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BW Businessworld

Delivery Pangs

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Apanel discussion on ‘Creating a seamless distribution network' is winding up at The Claridges hotel on a cold February morning in Delhi. The room is abuzz with questions, grievances and even heated arguments between the audience and panelists from logistics firms, including officials of Blue Dart and DTDC. Just then, a man shouts out over the din: "You cannot track documents I couriered seven days ago to Mumbai. How can I then trust you with expensive items my e-tailing company wants to deliver?" It was an inappropriate forum to raise personal grievances against a specific logistics company, but it was a deliberate swipe for maximum impact.

The man was only giving voice to a pet peeve: poor customer experience after shopping online, for which both the e-tailer and the online buyer blame logistics firms that are entrusted with the task of picking up the product from the e-tailer and delivering it to the buyer in the shortest possible time. The grouse is: deliveries are delayed endlessly, tracking mechanisms are inadequate and e-tailing firms are left to face the customer's ire. Not without reason, though. "A delivery from Delhi to Noida was delayed by three days and no one was able to justify the delay," says Pawan Gadia, CEO of flower e-tailer Ferns N Petals.

All blame lands at the doorsteps of India's courier market leaders Blue Dart, DTDC, FedEx and Aramex. In an era of instant gratification where customers can go to the neighbourhood mall to satisfy their need within minutes, courier firms' lethargy spells doom for India's second e-tail boom. The Rs 7,000-crore e-tailing business is growing at a healthy compound annual rate of 85 per cent, according to Wirefoot, an online research firm. The industry is expected to hit Rs 45,000 crore by 2015. And the number of deliveries is likely to grow from 200,000 a day today to 750,000 a day by 2015.

‘Are plain vanilla courier companies geared up for e-tail? Maybe not,' says Abhishek Chakraborty Exec. director, DTDC (BW Pic By Jagadeesh NV)

One would expect traditional courier firms to embrace the opportunity with both hands. But they have not. And that has thrown open a vast opportunity for new-generation logistics companies dedicated to e-tailing. More on that later. Call it high-handedness or haughtiness, but the reasons go deep and wide. For one, e-tailers were small, with little or no bargaining power. Two, they were seen as upstarts who could fade away soon. Three, specific requirements of e-tailing firms (such as multiple-point tracking of consignment) required substantial changes in the processes of courier firms, which they were unwilling to make. Four, traditional courier firms have an established b2b business and document delivery network earning them big bucks already. And five, e-tailing is a low-margin business where profitability is a stretch.

"On a scale of 1-10 in terms of profitability from any business-to-business (b2b) customer, e-tailing would rate around six," says DTDC's executive director Abhishek Chakraborty. Percy Avari, country manager of Aramex, emphasises e-tailing is only an average-margin business for the company. While Chakraborty and Avari are sticking around despite low profitability, DHL Express's Asia-Pacific CEO Jerry Hsu is emphatic. "It is a very low-cost domain that we do not want to be in at this point. We do not want to compete with low-cost rivals. We are in the domain, but with caution," says Hsu. DHL ties up with Blue Dart for local deliveries.

But is there more to it than just lack of interest or low profits? "Bigger players do not want to invest in specific systems," alleges Dhruv Lakra, CEO of Mirakle Couriers in Mumbai. "Traditional courier companies are oriented towards documents, not packages. For them, delivering in 72 hours was not happening for three years. Finally, a lot of companies have started taking control of last-mile delivery," says Gautam Sinha, director technology and e-commerce at Indiatimes Shopping, which is now working closely with Delhivery.

There is more to it. "Larger courier companies charge more in India. And the worst part is they do not provide good service either," says Ishita Swarup, CEO of, who uses big couriers such as Blue Dart and First Flight. Swarup thinks these firms are trying hard to catch up and will take some time since they did not spot the opportunity earlier. "Most of them are failing to provide transparency in tracking orders. There are delays without explanations," says founder Prashant Tandon.

On their part, courier companies explain that they are overwhelmed by the sudden spike in e-tailing business. "Often, we are taken by surprise. A customer, who was giving me 2,000 shipments a day, suddenly says he has 5,000. So, the variance is high for any logistics player to handle," says Aramex's Avari.

