News / E-commerce and logistics can be profitable partners, but traditional freight firms have to adapt

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E-commerce companies have insisted that they need the traditional logistics industry as partners – but two key issues could shape their success: the end-user experience and pricing.

“These are interesting times for those in forwarding,” said Percy Avari, Aramex’s regional manager, south Asia.

“We have previously focused on the satisfaction of a few thousand customers. It has turned around – it is no longer a few thousand, but millions of customers.  It’s not so much about on-time delivery but the experience of  customers. We now need to have a conversation with all of them.”

Aramex has a large e-commerce business, as well as freight and Mr Avari insisted that freight companies could benefit as long as they recognised the differences in e-commerce.

“E-commerce companies which own logistics arms don’t want to compromise on the customer experience, which is what they are building on – but they are not getting it from traditional suppliers.

“I am sure they would prefer not to burn money [by getting into asset ownership]. Their core competency is not in the last mile, it’s in marketing to customers and the customer experience. It is very different to a pharma company.”

Alibaba’s head of business, India e-commerce, Al-Nahiyan Gangani, told delegates at Air Cargo India in Mumbai his company needed partners.

“It’s hard to connect with global buyers – the problem is fragmentation. We don’t have our own logistics side. We have a list of partners and people can choose their services.”

Alibaba works closely with forwarder Jeena & Co in India.

Leaked Amazon documents show that it plans eventually to cut its ties with logistics companies and set up its own competing platform. But Jeena’s express and commercial manager, Rajiv Khanna, said this would not necessarily mean the end for logistics companies.

“Yes, Amazon is getting into logistics.  But in all industries and sectors there is a constant churn between outsourcing and in-house. They depend on existing logistics infrastructure which won’t be exclusive to any company.”

Aside from new relationships with the end-user, logistics companies that want e-commerce business must also revisit their pricing, said Mr Khanna.

“The composition of freight is getting transformed. The average size of a shipment has changed, and it’s becoming uncompetitive to pay those prices. We have to change the processes to make the pricing viable for small shippers.

“We have to make it easier to do cross-border e-commerce.”

Technology was key to cutting costs, he argued.

“You need a seamless flow of data and the documentation can take a long time. But if it could be standardised, it could take a couple of days off transit times.”

Des Vertannes, air cargo executive and former head of IATA Cargo, said: “Everyone has a traditional cost base, so the question is how the traditional operators change their modus operandi.

“There will be a lot more traffic for a lot less money.”

Celebi, a major air cargo handling company, said a new design and technology had allowed it to handle 3.5 times more cargo on the same footprint at Mumbai Airport, using an automated conveying system.

Pradeep Kumar, head of cargo at Jet Airways, added that companies needed to embrace automation.

“That will have a lesser cost. We must try to achieve economies of scale and need to look closely at each and every area.”

Other challenges for traditional companies were noted by PN Ranjt Kumar of India Post, who said e-commerce could easily plug into its network, which is being boosted by 57  new parcel centres exclusively for e-commerce.

“We have tie-ups with several airlines and dedicated sections on rail,” she said. “We are enhancing our processing capabilities and documentation.”

But she added: “Traffic fluctuates. It can be 5,000 or 6,000 parcels – or in peak time up to 20,000. We have to build our network capacity to handle that traffic.”

She also warned that mindsets needed to change.

“Out of 500,000 people employed at India Post, many are over 50. A postman won’t differentiate between an e-commerce parcel and a postcard, so things need to change.”

She added that India Post had some IT gaps which it was working on.

Despite AliBaba’s insistence that freight companies would remain as partners, consultant Stan Wraight of SASI warned that there were signs they could be squeezed out as Amazon considers acquiring 60 767Fs and all the major e-commerce companies continue to invest heavily in logistics.