Logistics is the holy grail of digital commerce. It is the main service. The rest of it is just supporting activities. Deliver a product to a customer as quickly as possible. Deliver the right product to the right address. Deliver within or before the customer expects it. This is the core customer service for an ecommerce company. Of course, a frictionless web/app experience is necessary. Post-purchase customer service is indispensable for retention. Quality and authentic products are important.
But if your delivery isn’t right, nothing will fall into its place.
This makes logistics one of the defining factors in ecommerce success. Ensuring faster delivery is no longer a good to have feature, but it is leverage to build customer loyalty. To that end, irrespective of which online business or vertical wins, logistics will be a clear winner.
Logistics is one of the fast-growing verticals in Bangladesh. The fast growth of ecommerce has created new opportunities in the sector. The last few years saw the reinforcement of this reality with several logistics players raising meaningful capital. Most recently, Paperfly raised $12 million in Series B funding from Indian Ecom Express. Other important local players in the vertical include ShopUp’s REDx, eCourier, Pathao Courier, Delivery Tiger, etc. This year, we are seeing entirely new development. Two multinational logistics startups, Lalamove and Delhivery, have entered Bangladesh.
Logistics is a complex problem. More so in the context of Bangladesh where Google map often fails to find the right address. Infrastructure remains a major challenge in delivering goods to many places in the country. Service quality in logistics is far from ideal. Problems like delays, missing products, wrong addresses, and damage continue to plague the sector. These challenges are all the more reasons why logistics offers such a massive opportunity.
The dynamic of the logistics market is also changing rapidly. Existing players are trying to expand and establish the dominance of some sort. New local players are entering the market. Many ecommerce companies are trying in-house logistics. Newly launched multinational players will push for market share.
Competition is about to intensify.
These developments are transforming Dhaka’s ecommerce logistics scene into a very different one from what it was just a few years back.
In this article, I’ve tried to develop an understanding of what’s happening in Dhaka’s logistics scene and where the market will go from here.
Muddy trajectory
When ecommerce started in Dhaka about 10-15 years back, Dhaka did not have a logistics infrastructure for ecommerce delivery. For instance, no logistics companies at the time were offering cash on delivery (COD), a popular mode of ecommerce shopping where buyers make the payment after getting the product.
Early ecommerce companies such as Rokomari had to pursue legacy courier services such as S.A. Paribahan and Sundarban Courier to introduce features like cash-on-delivery. Many ecommerce companies had to develop in-house logistics operations to ensure fulfillment.
The growth of ecommerce eventually gave way to a new development called f-commerce, which is basically Facebook-based small sellers. Initially, this happened organically. Then we’ve seen a proliferation of a large number of Facebook-based sellers.
Today, social media-based sellers maintain a significant share of the ecommerce market in Dhaka. In fact, many small to medium-scale ecommerce companies today started off as Facebook pages and found their initial success there. While there is quite a large number of f-commerce sellers, the majority of these businesses are small in nature. They couldn’t invest in building their own fleet. Coupled with the growth of ecommerce, this created a solid demand for logistics services.
A batch of new-age logistics companies came into the market to take advantage of this shift. We see companies like eCourier, Pathao, Paperfly, Biddyut, Delivery Tiger, and later on REDx and a long number of other companies coming into the market. It did not take long for many of these companies to build sizable businesses.
It is relevant to mention here that logistics has also seen its share of failed startups. Many logistics companies that started in the early days of ecommerce couldn’t survive. The number of startups that tried and failed to build a logistics business is not small. It makes it clear that logistics is a difficult business.
Anyways, the vertical has seen excellent growth over the last five years on the back of excellent growth of ecommerce. Growth naturally attracts attention. From a relative underdog, logistics became a hot vertical overnight unleashing an influx of new companies and increased attention from investors.
Logistics is one of the few verticals that saw a major strategic investment in the country’s startup scene from a leading player in another market — Indian Ecom Express investing in Paperfly. Previously, Seek bought stakes in Bdjobs, Pathao raised from GoJek, GoZayaan raised from several individual investors influential in the travel sector, etc. To make things more interesting, two more multinational players, Lalamove and Indian logistics startup Delhivery, launched their operations in Bangladesh this year.
