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Illustration by Irina Molchanova from Ouch!

The past decade has witnessed the rapid transformation of the Indian logistics industry, which was until recently fairly unorganised. The industry is increasingly shifting towards digitisation and contactless operations driven by the pandemic and the explosive growth in e-commerce. The US$ 215 billion Indian logistics industry is estimated to be growing at a CAGR of 10.5%. The organised share of the overall market is just around 10-15% which provides ample growth opportunities. Delhivery and Ecom Express are two of the largest players in this segment. In its last two rounds alone, Delhivery has raised a staggering US$ 377 million while Ecom Express has raised US$ 270 million. With Delhivery all set for an IPO by early 2022 and Ecom Express expanding to new markets, the fight to dominate the Indian logistics industry is heating up. So who will emerge as the victor? What are the latest trends in the logistics industry? 

Indian Logistics Industry

Currently, the domestic logistics industry is highly fragmented with over a thousand active players, including global players, large-scale domestic players, startups specialising in e-commerce deliveries and the express arm of the government postal service. A recent report by Arthur D. Little India, in collaboration with the Confederation of Indian Industry, stated that the country’s logistics and supply chain costs currently amount to a whopping US$ 400 billion, equivalent to 14% of the GDP, which is almost twice the global average of 8%. 

Growth factors: Growth in the logistics industry is driven by numerous factors-

  • Higher growth in the country’s GDP naturally involves higher movement of goods across the country. 
  • Logistics is an integral part of the booming e-commerce industry.
  • The growth of the food processing industry will lead to increased private demand for warehousing space.
  • Increasing exports will increase demand for efficient logistics services to cut costs and improve competitiveness. 

According to the credit rating agency ICRA, the logistics sector reported a sequential growth of 9% and a Y-o-Y growth of 42% in the fourth quarter of FY2021. Despite higher fuel prices, logistics companies have been able to prevent further erosion of their margins by resorting to aggressive rationalisation of fixed overheads and cost-control initiatives. But margins are likely to moderate going forward given that cost-control initiatives like salary reduction, rental waivers are temporary measures. 

Government Initiatives: Recent initiatives by the government include-

  1. Smart enforcement app: In June, the government announced the launch of an IT-based smart enforcement app for the implementation of rules and regulations to tackle road-based violations by trucks. According to the commerce ministry, on average Indian trucks cover 50,000-60,000km a year, a fraction of the 300,000km in advanced nations such as the US. One of the key reasons for this disparity is the delays due to random stoppages for verification of documents and physical checking of vehicles. The app will help in-
  • Reducing the number of physical checks of commercial vehicles by enforcement officers.
  • Decreasing the number of cash challans (invoices) by issuing e-challans.
  • Increasing revenue collection due to reduced human intervention.
  1. Freight smart cities: In July, the commerce and industry ministry unveiled plans for freight smart cities to reduce logistics costs and improve urban freight efficiency. Under this initiative, city-level logistics committees would be formed, and they’ll include government departments, agencies at the local and state levels, private sector logistics companies and users of logistics services. The move is fitting given that the demand for urban freight is expected to grow by 140% over the next decade and final-mile freight movement in Indian cities accounts for 50% of total logistics costs in India’s e-commerce supply chains. Starting with ten cities initially, the list will be expanded to 75 cities in the next phase before scaling up throughout the country. The cities have been asked to focus on developing night-time deliveries, peri-urban freight centres, truck routes using Intelligent Transportation Systems (ITS), promoting electrification of urban freight and parcel delivery terminals. 

Trends

  • Manpower Shortage: In May, e-commerce and logistics firms had to dole out hefty increments, perks and incentives to retain and hire more people as they were battling an acute shortage of manpower due to the second wave. According to industry estimates, delivery staff nearly halved in some cases due to the high rates of infection given the nature of work, reverse migration as someone back home got infected, or fear of contracting the disease. 
  • Internet of Things and Electric Vehicles: According to ‘Fast Tracking Freight in India: A Roadmap for Clean and Cost-Effective Goods Transport’, a report by NITI Aayog and Rocky Mountain Institute (RMI), India can save Rs 3.11 trillion (~ US$ 40 billion) in fuel costs by 2050 and reduce 10 gigatonnes of CO2 by 2030 by utilising a clean and cost-effective mode of goods transportation. According to the study conducted by HERE Technologies- a location data and technology platform in partnership with global consulting firm Frost & Sullivan, close to 56% of all Indian logistics companies have deployed map-based solutions with real-time data for monitoring shipments. The study also states that while currently, 11% of Indian logistics companies are using IoT for fleet management within the next two years, 38% of Indian logistics companies will increase investments in IoT. The increasing adoption of EVs is one of the latest trends in the industry. With the consumer market for EVs still in its nascent stages, many EV OEMs have turned to e-commerce firms offering their fleet on rent for last-mile deliveries. In the future, EVs could become the only mode for deliveries, and that might become the dominant market for EV players.

Delhivery

Quick details about Delhivery
Source: Various news articles| Infographic- Rajan Mithra@VCBay

Logistics and supply chain startup Delhivery founded in 2011, is the brainchild of Sahil Barua, Kapil Bharati, Suraj Saharan, Mohit Tandon and Bhavesh Manglani, with Sahil Barua being the CEO. The combined stake of all the founders is under 10%. Recently, founders- Manglani and Tandon — who hold 0.4% and 2.2%, respectively, left the startup

Delhivery’s valuation has skyrocketed from its Series A round in 2012, in which it was valued at approx. US$ 890K to a pre-money valuation of US$ 2.9 billion in July this year, indicating a 3258x growth in a span of 9 years

Business: Delhivery’s revenue has grown by more than 1.75x between FY19 and FY20, and it is said to have recorded revenues of more than Rs 3,700 crore (~US$ 498 million) in FY21. 

