What's Fuelling Growth In Logistics Despite Global Slowdown Logistics companies showcase positive growth numbers even when e-commerce companies are facing bad weather. Experts explain how
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Last week, Bangalore-based tech distribution and logistics platform Ripplr raised $40 million in a Series B round from new and existing Investors. Shipsy, a SaaS-based global smart logistics management platform provider, recently highlighted that in the Middle East, the company is expected to clock a growth rate of more than 125% and that it had witnessed a 70% increase in talent pool in the past 15 months. Sequoia-backed intracity logistics startup Porter reported an increase in operating revenue by 2.6X to INR 847.7 Cr in FY22 from INR 322.2 Cr in FY21. Porter, another key player in the space, expanded into Nashik with its on-demand logistics services, using Tata Ace vehicles and said that it also plans to introduce 3-wheelers and 2-wheelers in the coming months.
These are some of the latest data coming from India's e-logistics sector. And, they surely showcase prominent growth in the space. A recent report by Redseer Strategy Consultants also says that the Indian e-logistics market continues to see meaningful growth in FY23. It also said that the space recorded more than 4 Bn parcels in FY23, on track to comfortably exceed 10 Bn parcels by FY28
Cross-border deliveries and e-commerce uptick in Micro, Small and Medium Enterprises (MSMEs) are also expected to bring in the next wave of growth in e-logistics. Furthermore, the government is also taking efforts to democratize the information available in various government systems for a transparent and competitive logistics ecosystem through ULIP, the Unified Logistics Interface Platform.
What's surprising is that the growth comes despite the global recession-led funding crunch and slowdown in e-commerce growth. How are these logistics companies shining even when e-commerce companies – which is one of the key drivers of growth in the logistics space in recent years – are facing bad weather?
Why the upswing in logistics demand continues
In recent years, the e-commerce logistics segment in India has been booming. With the increasing penetration of smartphones, affordable data plans, and a growing internet-savvy population, e-commerce companies have witnessed significant growth in their online sales. This has led to a surge in demand for logistics services, including last-mile delivery, warehousing, and transportation, among others. As a result, the e-commerce logistics segment has become one of the fastest-growing and most lucrative segments in the Indian logistics industry.
"Prior to the onset of the COVID-19 pandemic, the Logisitcs Management Division (LMD) segment was operating at a loss and primarily served as a client acquisition strategy. However, following the pandemic outbreak, there has been a significant upswing in demand for logistics services due to the surge in e-commerce activities and pent-up consumer demand. As a result, the LMD segment has become highly profitable, generating healthy margins. Despite the e-commerce companies' focus on cost optimization, which may entail the closure of some dark stores, the logistics providers' top line is unlikely to be significantly impacted," said Ankur Bansal, co-founder and director, BlackSoil.
However, some segments such as air cargo and temperature-controlled logistics have faced certain challenges in recent times. Air cargo due to the volatility in fuel while the temperature-controlled logistics segment has struggled with issues such as inadequate infrastructure and lack of standardization
"Despite funding headwinds in e-commerce/Internet sectors, there are multiple pockets of high growth and high yield opportunities available for e-logistics players, be in D2C or large goods or non-e-commerce segments like C2C (customer-to-customer), PTL/FTL (partial and full truck load) and wider supply chain management (SCM) services. Players who build robust capabilities and offerings to serve this demand effectively will fundamentally be more resilient in these challenging times and better positioned for long-term market share and yield leadership," said Mrigank Gutgutia, Partner, Redseer Strategy Consultants, in a press statement shared by the company.
Competition and other challenges
Even though a sunrise sector, the online logistics industry is not devoid of challenges. Increasing competition, though a natural progression for any booming sector, is surely one such hurdle for startups in or entering the space. "As the demand for logistics services continues to grow in India, it is likely that we will see more players entering the space in the next few years. This may include new startups as well as established players from other industries looking to diversify their offerings. Additionally, the government's focus like National Logistics Policy (green logistical operations )on improving infrastructure and ease of doing business is likely to attract more players to the logistics industry," said Bansal.
According to the Ministry of Commerce and Industry, India's logistics sector accounts for a staggering 5% of the country's GDP today, while providing livelihood to nearly 2.2 crore Indians.
"The logistics industry is highly fragmented, with numerous small and medium-sized players competing with larger established players. However, there has been a trend towards consolidation in recent years, with larger players acquiring or merging with smaller ones to gain market share and expand their services," he added.
India is a developing nation with several budding intricacies, especially for startups that are working towards enabling business for merchants, said Saahil Goel, CEO and co-founder, Shiprocket.
He also shared below the roadblocks that logistics companies share in their everyday operations:
- Infrastructural constraints: Underdeveloped road and rail networks, as well as limited warehousing and storage facilities, make it difficult for start-ups to reach their 100% efficiency potential in terms of transportation. However, with rapid development of infrastructure in the last few years this is a problem that has a solution in sight in the near future.
- Regulatory hurdles: Complex regulations and a lack of transparency in the logistics sector can make it difficult for start-ups to navigate the system and obtain the necessary permits and licenses especially when dealing with deliveries across states. Simple regulations for tax and licensing are key needs for enabling efficient logistics for small and medium businesses.
- Limited access to funding: Start-ups often struggle to secure funding, particularly from traditional sources such as banks, which can limit their ability to expand and invest in new technology.
- Lack of skilled labor: The logistics sector in India is facing a shortage of skilled workers, which can make it difficult for start-ups to find and retain the talent they need to grow their businesses.
However, logistics experts are also positive that the inefficiencies can be efficiently dealt with by efforts from all stakeholders, including the government, logistics companies, and industry associations. They feel that strategies such as infrastructure development, streamlining regulations, and investing in human capital development can help enhance the competitiveness and efficiency of the logistics industry in India.
White space yet to be tapped
There are still many white spaces in the logistics landscape for e-commerce that are not being catered to efficiently and there is scope for new entrants or existing players to expand into these spaces. That is why we may soon witness a surge in niche logistics players. In particular, the industry is anticipating the rise of logistics players with relevant and customized offerings for D2C brands to keep up with the booming e-commerce space.
"The industry we operate in is vast and diverse, with numerous opportunities for growth and expansion. With technology shaping the future of the Indian e-commerce logistics space, the plug-and-play of technology is the white space yet to be tapped. One such area is fulfillment. These centers powered by automation are all set to reduce logistics expenses by 40%. Another unexplored market opportunity would be to provide a rapid and secure checkout experience," said Goel.
Even though e-commerce companies are focusing on cost optimization through actions such as shutting down dark stores, quick commerce layers or layoffs, the demand for online shopping still continues, albeit slightly lesser than the pandemic times, thereby keeping logistics providers' topline intact. Also, as mentioned in the Redseer report, non-e-commerce segments like C2C, PTL/FTL and wider SCM services are fueling further growth in the sector.