One of the fastest growing segments of the Indian logistics industry – the express industry had witnessed a 15 per cent CAGR growth over the past 5 years while the logistics industry grew at 8 per cent CAGR. Express delivery companies in India which cater to the segment are moving from traditional set ups towards integration of IT and technology and this is helping reduce the costs incurred and meet services demands. Besides, after the introduction of GST, interstate transportation has become more efficient and is boosting time bound delivery services to complement the growth of trade.
Upamanyu Borah
Drive Insight
Express Industry is a significant contributor to the Indian economy as it facilitates speed of trade and commerce, employment creation and infrastructure development, and to the government in terms of the tax revenues. One of the most important contributions of the express industry is its impact on the competitiveness and growth of the other industries.
The Indian express industry is one of the fastest growing express industries globally. It has grown at 15 per cent CAGR over the past five years. The industry is transforming rapidly with the rise of E-commerce, the government’s focus on the manufacturing sector, demand from Micro, Small and Medium Enterprises (MSME), regulatory reforms such as the Goods and Services Tax (GST) and the increasingly strategic significance of logistics for the industry. The development of enablers such as the road and air infrastructure and technology is assisting the players to cater to the growing demand. Improving tax policy and infrastructure development has also led to a strong bullish sentiment for investment amongst both domestic and international players.
Owing to these factors, the industry is expected to grow at a CAGR of 17 per cent for the next five years, increasing its contribution to the international express industry to more than 2.5 per cent by 2022. An independent study led by Deloitte says that the Indian express industry will grow at a compounded annual growth rate of 17 per cent to reach Rs 48,000 crore by 2023.
Market Forecast
Express delivery services are becoming increasingly important for the competitiveness of companies – to maximise the efficiency of their production activities, minimise their inventory costs, and provide a superlative customer experience. Small, medium and micro enterprises are the key users of express. They engage with express players for high quality, rapid delivery services. Express is also vital for companies looking to participate in cross border trade/markets.
From a domestic B2B stand point auto-components, textiles, electronics and IT hardware, pharmaceuticals and industrial goods, are the key consumers of express. With increasing focus by the government on Make in India, these industries have started posting healthy growth rates and in turn express industry is witnessing a sharp increase in demand for express services.
Banking and financial services and e-retail constitute the balance market of B2C shipments. E-retail has been the major driver of the express industry in the past 5 years. This segment of the market has also brought about an increase in the competitiveness of the industry by bringing an increased focus on expanding reach, technology to reduce the transit time, improve agility and end consumer satisfaction. New business models have evolved involving outsourcing and focus on specific part of the value chain such as first mile, long haul, and last mile.
Accelerating Growth Sparks
The express logistics segment in India has significantly expanded not only in size but also in reach and solutions. From time to time, companies have invested in technology and services to meet the changing consumer dynamics.
According to Ketan Kulkarni, CMO & Head- Business Development at Blue Dart,“The express logistics industry is fast changing with competitors that are hyperactive, while customers are extremely demanding. The industry is growing strongly with higher levels of investment. It is also undergoing continuous change in its security infrastructure and upgrades in automation and technology, factors that are turning to be the most important aspects in differentiating business.”
Kulkarni says that Blue Dart’s growth has been consistently higher than other industry players, and that they are committed to improving their dominance through focussed customer acquisition and enhancement of customer loyalty from existing and new customers, while continuing to expand to newer markets to serve their needs.
“India has emerged as a huge consumer market and supplier to global markets. The last few years have been of changing business and economic dynamics in the country, which has presented an opportunity for local businesses to grow internationally and for international businesses to enter and expand in the Indian market,” says Rachid Fergati, MD- Indian subcontinent at UPS- the international leading player who is already active in India’s express industry. By 2021, Fergati says, India’s emerging and middle-class segments combined will comprise nearly 900m people, opening up new opportunities for growth of businesses which in turn would also drive the growth prospects of the express industry in India.
