Will the National Logistics Policy unstop D2C brands’ biggest bottleneck?
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The great Indian festival that’s running as we speak is seeing an interesting irony unfolding. The average spending has declined sharply from Pre-COVID times, despite sales within the first week reaching $3.8 billion, which is close to the ~$5.9 billion estimate offered by RedSeer Consulting. The unveiling of the national logistics policy promises to provide a unified logistics interface platform in the endeavor to bring down logistics costs, which at 14-16% is well above the global mark.
A D2C brand’s bread and butter lies in keeping their customers happy, and the delivery mode, speed and accuracy plays a crucial role in order fulfillment. As it stands, there are 800+ D2C brands in India, and a uniting USP for the majority of these brands is their approach to shipping.
If you’re wondering about the connection between the NLP announcement, festive season and D2C brand, we’re here to put you out of your misery, so keep reading till the end!
Logistics as a D2C Bottleneck
Without a strong country-wide logistics link , India’s aspirations to be an economic superpower in 20 years will remain a pipe dream. The logistics policy was announced on the Hon’ble PM’s birthday, about a year after the introduction of the Gati Shakti Program to develop the nation’s infrastructure.
The purse strings for D2C brands seeking funding are tightening based on performance. Consequently, the brands are now having to ramp down on what and where they are spending. The high costs for logistics is independent of order volume, meaning that it takes away a chunk of the company’s profits when volume doesn’t pick up. And yet, the brand cannot back out of deliveries and risk increased storage costs for on-hold orders. It’s this cost imbalance that is causing D2C brands some alarm.
The Indian logistics industry is the largest employer in the country, with an estimated valuation of $200 billion. Despite pumping in nearly INR 15 Lakh crores for infrastructure development over the last 5 years, the sector is heavily fragmented, with 20+ government agencies, 37 export promotion councils, 200+ shipping agencies and 36 logistics services.
The launch of the PM GatiShakti geospatial platform aims to integrate information on all these and offer real-time visibility into all modes of transportation- rail, road, sea and air for improved multimodal connectivity. It incorporates ministries and state-wise schemes such as Bharatmala, Sagarmala, UDAN, defence and industrial corridors across economic zones to elevate India’s logistics network. The modernization of new ports and roads has already shown to reduce the turnaround time from 10 to 12 days to 2-3 days.
The bottleneck, however, appears to stem from a misalignment between priorities, coordination, ambition and financial feasibility. The Bharatmala Project, for example, which was launched in 2015 was intended to increase the quantity of highways by 2022. The deadline got pushed by 6 years, causing us to run 77% behind schedule. Perversely, the costs have inflated nearly 100% compared to the initial estimates. A similarly tragic fate has befallen the Sagarmala Project, which pipelined 802 projects to be completed by 2035 but currently have about 181 modernized inland waterways.
Even the Dedicated Freight Corridor (DFC) which is owned by the Indian railways embarked on a project back in 2006 to lay tracks for cargo such that goods would move at ~3x the 25kmph speed. Even freight capacity was expected to double to support 13K tonnes. But repeated delays have halted progress, with costs soaring by 99% from the initial INR 28,000 crores to INR 1.24 Lakh crores! Despite the choices in transport- an undeniable fact is that Indian logistics relies on road-to-port connectivity. Roads occupy 65% of the share and are the most expensive, while rail and waterways jointly account for the remaining 35%.
The ONDC initiative earlier this year is touted to give eCommerce players of all sizes and sectors an equal direct selling platform. But there’s still a lot riding on unification, which the NLP endeavors to accomplish. The question is, will it help D2C brands survive long-term?
What will the National Logistics Policy 2022 Accomplish?
The National Logistics Policy 2022 will:
- Lower logistics costs by ~5% of the GDP over the next 5 years
- Improve India’s ranking in the Logistics Performance Index which currently stands at 44 (down by 10 points compared to 2014).
- Integrate different logistics agencies effectively and
- Connect people and technology to smoothen operational processes.
The NLP comprises a Comprehensive Logistics Action Plan that will implement an IDS(Integrated Digital System), ULIP(Unified Logistics Interface Platform), ELOG (Ease of Logistics) and SIG(System Improvement Group).
- Integration of Digital System (IDS): Under this, departments across road, rail, aviation, commerce and foreign trade30 different systems of seven different departments will be integrated to quicken cargo movement.
- Unified Logistics Interface Platform (ULIP): The ULIP aims to slash costs and improve the operational efficiency by merging 24 systems, 78 APIs and 1400+ fields across all modes of transportation
- ELOG: The ELOG is a digital dashboard that will reduce resolution time and register, coordinate and monitor issues. It will establish a direct association between the government and different industries. Under this, the new policy will simplify the rules and the logistics business will be eased.
- System Improvement Group (SIG): This system will be used to unstop bottlenecks to logistics-related projects.
The fact remains that India is taking bigger and bolder steps to remain in the thick of the Digital eCommerce revolution. Various logistics schemes that come under the NLP will enable eCommerce players in the D2C space to accelerate their growth. Take the introduction of the FASTag, an e-toll collection system in 2014 which keeps a track on logistics movements across 800+ tolls by tracking in-transit goods through SIM or device-based trackers.
The country’s logistics industry has pivoted towards efficiency with initiatives to go paperless, setting up MMLPs or multi-modal logistics parks, the Gati Shakti initiative and removal of state-level taxation via GST. None of this would have been possible without capitalizing on the increased internet and smartphone penetration. The percentage of internet users grew to ~658 million,up by 34% between 2021-22. The corresponding rise in eCommerce penetration to 76.7% signifies that the retail eCommerce is on the right track to collect a revenue that will cross USD 75 in the next 2 years.
The real importance of logistics was brought out during the nationwide lockdown that threw India into a state of limbo. While the pandemic encouraged new age brands to launch, some of them found out to their cost just how uncoordinated and expensive it gets, which the National Logistics Policy endeavors to remedy. The NLP officially puts D2C brands on the springboard of growth by reducing indirect costs by 10%, which will proportionally enable a 6-8% growth in exports. This would mean that those eCommerce players who are eyeing global expansion would be in the position to tap into crossborder eCommerce to experience a growth in sales and order volume.