For most e-commerce companies, the path to profitability will hardly be a straight line. It is a journey that will twist and turn within the entire organisation and always work in tandem with the constantly shifting consumer demands.
A fast and cost-efficient fulfilment process is the mainstay of every e-commerce company. However, recent consumer expectations like free and expedited shipping often have entrepreneurs barely coping with logistics costs.
Therefore, lowering logistics expenses can be a potential saving site for e-commerce companies in India and worldwide.
According to a report by Ti, the global e-commerce logistics market is expected to grow at 8.6 per cent CAGR between 2020 – 2025. Globally, e-commerce logistics costs make up anywhere between a massive 15 to 30 per cent of total costs and about 20 per cent of product prices depending on the size of the business, industry, national economy, and other factors.
Last-mile delivery operations are the most significant contributor to global e-commerce logistics costs, making up as much as 53 per cent of total e-commerce logistics costs.
It is closely followed by fulfilment services (warehousing and inventory management) at 47 per cent. Ti’s report shows Amazon’s logistics costs for order fulfilment have risen from 17.8% in 2011 to 30.1% in 2020.
The cost of e-commerce logistics in India
A report by APAC shows shipment costs were about US$1.40 per package in the past. But as volumes increased and technology improved, this figure declined about 25 per cent, just over a dollar.
Last-mile delivery costs can be broken down into three main categories—first, shipping, which covers the cost of any human resources involved in delivering your package.
Second, operating hubs, where packages are stored before being delivered or picked up by customers themselves (think of drop off points). And third, incentives are offered to drivers who take these last few steps for their clients.
The cost of operating a warehouse or sort centre, whether by the company’s own or third-party logistics firm, is about 10 rupees per shipment. This brings the total for your business’ shipments at INR 75 excluding warehousing fees which can add another 20 -25 per cent.
India’s post-COVID economy is steadily improving with the rise of the e-commerce and warehouse market. Some logistics startups have even acquired deals worth US$425 million. The e-commerce warehousing industry has also seen a boom (expected to achieve a CAGR of 12.6 per cent in the next five years).
It has started investing in Automatic Guided Vehicle (AGVs), Automatic Storage and Retrieval (ASRs), and robotic arms. Such technological advancements will help lower e-commerce delivery costs by 40 per cent.
Some factors contributing to India’s high e-commerce logistics costs are lack of multimodal and intermodal transportation systems, heavy reliance on road transport, fragmented storage infrastructure, bad condition of roads, and most importantly, slow technological adoption.
To improve matters, the government has allotted 18 per cent of the US$1.4 trillion capital expenditure of the National Infrastructure Pipeline till 2025 to develop roads.
Tech to the rescue
Here are seven areas in the supply chain where technology is driving the maximum impact:
- Warehouse automation and data analytics can help lower freight costs the need for human resources and allow you to monitor logistics operations closely. Harnessing the power of blockchain technology provides businesses with the much-needed data to create a clear year-on-year comparison of expenditure, profits, and losses. WMS can improve shipping speeds by making order pickups much faster.
- Inventory management systems can update businesses on real-time inventory status. This will significantly lower customers’ problem of ordering “out of stock” items because the inventory is not updated in real-time.
- Real-time tracking: Ecommerce giants like 1mg, Nykaa, and others rely on live order tracking updates to keep customers happy about their post-purchase experience. They can also send automated order status updates to customers via SMS, WhatsApp and emails or redirect them to a fully branded tracking page where customers can enter their tracking IDs to find out the status of their order. The white-labelled tracking page also provides online retailers with great cross-selling and upselling opportunities.
- Returns: E-commerce is notorious for product returns. Tech-enabled reverse logistics or returns management saves businesses hundreds of dollars by reducing churn and increasing Customer Lifetime Value (CLV). It can potentially lower the returns processing costs by 25 per cent while boosting net profit by 2-5 per cent. Some logistics platforms also provide a self-serve returns portal where customers place return requests and enter feedback.
Also Read: Why e-commerce startups will revolutionise the supply chain in Southeast Asia
- Robotics is now becoming one of the key differentiators in e-commerce shipping. It uses drones, robots, automated forklifts, scanners, etc., to reduce time spent on every order processing stage. Some of India’s most prominent e-commerce players, like Flipkart, DTDC, Myntra, etc., use robots to manage orders at large warehouses and distribution centres.
- Automating processes like cargo or freight audits, tracking carrier performance, appropriate carrier allocation, etc., can serve as significant risk mitigators by eliminating inaccuracies, streamlining operations, and preventing delays or shipping exceptions. Technology can prove especially helpful in load planning, driver selection, and route optimisation. It can help strategise delivery routes, order prioritisation, and load planning for optimum fuel and fleet usage. Such technology proves exceptionally useful in countries of the Middle East that lack a National Address system.
- Omnichannel fulfilment: With the help of logistics technology, many e-commerce companies have even ventured into adopting the omnichannel fulfilment route. Brands like Aditya Birla, Zara, H&M, and others provide customers with the BOPIS (Buy Online, Pickup In-Store) model. The omnichannel method allows for better utilisation of resources by turning the physical store into fulfilment centres. Brands can then choose to fulfil orders from the nearest brick-and-mortar store.
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