The growth of e-commerce volumes in tier-II and III cities in India is outpacing that in tier-I cities.
"Smaller Indian cities are now accounting for a bigger volume of e-commerce sales,” said an ICICI Securities report.
Volume share of these smaller cities in India's e-commerce market increased to 46 percent in Q4CY20 from 32 percent YoY. Also, online spending per customer in tier-II and III cities has also improved as these cities held a 43 percent share of the e-commerce sales value last quarter, up from 26 percent YoY.
"This has raised hopes of a sustainable last-mile delivery economics emerging for the industry - yet hyperlocal last-mile small parcel deliveries remain economically as challenging as ever," it said.
"We continue to see the emergence of end-to-end logistics contracts with Bajaj Electricals and Flipkart with Mahindra Logistics," it said, adding that the trend, while accreting value to the service provider, also gains currency as the emergence of multiple channels is increasing supply chain challenge and risks.
This, in a way, is also augmenting demand for organized warehousing, the report said.
It noted that post GST implementation, a gradual move towards organized large format 'grade A+/grade A++' warehousing is leading to significant business opportunities for sector participants.
ICICI Securities, however, sees challenges with asset-heavy road transportation players and it said that many transportation models are at the risk of not reinventing, especially as the SME business environment recovers and the new start-up ecosystem starts to aggressively target the same.