India’s express industry is moving forward towards experimentation and innovation as well as increased investment in last mile delivery start-ups,observes T A Krishnan, CEO & Co-founder of Ecom Express. “There is an increased focus on speed and reach which has resulted for players to increasingly invest in fulfilment centres and expand their reach. As a result of this fast-changing landscape, the express industry has seen a number of different strategies being adopted,” says Krishnan.
As the volumes increase with increased utilisation, Krishnan says, companies are emphasising on efficiency in the logistics business and optimising operating leverages. Ecom Express has been pursuing automation opportunities and using analytics to identify opportunities in order to optimise and stretch resources in the supply chain.
Express delivery segment has been witnessing striking developments, also particularly due to the demands and expectations of customer’s portion of part truck load (PTL) business starting to move towards express segment, informs Vishal Shah, Director, V-Xpress (a division of V-Trans (I) Ltd). Reduced transit time, increased transparency and visibility in movement, better technology and analytics – all these have escalated the overall efficiency in the sector. “V-Xpress is not only keeping pace with the time but making some futuristic attempt in technology developments also along with the basic of investing in infrastructure and human resources,” says Shah.
Apart from contributing significant amounts of revenue in taxes and custom duties, the express delivery segment has become a key facilitator of the Indian economy by enabling trade growth in the country, states Uday Sharma, Director- Sales, Spoton Logistics. “In addition, the segment has provided critical logistics links to its customers by providing time bound shipment services and allowing businesses to maximise efficiency and minimise costs. Today, the sector acts as a gateway which companies and manufacturers are leveraging to gain market advantage and devise innovative solutions to fulfil customer’s needs,” says Sharma.
The impact of E-commerce
The demand landscape has witnessed a significant shift since mid-2000s due to the increasing penetration of internet and rise of E-commerce, significantly changing the way communication and business transactions are conducted. The report titled ‘Indian Express Industry-2018: A multi-modal play in building the ecosystem’ forecasts express industry growth as being primarily driven by the growth of cross-border and domestic E-commerce in India, and significant demand from the small and medium B2B segment.
A fast growing economy and robust demographics provide a positive outlook to the consumer businesses in India. This is reflected in the growth of the e-retail industry in India, which is further expected to grow to USD 1.2 trillion by 2021. E-retailing led to a surge in the demand for well-functioning express delivery services. New players have stepped in to cater to the demand of volumes by bringing solutions around reach, speed, reliability, agility and customer satisfaction. The traditional players also started setting up separate units to cater to this segment. Having established themselves in the E-commerce express delivery space, some of the companies are foraying into B2B delivery. The express industry continues to witness newer business models based on outsourcing certain parts of value chain to adapt to the evolving needs of the Indian e-retail industry.
“The fast paced growth has unlocked many opportunities for the express players by providing newer avenues for value addition. The highly competitive nature of e-retail players has translated to an increased competitiveness in the express delivery landscape with the players adopting innovative models based on technology and collaboration to address the prevalent challenges and opportunities to create differentiated value propositions,” explains Krishnan. The segment has been witnessing a rapid scale-up in service orientation and complexity with an ever-increasing emphasis on service levels, increased penetration in tier II and III cities, surged cash on delivery (COD) services, geographic penetration and supply chain security requirements.
“Although the numbers of B2C deliveries are on continuous growth, today, the nature of deliveries has changed,” says Vikas Khatri, Founder, Aviral Consulting. In the initial years, there were lesser fulfilment centers, but over the period of time, number of fulfilment centers has increased and are located near to the end customer. This change in E-commerce supply chain model has also fueled growth of B2B express business.
The growth in E-commerce is expected to further increase the demand for timely delivery along with a special focus on last mile delivery, strongly feels Mayur Toshniwal, Managing Director of FSC. “Ensuring that the delivery commitments are adhered to requires a robust hub and spoke model with high levels of accuracy in terms of shipment tracking. The industry is also moving towards digitisation and international trade, which in turn is pushing the players in the market to adapt new business models with time bound deliveries and returns management being the key differentiators,” says Toshniwal.
