By Pranav Mukul

Copyright indiatimes

India’s online retailers are grappling with logistics constraints ahead of the core festive season sales, which are expected to scale a fresh record this year. Capacity additions in warehousing and last-mile delivery have failed to keep pace with the rapid increase in demand, according to industry executives, even as marketplaces including Amazon, Flipkart and Meesho have projected near doubling of festive season sales year-on-year .According to ecommerce consultancy Datum Intelligence, gross merchandise value of this year’s festive season sales is expected to increase 26% to Rs 1.2 lakh crore from Rs 94,800 crore a year ago. The rate of growth is projected to be higher than 17% recorded in 2024.But delivery slots at warehouses for September sale events had started becoming unavailable by June or July, an unusually early saturation which signalled potential bottlenecks in the run-up to Diwali, said the executives. ETtech
This gap has pushed ecommerce marketplaces, which have increasingly insourced logistics over the past few years, to knock on the doors of third-party logistics (3PL) firms for additional capacity. However, the 3PL sector is itself undergoing consolidation, leaving limited options for platforms scrambling to secure slots.“Ecommerce marketplaces have reached out to 3PL players, including the likes of Delhivery and Blue Dart to add additional capacity,” said a senior ecommerce executive, who did not wish to be identified. “The marketplaces, through their in-house logistics arms, have also added capacity ahead of time but the indicators suggest high demand during the festive days. The supply chain will be further strained by the fact that a lot of consumers have been postponing purchases of certain items like electronics waiting for the GST (goods and services tax) changes and the price reductions to kick in.”While Flipkart operates its in-house logistics arm Ekart, Amazon runs Amazon Transportation Services. Public markets-bound etailer Meesho launched its own logistics vertical Valmo, through which it aggregates different service providers.Flipkart and Meesho did not respond to ET’s queries.A Delhivery spokesperson said, replying to queries emailed by ET, “The festive season tests India’s logistics ecosystem. We have redefined how we prepare. Instead of adding capacity when demand peaks, we build a foundation that absorbs volumes and maintains quality for our partners and customers.”Pointing out that categories such as fashion, electronics and home goods are showing growth momentum, setting the tone for the upcoming period, the spokesperson said, “The season always brings challenges, but we’ve built our operations to deliver consistency whether it is a regular Tuesday or the peak of shopping.”To deal with the festive season demand last year, Delhivery had added temporary capacity that was about 2-3% of its overall infrastructure of around 19-20 million square feet. This year, it is likely to add around 3-5% temporary capacity, a person in the know said on condition of anonymity. ET reported on September 12 that companies across sectors including automobiles, consumer electronics, retailers and ecommerce are on an overdrive to book trucks and beef up logistics infrastructure for the festive season.Responding to emailed queries, Amazon India’s vice president – categories Saurabh Srivastava said, “Over the last few months, we’ve strengthened our operations network across India with a Rs 2,000 crore investment — adding new fulfilment centres, sortation centres, and over 75 delivery stations. These efforts are helping us improve delivery speeds and reliability, especially in tier II and III cities.”Consolidation dynamicsThe pressure on the supply chain started to intensify earlier this year when Delhivery, India’s largest logistics company, acquired rival Ecom Express in a deal that altered the competitive landscape. While announcing its quarterly earnings on August 1, Delhivery said that a significant portion of Ecom Express’ network had been rationalised and shut down following the merger and that the client side integration was complete.“The acquisition handed Delhivery greater market power, enabling it to dictate capacity terms,” said one of the executives cited earlier.The person added that the company is unwilling to add temporary infrastructure beyond a threshold, wary of being used as a stop-gap provider by marketplaces that have steadily reduced dependence on 3PL partners.“Delhivery is focused on rationalising its network and won’t build capacity just for a few weeks of festive peaks,” said an executive at a rival logistics firm. “This limits the flexibility that ecommerce players were once used to.”The constraints are already being felt by brands and sellers, many of whom start festive preparations months in advance.A founder of a consumer electronics firm said, “We usually move festive inventory by August, but this year slots at key fulfilment centres were blocked. We’ve had to divert stock to third-party facilities, which increases cost and complicates fulfilment.”Amazon and Flipkart have ramped up seasonal hiring, with industry estimates pegging temporary additions at nearly 400,000 workers, and expanded fulfilment centres to mitigate the crunch.During the company’s quarterly earnings call, Delhivery CEO Sahil Barua had said, “The reality of the market… is different from the past. I don’t think it’s a fundamental shift in the strategy that Meesho has with respect to Valmo or Flipkart has with respect to Ekart logistics. I think the reality is as the operating environment becomes tougher and as ecommerce principals realise that third-party logistics firms who price below cost merely to get a share of volume cannot survive – there’s a flight to quality and over a long period of time quality players will get rewarded and that’s what you’re seeing.”“Fundamentally, Delhivery is a large network which is highly reliable and very fast… And so it’s not surprising that clients are choosing to allocate volumes away from lower quality players. I’ve mentioned this in the past – I do think over a long period of time Delhivery and Blue Dart are the two highest quality networks in the country and… you will see volumes accumulate towards the two highest quality networks,” he said.The rapid rise of quick commerce has mounted further pressure on logistics. Companies such as Blinkit, Zepto and Swiggy Instamart are expanding dark-store networks and competing for the same pool of warehousing space and last-mile riders.Logistics providers argue that the insourcing strategy of the marketplaces has partly created today’s problem. By building in-house delivery arms, platforms eroded volumes for independent 3PLs, forcing consolidation and limiting the flexibility that came with a fragmented market. Now, with the dominance of Delhivery, the bargaining power has shifted.“The industry is learning the hard way that logistics cannot be turned on and off like a tap,” said a senior consultant tracking ecommerce supply chains. “Once capacity leaves the system, it doesn’t return quickly.”