Future of Logistics: Urban fulfilment

While a recent UN report suggested that India is on the cusp of becoming the populous country in the world, research estimates that the urban population in India will stand at 675 million in 2035. What does this mean for the country? It means denser population, traffic congestion, pollution, parking issues and a growing dependency on e-commerce putting pressure on urban logistics to meet consumer needs.

Driven by the rise of e-commerce and changing consumer behaviour, the logistics industry in India has undergone a significant transformation over the last few years. With the increasing demand for faster and more efficient delivery services, logistics companies have had to adapt and innovate to stay competitive. The idea of ‘See it, buy it, get it now!’ has progressively increased, encouraging engagement through the day and building on the pressure to deliver. Governments and organisations are collectively making efforts to decongest the choking network and meet consumer expectations like ‘same day delivery’.

One of the key trends driving the future of the logistics industry in India is urban fulfilment. With urban fulfilment, companies can offer faster and more efficient delivery to consumers, as they fulfil orders from warehouses located within or near urban areas. In India, where 30% of the population lives in urban areas, this approach becomes particularly relevant with the rapid increase in people shopping online. Which is why logistics companies are increasingly focusing on setting up urban fulfilment centres to better serve their customers.

Why urban fulfilment?

Today, it has become important for retailers to keep pace with the industry leaders, and urban fulfilment centres have come across as a great solution to move with the times. For those looking towards a profitable model in urban areas, developing an urban distribution centre with delivery vehicles can surely help. This model leverages the gig economy with fast, savvy, and scalable crowdsourced delivery services. Its benefits include:

Fast

One of the primary advantages of urban fulfilment is an organisation’s ability to deliver products or services on the same day or within 24 hours. This becomes increasingly important for e-commerce companies where fast delivery is often the key selling point. It also bodes well for discerning customers who are increasingly making quick delivery their shopping priority. In a country like India, where traffic congestion and infrastructure challenges can make delivery times unpredictable, having warehouses located closer to customers can significantly reduce delivery times.

Innovative

The rise of urban fulfilment is also driving innovation in the logistics industry. Logistics companies are increasingly investing in technology and automation to improve efficiency and reduce costs. These technologies include innovations like:

Warehouse management systems (WMS), automated picking and packing systems – These have become prominent and help companies improve efficiency and reduce errors. In the long run, they help improve the overall supply chain visibility and inventory management while reducing wastage.

Last-mile delivery – With customers expecting faster yet reliable delivery, this has become a critical factor with urban fulfilment. Logistics companies are increasingly exploring new delivery models, such as using drones or autonomous vehicles, to improve last-mile delivery.

Using drones - Drones are being increasingly used in urban warehousing in India for a variety of purposes, including inventory management, order pickup, delivery and security. While the usage is still in its nascent stages, its potential to revolutionise the industry has also been recognised.

The challenges

There are a few challenges to the growth of urban fulfilment in India. These include:

High costs

With urban fulfilment being a phenomenon in cities, real estate costs become a challenge as they are usually on the higher side. Many companies face a challenge when it comes to finding affordable space to set up a fulfilment centre. In addition, manpower accounts for about 70% of the cost for transportation. Cumulatively making up to 80%, real estate and manpower are the two largest costs for dark stores.

Inadequate transportation infrastructure

The transportation infrastructure in India, particularly the road network is still developing. Additionally, traffic congestion is a major issue in most urban areas. These can make it difficult for logistics companies to deliver products quickly and efficiently, particularly during peak traffic hours. With this, speed of delivery gets impacted, and it is up to unit economics to decide whether delivery in 10 minutes, or 30 or even 4 hours will be the ideal solution.

Limited storage

Due to space constraints in urban centres, fulfilment centres end up having limited storage capacity. This then also tends to affect the inventory. In addition, it is generally not fruitful to have too many fulfilment centres in the same area as each FC would need the threshold scale to break even.

Skilled labour shortage

Many logistics operations still rely on manual labour, which can be both time-consuming and costly. As logistics companies invest in technology and automation, they will need to also invest in training and upskilling their workforce to ensure that they can effectively operate and maintain these technologies.

As of January 2023, there were 692 million internet users in India of which 467 million were also users of social media. With digital usage constantly increasing, the pace of urban logistics is also on the uptrend. In addition, with rapid urbanisation and the government’s strong focus on infrastructure development, urban logistics will continue to be crucial across the country.

With the sector continuing to evolve to meet the needs of the consumers today, it will also need to integrate existing distribution networks and warehousing hubs to meet the increasing requirements of the e-commerce sector. This in turn will help reduce traffic, carbon footprint and the high cost of logistics. It will also generate employment while boosting economic competitiveness. While these may be particularly effective in densely populated areas, it remains to be seen how these could impact smaller places.

In recent years, we have seen a significant evolution of the logistics industry’s transformation and the growth of urban fulfilment centres. But the future of urban logistics in India is full of challenges and opportunities. To meet the challenges, organisations will need to adopt new technologies and practices. Through this urban logistics providers can help ensure that the industry remains efficient, sustainable, and responsive to the needs of customers.