A higher reach and fast delivery have emerged as sweet spots for 3PLs. But with e-tail players strengthening their own delivery capabilities, how will the market play out?
While globally, top e-commerce players have taken different approaches to logistics, the trend is tilting towards investing in one’s own captive arm to control the customer experience. Consider this: Alibaba Group has invested in a smart supply chain and advanced logistics for its ‘new retail’ initiative and is strengthening its logistics arm Cainiao for the same. Its arch rival JD.com’s logistics arm has raised $2.5 billion to invest in automation drones and robotics.
In fact, Alibaba has invested nearly $2 billion in Indian companies ranging from e-tail to express delivery companies, which will enable it to build its own logistics network. Even Amazon.com is said to have launched a delivery service — shipping with Amazon — for an end-to-end shipping solution.
Increasingly, e-comm players are seeing value in controlling the last mile and a similar trend is visible in India too. A majority of shipments (more than 75%) on both Flipkart and Amazon.in are managed by their respective logistics arms Ekart and ATS.
Focus on scale
With tier II and III cities accounting for almost half the orders, finding a logistics partner with reach, CoD facility and timely remittance at an affordable price is key. For example, for last mile delivery, Amazon India has four different models along with third-party logistics (3PL) partners such as Blue Dart, India Post, etc. It has 150 delivery stations which are managed by Amazon, 350 service partner stations, and 17,500 partner stores under the ‘I Have Space’ programme.
“Scale and technology advancement are two key levers influencing e-tailers’ decisions to invest in their in-house logistics arms,” says Jaideep Ghosh, partner and head — transport, leisure and sports, KPMG India. This has been witnessed in cases of leading e-tailers in the US as well as China.
Threat to 3PLs?
According to a RedSeer report, the share of 3PLs in overall e-commerce shipments is expected to fall to 40% in 2020 from 43% in 2017. But experts say that the rise in demand from tier II cities and beyond is expected to account for almost half of the total demand by 2022. There is a large opportunity in the long tail for 3PL. “Flipkart and Amazon together account for 75% of the market but there is 25% of the market where 3PLs play a big role,” says Ujjwal Chaudhry, engagement manager, RedSeer.
In fact, 3PLs’ differentiator is their reach. For example, Ecom Express covers 25,000 pin codes and 20 states in the country are fully served, with a further 2,500 delivery centres to cater to rural areas. “So far, we focus only on e-commerce players but we are not glued to them. We are looking at B2B players also for their warehousing requirements,” says TA Krishnan, CEO and co-founder, Ecom Express.
The top e-commerce players have a fixed installed capacity and may not be able to go beyond the core catchment area — which could be the top 50 or 100 cities. “That is where 80-90% of their volume is. For the balance 10%, they may not have enough density to have their own set-up,” Krishnan says. Therein lies the need for 3PLs.
The rise of online grocery has further given boost to 3PLs. Shadowfax works with major e-tailers such as Flipkart, Amazon and BigBasket with offerings such as less than 90-minute delivery in more than 100 cities. “For the hyperlocal space, e-commerce players prefer to outsource,” says Abhishek Bansal, co-founder and CEO, Shadowfax.
Another leading service provider DHL Express covers more than 11,000 pin codes and over 33,000 locations within India. “While major e-tailers work with a combination of their own network, we are still at a very early stage of the e-commerce market development. There is room for all,” RS Subramanian, country manager, DHL Express India, sums up.