India’s e-commerce sector is growing at a rapid pace. The business research and market intelligence firm PGA Labs has released a report that details an in-depth analysis of the e-commerce logistics sector and reveals that nearly all pin codes in India are seeing e-commerce adoption. Many of these transactions and orders come from tier two cities and smaller towns.
The Indian e-commerce retail logistics market is expected to grow at a 24 percent CAGR to $6.3 billion in FY26, up from $2.2 billion in FY21. The growth will be primarily driven by the e-commerce retail market, which is expected to reach approximately $145 billion by FY26, with about 15 million daily shipments. COVID-19 has been one of the catalysts that have accelerated the adoption of online purchases, resulting in significant demand and supply-side changes in the e-commerce space.
Abhishek Maiti, Director, PGA Labs said, "The e-commerce industry is positively influencing the growth of the e-commerce logistics market in India. The online-focused players partner with third-party logistics (3PL) providers to manage delivery, inventory, packaging, shipping, warehousing, and tracking issues. Almost 60 percent of the e-commerce logistics market is outsourced, providing headroom to specialized logistics service providers (LSPs) and consolidators.”
"The increased internet penetration has also played a pivotal role in boosting online purchases. In India, it reached approximately 50 percent in 2020, up from 20 percent in 2018," Abhishek added.
India faces high logistics costs compared to developed countries, driving e-commerce logistics firms to switch to surface transit for deliveries. The Indian logistics industry is hurt by a lack of proper infrastructure for air and land transport, leading to inefficiency, longer transit times, higher logistics costs, and higher returns.
In addition to the infrastructural inefficiencies, a high return rate and a high share of cash on delivery (COD) orders also drive the cost of deliveries. The return rate for overall e-com retail is around 18–25 percent, driving up the logistics costs. The value proposition of consolidators is also expected to mature and become established with time as they build capabilities to create differentiation. Most small and medium-sized businesses use consolidators because they need better prices and access to a broader range of LSPs to meet their unique needs.