The Ecommerce fulfilment industry has historically been beset by various issues: poor inventory management, total lack of visibility, and supply chain disruptions. The entire process was done manually in the past, leaving many instances with the capacity for human error to come into play.
In 2017, India lost about 14% of its total GDP due to inefficient logistics. Over the years, there have been systemic shifts into the digitization of the supply chain. The industry has graduated towards full tech-stack solution providers that involve highly accurate real time data and faster turnaround times to address client needs. This has lead to a significant reduction in logistics inefficiencies.
E-Commerce – A Key Driver of Growth
India is expected to reach $181B in GMV (Gross Merchandise Value) by 2026, growing at a CAGR of 14.6% during this period. This has had a ripple effect throughout the entire economy. With the growth of economy and the e-commerce sector in India, these full-stack solutions become extremely important. The layers that facilitate it – hyperlocal delivery, dark stores, fulfilment centers, and omnichannel purchase capabilities become an important part of the sub-sectoral growth.
Navigating the COGS that Operate the Tech Stack
Today, consumers are accustomed to receiving their purchases straight to their homes, with the click of a few buttons. New age warehousing companies offer a host of features that help businesses reach these consumers faster and more efficiently, reducing error and boosting productivity along the way.
One of the most widely adopted systems is the WMS (Warehouse Management Software), which streamlines all aspects of the warehouse from when the goods enter to when they leave. Companies such as Emiza equip their fulfilment centers with a WMS that works in sync with multiple e-commerce marketplaces and logistics providers, giving clients the ability to seamlessly manage omnichannel sales. The WMS offerings often work in tandem with a TMS (Transport Management System), identifying the best possible solution for the last mile delivery to ensure fulfilment of orders. These offerings are further enhanced using warehouse automation tools with the availability of vertical sortation robots, such as the ones offered by Unbox Robotics that automate parcel packing and sorting. These robots play a deep role in reducing human involvement, leading to less downtime and potential for human error. RaaS (Robot as a Service) has proven to optimize costs on the medium and long term, with their implementation gathering more and more validation in the market as e-commerce needs increase. However, uptake of these services is still at an early adoption stage in India.
There are also few other enablers in this ecosystem. Companies such as WareIQ that provide warehousing services leverage their intelligent inventory placement tool to enable multi-channel fulfillment. Platforms like this have tie-ups with all integrators and transportation providers, giving an eagle eye view of the company’s supply chain with advanced analytics capabilities.
These offerings are further leveraged with the use of a supply chain control tower, such as the ones offered by digital supply chain transformation companies like Blue Yonder or new age companies like Prozo, which acts as the nerve centre of an organization's internal operations, offering end-to-end visibility and control over every aspect of the supply chain. These come with various levels of maturity- the highest level is today allowing businesses to orchestrate full automation. Most of the players mentioned above build solutions for small and mid-size clients and new-age D2C brands, which are not currently serviced by the large players like Delhivery, Xpressbees, Ecom Express etc,. This highlights the widening market of the target customers for these technologies.
A Strategic Gaze into Future Opportunities
In the PE/VC landscape in India, there have been consistent capital inflows of over $950 million in the logistics tech industry in 2022 alone, with expectations that the sector will cross the $10B mark for total inflows by the end of the next calendar year. The fundraise numbers in this sector have further been steady across the last 5 years. Startups mentioned above have raised capital from a mix of marquee VCs and early stage PE funds including 3one4 Capital, Sixth Sense Ventures, JM Financial PE and Beenext amongst others.
Also, in the past 24 months, growth/late stage transactions in the space have slowed down. A few outlier transactions have however happened such as existing investors and Partners Group in XpressBees, Warburg Pincus and BIIs investment in Ecom Express, and Singaporean sovereign wealth fund, Temasek’s investment in Shiprocket.
Presently renewed activity is being seen in the sector though, with OTPP’s Venture arm’s (Teachers’ Venture Growth Fund’s) recent investment in Xpressbees. These transactions also shine a spotlight on the variety of investors involved in the arena, to pick up stakes in highly sought out private companies across the board.
Merisis House View: Reflecting on Key Insights and the Road Ahead
The E-commerce boom we witnessed in the past decade in the metros is widening out to Tier II and III cities, due to multiple factors such as the increased rate of smartphone usage and a shift in consumer purchasing behavior and patterns. At Merisis, we see a host of key growth drivers which will propel the industry forward moving on:
• Elastic logistics will become commonplace, as clients will leverage adjustable 3rd party logistics and on-demand warehousing as demand fluctuates due to seasonality factors.
• AI will be integrated into predictive analytics resulting in improved shipment ETAs, route optimization, and enhanced real time visibility in transport systems.
• Introduction of the ULIP (Unified Logistics Interface Platform), which brings all data related to the transportation sector into a single portal, ensuring smooth data exchange.
• Government increasing the FDI limit to 100% for B2B E-commerce, leading to more capital inflows into the sector, and strengthening the existing fulfilment network into Tier II and III cities.
In order to leverage these opportunities, new-age D2C brands and SMEs will have to provide superior customer experiences, the gaps of which are being filled by the tech/tech-enabled fulfilment players in the market today, and bolstered by the points mentioned above.
As this market matures, we can expect consolidation in this space with larger players looking to tap into diverse customer segments while increasing market share with their current customers. Parallelly, funding activity is also expected to pick up in this sector after a couple of years of slowdown leading to higher volumes of growth and late stage transactions.
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The Transportation sector has seen a renewed focus post the pandemic as it highlighted the relevance of logistics and supply chains. The sector has seen significant growth in recent years in the number of emerging start-ups, interest from investors, and policy push from the government. The sector has also seen the most impact from the increased clean tech focused funding as electrification emerged as a key theme.
The Transportation & CleanTech vertical at Merisis advises companies across various sub-sectors and facilitates their funding and M&A plans leveraging our deep connections in the ecosystem. Merisis has worked with category creators across this vertical and has strong relationships with a diverse set of Indian and global investors, which allows us to add value to our clients by finding the right partner. Read more
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