getting into the (e-tailing) business on a selective basis because we need to

understand where the business is growing. We also need to adjust our model," says Hsu

of DHL Express. "But it is challenging for us to deliver from b2b concept to b2c. We areready to do b2c but I do not think the market is ready to take us. Our systems and

processes require a certain kind of price to sustain business," says Hsu.

For Aramex, e-tailing is not a new area since it has been catering to rediff shopping andindiatimes since 2002, but dedicated efforts started only nine months ago when it created

customised delivery teams. About 22-25 per cent of its revenues now come from e-tailers, up from 10-15 per cent three years ago. But having allowed new entrepreneurs to

break into the business, the question is whether the realisation of the significance of e-

tailing is too little, too late.

shrutika(dot)verma(at)abp(dot)in

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