Are digital aggregators sabotaging price points for logistics providers?
Plato’s saying “necessity is the mother of all inventions” is a proverbial truth that has existed for ages. These words are not merely philosophies but the foundation of most dynamic businesses that have thrived and mastered their markets purely for their survival needs.
Especially now that, in modern times, the need for an established standard has spawned a whole new generation driven by the desire to provide products and services for every possible need. can imagine. Inevitably, an increase in demand for a product or service will directly lead to a competitive ecosystem where each company operating in that industry must build its own niche by a way of coming up with something different or unique to appeal to your target audience.
As the balance of power widens between buyers and service providers, it creates a perfect opportunity for intermediation to flourish. As someone who has witnessed the various stages of development of the Indian logistics industry for over 27 years, I can determine that this is a revolutionary time that is conducive to new ideas and solutions serving for those who are ahead in the new era market – electronic commercial field.
When Amazon and Flipkart started their expansion journey in India, the response was very strong. So much so that both giants had to open separate in-house logistics enterprises. This is done to serve the exponential demand as existing traditional service providers are not geared to grow and expand their reach rapidly. As a result, Amazon started Amazon Transportation Services (ATS) and Flipkart started e-Kart. As the saying goes, that’s just the tip of the iceberg.
The growth of E-Commerce and the exponential increase in the number of SME merchants has required logistics providers to cater to this small but fast growing market. . On the other hand, legacy logistics providers plus e-transaction service providers are niche that work with large and mid-sized players and are too busy to focus on individual needs. of growing SMEs in the B2C and D2C e-commerce segments. All SMEs are part of the larger and ultimately overlooked players, which leads to opportunities for digital aggregators to enter the market and support the growing segment. grow small and create opportunities for players and for themselves.
There is an immediate need for affordable logistics providers working with SMEs and startups to grow their businesses and digital aggregators. all do the same. But how did they achieve what they have today?
Essentially, digital aggregators solve a number of problems for SME customers. They offer a wide range of logistics options to choose from based on preferences (cost, serviceability, delivery time, etc.). Following technology trends, these aggregators offer easy integration with storefronts, order management systems and most importantly, user-friendly technology platforms for logistics management. overall need.
Ultimately, these aggregation platforms benefit their customers from the high arbitrage rates offered by logistics companies on a large scale. Aggregation of demand helps them provide a stable and substantial business to logistics providers, who in turn offer them competitive prices.
Now comes the step backwards. Over the years, their technology-powered, digital aggregators have amassed a significant customer base and begun to take command of the logistics provider. This is where the conflict between the parties begins. Spread rates have become so high that customers can now get better rates through aggregators than directly working with the same logistics provider.
It’s a dilemma for both the players involved. The aggregators push the price down for faster gains and scaling. At the same time, the average profitability of logistics providers decreased despite the increase in revenue. In the past few years when Digital commerce grows Significantly, logistics providers have not been able to benefit from the growth as their prices have not increased while their costs have increased.
This leads to great pressure on logistics service providers, leading to leading service providers increasing their rates by 30-40% recently.
While negotiations are underway between aggregators and logistics providers, inevitably, aggregators will have to agree on a certain rate hike this year.
This is bound to happen because logistics providers now have to look at metrics other than revenue. Top players who are looking for an IPO listing or want to raise larger funds, need to improve their average selling price score as well as customer base (the number of customers who work directly with the service provider). With the increase in aggregate rates, logistics providers intend to improve these indicators and adapt to the changing industry.
To combat this situation, digital aggregators and logistics providers need to find common ground. Without a doubt, digital aggregators are an important member of the ecosystem of B2C, D2C, and e-commerce logistics. They provide a platform for small, medium and large scale shippers with the ease of the latest technology and integration. At the same time, they also understand that logistics providers are the ones who do the actual work in the field – that is, receiving and delivering shipments.
For the ecosystem to thrive, both sides must build a strategic partnership and create a win-win situation without undue pressure on one for the development of the other. .
Yogesh Dhingra Founder, MD & CEO of Smartr Logistics