How the growth of e-commerce is reshaping the logistics landscapeVerun Rastogii
Excited hyperbole paints a picture of a world where you’ll raise an eyebrow and your pantry jars will get filled. Like in the world of magic pencils, whatever we fancy will come to the doorstep – or even better, in the living room.
E-commerce companies, that started off as a trend, such as Amazon, eBay, and Alibaba, continue to make courageous expeditions into logistics. Such brand examples fill the e-commerce landscape. To begin with, eBay initially bought a UK-based courier service – Shutl – in the year 2013 in an attempt to expand its same-day delivery (eBay Now) service using Shutl’s infrastructure and technology. Amazon Fulfilment Services signed a deal with Air Transport Services Group (ATSG), the world’s largest operator of converted Boeing 767 freighter aircraft, to control an air cargo network.
Cainiao Network, a logistics data platform, comprised of China’s biggest firms such as Shentong Express and S.F Express. In 2013, Alibaba fronted the establishment with Cainiao, which processes over 70 percent of all packages delivered by China’s logistics industry – more than 33 million packages a day. It offers same-day or next-day delivery in over 700 cities in China.
The Asian consumer wields a buying power that cannot be ignored by compelling e-commerce entrepreneurs, which has led the shift of e-tailers moving into logistics. As per data from 2015, retail e-commerce sales in Asia-Pacific garnered a majority share of 52.5 percent for the first time, while e-commerce sales in the region saw an almost 35.7 percent jump from the previous year.
A voracious consumerist appetite in countries like India, China, and Indonesia, along side exploding mobile phone penetration and an ever increasing social media culture, has led to an increase in online shopping. According to estimates by Temasek and Google, the e-commerce market in Singapore alone is expected to be worth US$ 5.4 billion by 2025.
Logistics adds on a competitive edge for e-tailers as it provides a higher degree of control over cost and customer inflow. According to Dinesh Khanna, Senior Partner and Managing Director at Boston Consulting Group, e-tailers are faced with two choices – to either orchestrate the logistics and fulfilment through third-party players or to do this on their own. In terms of the strategy to deploy, different e-tailers are choosing their own paths to profitability.
Cainiao Network came up with a strategy of partnership rather than owning the logistics and warehousing to increase the geographical reach. This allows the company to draw on partners’ resources such as manpower, warehousing, and distribution without investing in these by themselves.
In a different industry, HappyFresh, an Indonesian grocery e-tailer, is deploying an asset-light model, relying heavily on partnerships with local supermarkets instead of investing in infrastructure. Since the grocery e-tailer doesn’t have any warehouses and fulfilment centres, pickers collect groceries from local supermarkets to deliver to customers. Such a strategy keeps infrastructure costs in control and allows the company to invest in attracting customers through gimmicks such as discount coupons.
RedMart, a Singapore-based grocery e-tailer, has an aggressive expansion strategy that involves them investing in their own warehouses across the region. The South Asian retailer currently has over 13 warehouses and expects to have a total of 20 warehouses over the next few years. Investing in their own warehouses gives RedMart a better control over the supply chain from start to finish, increasing customer service multi-fold.
Traditional logistics businesses have prepared themselves for a world where, possibly, they are only responsible for functioning as a low-cost channel of delivery, leaving customer acquisition and experience to the e-commerce brands. To operate in this world, where they are facing pressures on all fronts, it is imperative that traditional players cut costs and innovate constantly.
Companies like FedEx are relying on digital transformation for cutting down the costs and increasing efficiency. They have created a range of digital tools that have allowed customers to book shipments online and enabled the company to keep a tab on reports and analysis and help in organizing data better to avoid any costly mistakes.
Customer experience is the most crucial part of any business, no matter the platform. UPS Access Point in this scenario is an efficient example where consumers can pick up parcels – or return them – from a retail outlet such as a newsagent or grocery store. This partnership with retail stores gives a company a cost-effective way to deal with missed-deliveries.
While multi-nationals are facing challenges, startups are flourishing big time, taking the advantage to provide new-age solutions to e-tailers and e-commerce entrepreneurs. To exist in such a scenario, multinationals would need to do everything at a very low-cost structure. With Amazon working on a ninth generation drone prototype for deliveries that could potentially solve the last-mile problem, it looks like the industry is bound for a rocky yet exciting ride.
Verun Rastogii is Founder and CEO of Mufubu, a fashion and accessories brand.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)