What is the Impact of eCommerce Growth on the Logistics Sector

It’s not exactly the biggest of secrets that the e-commerce industry and logistics industry are inextricably linked to one another, to the point where it gets hard to understand where one ends and the other begins.

For some, it’s hard to even imagine one without the other. Indeed, for a significant percentage of the general populace, the e-commerce and logistics industries are basically one and the same. A single click on an e-commerce website starts a complex and highly specialised process of order packaging, pickup, shipping, and delivery.

This process is sustained wholly by the logistics and transportation industry, without which, one cannot expect to order goods and get them to their doorstep at the click of a button. As customers get more and more accustomed to the ease and convenience of e-commerce, the intertwining of the two industries grows even deeper and stronger. That’s just how dependent the e-commerce sector is on logistics.

However, both these sectors have far-reaching effects and implications of their own, independent of the other. So today, we take an in-depth look at how the skyrocketing growth of e-commerce has impacted the logistics industry.

1. Increase in Adoption of E-commerce

As of recent years, the e-commerce market has seen an unprecedented boom in usage and adoption. According to reports, e-commerce accounted for about 13% of retail sales in the year 2021 and is only set to grow more.

In India, this has been accelerated by a number of factors such as the post-Jio Internet boom from 2016 onwards, allowing hundreds of millions of Indians to get online and connected for the very first time.

Another major reason is the surge in adoption of UPI (Unified Payments Interface), an Indian online payments platform that is seamlessly fast and easy to use

Indian e-commerce companies such as Nykaa, Myntra, and Flipkart have grown rapidly and established a consumer base. In order to keep up with rising demand and ensure smooth functioning of e-commerce operations, the logistics and transportation sector has also had to grow proportionally and not be outpaced by the e-commerce websites. 

2. The Amazon Effect

As instant and cheap deliveries are quickly becoming the norm, even minor snags in logistics risk damaging the reputation of e-commerce businesses and marketplaces.

This came to be known as the ‘Amazon Effect’, after the e-commerce giant Amazon Inc., which has since gained a monumentally strong foothold in several countries and established itself as a near-monopoly.

Amazon has been one of the largest drivers of e-commerce growth, as the e-commerce sector grew about 14.2% in the year 2021. When people make an order on Amazon, they don’t usually think or care about the process behind the scenes.

This is because Amazon has made e-commerce shopping so comfortable for their users that it’s almost addictive. With attractive plans such as Amazon Prime and same-day delivery,  customers are getting more expectant of smooth and hassle-free deliveries.

As a result of this strategy, there has developed a massive strain upon the logistics industry, leaving no margin for error. It requires almost clockwork-like precision during the entire process. Any difficulties or delays while delivering goods may prove to be extremely harmful for retaining customers. 

Consequently, other logistics providers had to adopt a wide variety of techniques and strategies to compete with Amazon. This led to major improvements in the industry as a whole, including the incorporation of tech like RFID for tracking packages and GPS for tracking courier transportation vehicles.

3. The Pandemic Effect

The pandemic has forced us all indoors for the past two years, and caused a migration of sorts from traditional retail shopping to widespread e-commerce shopping.

Even as cases die down and physical stoes start opening up, ehe e-commerce industry shows absolutely no signs of slowing down.

In fact, the Indian e-commerce space is set to grow by about 5% according to NASSCOM (National Association of Software and Service Companies), despite logistical challenges imposed by COVID-19, with expected sales of US$ 56.6 billion in 2021.

In the US, e-commerce sales are expected to account for US$ 469.2 billion in the same year.

Clearly, the pandemic has accelerated the growth of e-commerce, brought about by people being stuck in their homes all day and indulging in online shopping.

According to experts, this trend will continue long after the pandemic has subsided. People have gotten accustomed to getting their goods delivered to their doorstep.

Large corporations will be sure to leverage these changing trends to their benefit, such as investing in contactless delivery options. Smaller businesses ought to invest in e-commerce as well if they want to stay in the game.

At the same time, however, the logistics industry has also been considerably impacted as supply chains were disrupted and the movement of goods blocked for safety reasons.

