Plato’s words “Necessity is the mother of all invention” is true a proverb that has existed for centuries. These words are not just philosophy but the foundation of most dynamic businesses that have flourished and owned their markets solely because of their need to exist.
Especially now, in the contemporary times, necessity is an established standard which has given rise to a whole new generation out of the desire to provide products and services for every demand imaginable. Essentially, an increase in demand for a product or service will directly result in a competitive eco-system, where each company operating in that industry has to offer something distinctive or unique to appeal to its target audience. You have to carve out a niche for yourself.
When the balance of power between the buyer and the service provider increases, it creates a perfect opportunity for an intermediary to flourish. As someone who has witnessed the many phases of the Indian logistics industry over 27 years, I can determine that this is a revolutionary time, conducive to new ideas and solutions that will meet the current forerunner in the new age market – e-commerce sector.
When heroine And Flipkart Beginning its expansion journey in India, the response was overwhelming. So much so that these two giants had to open separate in-house logistics ventures. This was done to meet the exponential demands as existing traditional service providers were unprepared to add growth and rapid expansion of reach. So, Amazon started Amazon Transportation Services (ATS) and Flipkart started e-Cart. As they say, this was just the tip of the iceberg.
The growth of eCommerce and subsequent exponential growth in the number of small and medium scale vendors required logistics service providers to cater to this small but rapidly growing market. On the other hand, the old logistics service providers working with large and mid-sized players plus specialized e-com service providers and B2C ecommerce and D2C segments were too busy to focus on the increasingly unique needs of the growing SMEs. All SMEs were part of the long tail of the big players and were eventually ignored forever, leading to digital aggregators entering the market and supporting the smaller growing segment and creating an opportunity for the players and for themselves. Got the opportunity.
There was an urgent need for affordable logistics providers to work with SMEs and start-ups to grow their business, and digital aggregators were about it. But how did they get what they have today?
Essentially, digital aggregators solve many problems for SME customers. They offer a range of logistics options to choose from based on preference (cost, serviceability, delivery timeline, and more). Following the technological trends, these aggregators offer easy integration with a user-friendly technology platform to manage their storefronts, order management systems and most importantly, overall logistics.
Lastly, these aggregating platforms benefit their clients from the high arbitrage of rates largely offered by logistics companies. Aggregation of demand helps them in providing a significant and stable business to logistics providers, who in turn offer them competitive rates.
Now comes the blow. Over the years, digital aggregators, backed by their technology, have gathered a significant customer base and started to take over the logistics provider. From here, the fight between these parties started. The arbitrage of rates became so high that customers are now able to get better rates through aggregators than working directly with the same logistics provider.
It’s a dilemma for both the players involved. Aggregators push the price down to move up rapidly and massively. At the same time, the average yield of logistics providers decreases even as revenue increases. in the last few years when digital commerce increased Importantly, logistics providers have not been able to benefit from the growth as their price points are not increasing while their costs are rising.
This has put immense pressure on the logistics service providers resulting in the recent hike in rates in the range of 30-40% by the top service providers.
While talks are taking place between aggregators and logistics service providers, of course, the aggregators will have to agree on a fixed rate hike this year.
This was bound to happen as logistics service providers must now focus on metrics other than revenue. Top players who are looking for either IPO listings or large fundraisers need to improve their average selling price points as well as the customer base (number of customers who work directly with the service provider) . With aggregator rates increasing, logistics service providers intend to improve these metrics and adapt to the changing industry.
To tackle this situation, digital aggregators and logistics service providers have to find a common ground. Undoubtedly, digital aggregators are an important member of the ecosystem of B2C, D2C and e-commerce logistics. They provide a platform for micro, small and medium scale shippers with the latest technology and ease of integration. At the same time, they also understand that logistics providers are the ones who perform the actual work on the field – that is, lifting and delivering shipments.
For the ecosystem to flourish, both sides must forge a strategic partnership and work on a win-win situation without putting undue pressure on one side for the development of the other.
Yogesh Dhingra Founder, MD & CEO of smart logistics