India's logistics firms expand as e-commerce market booms

Mumbai

ABOUT five years ago, e-commerce didn't mean much for India's biggest package shipping company. With a boom in online shopping now in the nation of 1.2 billion people, Blue Dart Express is expanding.

The unit of DHL Express is adding a Boeing 757 freighter to its fleet of five in the country and building warehouses for sellers using portals such as Amazon.com and Flipkart.com, Malcolm Monteiro, chief executive officer of DHL eCommerce, said.

"Up to five years ago, you never had e-commerce figuring in BlueDart's list of top five verticals," said Mr Monteiro, who oversees all of Blue Dart's operations. "Today, it is the largest vertical and demand is far outstripping supply."

India's online retailing market has grown to about US$6 billion in five years, as free delivery and heavy discounting lure millions to buy everything from lingerie to furniture. Yet, e-commerce is just getting started. Online sales are likely to reach 3 per cent of the entire Indian retail market by 2020 from less than half a per cent now, PriceWaterhouseCoopers said in August.

Shares of the nation's major logistics and delivery companies have surged in the past 12 months, partly due to e-commerce demand. Blue Dart has more than doubled to 6,824.40 rupees, while Gati, in which Japan's Kintetsu World Express has a stake, has more than quadrupled to 249.80 rupees, according to data compiled by Bloomberg.

The demand is also spawning competition as startups take on established shippers with cheaper rates. New entrants Delhivery, Ecom Express and Gojavas have received millions of dollars in funding from venture capital and private equity firms, and are carving out low-cost delivery operations aimed solely at web retailers.

Blue Dart meanwhile is betting customers will pay a premium for its services as its wide network developed over 31 years gives it an edge when flash sales and festival offers cause a surge in orders and expose chinks in its nimbler rivals.

E-commerce sales in India hit an all-time high last year in October, and so did complaints from disgruntled customers on lost, delayed or stolen orders. There just weren't enough planes and employees to deliver the packages.

Blue Dart is the only operator of domestic cargo-only jets in India, with five 757 planes in its fleet.

"Running an air cargo operation is not something every logistics company can do," Pragya Singh, associate vice-president of retail at consultant Technopak Advisors said. "This is a capability they have and are using that to attract customers."

Rivals that rely on cargo space on commercial carriers are more susceptible to delays at distribution hubs, Ms Singh said. This bottleneck may get worse during festival seasons, when all seats are occupied, leaving less space for cargo.

Blue Dart's near monopoly on cargo routes may be luring some commercial airliners as well. Jet Airways India, India's second-biggest carrier, plans to enter the air cargo business and may lease three planes from Etihad Airways, the Business Standard newspaper said on Monday.

Courting e-commerce business would provide huge volumes for Blue Dart, but it could also increase the risk of delays for its core clients - premium business customers who are less forgiving.

The company, 75 per cent owned by Deutsche Post's DHL unit, gets its core profit from business-to-business transactions that place a premium on reliability and speed. Packages are often small and most customers' offices tend to be clustered in key business districts that are easy to access.

E-commerce logistics is all about "thin margins, low price points, and scattered delivery all over the country", said Suvir Sujan, co-founder of Nexus Venture Partners, which was an early investor in Delhivery. There are more than 100,000 zipcodes in India, and logistics providers need to be prepared to deliver apparel or a pair of shoes anywhere.

For its part, Blue Dart keeps some of its business and e-commerce teams separate, so as to serve both sides of its operation, Mr Monteiro said. It also outsources some of the deliveries to keep costs low.

The company is also opening warehouses where sellers on e-commerce portals can store goods. Each time an order comes in, the product is packed and shipped to the consumer, saving time as the couriers don't have to go to the seller's location to pick up the item. Blue Dart has opened its first such warehouse, known in the industry as a fulfilment centre, in Delhi, Mr Monteiro said.

"There's a huge shortage of fulfilment centres all across" India, Mr Monteiro said. Blue Dart is preparing to open as many as 15 such warehouses depending on demand. BLOOMBERG