Deutsche Post DHL will soon make a “big investment” to expand its Indian warehousing and supply chain capacity as the German logistics giant seeks to tap into the booming e-commerce business driven by Amazon and Walmart-owned Flipkart, Ken Allen, CEO, DHL Ecommerce, said on Thursday.
“The logistics of e-commerce and to consumer is going to be a big driver of the changes in the logistics industry. One of the results of that is that the warehousing and fulfilment centres are changing rapidly,” Allen said.
“More and more stuff is going to be delivered in individual packages to peoples’ homes. Now, most of the stuff delivered by e-commerce is relatively small and light-weight and low-value but as it becomes easier to buy, the weight is going to go up as well. Seventy per cent of e-commerce now is less than two kilograms and over time, that will go to seven to eight kilograms. It doesn’t sound like a lot but is four times bigger than what you’ve got now, and that would be driving a lot of investment in warehousing and fulfilment centres and deliveries to peoples’ houses,” he said.
DHL runs warehouses and fulfilment centres for Amazon and other e-commerce retailers in the United States and elsewhere.
DHL, he said, announced a strategy to 2025 called “Delivering excellence in a digitalised world’ and one of the core elements of the strategy is to focus on the core business.
“When you do that, you look for solutions for different verticals…so we are trying to find ways to make it easier for people to get their packages delivered,” he said, while adding that logistics companies “need to make sure they are disciplined on pricing of the products”.
“We are going to do a big investment/more investment in the supply chain and warehousing in India because we see a lot of opportunity there. Generally, we tend to lease space because we don’t want to tie up capital; they are long-term leases typically for five to10 years,” Allen noted.
DHL currently runs some nine million sq ft of warehousing and supply chain in India.
“We have to do capacity planning to make sure that we utilise those fulfilment spaces as efficiently as possible because for their (e-commerce) back-up operations we need to be 100 per cent accurate and also need to be relatively low-cost,” he said.
Allen, though, was sceptical of delivery of products in two to three hours as well as drone delivery.
“This thing about people wanting things in two to three hours, I think, is a bit of an exaggeration. But, the faster people want things, it means you have to have products closer to them. So, there has to be more and more fulfilment centres which are smaller warehouses and, I think, that’s going to be a big driver for DHL for the next five years,” he stated.
Drone deliveries was “not economically viable”.
“On pure economics, it just doesn’t work out; you can only do one pick-up and one delivery. Besides, you can’t have a drone flying over a heavily populated city with a 3-kg shipment; what if it dropped out of the air and killed someone,” he asked.
Allen said that India’s slowing GDP growth was not a matter of concern for DHL.
“People are shocked to know that India’s GDP is not growing higher, but for me even if it is growing at 3-4 per cent, it is more than enough to drive a lot of business. Plus, from a logistics point of view, there is a move away from shops and brick and mortar to home delivery.
“So, even if the GDP is not growing that much, this is a relatively new vertical/ industry and the fact that India is attracting so much investment into the logistics space means that everybody sees the opportunity here. I’m not saying this because I’m here. I’m on the board of Deutsche Post DHL and the country that we talk about more than any other is India. We had a lot of focus on China at one time but China is a lot more matured now and India is on top of everybody’s mind and we have four great business here – express, supply chain, forwarding and Blue Dart. So, we are well placed to take advantage of e-commerce and everything that is going on here,” he added.
