E-commerce company Flipkart’s decision to invest in logistics start-up QikPod shows that online retailers are experimenting with different avenues to find a suitable model to cut delivery costs. Photo: Ramesh Pathania/Mint
As the e-commerce market matures in India, showing clear signs of winners, the logistics sector has also begun to witness hectic activity.
The past six months have seen a massive surge in start-ups offering different service models to address the issue of last-mile delivery that is marred with a failure rate of more than 30%.
Companies like Taykit, QikPod and Omedel have joined the ranks of hyperlocal delivery companies including Opinio and dPronto to partner with e-commerce or logistics companies.
The idea is to try and take the load off from logistics service providers such as Delhivery (SSN Logistics Pvt. Ltd) and Ecom Express and reduce the cost of the delivery by cutting the last-mile failure rate.
Logistics service providers currently take care of line haul (movement of cargo from one city to another) and last-mile delivery services, charging e-commerce firms close to Rs.80-100 per delivery. Out of this, 30-40% of the cost goes into the last-mile services alone.
Logistics companies say first mile (pickup from the warehouse) and last mile (delivery to the customer’s doorstep) are key to timely and cost-effective delivery in the fiercely competitive e-commerce market. These younger start-ups are taking up the job of last-mile delivery.
The e-commerce market is estimated to touch $300 billion in sales by 2030 from $20 billion currently, according to a 2015 study by Goldman Sachs, a bank. However, the sector is deeply affected by high costs in last-mile deliveries due to failed deliveries, which lead to second or third delivery attempts.
Experts say that for every 100 deliveries, a delivery boy has to make 140-150 visits to a customer’s house; the ratio grows to 230-270 for reverse logistics, the process of handling returns or goods rejected by customers.
Adding to this, the salaries of delivery personnel have doubled in the past couple of years from Rs.10,000 to Rs.20,000, while the average ticket size of the products has largely remained unchanged.
The challenge in last-mile delivery is stiffer in small towns and rural areas, which account for close to 50% of the total traffic generated by e-commerce companies in India.
To solve this problem, Bengaluru-based start-up Taykit has taken a two-pronged approach. It has tied up with local departmental stores, chemists, beauty parlours and women’s boutiques to offer a delivery-cum-pickup service on a revenue-share basis.
The company drops bulk packages at these outlets. Customers can then fix a time for the delivery of the products—say when they are back home from work—or collect the item from the outlet at anytime.
Taykit has also set up trial kiosks in these outlets where consumers who are picking up their parcels can try them before deciding whether to buy them.
The model is cost-effective because it does not involve a separate delivery boy for each item and has no large infrastructure to maintain. The delivery is done by the store staff.
However, experts say that the model can only become successful if the stores are close to the customer’s home.
Taykit works with lingerie portals Clovia and Zivame and has completed a pilot with Flipkart-owned online apparel portal Myntra. It works with more than 75 local stores (parcel on demand or POD outlets) across 10 postal districts in Bengaluru, offering trial outlets, pickups and deliveries.
E-commerce firm Flipkart’s decision to invest in serial entrepreneur Ravi Gururaj’s logistics start-up QikPod shows that e-retailers are experimenting with different avenues to find a suitable model to cut delivery costs.
Last month, QikPod raised $9 million from Flipkart, venture capital firm Accel Partners, Delhivery and Taiwanese electronics vendor Foxconn. It plans to build a nationwide network of fully automated lockers.
In October, courier service Blue Dart Express introduced a locker service at Gurgaon’s Cyber Park to store parcels and cut delivery failure rates.
“The parcel locker system will help deploy the milk van model, where one vehicle can make all the deliveries to the locker centres and avoid the requirement of more personnel to take it to doorsteps,” said Gururaj, founder and CEO of QikPod.
It is a commonly practised model in western countries with US-based Amazon also providing customers self-service delivery location. Customers can select any locker location and retrieve their orders by entering a unique pick-up code on the locker’s touch screen.
However, these lockers need to be set up in the heart of the city, areas which tend to have high real estate costs.
“This may work if these companies are trying to facilitate lockers in the apartments of customers; by picking 100 apartments in a densely populated area. However, if they go ahead, taking land and setting up infrastructure, it is likely to become an expensive proposition,” said Harish H.V., partner at consultancy firm Grant Thornton.
Omedel and DoorGuy, start-ups largely built on the concept of US-based start-up Doorman, are offering customers the option of scheduled delivery.
These firms receive a customer’s parcel on their behalf and deliver it to them once they are at home, usually during from 6pm to 12pm, including on Sundays. These companies do not work with online retailers but charge customers a fee of around Rs.30 for every delivery.
Operating in small pockets of New Delhi and Gurgaon, the challenge for these companies will be to scale up the business and still keep costs down.
In turn, logistics companies like Ecom Express are working with hyperlocal start-ups such as Roadrunnr and Grab during high volume delivery seasons.
“They are niche players and very strong in certain pockets. It is easier to coordinate with them, given their domain expertise and sophisticated technology than to hire extra standalone delivery boys,” said K. Satyanarayana, co-founder and director, Ecom Express.
“It is all about specialization. These start-ups can optimize routes, teams and bring down the cost,” said Harish.
Ecom Express claims to be generating 175,000 orders daily, which rises to 300,000 per day during the peak season.
According to Tracxn, which provides data on start-ups, nearly 183 logistics start-ups have raised close to $40 million since January.
“Last-mile remains a challenge and it would vary from one company to another and from one city to another as to how it will be solved. Largely, it may be so that in each micro-market, multiple things would work,” said Rohit Bhatiani, director at consulting firm Deloitte in India.
“India is a vast country. The question is how you manage an economical model and whether these firms are actually able to deliver what they promise.”
[“source-Livemint”]