E-tailers growth ensnared in India's logistics jungle

E-tailers growth ensnared in India's logistics jungle
In this photograph taken on February 25, 2012 a visitor browses through books of Indian online retailer Flipkart on a screen at the New Delhi World Book Fair in New Delhi.

MUMBAI - Online retailers jostling for a chunk of India's US$13 billion (S$16.26 billion) e-commerce trade are so desperate to avoid snarled roads and inefficient railways that they fly their packages in the passenger cabin of costly commercial flights. The cargo, however, often gets bumped off.

India's largest domestic e-tailer Flipkart as well as bigger global rivals like Amazon and eBay Inc are widening their supplier networks or racing to build multi-million dollar logistics networks to circumvent crumbling infrastructure, keen to attract customers by shrinking delivery times to same-day or even as short as nine hours.

In the meantime, they remain at the mercy of commercial airlines, which frequently remove their parcels to make room for passengers, highlighting one of the challenges to expanding in an e-commerce market that consultants say is growing at a compound rate of 34 per cent a year, and which saw online retail sales of US$1.6 billion last year.

"It is unfortunate, but offloading does happen and we have to make sure our delivery promises take that into consideration," Rahul Chari, vice-president, supply chain technologies at Flipkart, told Reuters.

Up to 90 per cent of goods ordered online in India are moved by air, which pushes up delivery costs by around half, according to several online retailers and logistics companies. Road and rail transport networks remain woefully underdeveloped and entangled in graft and bureaucracy.

With a population exceeding 1.1 billion, a burgeoning middle class and better Internet access, India's e-commerce potential is huge. Online retail sales are expected to surge to US$76 billion by 2021, according to consultants Forrester, and the segment is growing at a much slower pace than other emerging markets, including China.

E-commerce is poised to get a boost as early as next month, when the government is expected to allow online retailers to sell directly to consumers.

Logistics, however, remains the biggest barrier to growth and transport troubles are just the tip of the iceberg.

Most e-tailers use sometime unreliable third-party delivery firms, more than half of sales are paid for with cash-on-delivery, return rates are high and orders made to fake addresses are all too common. "The biggest advantage of e-commerce is the instant nationwide reach it enables sellers of all sizes, however, it is the delivery of that opportunity that requires significant focus and investment from the industry," Amit Agarwal, Amazon's vice president and country manager, told Reuters in an e-mail.

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