There have also been several newly launched local logistics players. For instance, Parcel Magic, a logistics company that was launched in 2021, has been trying several new ideas. And there is Loginex from IPE Group.
In a separate development, several major ecommerce companies have expanded their own in-house logistics operation. For instance, Daraz introduced its own in-house logistics. Although Daraz continues to work with several third-party logistics partners, it can safely be said that the company plans to have greater control over its own logistics in the coming years. Chaldal has always maintained its logistics in-house in an integrated manner. The company has also spun off its logistics wing Go Go Bangla to provide delivery solutions to smaller ecommerce players. Ecommerce company AjkerDeal launched Delivery Tiger, which has become one of the key players in the vertical.
All these developments are going to change the logistics industry in Dhaka.
Competitive dynamics will change as multinational logistics startups with access to greater resources and newly launched local players fight for market share. This will change the competitive posture in the market.
Ecommerce has been growing consistently, which means there is a demand for logistics services. But it is hard to tell whether the demand will grow at the speed of competition among multiple players with large growth appetites.
With the competition and changes in the market, I predict the business and operational model is going to see some changes. Lalamove runs on a gig and sharing economy model where it allows anyone to become a delivery person similar to what ride-hailing companies have done for ride-sharing. Although most logistics companies treat their delivery people as contractors, Lalamove takes it a notch up treating delivery as an on-demand service. This can create interesting new trends in Dhaka.
Unpacking
Logistics is a complex industry. There are all kinds of companies. General categorization may look like the following. 1PL — which stands for first-party logistics — is basically manufacturers and distributors with their own fleets and transports. 2PL — these companies own fleets for their own use as well as lease the logistics service. 3PL — third-party logistics companies that provide transportation, warehousing, packaging, inventory management, and freight forwarding as contract services. Then there are 4PL and 5PL companies that offer complete management of supply chain needs and aggregate supply chain and logistics services.
This article, however, focuses on the 3PL ecommerce logistics market in Bangladesh.
3PL used to be a turf of traditional and legacy courier services in Bangladesh such as Sundarban, Continental, S.A. Paribahan, and a number of other similar players just a few years ago. These players offer nationwide coverage and provide extensive services. However, they suffer from limited digital integration, poor customer service, and customization. They have, however, improved significantly. Even these days, these companies are better at coverage than other alternatives and continue to dominate outside Dhaka deliveries. Moreover, these companies are now investing in building capabilities to cater to ecommerce delivery.
Between 2015 and 2016 a new generation of logistics startups began to flood the market to take on the opportunity created by a growing ecommerce industry. As we discussed earlier, logistics has come a long way since then.
Ecommerce delivery is fundamentally different from conventional delivery. The boom in ecommerce delivery thus has changed the last-mile logistics service model to accommodate the demand.
Let me explain the difference. Conventional delivery involves a central sorting hub where goods are sorted, and packed before the delivery. This is how companies like Sundarban Courier service mostly operate. They collect all the products through branches. Take them to the central hub and deliver from there. This is the most economical model. But there are drawbacks to this model. Same-day delivery is difficult and it is inflexible in terms of scheduling.
On the other hand, ecommerce logistics companies operate using a hub model where companies have created these hubs across the city. Collect all the products of a certain hub, sort them and deliver them. Using technologies, these companies can better schedule based on location. The outcome and expense are slightly better than the traditional central model.
Then comes the on-demand point-to-point delivery model, which is equivalent to on-demand delivery which food delivery companies mostly do. You can deliver products fast within 1-3 hours or the same day using this model. But this model is expensive and can’t do long-distance deliveries.
I’ve already mentioned several times how growth and the continuously evolving eCommerce landscape have resulted in a surge of logistics players to accommodate growth and demand. It has also created new business models that challenge or act as an optimization to the existing models.
There are also smaller regional players across the country who do last-mile deliveries for the ecommerce logistics players who don’t have reach in remote locations. Many ecommerce logistics companies have also been experimenting with warehousing and other supply chain and marketing solutions.
Separately, a number of logistics startups have been trying to tap into the freight/trucking sector, leveraging technology to tackle challenges the sector faces such as fragmentation, underutilization, etc. These companies typically focus on the B2B segment such as enterprises and SMEs, majority of these players serve their clients through marketplace platforms, brokerage services, and auxiliary services. How these companies evolve in the coming years will have an impact on ecommerce logistics.
