How IT will drive e-commerce logistics in India and beyond

canstockphoto36170807The numbers are in “holy *$#%” territory.

“The numbers” are for e-commerce sales in China, and they are astounding. In the first two months of 2016, China’s online retail sales hit US$98.2 billion, an increase of 27 percent over the previous year. That puts it on pace to hit around $590 billion for the full 2016.

In comparison, according to the Department of Commerce, total e-commerce sales in the United States last year were about $342 billion, a year-over-year increase of 14.6 percent – good, but not China-good.

And the driver of this e-commerce growth in China is … payments. David Su, chairman of YTO Cargo Airlines Co. Ltd., which provides express delivery to Alibaba and other Chinese e-commerce ventures, said at the recent Cargo Facts Asia conference in Hong Kong that ventures such as Alipay and epay are driving the growth of Alibaba, Taobao and other e-commerce companies by making it easier for the next generation “to buy everything via cell phone.”

It should be noted that Alibaba now owns 20 percent of YTO.

But what appears to be lost on some within the air cargo sector is the underlying message in Su’s comments. The barrier to entry to China’s e-commerce opportunity has newly become somewhat significant. Cainiao is Alibaba’s logistics arm, and it has created an IT platform that integrates with Alipay and feeds crucial logistics details not just to consumers, but to parties to the e-commerce fulfillment. It appears that e-commerce startups off the Cainiao platform or other e-commerce networks will have an extremely difficult time making headway into the Chinese market.

In other words, the ability to tap into the air cargo and express bonanza that is Chinese e-commerce is increasingly based on offering or incorporating into an IT platform that integrates several facets of the e-commerce process, not just logistics.

I would argue that the same may be true of the next large nation expected to enjoy an e-commerce boom: India. There is currently no “Alipay for India,” and one is desperately needed, because without it, e-commerce cannot hit China-like levels there, despite a population of 1.3 billion in India.

Yes, the problem is technical. IT infrastructure in India is where China’s was 10 years ago, market participants said during Cargo Facts Asia. And without the payments apparatus, 70 percent of e-commerce transactions use the 1980s-infomercial-era cash-on-delivery method, despite the fact that India is fully “smartphoned.”

“The mobile revolution is fully on in India,” said Rajesh Subramaniam, executive vice president, global marketing and communications, for FedEx Services, which offers an e-commerce payments solution.

However, once the infrastructure issue is resolved, the IT platform issue will come into play. The Chinese market has benefited from the Cainiao-type integrated offerings – I expect a similar demand for integrated IT services in India from the get-go. Remember, there are far more technology-oriented service providers in India, mainly as outsourcing ventures.

This appears to me to be lost on a good number of air cargo ventures. Other than express carriers, the focus of industry participants has historically been on equipment, route network and forwarder relations. But the new access to FTKs will increasingly be technology-driven. Better get those job ads for coders ready.

 

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JJ Hornblass

JJ Hornblass founded Royal Media in 1995 and oversees all aspects of the New York-based diversified information company, which includes media services, a consultancy, and an accelerator for fintech startups. Prior to forming Royal, JJ was on the editorial staff of American Banker, the daily newspaper, and worked as an editor of a business magazine in Hong Kong. As a reporter and editor, he has won journalism awards from the National Press Foundation, Newsletter & Electronic Publishers Foundation, and the Reader’s Digest Foundation. He has a BS in Economics from Yeshiva University and a Master’s from the Columbia University Graduate School of Journalism. He was also a Fellow at the University of Wisconsin-Madison Graduate School of Banking. He lives in New York City with his wife, two daughters, and son. He counts among his accomplishments one New York City Marathon, two New York City Triathlons and the 2010 Father’s Day 5K in Central Park, the first race he ever ran with his daughters.