New-age logistics companies are closing gaps in the Indian Tier 2 and Tier 3 cities

As per Redseer, Tier 2 and Tier 3 cities will account for 88% of India’s online shoppers by 2030. Pre-pandemic, the smaller cities accounted for less than 30% of e-commerce sales volumes.  The pandemic has helped accelerate the growth of online shoppers in Tier 2 and Tier 3 cities as buyers look for online solutions for their supply of essential items. Moreover, low data costs and digitization have led to tech adoption en masse. As a result, there has been a spurt in the number of direct-to-consumer (D2C) brands in the country.

Industry experts estimate that around 800 companies have shifted to the D2C model as of April 2021. Many multinational and national firms have developed their own logistics companies that stemmed from their supply chain requirements, such as Mahindra Logistics and Future Supply Chain. However, the majority of the D2C brands are currently using third-party logistics (3PL) companies for their supply chain requirements.

There are a number of verticals in the logistics space ranging from the first mile, mid mile, warehousing, last mile, reverse logistics, B2B/B2C and fleet management Service as a Software (SAAS). Most companies are looking to solve one of these many problems. Only a handful of companies are looking to tackle more than one of these issues within the logistics sector. 

The Indian Logistics Sector

The Indian logistics market is pegged at over USD 200 billion and growing at a CAGR of 8%. The largest logistics company in India by market capitalization, Delhivery (valued at about USD 5 billion/INR 36,300 Crores) did not even make a billion dollars (INR 5,911 Crores in FY 21-22) in revenue. So, there is enough room for several companies like Delhivery to co-exist.

India has over 65 million MSMEs that can only process limited orders before they reach scale. These MSMEs are spread across the 755 districts of India and are looking for logistics partners that are one-stop-shop solutions to their supply chain requirements. Companies and consumers are tired of dealing with unorganised “transporters” that provide unreliable service, opaque pricing, poor customer service, and tardy claim settlements. 

Technology is set to play a significant role in helping logistics companies become more cost-efficient and provide a seamless user experience for their clients. On the B2B and B2C fronts, there are a number of companies that have performed well and shown that scale and profitability can be achieved simultaneously, like VRL Logistics, Safexpress, and TCI Express. This space is poised for consolidation as it is still dominated by a number of regional players like RITCO Logistics, DFC Logistics, and NECC Ltd.

As we saw with Patel Roadways in 2019, when it was bought by Warburg Pincus-backed Stellar Value Chain Solutions Pvt. Ltd. Another such transaction was Delhivery’s acquisition of Spoton Logistics, which was done to strengthen its B2B capabilities and expand its network to Tier II cities. 

On the front end, truck aggregators such as Rivigo and Blackbuck are cutting out the middlemen and helping logistics companies increase the average number of kilometres their trucks run every month.

According to the Latin American Logistics Centre, logistics accounts for 8.5% of the total GDP in developed countries. Currently, logistics account for 14% of India’s GDP. This number is expected to drop as the logistics and road infrastructure improve in India. Furthermore, the backend technology will facilitate better fleet management for logistics companies. Companies can also bring down the cost of logistics using telematics. Fleetx and Wheelseye provide fleet management software and telematics packaged in a SAAS model for logistics companies.

Government’s Role

As the central and state governments dole out incentives to “Make in India,” the logistics industry is going to be the single biggest indirect benefactor of these programs. Moreover, with the Smart Cities Mission, the government hopes to drive economic growth and improve quality of life by enabling local and tech development.

With the advent of the smart cities mission, logistics companies can no longer only focus on the 7-10 metropolitan cities of India and hope to have an impact in the logistics sector. Logistics providers are also tweaking their features to cater to this vastly growing market in Tier II and Tier III cities.

Companies that can provide more than just a “trucking” solution will command a higher retention rate. Moreover, companies and SMEs are now looking to tie up with logistics companies that can add value to their primary product offering. 

Well-capitalized companies like Delhivery have found innovative ways to stretch the capital that they raised by investing in companies like Transition Robotics and Falcon Autotech. While India’s Falcon Autotech makes and provides warehouse automation solutions, Transition Robotics is a California-based company that makes unmanned aerial systems (UAS).

With investments in future technologies like robotics and drone technology, companies are looking at a future that will entail less human intervention and fewer mistakes, leading to a better end-service for their customers. Logistics has always been viewed as an expense on the balance sheet for companies. The perception of this is changing with the help of these new-age companies that are investing heavily in themselves and in the technology that allows them to give an experience the customer wants to keep coming back for.

This article is authored by Karan Dhillon, Founder and CEO, DFC Logistics.

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