Several companies in Dhaka offer full-stack logistics support leveraging technology to provide an end-to-end logistics solution to ensure efficiency and cost-effectiveness. This includes shipping, warehousing, and fulfillment services.
However, Dhaka has not seen any 4PL company as yet, which is a fast-growing trend in markets like China and even Indonesia. In China, Cainiao, a logistics company majority owned by Alibaba Group, is a good example of a 4PL company. Cainiao leverages technology to connect eCommerce companies with players across the logistics chain to enable end-to-end solutions.
The eCommerce logistics sector in Bangladesh is in an early growth stage. The Industry has flourished on the back of changing consumer shopping preferences from physical stores to ecommerce. Several industry insiders suggest the vertical has been seeing a 20% growth on the basis of the number of shipments.
Major growth drivers of the Industry are similar to that of ecommerce because the growth of both industries is tied with each other — higher internet penetration, increase in the number of smartphone users, increasing propensity to online shopping, growing demand from cities outside Dhaka, etc.
There has also been a rise of the quick commerce model with food delivery companies such as Foodpanda leading the wave. The wave has equally affected the ecommerce industry. Chaldal has introduced one-hour delivery. Pickaboo has introduced three-hour delivery and several other companies are trying faster deliveries.
This has created new demand dynamics in the industry and will likely grow in popularity in the coming days.
The eCommerce logistics of Bangladesh is quite concentrated with the presence of 10-12 major players in the market. Top players 4-6 players — Pathao, REDx, eCourier, Paperfly, Delivery Tiger, etc control a significant share of the market.
Reputation continues to play an important role in growing the client base. Delivery cost and time, coverage, brand value, technology stack, and success rate are some of the competing parameters each company focuses on to gain customer trust.
Recent developments and reading between the lines
As I’ve written elsewhere, Dhaka’s logistics scene has been getting a lot of attention from multinational players of late. A number of multinational players have entered the market in the last two years. Hong Kong-based logistics startup Lalamove officially launched its operation this year. Lalamove is the second multinational logistics startup to enter Bangladesh in 2022. Early this year Indian logistics startup Delhivery launched in Bangladesh. Previously, another Indian logistics company Ecom Express invested $12 million in Bangladeshi logistics startup Paperly.
Competition has already been growing in the vertical with companies raising new investments.
These new developments will intensify the competition and create new market realities.
Over the last several years, Dhaka’s local tech scene has gone through a transformation. Today, the country has a growing startup ecosystem. To that end, many regional and multinational tech startups also have taken an active interest in the market. Before Bangladesh was mostly out of the radar. But as various verticals see healthy growth, companies are now taking an active interest in the market. In my opinion, this is just the start and it will accelerate in the coming years. And it will likely transform the local tech scene in Bangladesh.
This change will bring a lot of positive impacts as well as challenges. One challenge is competition. If multinational startups get into the Bangladesh market, it will increase competitive pressure on local startups. [….]
“Take, for instance, we’ve seen two foreign players enter the logistics sector in the last few months: Lalamove and Delhivery. Both companies have raised huge amounts of money and have access to vast resources. While local logistics startups including eCourier, REDx, Pathao Courier, and a few other players have raised meaningful capital and have built a strong position in the market, companies like Lalamove and Delhivery can create real competitive pressure on the local players. Being multinational players, these companies not only have access to greater resources but are also likely to have superior execution muscles. […]
However, access to resources doesn’t always determine the outcome of competition in a market. Superior execution does. While Bangladeshi startups will be at a disadvantage in terms of access to resources, being local is an advantage that can offset that challenge for the local startups. Bangladeshi companies should understand the Bangladesh market better. Cultural differences between markets can create meaningful competitive disadvantages for companies. This has been the case in many markets — despite being in a disadvantageous position, local companies often end up building strong market positions. When a company wins, resources come along. Funding happens. And it can change the competitive landscape.”
Multinational players entering the market can create advantages and opportunities as well. It can create new knowledge and economic opportunities, expose Bangladeshi startups to global investors and create new investments and M&A opportunities.