“With no surprise, large international consumer and E-commerce companies are anchoring their presence in India. As a result, global supply chains are playing a critical role in connecting these products, people and enterprises which involves transformation of the express logistics landscape,” says Fergati. Citing a report from ‘The 2019 UPS Pulse of the Online Shopper’ study, Fergati remarks, consumers in India are most demanding and vocal about service quality expectations from retailers. Therefore, supply chains in general must adapt to a new consumer paradigm, a shift reflected in faster and efficient fulfilment experiences with full-service returns policy.
Explaining how the rise in trends like E-commerce, crowdsourcing apps and same-day delivery has upended the last mile delivery segment, Shah informs, “When we analyse the cost break up of logistics in E-commerce, we see that close to 50 per cent is the cost associated with last mile, rightly so as most of the innovation in express delivery has been in this particular segment. Penetration in tier II towns and below has been another plus point for express delivery players as they are able to optimise the expansion investment and use the existing network profitably.”
Meanwhile, analysing the challenging business environment, Kulkarni says, heavily funded third-party logistics (3PL) players in the e-tailing logistics space has focussed on expansion and increasing revenue base, but at the same time incurred huge losses because of extremely aggressive pricing. Besides, E-commerce players are continuing to increase the share of their captive arms thus reducing the addressable market further for express players. While the movement of E-commerce shipments is majorly on air, some price sensitive e-commerce companies are opting for ground express with transit time extended for their customers. Dedicated express service providers as well as captive players are focusing on winning non-e-tailing customers as an expansion strategy and to reduce dependency on the e-tailing industry.
Contribution of GST
The list of benefits of GST for India’s freight and logistics network is endless. Seamlessness in processes, more competent and efficient cross-state transportation, lesser paperwork and reduction in costs are just a few. The savings on time comes as a bonus benefit of this Bill.
Not only transportation, the problem of duality of taxes on transactions such as leasing of equipments and goods has also been eliminated. As a result of the uniformity in tax rates across states, the consolidation of warehouses with a simultaneous elimination of smaller warehouses is encouraged. This would indirectly boost the freight and logistics sector in the long run as the supply chains will be improved.
Khatri says that post-GST; express delivery segment has been growing faster than earlier. Despite consolidation of warehouses, the growth in express delivery segment is unaffected. Primary driver of this growth is shift of part load segment from unorganised service provider to more organised express service providers.
“It is touted that the logistics sector has been one of the biggest beneficiary of GST. Companies are enjoying the benefits of bulk breaking, and cross docking and cost optimisation due to economies of scale,” says Shah.
“Express delivery is all about time-sensitive delivery. Earlier, paying local taxes, addressing a variety of norms and forms for different states, hampered the delivery process and time taken for cargo to reach the destination. Post-GST there has been lesser check posts and documentation, besides due to high transparency, unauthorised money extraction is getting lesser. Faster movement of vehicles due to these has helped in shortened transit time,” notes Shah.
It’s been two years since the rollout of the GST and many companies have witnessed a positive momentum in the logistics sector, asserts Toshniwal. Today, the industry has a much deeper understanding about compliance requirements and how to adhere to them. “However, if one were to weigh the pros and cons, the benefits would outweigh the negatives by far,” feels Toshniwal.
Since the commencement of operations, E-com Express as a dedicated logistics player to the E-commerce industry had systematically structured its warehouses and distribution infrastructure which enabled the company to seamlessly align its business to the GST regulations without having to adopt any new approach or tweak any part of its business model to take advantage of the new tax regime. Krishnan says, “GST has enabled optimised vehicle routing which has lead to operational improvements. It improved our load landing speed which in turn has enhanced our Turnaround Time (TAT) efficiency.”
