Renju Kokkatt, Junior Member (Industry Network)
The E-commerce sector in India has witnessed a boom recently. With a CAGR (Cumulative Annual Growth Rate) of 46%, e-commerce is in its infancy right now with a huge potential for growth. The city centers are chaotic, and the contents of a shopping list are distributed over dozens of different stores or street stands. It seems the perfect place to build a robust online economy.
Several hundreds of million dollars have been pumped in startups such as Flipkart, Myntra and Snapdeal. An important driver for Indian E-commerce is its fast growing population of first time Internet users, shoppers who are buying on mobile. Even if we consider a 20% quarterly growth rate, the mobile Internet users in India will reach 185 million from around 155 million currently. Also, most of these mobile shoppers are coming from India’s smaller towns.
But the question is whether the logistics sector in India is competent enough to cater to the rising demand from e-commerce sector?
FRAGMENTED NATURE OF LOGISTICS
While major MNCs like DHL and FedEx operate in India, goods are normally shipped via smaller and much cheaper third party carriers. Different carriers have to be used for different regions of the country. For orders sourced outside the major cities, individual couriers often have to be hired to make last mile deliveries from drop-off points by vehicle. The difficulties and unreliability of the carriers has forced some of the largest and best funded players, like Flipkart, to develop their own logistics arm to deliver their packages. This leads to significant operating costs for the companies. It shifts the company’s attention and focus to the lesser important logistics sector instead of attending to its main business.
LESS PENETRATION OF CREDIT CARDS
Cash on delivery (COD) accounts for about 50-70 % of the total sales of e-commerce companies. The problem is that the COD system creates a delay in payment. Courier companies generally hold the money for two weeks, which means that the e-commerce company has to restock inventory before the cash from its last sale has arrived. It is also expensive, some couriers charging upwards of 3 percent for the service. But the biggest hit comes from the much higher return rate—sometimes up to ten percent—by consumers who simply changed their mind or could not be reached at home.
3PL and Outsourcing
A case study of Amazon.com , the largest E-commerce site in US shows that the company has been able to reduce a huge chunk of its supply chain cost by outsourcing to 3rd party logistics players. But in India unavailability of such players worsen the situation for companies. Even with existing players, geographic spread and reliability are very poor leaving the problem unsolved.
NON UNIFORM TAXATION
The tax systems of different states vary considerably. In short there is no unified code for the whole country. This leads to legal barriers in delivery. For example each state demands separate tax from a freight which is transported between them. A uniform tax system can be created by the implementation of Goods and Services Tax , which might change the face of the entire logistics sector.
This is a general view of the E-commerce sector in India, which, despite its considerable growth recently, needs a shot in the arm, and poses many unanswered questions. We at ShARE hope that these shall be answered sooner rather than later, since E-commerce holds great potential in India courtesy its size and population. Also, we continue to research on ways to solve the many issues highlighted in this blog post.
The E-commerce sector in India has witnessed a boom recently. With a CAGR (Cumulative Annual Growth Rate) of 46%, e-commerce is in its infancy right now with a huge potential for growth. The city centers are chaotic, and the contents of a shopping list are distributed over dozens of different stores or street stands. It seems the perfect place to build a robust online economy.
Several hundreds of million dollars have been pumped in startups such as Flipkart, Myntra and Snapdeal. An important driver for Indian E-commerce is its fast growing population of first time Internet users, shoppers who are buying on mobile. Even if we consider a 20% quarterly growth rate, the mobile Internet users in India will reach 185 million from around 155 million currently. Also, most of these mobile shoppers are coming from India’s smaller towns.
But the question is whether the logistics sector in India is competent enough to cater to the rising demand from e-commerce sector?
FRAGMENTED NATURE OF LOGISTICS
While major MNCs like DHL and FedEx operate in India, goods are normally shipped via smaller and much cheaper third party carriers. Different carriers have to be used for different regions of the country. For orders sourced outside the major cities, individual couriers often have to be hired to make last mile deliveries from drop-off points by vehicle. The difficulties and unreliability of the carriers has forced some of the largest and best funded players, like Flipkart, to develop their own logistics arm to deliver their packages. This leads to significant operating costs for the companies. It shifts the company’s attention and focus to the lesser important logistics sector instead of attending to its main business.
LESS PENETRATION OF CREDIT CARDS
Cash on delivery (COD) accounts for about 50-70 % of the total sales of e-commerce companies. The problem is that the COD system creates a delay in payment. Courier companies generally hold the money for two weeks, which means that the e-commerce company has to restock inventory before the cash from its last sale has arrived. It is also expensive, some couriers charging upwards of 3 percent for the service. But the biggest hit comes from the much higher return rate—sometimes up to ten percent—by consumers who simply changed their mind or could not be reached at home.
3PL and Outsourcing
A case study of Amazon.com , the largest E-commerce site in US shows that the company has been able to reduce a huge chunk of its supply chain cost by outsourcing to 3rd party logistics players. But in India unavailability of such players worsen the situation for companies. Even with existing players, geographic spread and reliability are very poor leaving the problem unsolved.
NON UNIFORM TAXATION
The tax systems of different states vary considerably. In short there is no unified code for the whole country. This leads to legal barriers in delivery. For example each state demands separate tax from a freight which is transported between them. A uniform tax system can be created by the implementation of Goods and Services Tax , which might change the face of the entire logistics sector.
This is a general view of the E-commerce sector in India, which, despite its considerable growth recently, needs a shot in the arm, and poses many unanswered questions. We at ShARE hope that these shall be answered sooner rather than later, since E-commerce holds great potential in India courtesy its size and population. Also, we continue to research on ways to solve the many issues highlighted in this blog post.