E-commerce firms' costs set to rise on delivery challenge

Last June, Kunal Bahl, co-founder and CEO of India's leading ecommerce firm Snapdeal , started what his logistics team called the 'Mission 24'. Snapdeal was shipping 22 per cent of its products to its buyers within 24 hours. As per the mission, in the next quarter, ending September 30, the target was to deliver 74 per cent of the products to the consumers within 24 hours.

Bahl's team achieved the target, shipping 80 per cent of the products ordered within 24 hours. "We don't have any annual missions, everything is based on a quarter operating plan," said Bahl.

Bahl, many say, did not have an option. Flipkart, India's largest online retailer , had already started delivering products in a few cities within a day or two. For Flipkart, a pilot started to cover half of Bangalore's delivery through its own team in 2010, led to the creation of an in-house logistics arm eKart, which was later opened up for other ecommerce companies.

Things changed last December when Amazon, hardly eight months old in India, announced that it will guarantee delivery within a day of the order placement for an additional payment of Rs 99. Within a week, Flipkart followed, but at a slightly lower additional cost of Rs 90. Ebay broke all the rules of the game on January 15, with guaranteed delivery for its Mumbai consumers within nine hours. To be specific, any purchase made before noon would be delivered the same day, and purchases after noon would be delivered the next day, with no additional shipping charges.

Industry experts, however, believe that the fastest delivery battle will hurt the ecommerce companies in the longer run. They will have to open many more warehouses in cities where it was offering the one-day delivery option, which would mean rising costs and increased investments. There is also a risk of inventory obsolescence. "If you do the algorithms and the mathematics, this is not the most efficient way," says Mukul Arora, Vice President at venture capital firm Saif Partners. "They will have to make huge warehouses all over the country like Amazon did in the US."