The startup has witnessed steady growth across its e-commerce business and business-to-business (B2B) verticals driven by the accelerated digital adoption led by the pandemic. Apart from the higher volume of shipments resulting from increased e-commerce orders, there has also been an increase in smaller businesses using its services. Delhivery has set up a tech centre in Seattle, US, which is working on a software-as-a-service (SaaS) model which allows other companies to use its technology. It is said to function as an operating system for logistics, and it’ll reduce the development cost of logistics systems for smaller companies. 

Providing logistics services to e-commerce firms is the largest part of its business and managing the supply chain needs of large companies contributes around 10% to its total revenues. The B2B segment also involves operating part- and full-truckload freight and cross-border logistics. Recently, Delhivery has also launched Delhivery Direct– a consumer-to-consumer express parcel service that will help customers ship parcels from their doorsteps across 19,000 pin codes and 2,500 cities in India.

Expansion: As part of its expansion, the logistics startup plans to invest up to Rs 300 crore (~ US$ 40 million) within a year to increase fleet size and set up trucking hubs. Delhivery wants to add around 150 trucks to its fleet and launch trucking terminals in the cities of Delhi, Mumbai and Bengaluru. Over the past year, it has already doubled its overall physical footprint to more than 12 million sq ft. It is also planning to expand further in the neighbouring countries of Bangladesh and Sri Lanka.

IPO: The logistics startup aims to list in India by early 2022 and expects to raise anywhere between US$ 650-US$ 800 million at a US$ 4 billion valuation. The startup is already sitting on an eye-popping US$ 550 million in cash. The proceeds from the IPO will be used to expand and enhance its technology and cross-border verticals. 

Ecom Express 

Quick details about Ecom Express
Source: Various news articles| Infographic- Rajan Mithra@VCBay

Founded in 2012 by Manju Dhawan, K. Satyanarayana, Sanjeev Saxena and T. A. Krishnan (CEO), Ecom Express operates in over 2,650 towns across 27,000+ PIN-codes in the country. The startup claims to have partnered with more than 2000 e-commerce companies enabling them to get first-mile pickup, last-mile delivery, processing, network optimization, and fulfilment services.

In FY19, the startup’s revenue jumped by 76% to reach Rs 1,018.45 crore (~ US$ 137 million), up from Rs 578.75 crore (~ US$ 78 million) in FY18. The startup has added 200 delivery centres across the country, taking its total to more than 3000 delivery centres with newer expansions in the northern state of Himachal Pradesh and the North-East region apart from venturing into the islands of Andaman and Nicobar. Ecom Express has also stated that it has invested in hi-speed automated sorters and increased its capacity to handle a surge in volumes. 

E-zippie: Early this month, Ecom Express announced the launch of its self-sign up portal- E-zippie, which will enable small business owners and micro-entrepreneurs to sign-up for logistics services. 

The initiative will help users in various ways- 

  • E-zippie simplifies the customer onboarding process by enhancing the user experience and providing more flexibility in terms of service and price selection. 
  • Registration is fast-tracked and takes less than half an hour compared to 10 to 12 days taken by the competition. 
  • Enables users to expand their market access, solidify their supply chain and diversify their customer base. 

CDC Group: In March, the CDC Group, UK’s impact investor, infused US$ 20 million in the startup. The funding will support Ecom Express to further its sustainable development and impact agenda of boosting job creation and enhancing skills. It will support the creation of 8,000 new jobs in addition to an initial target of 15,000 roles and prioritises the employment of women. The investment will also be used for new business initiatives, growth-driven CapEx, working capital requirements, expansions, and potential strategic acquisitions/partnerships.

Partners Group: In December 2020, Partners Group, the global private markets investment manager, infused US$ 250 million at a pre-money valuation of US$ 464 million. The investment firm is said to have acquired a 35% stake in the company, on par with the stake held by the global private equity firm Warburg Pincus. The funds will be used for continued investment in automation, data sciences and technology and to expand the product offerings.

Paperfly: Early this year, Ecom Express invested US $11 million in Paperfly, Bangladesh’s largest third-party e-commerce logistics startup marking its maiden venture outside India. The neighbouring country of Bangladesh, with its 167 million inhabitants and over 90 million internet users, has one of the fastest-growing e-commerce industries in the region. The funds will be used for the transformation of logistics through intelligence-driven automation and data sciences, enabling the startup to meet the demand for e-commerce logistics services.

Summary

The Indian logistics industry is growing at a comfortable rate aided by multiple tailwinds, which include the pandemic, e-commerce, and adoption of tech. Larger trends such as the rising middle class, rapid urbanization and adequate government support will further provide the necessary boost to the industry. At present, Delhivery has emerged as the clear victor, with an established and solid business model. The half a billion dollars in cash proves the startup’s efficiency, and the fact that it has been able to grow to such levels without making numerous acquisitions is commendable. The IPO will further boost Delhivery’s war chest, enabling it to expand at faster rates. Though Ecom Express is an established player in the industry, it has a lot of catching up to do. Overall, the industry has immense potential and will continue to attract global investors who wish to be part of India’s growth story.

For more extensive analysis and Market Intelligence reports feel free to approach us or visit our website: Venture Capital Market Intelligence Reports | VCBay.

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