Daybreak - India’s second-largest logistics player is hurting after putting all its eggs in one basket

Episode Date: December 12, 2024

For a while now, some of the biggest players in India’s third-party logistics industry have been riding on the success of e-commerce unicorn Meesho. As of 2023, it accounted for over half of the 2.5 billion shipments that were being handled by third-party logistics players. Companies like Delhivery and Ecom Express happily rose to the occasion and partnered with Meesho to handle all its order deliveries. For logistics companies this was a dream come true because most of the other major e-commerce players in India – like Flipkart and Amazon – take care of all their logistics in-house. But earlier this year, Meesho announced the launch of Valmo, its own in-house logistics arm. Naturally, third party logistics partners are nervous. But no one is more shaken up than Ecom Express.Tune in.**This episode was first published on September 2, 2024.P.S The Ken’s podcast team is hiring! Here’s what we’re looking for.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.Listen to the latest episode of Two by Two here

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcast, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio recording, we'll be released our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. For a while now, some of the biggest players in India's third-party logistics industry have been riding on the success of e-commerce unicorn Misho. For a company like Misho, that clocks in millions of orders every single day, solid logistics is everything. So companies like delivery

and eCom Express happily rose to the occasion and partnered with Misho to handle all of its order deliveries. This was a big opportunity for them, especially considering most of the other major e-commerce players in India like Flipkart and Amazon take care of all their logistics in-house. Flipkart has its own logistics company called e-cart, while Amazon has 80 years. or Amazon transportation services. So for all the other third-party logistics companies, having Mishu as a client was great for business. As of 2023, it accounted for over half of the 2.5 billion shipments

that were being handled by third-party logistic players. Which is why, when Mishu announced that it was launching Valmo, its own in-house logistics arm, its partners were understandably nervous. But no one is more sure. shaken up than Ecom Express. Its core business is under attack. Its biggest client has officially turned into its competitor. And this could not have come at a worse time because the company is set to go public soon. And this is the company's second IPO attempt. The first time it

had to cancel its plans because of unfavorable market conditions. So, as you can tell, there is a lot riding on this. All you need is one look at the company's financials to know just how dependent it is on Micho. The e-commerce platform has pretty much been its lifeblood. According to its IPO filings, over half of its nearly 3,000 crore rupee operational revenue registered in the year 2024 came from one unnamed customer. And at least four people have confirmed to the Ken reporter Gorov Bargur that the unnamed customer in question is in fact.

Mishu. But even before Mishu announced Walmo, things were not looking great for Ecom Express. It was not growing as fast as its biggest competitor delivery. And for the last two years, its revenue has almost stayed flat. Analysts said that is largely because unlike delivery, Ecom Express put all its eggs in one basket. While delivery had built full service logistics to deflect the Walmo Impact, Ecom Express was busy doing everything it could to Wu Micho. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma, and I Don't Chase the New Cycle. Instead, every day of the week, my colleague Rahal Philipo and I will come to you with one business

story that is worth understanding and worth your time. Anyways, Ecom Express and Mishu have sort of grown together. They were both founded around the same time. EcomExpress in 2012 and Mishu in 2015. From the very beginning, both companies have worked very closely together. Of course, this meant that Ecom Express started getting a lot of business from Misho very early on. But it was more than that. Former executives say that Ecom Express employees would make frequent visits to Misho's first ever office in Bangal.

It was a humble, home-like space crammed with employees, a far cry from the the fancy sprawling office that they now have. It was around last year when things started changing. This was when Mishu started scaling its in-house logistics. It was the next natural step. Like I mentioned earlier, most major e-commerce companies take care of their own logistics. There are two main reasons for this. First, the company does not want to rely too heavily on a handful of third-party logistic partners. And in Misho's case, it finally became. big enough to launch its own logistics business. And second, it wanted to have more control over the process, simply because it would then be able to bring down the cost of returns and fail

delivery attempts. This was a sore subject for EcomExpress. A former employee told again that Misho had set a target for the company saying that returns should not exceed 18% of shipments. But unfortunately, EcomExpress consistently failed to meet that. target month after month. So now, Mishu is taking matters into its own hands. As of now, it has managed to move more than a third of its order volumes through Valmo. And a consultant in the logistics space says that this allocation could go up to 50% in about a year's time. Mishu claims that Valmo has reduced its logistic cost by nearly 10%. So Mishu does not own any trucks, warehouses or sorting centers, unlike third-party logistic firms or other marketplaces logistic

farms. Instead, Valmo is a tech platform that breaks down each leg of the supply chain. Unorganized local players handle the shipments at each step with Valmo coordinating handovers. So, Mishu is able to avoid the costs associated with building physical infrastructure. It also does not have to make any big investments towards automation. So, where does this leave things for Ecom Express? Well, back in the day, it was taking care of 1 million out of 2 million of Misho's daily shipments. But now, Mishu has grown to over 3.5 million a day and Ecom Express is taking care of the same number of shipments. So, the logistics company is stuck between a rock and a hard place and Misho has made the most of More on that in the next segment.

