August , 2019
Importance of logistics in e-commerce
13:19 pm

Shinjini Mukherjee

In 2016, the World Bank’s Logistic Performance Index ranked India in the 35th position. This was a significant improvement from 2014 when India ranked 54th in the same list. The huge jump was an indication of the boom in the logistical sector and the ranking further reinforced the growth by creating positive perception among investors. According to the Economic Survey of 2017-18,“With the implementation of GST, the Indian logistics market is expected to reach about $215 billion in 2020, growing at a CAGR of 10.5%.”

Internet - the new driver of growth

Growth in a modern economy is accompanied by a corresponding growth in the average speed of logistics. The reasons for this correlation are multiple. For one, resources are distributed unevenly over space. Secondly, all sellers in the market aspire to expand their market share – a seller sitting in New Delhi would be happy enough to have its customer base in Kolkata as well. Put simply, the economy demands the service of logistics in all stages – to move resources to factories, to take the finished products to the market, and then to take products from retailers to customers. This entails a demand for faster, cost-effective and efficient movement of goods across the stages of production and distribution, bringing about a retail boom. Therefore, the higher growth rates of Indian economy accompanied by corresponding expanding penetration of internet access resulting in an unimaginable speed of communication has created a huge demand for logistic services in the country. Specifically, internet access has created a virtual market place – the e-commerce giants – where millions of buyers and sellers interact to strike the best possible deals. And logistic plays the key role in ensuring the delivery of goods from one end of the chain to the other. Entire industries are thriving with complete reliance on GPS connectivity.

Internet penetration was around 481 million in 2017 and 560 million in 2019 in India. That is the extent of increase in internet penetration in India. With the increase in penetration of internet accompanied by an increase in the average data speed and cheap data, the online market places have experienced a boom and the number of market places has grown. While Amazon and Flipkart remain the dominant players, others like Big Basket have also made a significant mark. For a long time, it was assumed that only durable products could be delivered using these digital platforms. Now, you have vegetables and fish delivered at your doorstep. Cold chain logistics providers have come in a big way in India.

From the handling of products at warehouses to delivering the products at the door-step of customers at the earliest possible time – e-commerce companies have invested heavily in logistics. Flipkart launched its own service E-kart logistics and Amazon uses Amazon Transportation Services. However, given their limitations, local and global dominant players in logistical services gain immensely from symbiotic relationships with these online giants. Delivery which started its operation delivering flowers from local shops in Gurugram became a dominant player in the Indian logical sectors through its relationship with online players. It now has over 24,000 workers and recently raised capital of $413 million from Softbank. Similarly, Bringg has gained through its association with the Big Basket. This growth in numbers and profits hide one important fact – the time required to get your product delivered has fallen immensely as logistical partners compete with each other to increase their network and maximize their delivery speed. Today, it is possible to order groceries online and get them delivered within a few hours in most metro cities in India.

Major source of employment

The fall in the price of logistics and its growth in the economy has not only ensured goods at cheaper prices but it is also emerged as a major source of employment as more than 22 million people work in this sector. Moreover, with the growth of logistics, there has been a significant investment in R&D of logistics. Coldwell Banker Richard Ellis (CBRE) estimates that warehouse automation is estimated to grow by 10 – 12% – reaching $3.49 billion mark by 2020. According to Investment Information and Credit Rating Agency (ICRA) reports, the implementation of Goods and Services Tax (GST) has created savings of around 18-20% in terms of truck turnaround time. Therefore, logistics boom has experienced blessings of both - first, the outsourcing and investment from giant retailers and market places and second, government policies.

Establishment of these industries has led to the reduction of the importance of middle men. Earlier there were middle men between farmers and retailers of agro based industries. This practice has become redundant with the emergence of e-commerce. Professor Amit Kundu, Department of Economics, Jadavpur University told BE, “There is both a forward linkage and a backward linkage linked with emergence of e-commerce. The number of middle men reduces, leading to lower prices. Employment is increasing apparently. But middle men are losing jobs, and the net effect on employment may fall or rise. Direct purchase from the market may also fall.”

With its own share of drawbacks

However, the sector remains highly informal The jobs of deliverymen are often contractual without job security and employment benefits. Not only their wages are extremely low, but they are often forced to overwork. Exploitation remains a huge problem in logistics much like many other sectors of the Indian economy.

Moreover, growth in logistics should be supported by proper infrastructure – good roads, power supply, and security, ensuring forward linkage and backward linkage
in the economy. These concerns, especially the third one, are external problems that this sector faces. Moreover, large cities like Delhi NCR, Mumbai, Kolkata, Chennai, and Bangalore command half of the transacted places. This means the growth has been geographically skewed. As the sector promises to overshoot the ` 6.4 trillion mark of 2017 to reach the ` 9 trillion mark in 2020, it needs to first 
answer key challenges.



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