Decoding E-Commerce logistics agreements: A Legal Scrutiny
One can’t deny that the entrepreneurship wave in India is largely moved by digital marketing and e-commerce. I am eagerly looking forward to a fresh nationwide survey on the preference and choice of areas of the emerging entrepreneurs in India. I won’t be surprised if more than half of them are in the e-commerce and technology related space..education, and even biryani is now sold online!! The advent of technology (especially mobile apps) increasing disposable income, the convenience of shopping from home, coupled with enhanced security on payment gateways meant, B2C e-commerce is the business idea of the moment. Infact, with deeper penetration of mobile phones, the scope for e-commerce and online retail is only going to increase. This brings the spot light on the logistics arm of e-commerce.
Logistics is the backbone of any successful e-commerce business. This space has seen its own growth simultaneously. I guess one of the key reasons why Flipkart has managed to stay ahead in the startup war is its constant focus on innovation, and efficient delivery chain management. I remember the time when Flipkart started its own logistics arm, Flipkart Logistics (now, eKart). It was a pioneering step in the e-commerce space.
In-house logistics has its own set of administrative issue, and is a scalable business in itself. Further, its only the biggies like Flipkart and Amazon, who can afford to have in-house logistics - because of their respective scales of operation. The others still rely on third-party service providers. For example, Paperboat’s collaboration with Delhivery. This post is dedicated to them. Here, I will try and decode certain critical aspects that e-commerce owners should keep in mind while negotiating legal agreements with logistics service providers:
- One of the key factors for a successful e-commerce venture is the traction that they get to scale up geographically. The ability to deliver reliable and consistent services still remains a challenge, and is a major competitive advantage for the seller and the service provider alike. A company can’t have its warehouse in each and every city, and they will largely be dependent on third party service providers.It is very important to do a thorough due diligence in the capability of the logistics service provider. Further, it is advisable to take a specific representation from the service provider with regard to its ability, as well as include an annexure to the agreement specifying the geographic commitments of the service providers. The Indian contract laws provides protection and relief to aggrieved parties in the event an agreement has been entered into under false pretexts and on relying on false representations or mis-representations. Accordingly, if a logistics service provider fails to deliver as promised / represented, a clause to that effect will help e-commerce owners have a relatively easier legal recourse against the service provider.
- Often companies have warehouses in central locations and cater to the orders from two-three neighbouring states / cities. In this case, if you have engaged a logistics services provider, it is advisable to ensure if the service provider is legally permitted to undertake business activities in a particular territory. For example, if your start-up deals in heavy furniture, you will essentially have to engage transporters having trucks and commercial vehicles. These commercial vehicles have their territorial jurisdictions within which they can operate. Some are awarded a national transport permit, while others have regional mobility. In the event, the transport services provider does not pay heed, chances are ripe that your consignment will be stuck at the state borders with tax and transport authorities creating hurdles. Your consignment will be ideally safe, but what you would have lost is key time and delivery deadline. Accordingly, a representation and warranty to that effect is advisable, depending on the products that your startup deals with.
- Time is the essence in case of online e-commerce. Save as the exclusive arrangements like the Flipkart-Motorola for the sale of Moto range of phones in India, all major e-commerce player provide products in similar categories. For example, Flipkart, Amazon, Snapdeal, IndiaTimes Shopping are all in the generic market space. What then differentiates them from each other are ancillary factors. Timely delivery, safe transport (without tampering or damage) would be key factors on deciding if the shopper is going to come back to you. In this regard, when your business is relying on the actions of a third party, it is advisable to have a strong clause in your agreement with regard to commitment of the logistics service provider to ensure timely and safe delivery. Further, timely delivery is often marred by strikes, bandhs, etc. the frequency of which is typical to India. Who owns up the responsibility for that? I suggest, as an obligation on the service provider, he should have the responsibility to communicate to you, the start-up owner, about the adverse circumstances on the ground, if any. This will enable you to timely reach out to your customer and communicate your inability to deliver the goods. This way, you will ensure that the customer does not sue you for breach of contract. You will also earn brownie points for being a responsible seller!! Further, a clause mandating the logistics service provider to communicate to you will come handy when you seek to have recourse against him for deficiency in services. This applies equally for safety and tamper proof delivery, and a specific clause to this effect is advisable. Certain start-ups rely on this to be their USP. For example, the Chennai based startup, Shycart delivers product that the Indian customers are conventionally shy to ask for at a shop. However, where packaging of a product is your responsibility, then it might be difficult to point fingers at the logistics services providers, and the success of a legal claim might vary from case to case.
- Coming back to Shycart, the lingerie and adult product space is slowly getting crowded. Be it social circumstances or otherwise, the Indian consumer is still shy to move into a departmental store and buy condoms or sanitary napkins. It is this very reason why Shycart is generating traffic. But what’s the point in ordering online if the delivery guy makes you feel uncomfortable with a smirk on his face? This brings us to the issue of code of conduct. If the delivery guys, who invariably know what’s in there in the package, make you feel uncomfortable, then the entire business model is flawed. And this could happen to any start-up in any product line, where the delivery personnel might cross the ethical and moral boundary. This is also susceptible to be complained against. Accordingly, it is advisable to take a specific indemnification from the third party service provider against a claim against your start-up for breach of moral code of conduct by a delivery guy engaged by them.
- Companies are increasingly offering the option of cash-on-delivery. This brings focus on the question of accountability. I once had a chat with a delivery staff of a prominent e-commerce portal. He informed me that he has 50 odd parcels to deliver on a typical a day. Assuming 10% of the goods are on cash-on- delivery, that’s a lot of cash. The e-commerce owners should ensure that they categorically discuss and seek indemnification against the handling of such cash. This also applies equally to other goods where it is important that the service provider owns up the vicarious responsibility to ensure safe delivery, and safer remittance of money. This often also comes along with a generous return policy. Though this is more of a commercial call, often the initial product packaging is removed before the consumer decides to return the product. And then the pick-up personnel come pick it up. Hypothetically speaking, by the time the product reaches the company, its damaged and cannot be resold. Who is to be blamed? The logistics guys, when asked will say that the consumer damaged it and vice-versa. But someone has to own up...the legalities of the situation might change on a case to case basis, but nevertheless needs to be addressed by all e-commerce entrepreneurs.
The e-commerce market in India strives on the basis of trust. Even five years ago, our fathers were uncomfortable using a credit card to make a payment. Insecurity about product and money was yet to set aside. Having a market place and promising to deliver quality product is challenging. But one might still manage to pull it off. After all this, what remains is safe delivery to the customer’s doorstep. Let not this become a hurdle in you succeeding in your venture. Take due care about your logistics and be safe by putting in as much as possible in black and white. Of course, as things move, challenges do come in. Whatever happens, at the end of the day, the reputation of the seller is at stake!! All the best.
About the guest author:
Prateek Mohapatra is a corporate lawyer associated with one of the top law firms of the country. Prateek has a keen interest in the startup space and regularly interacts with and advises entrepreneurs on different aspects of doing business in India. He can be reached at firstname.lastname@example.org.
Disclaimer: The views & opinions expressed in this post are those of the guest author and do not necessarily reflect the opinions and views of YourStory.com.