In order to keep pace with consumer demand, it’s important to make a forward-thinking plan to go ahead, detailing how to handle things in the aftermath of the pandemic.

In the above points, we have looked at how the e-commerce sector has grown and how it has impacted the growth of logistics and transportation as well. Next up, let’s take a look at how logistics companies are bracing themselves to adjust and account for this growth.

4. Growth of Outsourcing

Not surprisingly, with ever-increasing demands and delivery pressures, many e-commerce companies have chosen to go the outsourcing route, that is, hiring an external specialised agency to handle all their logistics needs.

This is essentially a division of labour in a very complex form, helping to ensure efficient last-mile deliveries as well as minimizing delays.

Many specialised logistics providers are now focusing especially on the last-mile delivery as that is the stage where things usually go wrong. They are changing their fleet size and composition, as well as workflow to ensure that they are better equipped to deal with last-mile issues as and when they come up.

5. Improvement in NDR Management and RTO Reduction

The e-commerce growth has also brought with it an unexpected side effect- that of the large numbers of undelivered goods. Goods remain undelivered for a variety of reasons, sometimes the customer is unavailable, and sometimes the order is refused outright.

An NDR (Non Delivery Report) is usually filed to investigate the cause of the failed delivery and make a few more attempts. Quick and efficient NDR management is crucial to minimize losses.

If a product fails to be delivered even after multiple delivery attempts, an RTO (Return to Origin) is triggered. An RTO essentially means that the product is supposed to be shipped back to its point of origin.

Whatever might be the cause of an RTO, it is up to the logistics providers to ensure that the products are safely returned back to the e-commerce businesses.

It should be ensured that if RTOs are unnaturally high, the matter should be checked up by the e-commerce business along with their respective logistics providers.

High RTOs increase the risk of losing customer loyalty and trust, diminishing brand reputation, and potential loss of inventory.

6. Improvement in Reverse Logistics

In some cases, a customer may wish to return a product after it is delivered. Perhaps they were dissatisfied with the quality, or may have simply changed their mind.

Conversely, they might want to exchange it for another product. In short, when a customer wishes to return an already-delivered order for whichever reason, the process that ensues is known as reverse logistics.

E-commerce businesses can opt for logistics providers that specialise in reverse logistics to ensure a smooth return journey for the product, dealing with whatever issues that may come up, with minimum hassle to either the customer or the seller.

Having a poor post-delivery workflow will inevitably dissatisfy the customers who will then complain to the e-commerce platforms, in turn damaging the relationship with the logistics providers. Therefore, most companies are scaling up operations to ensure smooth reverse logistics and handle the growth in demand.

7. Rise of Automation and Technology

India’s e-commerce market is anticipated to reach $11.48 billion by the end of 2027. To sustain this growth In a fast-paced society such as ours, how does one go about providing the optimal delivery experience?

One that is fast, cheap, and hassle-free? One that satisfies the customers and is financially sustainable at the same time? Many logistics companies seem to think AI (Artificial Intelligence) is the answer. 

Drones and robots are now widely used across factories to transport goods and keep a record of operations. The Internet of Things (IoT) has paved the way for automation in the industry, leading to a time when most menial and repetitive tasks can be done easily with technology, without any human intervention. This will most likely help in streamlining of operations and increase efficiency, reducing human errors to the bare minimum.

From the perspective of the consumer, most e-commerce businesses now allow for easy and seamless online payments via card and net-banking (as well as UPI in India), also making it easier to maintain digital records of transactions in case of disputes. 

8. Conclusion

The above points note the strategies the logistics sector is undertaking in order to cope with the rapid growth of e-commerce along with a never-before-seen rise in consumer demand, brought about by a variety of factors including the growing Indian middle class and the pandemic.

The impact that the e-commerce industry has had on logistics and transportation is undeniable, and it comes off as no big surprise why most people seem to think of the two as one and the same.

The strategies listed above will no doubt propel the Indian logistics space to even greater heights, helping and supplementing the e-commerce players from behind the scenes, at times under-appreciated and unrepresented.

The future is rife with possibilities as long as these two industries work in tandem to provide the ultimate experience for the one true goal- the satisfaction of the consumer.