How Amazon plans to transform Indian e-commerce with air service

The company aims to speed up deliveries as it increases investment in Asia's third-largest economy

Amazon delivery packages outside a shop in Ahmedabad, India. Reuters

Amazon, the world's largest e-commerce retailer, has upped its investment in India, as it looks to improve customer experience and increase its market share in Asia's third-largest economy.

This month, the company launched Amazon Air in India, its dedicated air cargo service that will significantly increase the speed of deliveries to customers.

Amazon's partnership with a third-party airline to set up Amazon Air is the first such deal in India, where online shopping is booming.

“Amazon Air comes to India at an important time,” says Akhil Saxena, vice president of customer fulfilment at Amazon.

“Our investment in Amazon Air will further improve the delivery experience for our customers in India. The launch will support over 1.1 million sellers in India, [also] enabling growth for ancillary businesses such as transportation and aviation.”

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As the online shopping sector grows, companies in India are working on strategies to meet the soaring orders of customers and the constant demand for speedier deliveries.

Solutions could include cargo planes, the expansion of transport networks to remote areas of the country and even experimenting with delivery by drones.

“Amazon has gotten the customer used to fast, same or next-day delivery,” says Michael Strong, head of growth at Blowhorn, a Bengaluru-based logistics provider.

“So, if you're going to move more of your [merchandise] volume [on] to your website, you need to provide a [delivery] experience that's very similar to that.”

The e-commerce market in India grew by 21.5 per cent last year to reach $74.8 billion and is expected to reach $350 billion by 2030, according to estimates by the India Brand Equity Foundation.

The sector is being driven by a growing number of internet users in the country, aided by cheaper data packages sold by telecoms operators.

The country's online shopper base is projected to more than double to 350 million by 2026, up from the current 150 million.

There is potential for further growth, IBEF data shows.

With more than 780 million citizens online, India is home to the second-largest number of internet users in the world after China, according to Redseer Strategy Consultants.

The consultancy forecasts that the number of e-commerce logistics shipments in India will surge four times by 2026 compared to 2021 to reach almost $9 billion, making it one of the largest and fastest growing markets globally.

However, e-commerce requires a logistics system that can keep up with its consumers.

E-commerce logistics, which solves the niche problems, is a growing industry in India.

Traditional logistics providers have largely been unable to provide the same level of service for online retailers and have instead been “relegated to providing basic shipping and delivery services”, says Redseer.

There is a lot still to be done to improve e-commerce logistics services in India, retailers say.

“The delivery dynamics in India is quite challenging,” says Manoj Jain, director of Harbour 9, an online clothing store that uses third-party delivery companies to fulfil its orders.

There are delays and some parts of the country are not serviceable, he says.

“There’s a constant backlash that digital-only brands face from the customers, raising alarm over non-delivery of products,” says Mr Jain.

“The logistics industry infrastructure is in a better shape than earlier but there’s still room for making the operations and communications increasingly transparent and streamlined between the sender and recipient.”

Dhruv Toshniwal, founder of e-commerce apparel brand The Pant Project, says finding accurate locations and addresses, particularly in smaller towns in India, is an issue when it comes to deliveries.

This leads to a high “probability of return to origin parcels, thus increasing overall logistical costs”, he says.

Extreme seasons in India can also spoil goods if they are not handled appropriately.

“Given the varying climates of India, the handling of packages is challenging during certain months, for example monsoon, and it is important to have the right packaging for your product to ensure that it reaches customers in good shape,” Mr Toshniwal says.

Providing fast delivery has helped brands such as online perfume retailer Upsilon gain “a lot of attention”, says Neeraj Bhensdadia, the company's co-founder.

Upsilon has used most of India's major logistics companies to deliver its products, which it offers via marketplaces such as Amazon and Flipkart, as well as its own website.

The biggest challenge is to tap into all the cities and areas to deliver the product. Not all areas are catered for by big companies and Upsilon relies on India Post to reach them, he says.

“As much helpful the medium is, the product takes time to reach the customer,” he adds.

Analysts say Amazon's move of introducing a dedicated air cargo service will further shake up the logistics sector in India, especially in terms of the speed of delivery. It can also help Amazon gain more market share.

“This is a positive move for the industry, as it may encourage a faster migration from offline to online, driven by higher value categories due to reliable shipments,” says Barnik Maitra, managing partner at consultancy Arthur D Little in India.

“Seamless delivery and returns have made e-commerce nearly 40 per cent-plus of the total retail [sector] in [the] US. India is barely at 10 per cent penetration, so a move like this could accelerate faster adoption of online retail.”

A reliable, faster delivery service can give Amazon a competitive advantage over Walmart-owned Flipkart, its biggest rival in India, as well as over specialised e-commerce companies, such as fashion platform Myntra and beauty products seller Nykka, Mr Maitra says.

Amazon's aircraft, a Boeing 737-800 plane operated by Quikjet Cargo Airlines, will transport Amazon customer shipments to cities including Hyderabad, Bangalore, Delhi and Mumbai.

“Having a dedicated service will also be more economical in the long run as shipments scale,” Mr Maitra says.

Mithun Srivatsa, co-founder and chief executive of logistics company Blowhorn, says he does not see Amazon's initiative as competition to his operations. Instead, the move is “a validation of the thesis [that] e-commerce deliveries are getting faster”.

His company is focusing on reaching smaller towns, which Mr Srivatsa says are seeing strong e-commerce growth.

Blowhorn has also been trialling deliveries using drones and Mr Srivatsa says that mode of delivery is still at a very “nascent” stage.

While regulations will need to be formulated before drone deliveries can really take off, they have a great future in India, Mr Srivatsa says.

“I feel in the next two to three years, [with] more electrification, more autonomous vehicles such as drones, these things will kind of light up the Indian e-commerce market,” he adds.

Gurugram's Zyngo EV Mobility, which describes itself as India's largest electric vehicle logistics platform for the e-commerce industry, is also reaping the benefits of the fast-growing sector.

With a fleet of more than 1,200 leased electric vehicles, Zyngo is carrying out 500,000 last-mile deliveries a month.

“To meet the growing demand, e-commerce companies in India will have to deploy new vehicles, of all sizes, ranges and payloads, in this decade,” says Prateek Rao, founder and chief executive of Zyngo, which counts Amazon, Zomato, Swiggy, Flipkart, BigBasket and JioMart among its clients.

Reducing the distance between stops and using more fuel-efficient vehicles helps to bring costs down and improve profitability, he says.

“The e-commerce sector is rapidly evolving, shaped by new technologies, demands,” says Mr Rao.

“We are adapting every day to meet the demand of e-commerce deliveries in several ways. One is by increasing our fleet while reducing emissions and improving efficiency. Another is by utilising technology, such as real-time tracking and route optimisation software, to improve the accuracy and speed of deliveries.”

As the e-commerce sector continues its upwards trajectory in the country, Mr Rao says India's journey when its comes to deliveries is only beginning.

“This is just the start,” he says.