E-way bill: practical issues and possible solutions
While merits include moving away from the requirement state wise compliance to uniform provisions across the country, the complexities associated with E-way bill compliance are multifold. Errors on E-way bill compliance by transporters could be classified as technology-driven errors as well as human errors.
Implementation of the E-way bill has brought significant challenges to the logistics industry, especially express logistics service providers such as Ecom Express, who operate on intra-state basis and follow a hub and spoke model for operations agnostic to states. According to Krishnan, “The defined validity of E-way bill based on travel distances pose complications in its implementation, given the complexities involved during transit. Complexities around validity of E-waybill linked to hours/days of travel for given distance also pose practical challenges.”
“The E-way bill is flaunted as an essential feature of GST regulation,” says Shah. It has the potential to provide a level playing field to both organised and unorganised logistics companies. With abolishing numerous check posts, 10-15 per cent improvement on transit time and long-haul routes was witnessed. “However, there are still some parts of the same which requires government attention, such as expiry of a bill when the goods are in godown and customer did not collect them, return of undelivered goods, interchange of shortage of material, or movement of unclaimed goods, and few other aspects,” notes Shah.
Expressing similar sentiments, Kulkarni says, there should be a further modification in the E-way bill generation system. “The onus should shift from the transporter to the shipper as they have complete control on the content of the shipment. This will not only ensure that the right E-way bill is being generated but also impact the transit time positively as time bound delivery is a critical aspect in the express business industry,” feels Kulkarni.
The main issues lie in the ambiguity of related to generation of the two parts of the bill, points Sharma. “The government is continuously receiving data on how consignors and service providers file the bill and can use data analytics to understand the dynamics and pass directives that will help clear up the confusion,” suggests Sharma.
Nonetheless, to a country which still adapting to digitisation and IT networks, errors due to inadequate technological support such as portal downtime, lack of connectivity, inability to access/track/utilise functions of the portal, etc. have been time and again sounded off in various parts of the country, and which Toshniwal from FSC also points out as a critical pain point.
Growth Perspectives
Ecom Express has always been focussed to build a scalable business through investment in technology, deploying advanced parcel sorting systems, and strengthening network reliability and infrastructure. Krishnan says, “We launched a variety of products and solutions such as E-commerce Delivery, Fulfilment and Digital Services (for eKYC/Cash & Document collection), developed to cater to the requirements of the growing need for logistics and last mile connectivity.”
Krishnan believes that food and grocery delivery will be the next big thing witnessing huge growth and will occupy major share of e-tail consumer transactions in the times to come. “Ecom Express is continuously investing in its network and infrastructure to drive the growth of online retail industry in the hinterlands of the country’s map. The company currently offers services in 25600+ PIN codes across 2400+ towns and cities with the capability to reach 95 per cent of the households in India. “With this strength, we are preparing the roadmap to enter into the food and grocery delivery in the future,” says Krishnan.
In the near future, Ecom Express aims for distribution in urban and rural areas through 3000+ delivery centres and over 50,000 delivery staff connecting to 95 per cent of India’s population and 200K+ sellers on a daily basis. By the end of 2020, the company aspires to setup a logistics network spanning the entire length and breadth of the country. The company is also looking at increasing the number of fulfilment centres and warehouses, thus creating a new value addition to its business.
V-Express is working aggressively to enhance its E-commerce logistics vertical. The company is looking forward to expand in the sector and explore new business opportunities. “With our wide distribution network of 300+ owned branches, we have managed to reach a decent level. Currently, we are serving the major E-Commerce players like Amazon and Flipkart. Moving forward, we plan to widen our reach to almost every state in the country and also to tier II and below regions,” informs Shah.
V-Express has taken the aggressive target of more than 30 per cent growth for 2019-20 with increase in the balance of multi-model transportation.
