The credit rating agency ICRA estimates that India’s logistics sector will grow at a compound annual growth rate of 10.5 per cent and the last mile segment will surge from its present size of $7 billion to $30 billion in the next 7 years. This evolution of the industry is expected to ride on improved infrastructure, greater digitisation and a heightened sustainability focus. Ratnesh Verma, founder and chief executive officer of Pidge, a four-year-old start-up in the space of last-mile logistics management technology and platform, sat down with DH’s Lavpreet Kaur, to examine the emerging trends and challenges in logistic operations in India.
Edited excerpts:
How has the global logistics sector evolved post-pandemic and where do you see India in this schema?
Indian e-commerce is just about 7 per cent of the total retail (value) in India, compared to the global average of about 20 per cent. In the Indian growth story retail is a big component of this. Indian e-commerce is expected to double every three years. So, what is roughly $275 billion today is going to be close to about a trillion dollars by the end of this decade. So it’s a very exciting time for e-commerce in India.
We still feel in the more mature e-commerce markets, the democratisation process is a lot more developed than in India. In India, most of the e-commerce is happening through the marketplace kind of a business model. This will change because it (democratisation) actually leads to more efficiency, lower costs and growth. And most importantly, helps build small businesses.
The ‘last mile logistics is predicated on the idea that countries like India have a plentiful supply of low-cost labour. This premise is no longer valid because there may not be enough workers and they may not be available at a reasonable price. This is a problem since e-commerce is expanding so quickly. Costs could soar if the supply of labour is constrained or overpriced. That is a worry.
What are the primary challenges for D2C-focussed (last mile) logistics players today?
The biggest problem that the direct-to-consumer (segment) faces today is having to make binary choices. So, you have to choose between either doing the delivery yourself or getting it through a third-party logistics company. One brings you reliability, without efficiency and the ability to scale, the other brings you efficiency without reliability. And this inhibits growth. Two out of three last-mile logistics are still run by people themselves through their own logistics partners.
The other thing is that over 85 per cent of the logistics sector continues to remain unorganised.
Third-party logistics firms are very enterprise driven. The small-medium businesses do not have the wherewithal to engage them and have no option but to remain in the marketplace.
What are some demand trends you’ve observed across Indian MSMEs that you’re focussed on?
We’ve seen a lot of businesses that did not previously deliver or categories that had not previously delivered starting to do deliveries now. What Covid-19 did was force an online habit amongst the end consumers and that led to higher customisation of the categories. It has changed consumption behaviours. So all the needs of the consumer, from a delivery point of view, have become a lot more diverse. Some of the premium businesses (having high average order value) are offering the delivery option. while brick-and-mortar businesses have adopted online business models.
How is technology being leveraged by the industry and how do you see its future in India?
IoT (Internet of Things), big data and robotics are critical to long-term, continuous efficiency, but require a high level of logistics maturity and widespread adoption of dedicated hardware to make a dent in the scale of Indian logistics. The necessary step for this long-term vision is the adoption and prevalence of easy-to-use, low-code technologies and software that build on existing infrastructure items such as cell towers, mobile phones and speed cameras to first create a steady stream of data input that can build the repository for data and artificial intelligence to work its magic. Artificial intelligence is particularly exciting because it offers benefits in every micro component of the supply chain.
Dark stores and drones are an emerging e-commerce shipping trend. Your views on this?
I’m a big proponent of drone technology, however, I think we need to be realistic. The adoption of drones for last-mile delivery, even in mature markets like the US, for example, is negligible. The reason for that is that we need to first address the two biggest problems that come with leveraging drones for last-mile delivery, especially in urban locations- one is privacy and the second is security. Drones in rural areas have a lot of potential for emergency deliveries. Delivering items using drones in urban areas will be a challenge due to density.
With regards to dark stores, again, it’s a great concept, however, if you want to enable a 10-15 minute delivery, it’s an economic challenge. In order to deliver in 15 minutes, you need to have a store where there is a thick density of the population. And typically, where you have a density of population, the real estate is going to be very expensive.
Logistics sector is one of the world’s largest emitters of greenhouse gasses and is currently responsible for a good 20 per cent of global CO2 emissions. How is this being mitigated?
The biggest common trend is the adoption of electric vehicles. I think the adoption will be faster if some of the ‘if questions’ are addressed. But I think there’s a clear recognition that EVs are a step in the right direction. But other than that, some of the steps that we take are actually counterproductive to sustainability. All this quick commerce, for example, that we’re sending in 15 minutes, it’s actually counterproductive. Personally, I would like to see more effort going into sustainability at an industry level.
What has been the role of government policies in promoting managed logistics services in India? How has National Logistics policy made a difference?
It’s really exciting to see the government take on logistics challenges as a priority, you know, whether it is the digital toll payments, or it’s framing a trade policy for gig workers. Even ONDC is a great initiative. To be able to build a standardised protocol from an e-commerce point of view - it’s a step in the right direction. Can more be done? Of course.
I think the pace of growth requires a lot more to be done on the infrastructure development front. I just would like to see more of what has already been done.
What are some challenges before the Indian logistics space and your outlook?
I think the big challenges continue to remain in terms of the efficient use of resources. In the future, we will see a lot more common platforms, a lot more consolidation, and a common protocol like ONDC - it’s a very ambitious project. We have been, pretty much up until now as a country, in that whole pipeline mode. I see the entire ecosystem moving from a pipeline to a platform, and then eventually a protocol. And that’s really the biggest trend.