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In India, Amazon fuels DHL unit expansion on e-commerce

February 24, 2015 11:00 AM
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(Bloomberg)—About five years ago, e-commerce didn’t mean much for India’s biggest package shipping company. With a boom in online shopping now in the nation of 1.2 billion people, Blue Dart Express Ltd. is expanding.

The unit of DHL Express is adding a Boeing Co. 757 freighter to its fleet of five in the South Asian country and building warehouses for sellers using portals such as Amazon.com Inc., No. 1 in the Internet Retailer 2014 Top 500 Guide, and Flipkart.com, Malcolm Monteiro, chief executive officer of DHL eCommerce, said in an interview in Mumbai.

“Up to five years ago, you never had e-commerce figuring in BlueDart’s list of top five verticals,” said Monteiro, who oversees all of Blue Dart’s operations. “Today, it is the largest vertical and demand is far outstripping supply.”

India’s online retailing market has grown to about $6 billion in five years, as free delivery and heavy discounting lure millions to buy everything from lingerie to furniture. Yet, e-commerce is just getting started. Online sales are likely to reach 3% of the entire Indian retail market by 2020 from less than half a percent now, PriceWaterhouseCoopers LLP said in August.

Shares of the nation’s major logistics and delivery companies have surged in the past 12 months, partly due to e- commerce demand. Blue Dart has more than doubled to 6,816.25 rupees, while Gati Ltd., in which Japan’s Kintetsu World Express Inc. has a stake, has more than quadrupled to 245.30 rupees, according to data compiled by Bloomberg.

Nimbler rivals

The demand is also spawning competition as startups take on established shippers with cheaper rates. New entrants Delhivery Pvt., Ecom Express Pvt, and Gojavas Pvt. have received millions of dollars in funding from venture capital and private equity firms, and are carving out low-cost delivery operations aimed solely at web retailers.

Blue Dart meanwhile is betting customers will pay a premium for its services as its wide network developed over 31 years gives it an edge when flash sales and festival offers cause a surge in orders and expose chinks in its nimbler rivals.

E-commerce sales in India hit an all-time high last year in October, and so did complaints from disgruntled customers on lost, delayed or stolen orders. There just weren’t enough planes and employees to deliver the packages.

Amazon India and Flipkart didn’t immediately respond to an e-mailed questionnaire about their experience with delivery companies.

Freighter fleet

Blue Dart is the only operator of domestic cargo-only jets in India, with five 757 planes in its fleet.

“Running an air cargo operation is not something every logistics company can do,” Pragya Singh, associate vice president of retail at consultant Technopak Advisors Pvt. said in a phone interview phone. “This is a capability they have and are using that to attract customers.”

Rivals that rely on cargo space on commercial carriers are more susceptible to delays at distribution hubs, New Delhi-based Singh said. This bottleneck may get worse during festival seasons, when all seats are occupied, leaving less space for cargo.

Blue Dart’s near monopoly on cargo routes may be luring some commercial airliners as well. Jet Airways India Ltd., India’s second-biggest carrier, plans to enter the air cargo business and may lease three planes from Etihad Airways PJSC, the Business Standard newspaper said Monday, Feb. 23.

Thin margins

Courting e-commerce business would provide huge volumes for Blue Dart, but it could also increase the risk of delays for its core clients—premium business customers who are less forgiving.

The company, 75% owned by Deutsche Post AG’s DHL unit, gets its core profit from business-to-business transactions that place a premium on reliability and speed. Packages are often small and most customers’ offices tend to be clustered in key business districts that are easy to access.

E-commerce logistics is all about “thin margins, low price points, and scattered delivery all over the country,” said Suvir Sujan, co-founder of Nexus Venture Partners, which was an early investor in Delhivery. There are more than 100,000 ZIP codes in India, and logistics providers need to be prepared to deliver apparel or a pair of shoes anywhere.

For its part, Blue Dart keeps some of its business and e-commerce teams separate, so as to serve both sides of its operation, Monteiro said. It also outsources some of the deliveries to keep costs low.

The company is also opening warehouses where sellers on e-commerce portals can store goods. Each time an order comes in, the product is packed and shipped to the consumer, saving time as the couriers don’t have to go to the seller’s location to pick up the item. Blue Dart has opened its first such warehouse, known in the industry as a fulfillment center, in Delhi, Monteiro said.

“There’s a huge shortage of fulfillment centers all across” India, Monteiro said. Blue Dart is preparing to open as many as 15 such warehouses depending on demand.

 

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