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Growing demand of 3rd party logistics in e-commerce sector

Logistics industry has multifarious aspects to it. This industry runs on a process that begins right from the point of stockpiling the raw materials to taking the finished goods to meet the customer requirements. So far the concept of trucking and logistics has been fragmented and under developed in India because of the risk and insecurity factor analogous to the industry. In spite of being a feeble player in the market, India spends around 14.4% of its GDP on logistics and transportation where other developing countries are still spending less than 8%. Not only this, Indian logistics market is expected to grow at a CAGR (Compound Annual Growth Rate) of 12.17% by 2020, driven by the growth in the manufacturing, retail, FMCG and e-commerce sectors.

One of the major reasons for the expansion of the logistics industry is the tremendous growth of e-commerce sector. E-Commerce, also known as e-retail sector, has evolved over the years successfully like any consumer-based purchasing market because of the elevation in technology and betterment in the internet access. This has also triggered the emergence of various logistics models based out of outsourcing or 3rd Party Logistic services.  The demand for organised, reliable and secure trucking and logistics services has also accelerated to cater to the intensified need of the hour. This is what has given birth to numerous tech logistic start-ups with new concepts and business models.

Logistic is an integral part for e-commerce and works as the backbone to this sector. Recently, many of the e-commerce giants have tied up or out sourced 3PL (Third party logistics) to fulfill the demand. Starting from warehousing to distributing the product to local retailers, 3PL provides a full package to the online retailers. It provides security and on time delivery with effective cost management to the e-commerce vendors.

Logistics companies basically have three different business models, which include self owned fleets, market place and hybrid models. In the Self-owned fleet business model, the fleets or trucks are directly owned and operated by the company. From the liability of picking up, warehousing to security of products, all the aspects are taken care of by the company itself. Market place fleets business model incorporates outsourcing of the fleets from the market, while taking rest of the responsibilities. The last business model is called the Hybrid Model, which is also the latest one. This is the mixture of above mentioned two business models. Logistic companies, working on this model, take all the other liability and responsibility, but fleets are both self owned as well as outsourced from the market place. Depending upon the entail, the choice of the fleet is done. All the three business models ensure the security of the products and delivery of the same within the timelines, which didn’t exist few years back. This has made the e-commerce sector restore faith in logistics more than ever.

According to a report by the multinational financial services corporation Morgan Stanley, the e-commerce sector in India is expected to grow to $119 billion by 2020 with a total of 320 million shoppers. Analysing the demand, many of the prime movers in logistics have even created a new segment called ‘E-Commerce

Logistics Service Provider’. The introduction of GST (Goods and Services Tax) by the new government can be proved as a milestone in the logistics industry, as this will allow the logistic companies to customise or improvise their services day by day and extend their hand to meet the increasing demands of the e-commerce giants. Services like good’s insurance, last mile delivery, warehousing, cash handling will be integrated as per the requirements.

Not just the private sector, but government sector like Indian Railways is also looking for tie-ups with e-commerce companies to become their 3PL partners. Logistics is a different industry to handle and it requires additional manpower, management, time, etc. It is very difficult for the e-commerce industries to manage another vertical of logistics altogether. Hence, these services are outsourced or handed over to 3rd party logistic providers.

Outsourcing or 3PL simultaneously creates number of jobs and business opportunities in the market. Starting from drivers, employees, warehousing, market-place etc are few of the areas where refurbished logistics business is creating opportunities. Primarily the offline retailers could not enjoy the benefits of online channels. This was due to inaccessibility to e-commerce, reason being the transportation of products, warehousing, logistics etc, for the same.

The logistics industry is vital to the e-commerce industry.  With more advancements and innovations like tech logistics, this industry has a long way to go.

This article has been authored by Sumit Sharma, Co-founder, GoBOLT.