| MUMBAI, June 10
MUMBAI, June 10 Online retailers jostling for a
chunk of India's $13 billion e-commerce trade are so desperate
to avoid snarled roads and inefficient railways that they fly
their packages in the passenger cabin of costly commercial
flights. The cargo, however, often gets bumped off.
India's largest domestic e-tailer Flipkart as well as bigger
global rivals like Amazon and eBay Inc are
widening their supplier networks or racing to build
multi-million dollar logistics networks to circumvent crumbling
infrastructure, keen to attract customers by shrinking delivery
times to same-day or even as short as nine hours.
In the meantime, they remain at the mercy of commercial
airlines, which frequently remove their parcels to make room for
passengers, highlighting one of the challenges to expanding in
an e-commerce market that consultants say is growing at a
compound rate of 34 percent a year, and which saw online retail
sales of $1.6 billion last year.
"It is unfortunate, but offloading does happen and we have
to make sure our delivery promises take that into
consideration," Rahul Chari, vice-president, supply chain
technologies at Flipkart, told Reuters.
Up to 90 percent of goods ordered online in India are moved
by air, which pushes up delivery costs by around half, according
to several online retailers and logistics companies. Road and
rail transport networks remain woefully underdeveloped and
entangled in graft and bureaucracy.
With a population exceeding 1.1 billion, a burgeoning middle
class and better Internet access, India's e-commerce potential
is huge. Online retail sales are expected to surge to $76
billion by 2021, according to consultants Forrester, and the
segment is growing at a much slower pace than other emerging
markets, including China.
E-commerce is poised to get a boost as early as next month,
when the government is expected to allow online retailers to
sell directly to consumers.
Logistics, however, remains the biggest barrier to growth
and transport troubles are just the tip of the iceberg.
Most e-tailers use sometime unreliable third-party delivery
firms, more than half of sales are paid for with
cash-on-delivery, return rates are high and orders made to fake
addresses are all too common.
"The biggest advantage of e-commerce is the instant
nationwide reach it enables sellers of all sizes, however, it is
the delivery of that opportunity that requires significant focus
and investment from the industry," Amit Agarwal, Amazon's vice
president and country manager, told Reuters in an e-mail.
With India's perennial infrastructure failings far from
being resolved, most e-tailers are focusing their investment on
setting up their own capital-intensive logistics businesses.
Flipkart, founded by two former Amazon executives in 2007 is
aggressively growing its logistics arm E-Kart. Amazon, the
world's biggest online retailer, is pumping up the capacities at
Amazon Logistics. That's in addition to existing partnerships
with third-party logistics firms including GATI, Blue
Dart and FedEx Corp.
"Having a control over what customers want is a big driver
because now we are able to have a channel through which we can
gather a lot of feedback and tailor our services accordingly,"
said Flipkart's Chari. The company counts South Africa's Naspers
Ltd as an investor.
To reduce air shipments, Flipkart is setting up regional
warehouses and signing up more suppliers across the country to
ensure customers get orders delivered by the nearest supplier,
Having its own network now means Flipkart can handle
delivery rescheduling requests better, manage product returns
faster and help customers exchange products, services that are
time-consuming when handled by a third-party operator.
Amazon is using a similar strategy. In addition to building
its own warehouses, it is trialing using neighbourhood grocery
stores and petrol stations as delivery points.
It also struck agreements with the Indian Postal Service to
reach far-flung places in the country, Agrawal said.
eBay, by contrast, is working with external logistics firms
to cut back on multiple state taxes for products shipped by road
and the excessive documentation required to move every parcel.
It is also intensively training its 45,000-strong supplier
base, which hold all the inventory eBay sells on its platforms,
to improve efficiency.
"In this business, it is important we do what we are good at
and let our logistics partners do what they are good at," said
Latif Nathani, eBay India's managing director.
FROM LAPTOPS TO REFRIGERATORS
The anticipated boom in online retail is encouraging
logistics firms to better their services, but it will take
several years before India gets an efficient network, said Bablu
Tewari, chief operating officer for e-commerce and international
business with Gati. The company is one of India's largest
logistics firms, delivering for Amazon and eBay.
"Nobody shipped products which weighed more than two kilos
like say laptops and now suddenly people are moving
refrigerators," Tewari said.
For the many Indian e-tailers that lack the deep pockets of
Amazon and Flipkart, air freight and couriers are not an option.
Instead, they are altering their packaging and product lines to
ensure they can reach customers via road and rail.
Pepperfry, one of India's largest online furniture and home
products retailer, is training suppliers to make knock-down,
foldable products, similar to IKEA furnishings.
Flat-packaged goods reduce shipping costs, said founder and
Chief Executive Officer Ambareesh Murty. The company also
provides carpenters to assemble the items once delivered.
Industry consultants say companies like Pepperfry that are
able to adapt their business to the ailing infrastructure are
better placed to take advantage of the expected e-commerce boom.
India's roads and railways are not going to get better any time
soon, and commercial airlines can only carry so much cargo.
"The roads are where the action is going to move to as
volumes start surging," said Ashish Jhalani of consultants
e-tailing India. "Anyone innovating and building capacities to
deal with that challenge will benefit in the long term."
(Editing by Miral Fahmy)