In India, UPS has a deep segment focus across automotive, hi-technology, healthcare and aerospace. The global leader is looking forward to continuing to pursue high-quality revenue growth in four strategic pillars: high-growth international markets, B2B and B2C E-commerce, healthcare and life sciences, and small and medium-sized businesses. Fergati says, “Our strategy for expansion and consolidation in India mirrors the requirements of local businesses. We have opened expanded facilities in Hyderabad and Ahmedabad. We have been focussing on locations that allow us to extend the advantages we can provide to local small and medium businesses (SMBs). For example, our Ahmedabad facility allows us to serve cities such as Surat and Vadodara.”
In October 2018, UPS announced the consolidation of its operations in India by attaining full ownership in the express services unit. “India is part of UPS’s commitment to invest strategically in high-growth markets and in offering additional services to improve customers’ experience and competitiveness,” expresses Fergati.
Spoton is set to leverage the enormous untapped potential India’s domestic air cargo sector offers as the company has recently introduced its new Air Express service, and currently planning to enter the 3PL and Speed Trucking space later this fiscal or early next year. Sharma says, “All the investments Spoton has made in the last year has been chiefly concerned with human resource, expanding infrastructure, enhancing technology and setting up our new Air Express service.”
Spoton is on track to become a 1500 cr Company by 2022 and aiming to achieve 30 per cent over last year’s performance.
India’s largest organised third-party supply chain and logistics service provider, FSC has made in-roads into a number of new industries such as CDIT, auto and further consolidated its base in ATM and Retail. The company’s new service offerings such as Direct Store Delivery and Factory Gate Logistics have helped its customers increase their reach and availability of products on retail shelves. In the words of Toshniwal, “FSC is launching a new product called ‘Express Connect’ to tie up with aggregators who can use our established hub and spoke model of FSC Express to route their shipments. This will increase utilisation of the network and will also benefit the aggregators by scaling up their business.”
FSC intends to start Air Express in the near future to increase the range of services being offered and with the intention of being a one stop shop for the customers’ express logistics needs.
In the case of Blue Dart, Kulkarni says, the company will continue to focus on key consumer driven industries such as Banking, Financial Services and Insurance (BFSI), E-commerce, automotive, life sciences & healthcare, consumer durables & electronics, and other leading industry segments. Besides this, the premier express air and integrated transportation and distribution company in South Asia, will strengthen its focus on revenue from emerging markets and SMEs and growth from indirect channel partners.
In 2018, Blue Dart embarked on two key initiatives aimed at bringing long term benefits to customers- Deliver Any Where Now (DAWN) which has successfully enabled the company to aggressively expand its reach from 6,000 pin codes to over 14,000 pin codes, enabling delivery to most Indian homes, and, Revenue Increase from Small Towns & SMEs (RISE) to support businesses from India to cater a larger market, focus on growth from channel partners and key sectors was the second initiative. As part of the expansion, Blue Dart will continue to make extensive investments in infrastructure, manpower, new-age technology and automation to drive business growth and create value for its customers and stakeholders. Through the year 2018-19, Blue Dart has also added three new state-of-the-art facilities at Chennai, Delhi and Mumbai Airports to further strengthen the Air Express service and build operational efficiency.
Future Forward
Cohesion is still lacking and hampering the growth of India’s logistics sector. Smaller, unorganised players still eat up a large segment of the customer base, setting a lower benchmark for operations while influencing pricing as well. The inefficiency of these players has led to E-commerce players such as Amazon and Flipkart to develop their own cutting-edge logistical fleet, equipped with drones and RFID/sensor-based technologies that optimise the entire process. Such a trend enhances competition for the dedicated logistics players, and only those who are able to incorporate digitised processes driven by Artificial Intelligence (AI), analytics and automation will be able to thrive through this onslaught.
“The segment is witnessing too much competition. Today, we don’t see much difference between new players and established players in terms of service. New entrants have created benchmarks in express logistics in terms of transit time, visibility, service levels and customer experience. Initiatives driven by startups have given opportunity to established players for improvement. This is a positive sign for the industry,” observes Khatri.
