Let me start with the disclaimer that this is not a new idea. I am also not saying that this has not been tried in India before. Infact, as I would discuss later, there are already a couple of players in India that have a made a very decent attempt in this direction. But for some reason it has not picked up to the extent it should have. Given the potential of this idea and the impact that it can make to the Indian e-com companies, I am surprised why more and bigger companies are not entering in this space. I will discuss all that, but let me start with the basics first.
Who are Logistic Service Providers?
They are companies that provide logistic/shipping services. Put more simply for our purpose here, they are the end courier companies which receive/pickup shipments from source and deliver at destination, at a fee. For ex. Gati, DTDC, Fedex, Blue Dart, Delhivery etc are some popular logistics service providers in the e com space in India.
What are the various services provided by logistic service providers?
– Online Shipment booking and tracking
– Home Pick-up (vs. senders dropping packets in their collection offices)
– Reverse Pick-up (useful for Returns)
– Cash on Delivery (It’s the buzzword today, and lifeline esp. for smaller e-com businesses)
Why are they so much in demand these days?
Undoubtedly India is witnessing an e-commerce boom these days and a plethora of niche businesses are trying to sell their products online. However, one of the basic requirements for any online business is the ability to deliver the product anywhere across the length and breadth of the country. Given the country’s size, that’s a big challenge. With the exception of India Post (which is almost as good as unusable for private businesses) none of the other Logistic Service Providers have a thorough coverage of India. This means that the business would have to deal with at least 2-3 Logistic Service Providers which is very painful, especially for the smaller players. There is also a Cost angle. Cost of shipping is significantly lower if you maintain a shipping account with Logistic Service Provider, however, that is also accompanied with minimum monthly volume commitment. So, if the business has to deal with 2 or more Logistic Service Providers for proper pin code coverage, the commitment needed would be even higher meaning most of the smaller businesses won’t be able to afford it.
What is a Logistic Aggregator Service?
As the name suggests, Logistic Aggregators act as just aggregators of service provided by the various logistic service providers or simply put courier companies. So, the business would have to maintain just one account, with the Aggregator and would be able to access the whole pin code universe offered by the various courier companies. The Aggregator would in turn have an account or some kind of agreement with each of these courier companies. Please find below a simple schematic of such an arrangement.
All the documentary requirements from the regulators for end users, like their Address and ID Proof can be maintained by the Aggregator, saving lot of hassle for the Courier companies which can then focus on what they do best i.e. shipping. For clients too, it has obvious advantages. Since the Aggregator is likely to generate huge volume for each of the courier company from its client base, it can negotiate special rates from them and hopefully pass it on to their end users.
The end result is that even a new startup or a very small but niche player planning to sell goods online would now have access to a big universe of pin codes across the country right on day 1, by just opening an account with this Aggregator.
Sounds like a winning business model? Why hasn’t it picked up then? I started my article by disclaiming that this is not a new idea. Yes, there are already at least a couple of players that offer this service –
1. AVN Business Solution: Based out of Aurangabad, they have tie ups with Fedex, Gati and DTDC (Dotzot). Last I heard they were about to sign up Blue Dart as well. That means a good 15000 odd serviceable Pin Codes for Delivery and about 2000+ (my estimate) pin codes for Cash on Delivery.
2. ShipRocket: Affiliate of the e-commerce store platform KartRocket, ShipRocket boasts of tie ups with Bluedart, FedEx, Aramex, Delhivery, Quantium, First flight and others. Also, they claim to have Ecom express and Javas in pipeline. They claim to have 15000+ serviceable Pin Codes for Delivery and 8000+ Pin Codes for COD.
It’s hard to compare between the two, but just to succinctly put what I have found out is that ShipRocket’s variable cost i.e. per packet shipment cost is quite low, but the stinker is that they have substantial fixed costs, some 8000 Rs per quarter which might kill the enthusiasm of a small startup.
AVN doesn’t have a fixed cost, even though on per packet cost basis, they are a bit expensive.
Given the potential here, I am not sure why the end users don’t deserve better, beyond just these two players. There is a big opportunity here and someone who is already big in logistics space say, someone like DTDC or BlueDart, would probably do a better job by lapping it up. But for them, it would mean opening up business lines to their potential competitors, which might not be an easy proposition. The alternative would be to have someone from outside, but with deep pockets and extensive connections, to deep dive into it. I am sure there must be reasons why Aggregators aren’t so big already, there must be rules, laws or other barriers, but if someone can do it right by managing those well, there is a huge trophy to be won. Indian e-com space is set to grow at exponential pace and there would be lots of niche sellers who want someone to deliver their products to India. The question is who wants to be the delivery boy for them.