But all courier companies deny that they conceal tracking details. "We are fully transparent with the customer. We have application programming interface (API, to track and display processes) integrations in place," says Avari.

Price negotiation is another major challenge. As the industry is new and courier players are too few, the variance in prices paid by different e-commerce players is appalling. "As a businessman, do I jump in now and compete with those little players and say okay we will go down to your prices? asks Hsu. "No, we will continue to provide quality and hence we will select the players in the e-commerce space."

But e-tailing is very different from traditional retail. "It is an execution business and so getting all things right, including delivery, is vital for success," says Rajan Anandan, MD of Google India. There is a distinct gap in the market right now — no player is offering the breadth of services needed at a competitive price across a broad network demanded by e-tailing firms.

The Cash Woe
For several e-tailers, credibility is an issue. Many of them are not familiar among the public, except the likes of Flipkart, Snapdeal or Jabong, who have mass media advertising campaigns. But for the lesser known, cash-on-delivery (CoD) is the natural lifeline. It addresses the consumer's anxiety over use of credit-debit cards by letting them pay only when the product arrives. For e-tailers, it has been the biggest trigger in attracting buyers, as more than 60 per cent of all e-tailing transactions are based on CoD.

ON TRACK: Navneet Singh and Aadhar Aggarwal of Chhotu say traditional couriers lack the technological edge (BW Pic By Tribhuwan Sharma)

However, CoD is a huge challenge, whose import traditional logistics firms are yet to fathom. Firstly, chances of reverse logistics are high, if the delivery firms do not call the customer beforehand and ask them to keep the cash ready. Secondly, if delivery takes more than 2-3 days, chances are the customer would have changed his mind. Return rates are as high as 30-40 per cent. Quick delivery can be a huge differentiator— only it is not in their control. Khairatilal, a delivery boy from online shop Myntra, has many such stories to share. On his first day at work, Khairatilal biked down to the Delhi High Court to deliver a pair of shoes to a lawyer, only to realise that the customer, who placed the order eight days ago, had changed his mind. Not to forget, for e-com players, delivery charges on CoD could be as high as 3 per cent of the invoice.

The other bone of contention is money collection and remitting it back to the seller. Traditional courier companies cater to b2b, but e-tailing is b2c (business-to-consumer) and is a tougher game. Companies do not just deliver to residence, but also collect money as per the customer's convenience and remit it back to the e-tailer fast so that working capital is not blocked.

It is this additional layer of communication with the customer that traditional courier firms were not prepared for. "If you do not keep the customer informed about the delivery and that he needs to keep the cash ready, the person might not be available or the cash might not be ready," says Healthkart's founder Sameer Maheshwari. Like other e-tailers, Healthkart, too, faced troubles with long remittance cycles from traditional logistics players. Some e-tailers complain that Aramex and Gurgaon-based Gati at times take up to 30 days to remit cash.

A New Breed

SAFE PLAY: DHL Express's Asia-Pacific CEO Jerry Hsu says they negotiate e-commerce orders with caution (BW Pic By Bivash Banerjee)

The indifference of traditional logistics firms was just the perfect ground for small, nimble and dedicated e-tailing logistics firms to prosper. At least five of them have sprung up recently. Gurgaon-based Delhivery, Delhi-based Chhotu and Bangalore's Zwipe Commerce have not only come to the rescue of e-tailing firms in their hour of need, but they have also captured substantial business. E-tailers, fully dependent on older firms earlier, now give 20-25 per cent of business to these new entrepreneurs.

Much of it because of the fact that the innovation these new players have brought in was something traditional firms were unwilling to do. They are faster, have stringent tracking process and offer rates that are worth their services. Delhivery, for instance, allows certain customers to open some of the products to check before payment. "Clients with private labels do not mind the customer opening the product as they already have a 30 day no-questions-asked return policy. It eases everyone's job," says Suraj Saharan, co-founder of Delhivery.

A specialised courier and warehousing services provider for e-tailers, Delhivery was originally started by Sahil Barua and Saharan in April 2011 to cater to restaurant deliveries. The sudden surge of e-tailing drew their attention.  The company was quick to buy six bikes, six vans and rented five 500-600 sq. ft offices in and around Delhi to cater to the e-tailers. Barua and Saharan were joined by Mohit Tandon, Kapil Bharati and Bhavesh Manglani as partners. It already has operations in Chennai and Bangalore, and will soon be seen in Mumbai, Jaipur and Chandigarh.

