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Anticipated E-Commerce Boom will Drive Logistics Industry in India

12/11/2016
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In 2015 the e-commerce market in India was estimated at US$19.2 billion and is expected to grow by more than 200% over 2015-2025. The growth of internet retailing is driven by a number of factors, such as increased penetration of the internet and smartphones, a growing online consumer base, changing lifestyles, as well as innovations in payment options. Moreover, the e-commerce retailing industry is on the verge of consolidation; global retailers such as Alibaba and Amazon, as well as Walmart, have recently voiced their interest in acquisitions or merger deals with top Indian online retailers. As a result, the opportunities for India’s logistics industry are growing, together with demand. The aggressive growth of e-commerce retailing will contribute strongly to India’s logistics industry being among the fastest growing performers in the world over the 2015-2025 period.

Everyone wants a slice of this cake

Flipkart and Snapdeal hold the top shares in India’s e-commerce market, which was valued at US$19.2 billion in 2015. Recent reports indicate that Alibaba and Amazon are aiming to purchase their rivals to gain share in the fastest growing internet retail market, globally. The press indicates that Alibaba intends to acquire Flipkart, which accounts for almost 50% of online retail sales, and is also having talks with Snapdeal which held a 20% share in 2015.

To curb the costs, e-commerce companies are also exploring forward integration strategies with third party logistics providers. Alibaba Group is looking to invest in a company which has experience in deliveries for online retail players, such as Delhivery and Xpressbees Logistics. While discussions of a merger between Alibaba and the Indian e-commerce companies are still on-going, the giant has indicated that it takes the situation seriously and is hoping to gain a foothold in India via investing in or acquiring Indian players in e-commerce, logistics provision and payments.

Role of Logistics Costs in the Retail Costs in Largest Economies 2015

logistics-economies

E-commerce in India the top gear for logistics providers

In India, logistics and transportation costs for the retail industry are as high as 16% of total costs, compared to only 10% in China. In the e-commerce industry those costs are significantly higher. High logistics costs are associated with a number of factors that vary from weak infrastructure to a lack of industry optimisation technologies to catch up with the ever growing and changing logisticsneeds of traditional and now internet retailing. Apart from pure infrastructure-related issues, e-commerce logistics in India are also dealing with a number of operational issues such as lengthy turnaround times, low credit card penetration, shortage of personnel, and thefts. These issues are adding to the demand for optimization of logistics services and technological

The success of technological start-ups like FarEye or BlackBuck are just two examples of companies that have emerged due to the need to avoid higher costs. Anything that helps to optimise costs in the logistics chain is a hot topic in India now. BlackBuck’s Bengaluru-based platform start up is backed by Tiger Global and Accel Partners. FarEye, another India-based technology start-up selling logisticsmanagement software, received USD3.5 million in funding fromSAIF Partners. The success of these start-ups shows how logistics optimisation-related technologies are in great demand in India. E-commerce is expected to grow over 200% over the 2015-2025 period. The largest e-retailers are expected to invest over USD7 billion in logistics, warehousing and infrastructure improvements. As a result of the growing e-commerce industry and expected mergers, the online retailing logisticsindustry in India and third party logistics market will receive a strong push and is expected to grow by 9% in value terms, way above the 6% growth of the global logistics market over the 2015-2025 period.

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