Established in 1982, Aramex today is a leading global provider of comprehensive logistics and transportation solutions. The range of services offered by the company includes international and domestic express delivery, freight forwarding, logistics and warehousing, records and information management solutions, e-business solutions and online shopping services. As of now, the company delivers in 975 locations across India and plans to double that number by the end of 2012. And in terms of headcount, it has close to a thousand direct hires. In an exclusive interview with Techcircle.in, Percy Avari, Country Manager for Aramex in India, discusses the company’s business model and highlights the growth potential of new logistics companies in India.
What do you think of the current e-commerce boom in India? Is it for real or just hype?
The boom is very much here. And we can easily see it because we handle the actual shipments which are the end-results of the purchases made online. Over the past one year and a half, shipments have been increasing on a monthly basis. We have new companies coming to us – companies which are growing their businesses – and also existing companies which have already multiplied their businesses more than 3-4 times (at regular intervals). But I can’t say whether this e-commerce boom is sustainable or not.
Why do you think that a logistics firm will do well in India?
First of all, only a few e-commerce companies in India handle their own logistics. Secondly, logistics would require a lot of technology in terms of track and trace, which is not easy to develop. It also requires a lot of investment and time to evolve. In fact, it took Aramex eight years to build a 975-city network. Then you have to deal with a huge number of people. So an e-commerce company that usually handles around 50-100 employees will face a lot of problems in dealing with more than a thousand employees.
Another factor that the companies have to keep in mind is whether they actually have the volumes to justify creating their own networks. In China, where a company is shipping hundreds of thousands of shipments on a monthly basis, it makes sense to develop its own network. But until a company reaches that scale, developing a network doesn’t make much sense.
Tell us about your business and revenue models.
In our business model, the principal nerve centres are controlled by Aramex through its own teams and offices. On the other hand, the peripherals are developed through partners who are our franchises. So essentially, we have our own offices in critical locations (that include all metros and mini-metros) that take care of the operations in those areas and control the smaller towns around where the franchises trained by Aramex are operational.
Our revenue model is also simple. First, we charge for the freight shipping, based on the actual weight of the shipment (either on half kilogram or per kilogram basis). Then there is a charge for the value-added services provided by us. If we are managing a company’s inventory, we will charge it for the inventory management service. However, it depends on how much space a company utilises in our warehouses and how much ‘pick and packs’ Aramex does for them.
Also, for the cash on delivery (COD) model, there is a COD charge which is directly linked to the value of the shipment that we collect – basically a percentage of the total value of the shipment.
Who are your customers in India?
Our customers include the likes of eBay, Rediff, Indiatimes, Flipkart and Infibeam, among others. Basically, most of the leading e-commerce companies, as well as the new entrants, are our customers.
And who are your competitors here?
Companies like Federal Express, Blue Dart-DHL and TNT are our competitors in India.
What’s your footprint in the country?
At present, there are 975 locations where Aramex delivers in India and there are nearly a thousand people who are directly employed by us. If we include our franchises, the headcount will go up to around 4,000 people.
What kind of traction do you see in terms of shipments?
If we look at the number of shipments between June 2010 and June 2011, I would say they have grown at least 4-5 times.
What are your expansion and investment plans?
It is an on-going process. Every quarter, we come up with a new office or a new franchise and if things go as planned, we will surely double our delivery locations to around 1,800 by the end of 2012.
In India, we are investing heavily in infrastructure. The company is setting up new warehouses with state-of-the-art facilities and the first ones are already up and running in Mumbai, Delhi and Bangalore. We are also looking at increasing the capacity of those warehouses. Moreover, we are investing in technology and coming up with scanners (for our ground couriers) and credit card swipers that will ensure that payment can be collected at your doorstep in case you are apprehensive of using your card online.
Do you have any advice for the new logistics companies?
There is a huge opportunity for logistics companies in India. In fact, this part of the business will keep growing in the next 3-4 years. We are also going to see a lot of e-commerce companies increasing their existing businesses multiple times. So there is going to be sufficient scope for new entrants, provided they have the capability to invest and the patience to build a strong network.
Would you want to become an e-com player?
As of now, we are happy to focus on logistics. But we do use e-com tools to support some business segments. For example, our entire tracking mechanism and the way we stay in touch with our customers are supported by those tools.
Although most of our products are B2B (business-to-business), we also have a B2C (business-to-consumer) product called ‘Shop and Ship’ that allows individuals to register with Aramex and get a virtual address in the USA, the UK and China, which can be used for shopping online globally. Customers have to pay a one-time lifetime membership fee of $30, after which they get a lifetime account with three addresses (one each in JFK, London and Shanghai). Plus, there is an additional charge (on per kg basis) every time a product is shipped.
Where do you see the Indian e-commerce sector five years from now?
I see the numbers growing exponentially, but I believe that over a period of time, we would see some consolidation as well. A lot of companies will eventually be acquired by bigger ones. At the same time, a lot of companies, currently into physical retail, will be shifting and looking at a larger chunk of the e-com sector. The trend has already started with companies like Future Group or Shoppers Stop entering the e-com space, but the investments in this shift will be much more than it is today.
Additionally, there will be a few cases where entrepreneurs will start ventures without a proper understanding of the business model and go bust. But the e-commerce industry, as a whole, is here to stay.