Hi, we have an exciting announcement. If you are a regular listener, you would know that the Ken's podcast have hit many milestones this year. From daybreak crossing 1 million downloads to the launch of our first ever premium podcast two by two. We want to keep this momentum going. And for that, we are looking for talented people to join our team.

We're looking for a podcast producer to help us produce great narrative-driven shows at the intersection of journalism and business, and we're also looking for an audio journalist who has covered one or more business sectors, ideally careers, education, tech or start-ups for at least two years. If you fit the bill or know anyone who does,

please check out the link in the show notes. And now, back to the episode. You see, Valmo did not emerge overnight. Both HeCom Express and Misho were discussing it for a while back when it was a pilot. Mishu basically gave Ecom Express an ultimatum. Match Walmour's costs and we will shut it down tomorrow. Ecom Express could not do it.

So it tried to meet Mishu's demands in other ways by updating the logistics company's processes to develop new reports and analytics. Another way was offering early morning deliveries. This was despite the additional infrastructure and labor costs. But Ecom Express was willing to go that extra mile if it meant it could get more of Mishu's shipments. It also scaled up reverse pickup services for items returned by customers, another costly venture that did more harm than good.

And despite all of these efforts, it still remains in a pretty uncomfortable spot. Meanwhile, delivery always wanted the upper hand. It never wanted to be at the mercy of the marketplace. And the way for it to do this was by diversifying its client. base. So now the company serves over 20,000 small and medium enterprises in its express parcel business loan. Compare that to eCom Express, which only has 6,000 customers in total. Delivery is also building the range of services it can offer outside of e-commerce. For instance, its party truckload business, where it moves relatively larger shipments from multiple clients in a single vehicle, makes up nearly a fifth of

its revenue. The company has also ventured into warehousing and supply chain services. But that said, delivery still needs Mishu. So it is most likely going to lower its prices to reduce the volume loss thanks to Valmo. Plus, its full-service logistics model is more asset-heavy as it needs to own tractor trailers and has invested in building large automated warehouses. This is where EcomExpress has a slight advantage. It can lower fixed costs while still having more room to slash costs, even when its revenues take a hit. But apart from that, its bet on different revenue streams have not quite panned out.

More on that in the next segment. It's not like EcomExpress has not tried to diversify its services on offer. For example, it started something called Modulus. services with Walmo in mind. So, EcomExpress plays a part only in a particular leg of the supply chain instead of handling the shipment end-to-end. The company is also trying to prioritize its other big customers, particularly Reliance-owned online fashion marketplace AGO.

It has been pushing for a greater wallet share from them. So it has been trying to diversify, but a lot of its bets have just not been successful. For example, the company also delved into warehouse management and operating dark stores for quick commerce players. But this makes up only one-tenth of its revenue. And it's not clear how strong of a revenue driver this will be going ahead. And that is because major quick-commerce players like Blinkets, Zepto or Swiggy Instamart would not want to hand over control of their highest-volume dark stores to a third-party logistics company. It would end up compromising their speed.

At best, dark stores operated by third-party logistic companies would be a small niche in Tier 2 locations. And as for modular services, its share in Ecom Express's revenue remains so small that it comes under Express parcel business. The company aims to grow this division to 5 to 10% of its overall revenue by next year. The company is also dealing with somewhat of a lot. leadership crisis. For example, EcomExpress had two sets of people, key account managers and sales personnel, both to deal with the same clients, which caused internal conflict between

these teams. And the lack of clarity exists from the top of the food chain too. Former employees told again that none of the company's founders were deeply involved in day-to-day business. The company just went through a major shake-up of the top-level leadership. It got a new CEO named Ajay Chitkara in September 23. Chitkara led the enterprise arm of the telecom giant Bharti Airti Airtel before he joined Ecom Express. With him, many other top-level executives came in too. The hope is that this will herald a new era for the company. It certainly looks like a much-needed refresh is underway.

But is this enough to revitalize stagnant revenues and introduce more agility? Only time will tell. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on the red subscription. button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv C.L.