UPS has been at the forefront of introducing cutting edge technology solutions that help achieve various objectives.
Ecom Express is exploring numerous solutions; many are already deployed and tested, with the objective of not only reducing the costs of delivery, but also differentiating through quality and reliability of service. Technology adoption by the company in the direction of enhanced digital and innovative capabilities for the last mile delivery of E-commerce fulfilment include data privacy, interactive communication/notification, big-data analytics, route optimisation, performance management of delivery associates and so on.
“The adoption of best-in-class technology by Ecom Express has not only resulted in improved efficiency, but also offered opportunities to innovate through value added services. An example of this is a quality check assisted reverse pickup service, which is especially relevant for high-value products, which are prone to pilferage and misuse by end-consumers,” notes Krishnan.
Spoton has integrated Piece Level Tracking (PLT) technology into its tech stack to gain greater visibility into consignments. “PLT has greatly reduced our overall error percentage and misrouting. Besides, we are integrating AI and machine learning towards load optimisation. We are also working towards integrating Internet of Things (IoT) to increase security of consignments,” informs Sharma.
UPS has been at the forefront of introducing cutting edge technology solutions that help achieve various objectives. In 2018 and 2019, UPS continued to evolve its global network and invest in capabilities to respond to fast changing demand, capturing market opportunities and offering competitiveness to customers. In July this year, UPS announced the most extensive roll-out of new customer services and capabilities in the company’s recent history. The new solutions are designed to capture growth opportunities in strategic markets. “We are very excited about being part of this transformation. Much more exciting is the opportunities that lie ahead for strategic markets such as India. The launch of UPS My Choice®, the first-of-its kind solution in the US market for small and medium-sized businesses (SMBs) will mean better accessibility for outbound shipments from India to the US,” explains Fergati.
Currently, UPS is leveraging drone technology for the future of both business and humanitarian purposes.
FSC is investing in tech-enabled solutions that integrate customer’s Enterprise Resource Planning (ERP) with the company’s Transport Management System (TMS) to have control over the entire operations such as pickup requests, auto CNs, tracking within customer’s ERP, and app-based pickup, delivery, proof of delivery (POD) and billing. IoT is another key technology that FSC uses for tracking vehicles and shipments to ensure real-time visibility and handle exceptions in terms of route deviations, missing shipments and transit time tracking.
V-Express have made extensive forays into some of the latest technologies and are analysing the impact. Shah says, “We have successfully moved to cloud computing for better technology. Specific to E-commerce express deliveries, we have invested in GPS technology for route optimisation of local deliveries. In addition, we are leveraging the brand value, our vast infrastructure, and the experienced, dedicated and seasoned staff to enhance the companys’s growth.”
Blue Dart is consistently and strategically investing in automation and technology as well as customer convenience initiatives, based on customer demand and requirements. Some of the company’s technological innovations include parcel lockers, auto sorters, mobile service centre vehicles, electric vehicles (EVs), control tower, 24X7 customer connect, algorithms for route optimisation, and other mobility solutions.
“We have been enabling customer successes and are their preferred provider of choice. We have several firsts in the industry to our credit. Agility has kept us ahead as the innovators and disruptors in the industry. The services extended by the new entrants in the market have long been the leading standards that were part of Blue Dart’s offerings to customers and which are being enjoyed across sectors,” asserts Kulkarni.
Epilogue
Logistics will be at the heart of India’s internet growth story. Be it the customer experience or business economics, logistics will have a role to play. It will require deep domain insights and heads down execution to win this market. We’ve already seen multiple entrepreneurs faltering even after raising large sums of capital in the space. But more the challenges, better the opportunity to innovate and disrupt. It is still a large market opportunity up for grabs, but requires relentless focus on execution and long term value creation.
