Logistics challenge and how India can benefit from Amazon’s model

In fact, the recent allegations of bribery in India by Amazon should be objectively investigated, and action should be taken against both the bribe giver and the bribe taker.

But Amazon’s global growth in recent years, and its ability to strike gold in nearby businesses or spawn entirely new businesses to scale its own operations, hold valuable lessons. Amazon 2021 is a digital company valued at $1.7 trillion, with $350 billion in revenue and employing over one million people globally. It offers 350 million products from over 2 million sellers. What is not widely known is that 60% of its GMV comes from the Amazon Marketplace, which many Chinese companies are trying to sell directly to the US. Less than half of the products sold on Amazon are now sold by Amazon. The company is quietly moving towards a grand wholesaler model.

Now consider the scale it is able to achieve in adjacent businesses. This year, Amazon is generating nearly $7 billion in ad revenue per quarter and could end up earning almost half as much as advertisers all spend on the American television industry together. Amazon is now handling the logistics business and delivers a third of all parcels in the US. This number is only slightly below that of the US Postal Service and more than the numbers of FedEx and UPS combined. In India too, it is slowly reaching there, with a significant portion of the deliveries being done by the company itself.

Amazon develops a competency, goes behind its competitors, and then turns it into a service to offer the world—Marketplace, AWS, and Prime Delivery are all examples of this, and Pay may well be next. .

So why is Amazon’s success relevant to India? Partly because India’s problems are massive and the governance delivery system needed to solve them also needs scale.

Consider this: Today Amazon can reach 96 percent of India’s pin codes. Why can’t various governments use Amazon (as well as Udaan, Flipkart and others that have acquired a massive following) to stock grain from Food Corporation of India (FCI) warehouses, where it is often fodder for rats? Waste (and cash fodder for human rats), and distribute directly to each gram panchayat across the country? In mid-2020, FCI had 26.6 million tonnes of rice and 55 million tonnes of wheat.

On an average, about 45 million tonnes of food grains are transported across the country by FCI in a year. FCI conducts this large-scale movement of food grains across the country, which includes about 2,297 FCI-owned and hired godowns, largely through rail and road.

Is it possible to create a bid in which big logistics companies pick up food grains and deliver it to every pin code (every panchayat office), and maybe every household? Would it be seriously more expensive than the current system (after deducting the cost of leakages and middlemen?) For example, flight charges down ₹0.80/kg (in metros) to ₹3/kg (Tier 3 city) for B2B food (~200kg order). Perhaps an attempt could be made to start with a pilot in Tier 3 and 4 cities with some wheat or rice surplus states?

Roughly, based on interactions with industry sources and research, Amazon’s probable rates for a shipment of 30 kg of food grains seem to be the following: Local (50 km from hub to hub): ₹120-130, Regional (150 km from hub to hub): ₹130-140; Regional (300 km from hub to hub): ₹150-160 (estimated from existing FCI Hub). These are the cost of direct delivery to customers scattered across cities (Tier 1,2,3 and 4) in the range mentioned above. The transportation cost for FCI is roughly ₹1.15 per kg of wheat and ₹1.40 for rice. But these are not directly for homes and are bulk based. The cost to the private sector is to households, and far less leakage and better pricing through economies of volume and scale can lead to further significant savings.

It is almost certain that between Amazon, Flipkart, Snapdeal, Jio and Udaan, almost every dwelling and home in India will have a pipe or access. Maybe it will work, or maybe it won’t work in terms of economics, but it’s certainly worth studying the cost of delivery of FCI versus private companies. FCI can bid for the tonnage, routes and settlements set aside for logistics to the provider offering the best value (VFM) and maximum coverage, after considering various explicit and implicit costs. Since it only affects distribution and not politically sensitive grain procurement, it is worth a try.

UPI crossed 3 billion transactions ₹6 trillion in value recently and offers several synergies that can ride above it. Why can’t we leverage the power of digital payments offered by Google, WhatsApp, Amazon, Paytm, PhonePe and others to disrupt the government-to-consumer payments market? For example, last year the direct tax collection was around ₹9.45 trillion ($125 billion), and various private payment services can provide speed and convenience for the customer and are near-zero-float for executives through instant transfers.

The grand finale for a player like Amazon would be the coming together of retail, entertainment, healthcare, payments and delivery—all seamless to the end customer. India, with its unique stack-based digital infrastructure—Aadhaar, eKYC and UPI—provides the perfect playground for Amazon to test it out here. India is the world’s biggest supplier of problems and a complex ecosystem, and if Amazon can win here, it can win anywhere. Its path to becoming the world’s first $3 trillion company begins with India and Asia.

The author is an officer of the Indian Administrative Service. The views expressed here are personal.