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An old friend of mine from my alma mater, IIT Bombay, who is now a tenured professor at the North Carolina State University, was recently carrying out a sponsored study on supply chain dynamics in various parts of the world. In this context, he reached out to me a couple of months ago to seek my inputs on the state of play of logistics in India.

Having worked in the software industry for much of my career, I pled ignorance about this subject. After all, when raw materials walk in through the door at 9AM and leave at 5PM and finished goods are shipped to customers “over the wire”, there’s no movement of “hard goods” between suppliers, manufacturers and customers the way it happens in traditional B2B logistics.

When he heard this, my friend asked me if I could share  any thoughts around B2C logistics. That I could since I’ve gained a lot of exposure to B2C logistics as a consumer in India and a few other mature markets. Here goes:

  • Logistics is still quite primitive in India compared to many parts of the western world. Let alone deliver seamless customer experience, stage-by-stage visibility and luxuries like that, logistics in India currently falls short of even fulfilling its basic goal of delivering something from A to B. If consignments get delivered at all, you’re lucky. But, if they don’t – a one in a four occurrence, in my personal experience – you don’t get a proper status update from the logistics provider.
  • Surprisingly, this is a problem faced not just by hapless consumers but also by large enterprises who ship hundreds of millions of items every year. To quote an example, a leading MNC bank has consistently had problems delivering my credit card statement for the past ten-odd months. It claims that it hands over the statement to its regular courier company on a pre-agreed date every month. However, I never get it. When I complain about non-receipt to the bank, it sends a copy of the statement through a backup courier company, which, incidentally, charges 10X more. It will soon become evident why there’s such a huge cost differential within the same industry.
  • Average courier, freight and shipping charges are much lower in India than in Germany, UK and a couple of other countries that I’m familiar with – even after correcting for price parity. Perhaps this is the outcome of banks, e-tailers, TELCOs and other large volume shippers squeezing couriers and other logistics service providers tightly on costs. To survive under such a situation, these companies cut every corner possible – by employing untrained labor, plying ramshackled vehicles, skimping on storage and shunning technology. While visiting a friend’s office in a Western suburb of Mumbai recently, I noticed that the courier company located next door was stacking its consignments all over the place including out in the open. When I asked one of its employees what would happen if there was a sudden cloudburst, he merely shrugged his shoulders. Touchscreens on which I used to digitally sign for packets around 10 years ago in Germany are still rare in India.
  • While DHL, FedEx and other MNCs operating in India do employ well-trained manpower and use better quality of infrastructure, their shipping rates are 8-10X higher than those of mainstream courier companies.  As a result, they’re affordable only for high-value (e.g. jewelry) and time-critical (e.g. tender response) shipments.
  • Logistics-intensive businesses are facing mounting challenges day by day. They’re responding in one of the following ways:
    • Some of them have taken logistics back inhouse e.g. India’s most visible e-commerce company, Flipkart, apparently found the going very tough when it earlier used to rely on third-party logistics companies. It solved its logistics problems – albeit at a huge cost – by hiring around 500 fulltime employees on its payroll to make deliveries of books, gadgets and other items all over India. For the moment it’s flush with VC funds and is able to sustain the loss. Heady with the company’s stratospheric valuation, its investors don’t seem to be too bothered about whether it will ever turn profitable if it continues to handle its logistics inhouse.
    • Others shamelessly dishonor their commitments e.g. I’ve been a subscriber of FORTUNE for close to a decade in India. Typically, I receive only one out of every two issues of the magazine. Neither the magazine’s local distributor nor its parent company’s regional office in Hong Kong has ever bothered to update me with the status of the missing issues or compensate me for my loss.
    • A few companies exit the business altogether after finding themselves unable to navigate the treacherous minefield of logistics e.g. My friendly-neighborhood library, which used to home deliver books, recently downed its shutters when it found that it couldn’t handle deliveries and pickups reliably and cost-effectively.
  • Unless the B2C logistics industry is able to bring about a sea change in the way it conveys its value proposition to its customers, it’s likely to be stuck in its current sorry state, with no immediate remedy in sight.

That said, the sad state of logistics in India is unlikely to thwart the nation’s progress in general or the dizzying growth rates of eCommerce in particular. I’ve reached this counterintuitive conclusion after seeing 4PL (finance) making an entry into India even before the ills of 3PL have been cured: With cash on delivery (COD) proving to be the most popular method of payment for ecommerce in India, logistics companies here are typically required to collect cash from customers apart from just delivering goods to them. Chalk it up to one more paradox in a country that’s full of so many of them!

Ketharaman Swaminathan On April - 19 - 2013

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eCommerce, Uncategorized

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  • Vishal Garg

    I would say a market place model will work better in a country like India.
    In fact I just heard there will be an online shopping website for groceries and other products going by the name of BestAtLowest.com. It will work on some sort of market place and not inventory led model for even groceries which in my opinion will be a first of its kind in India at least.

  • According to this article http://ow.ly/l2I1V that appeared in today’s Economic Times, ecommerce companies are feeling the pinch of high logistics costs and shedding up to 10% manpower from their customer-facing functions. Wonder what impact this will have, going forward, on their delivery track record.

    @VishalGarg: TY for your comment. In my experience, most ecommerce companies and others involved in their value chain in India are very slippery. You place an order, make an online payment, the payment fails, your account gets debited but the ecommerce company claims it has not received your payment, you don’t receive your goods. You are left to your own devices. No single party involved in the value chain – ecommerce company, bank, ePayment Gateway, courier company – takes responsibility to rectify the problem. Against that backdrop, the wisdom of introducing yet another entity into the value chain – which is what would be entailed by a marketplace model – is debatable.

    • Hey sketharaman!! Indeed informative reply on this fantastic article regarding logistics for eCommerce. I totally appreciate with you.

      • sketharaman

        @HarryLee: TY for your feedback.

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