Zwipe Commerce will start operations in a few weeks, and will have a 24-hour delivery concept. While the entire industry is struggling with poor tracking systems of couriers, all the products in Zwipe's warehouses will have quick response, or QR, codes (mobile phone readable barcodes) so that a customer or an e-tailer will be able to track the order live on a city map. "We will have GPS-enabled low-end Android phones given to one delivery boy per van who will scan the products with his phone before heading for delivery. This will help us not just track the real-time location of the van, but also the product," says Vimal Vijayakumar, co-founder of Zwipe Commerce.

Chakraborty rues the industry is just looking at whether logistics firms are prepared or not, "but what it needs to understand is the challenges faced by logistics companies to satisfy the needs of the e-tail customer". According to Mahindra Swarup, president of Indian Venture Capital Association, "last-mile delivery is where a lot of investment needs to go in".

Indeed, e-tailing firms that have the wherewithal are going ahead with setting up a parallel logistics organisation of their own. Flipkart, Myntra, Yebhi, Jabong and soon-to-go-online Croma are among the few who have set up in-house delivery teams and supply chain. Flipkart, which currently has the biggest in-house delivery system in India, manages 60 per cent of last-mile delivery on its own through 2,000 people in 20 cities. "You go to courier firms with a proposal (of delivering within 8-24 hours of order), they will stare back at you blankly," says Flipkart founder Sachin Bansal.

NO BIG DEAL: Percy Avari, country manager of Aramex, says e-tailing is only an average-margin business for the firm (BW Pic By Subhabrata Das)

Says Mohit Tandon of Delhivery: "Since we do not come from a document-delivery background and do not have that baggage, we understand what clients want and then create a model specific to their needs."

Navneet Singh, co-founder of Chhotu, says he realised traditional courier companies do not have the technology to append the orders. "If you have to stop an order that has been dispatched for delivery or if you have to make changes to the time of delivery, there is no solution which is integrated with the systems of (e-tailers). One has to do it manually by calling them or mailing them."

Though traditional courier players such as DTDC and Blue Dart accept that there is a huge lag between their operations and e-tailers' expectations, they disagree that they are late entrants to the game or that their technology is dated. That said, most of the logistics providers have the capability to service only in 25 per cent of India's 20,000 pin codes. For instance, Aramex serves about 4,000-6,000 pin codes, while First Flight serves about 7,000 of India's pin codes. This is the reason why most e-commerce players end up working with almost all possible courier companies and even use state-run IndiaPost for remote areas, despite high rates of pilferage.

"We have made huge investments in technology. We have the capability where the delivery boy can key in details of product delivery in real time," says Avari of Aramex. It has 500 specialised point-of-sale machines in 10 cities, which help update real time. Aramex plans to add 4,000 machines in 200 cities in six months.

A Change Of Heart, May Be...
Stung by the sudden emergence of newer players who are slowly but surely taking away business, the traditional firms are making some late moves. DTDC, which has been serving the e-tailing sector since 2002-03, created a separate vertical for e-tailing one-and-a-half years ago. "Initially, e-tailing used to be just another customer, but now we have the infrastructure and dedicated manpower catering to their requirement," Chakraborty says. "By 2015, we expect a minimum of 5x to 6x growth in e-tailing," Chakraborty adds. The vertical still has only 500 people for e-commerce delivery.

"We are getting into the (e-tailing) business on a selective basis because we need to understand where the business is growing. We also need to adjust our model," says Hsu of DHL Express. "But it is challenging for us to deliver from b2b concept to b2c. We are ready to do b2c but I do not think the market is ready to take us. Our systems and processes require a certain kind of price to sustain business," says Hsu.

For Aramex, e-tailing is not a new area since it has been catering to rediff shopping and indiatimes since 2002, but dedicated efforts started only nine months ago when it created customised delivery teams. About 22-25 per cent of its revenues now come from e-tailers, up from 10-15 per cent three years ago. But having allowed new entrepreneurs to break into the business, the question is whether the realisation of the significance of e-tailing is too little, too late.


(This story was published in Businessworld Issue Dated 16-04-2012)