“While competitive challenges will be there, multinational startups entering the Bangladesh market can create advantages as well. First, knowledge transfer and building skilled human resources. These companies come with a ton of experience from their home markets, which means they will create local skilled human resources. […]
Bangladesh as a market and Bangladeshi startups get greater exposure. Almost all of these companies have a long list of prominent global investors behind them. When these companies expand to a new market, it indicates the potential of that market. Naturally, it should create interest among investors to take a closer look at the startups in that market. […]
“In 2021, Alibaba-owned Daraz acquired HungryNaki for an undisclosed sum. When international players come into a market, it can create M&A opportunities for local startups. […]
“If more multinational startups come into the market, it can create greater opportunities for strategic investments, mergers and acquisitions. These resource-rich companies can invest in and acquire local startups. It will also contribute to creating more entrepreneurship and funding opportunities.”
These, however, are assumptions and the opposite of these assumptions can happen. It already has. In several verticals, we have seen multinational companies eventually become the dominant players. We’ll have to wait to see how this dynamic plays out in the logistics space.
No smooth ride ahead
Logistics companies in Bangladesh have been experimenting with various models, but the sector is a tough nut to crack. While a few ecommerce logistics companies provide delivery through unions and villages, coverage across the country with competitive cost and excellent service will remain a key challenge for many of these companies.
The demand for delivery grows in line with eCommerce growth, but the market still faces pain points. Many of the challenges are unique. Take, for example, return — a major challenge in ecommerce delivery. Industry insiders suggest logistics companies have a lot to improve when it comes to managing returns. This is one specific example. There are many such moving pieces.
Another major issue in Bangladesh’s last mile delivery is the inability to accurately pinpoint recipients’ addresses, which is caused by the lack of standardized address formatting; directly affecting delivery time. This, however, is not a unique challenge in Bangladesh. This is a challenge in many emerging markets from India to Indonesia.
Lost and damaged goods. There are several frictions in the entire logistics process and in many instances, companies have poor quality control mechanisms resulting in lost and damaged goods.
Many smaller merchants complain that payment from the delivery companies is still not streamlined. Often payment cycle takes 7-15 days and in some instances more than that. To give you a context, the majority of ecommerce delivery takes place in COD where delivery agents collect the payment for the goods, which then logistics companies disburse after reconciliation. The system follows a central process that takes up time.
Current logistics players have not been able to address many of these challenges yet. Although the overall service quality has improved significantly over the last 5-6 years, a significant gap still remains.
There are other bigger challenges. Industry insiders suggest infrastructure makes a delivery to many locations challenging and costly. Bangladesh’s position in the emerging markets logistics Index suggests the precarious connectivity issues the country faces. In many places, paved road is relatively low which lead to delays and higher logistics cost. In the emerging markets logistics index, Bangladesh stands at 38 out of 60 countries.
Inefficiencies and low utilization is a challenge as well. While companies like Truck Lagbe have been looking to address this challenge, for many ecommerce logistics companies inefficiencies and low utilization yield higher costs.
That said, infrastructure has seen major improvement over the last decade. The trend is likely to continue easing some of the challenges the sector faces.
The ecommerce market has experienced strong growth over the last five years on the back of expanding middle class and growing penetration of digital services. The pandemic has accelerated growth. Bangladesh’s total eCommerce is estimated to reach US$ 3 billion in 2023, benefiting from further penetration. Some estimates put the number of active ecommerce sites at 2,000 along with several lakhs Facebook-based sellers. Still, ecommerce remains underpenetrated at just about 1% of retail sales. It means the market has a lot of room for growth.
While current economic challenges cast a shadow on the growth trajectory of digital commerce, the macro environment appears to support the broader growth narrative. Rising middle class. Growing smartphone and internet penetration. Accelerating digitization. China’s experience showed that eCommerce penetration rises significantly when smartphone penetration reaches over 50%.
Naturally, the eCommerce logistics sector is expected to flourish in Bangladesh with rising growth and expansion of ecommerce beyond major cities and increasing consumer expectations for faster delivery services. This is one of the reasons we are seeing an influx of new companies entering the vertical while existing players are expanding their capacities. Similarly, consumer preferences and behavior have been changing under the pressure of services like on-demand food delivery and exposure to global experience. Customers demand faster deliveries.
All in all, logistics companies in Dhaka are in for an interesting time and will have to innovate consistently to remain competitive. The trajectory is likely to be fraught with challenges.
