21-06-2021Third-party logistics (3PL) and end-to-end (E2E) e-commerce go hand-in-hand in the global context. These are two sizable and important areas that, when merged, can provide synergistic solutions that allow end-consumers to avail themselves of a wide array of products and services, within their country, as well as from overseas (cross-border). At the same time vendors of any size can easily reach customers across the world as long as they have access to internet. In this article, we take a critical look at the emergence of 3PL and E2E e-commerce in Sri Lanka, and question as to whether it has really evolved to the necessary level. What is 3PL? Third Party Logistics (TPL) or 3PL is the function of carrying out a myriad of logistics and transport-related tasks, that are outsourced by another party. The advantage to the party (e.g. a manufacturer) that decides to outsource logistics is that they can focus on their core business whilst logistics is handled by a 3PL provider. These outsourced tasks include warehousing, distribution, inventory management, shipping, freight forwarding, clearing, stuffing, de-stuffing, value addition and ancillary services. 3PL was born out of such traditional bases of warehousing, ship agency and freight forwarding in Sri Lanka. However, the 3PL functions connected to a typical modern day E2E ecommerce can be identified as first mile pick up, middle mile operation and last mile delivery. This entire logistics process is thus termed ‘ecommerce fulfilment’, which is performed by a 3PL provider. This part of the supply chain entails picking up, receiving, storing inventory, processing and sorting orders, picking items, packing boxes etc and delivering the items to the final customer who purchased items online. From warehouses to distribution centres to fulfilment centres Warehouses are large storage facilities where bulk quantities such as container loads, pallets, cartons, reels, bales, bundles eta are stored. Warehousing subsequently evolved into facilities called Distribution Centres where smaller units of cargo are held managed and even distributed on demand at business to business (B2B) level. The latest evolution of the Distribution Centre that is used for e-commerce are Fulfilment Centres. These centres deal with cargo on a unit basis. They may pick one bar of soap, a single memory card or a shirt, for example. This is where the global e-commerce industry and the largest online common marketplaces are at. Amazon, eBay, Flipkart, and Alibaba operate multiple fulfilment centres across the territories they operate in. Some of such fulfilment centres extensively use technology, to the extent that large areas are completely automated and robotised. Sri Lanka is yet to effectively reach this level. We have a few dedicated fulfilment centres in operation, and a few more in the pipeline, but these are insufficient to address the country’s future e-commerce volumes. What is E2E e-commerce? E-Commerce, particularly E2E (End to End) e-commerce is the activity of buying or selling products on online platforms via the World Wide Web. Electronic commerce (e-commerce) typically uses the world wide web for at least one part of the transaction’s life cycle and users can access online ecommerce platforms using devices such as desktops, laptops, tablets, smart TVs, smart kiosks, smart mobile phones and other devices. Sri Lanka’s e-commerce business sector is projected to hit $ 400 million by 2022. The country has also swiftly moved a step closer to formulating an e-commerce framework that would safeguard the country’s digital transactions locally and abroad. According to industry experts, Sri Lanka’s annual domestic e-commerce sales value, including services is estimated at approximately $ 40 million (Rs. 6.4 billion). This can grow tenfold, to $ 400 million by 2022. 2019 saw only 0.4% of Sri Lanka’s total annual retail sales ($ 10 billion) encompassing e-commerce sales, which subsequently saw a sharp rise in popularity with the advent of COVID-19 and the resulting curfew. For example, the curfews of last and this year resulted in a spike in purchases of laptops, mobile devices, power banks, as the population adjusted to working and studying from home. Sri Lanka also saw an increase in clothing products during the pandemic. In Sri Lanka, two key categories of E2E e-commerce marketplaces are prevalent. The first encompasses the largest players in e-commerce who online common marketplaces where a myriad of buyers and sellers can easily connect with each other, to trade goods and services. Amazon, Alibaba, FlipKart and eBay are the best examples of global players. In the Sri Lankan market, the leading common marketplaces are Daraz (who have also acquired wow.lk), Kapruka, Takas and Ikman. The second category consists of vendors or merchants who operate brick-and-mortar stores and have created their own e-commerce platforms to augment these. Examples of these include Singer Sri Lanka, Abans, Spa Ceylon, ZigZag, Keells Super, Softlogic, Camera.lk among others. Their e-commerce platforms are extensions of their physical stores where customers can avail themselves of the same array of products and services. E2E e-commerce and 3PL can benefit SMEs E2E e-commerce and 3PL can benefit SMEs in Sri Lanka in a big way. The major problem faced by SMEs is reaching a large target market. These may be small industries, based in a home or small production facility. They cannot reach large markets by themselves, as it is costly and daunting. Partnering with a common online marketplace allows them to access a vast marketplace of local and global customers, as well as avail themselves of the associated 3PL benefits such as inventory management, last-mile delivery, returns management. They can also gain a wealth of experience and knowledge in the process. Cash-on-Delivery – an icebreaker in India and Sri Lanka Sri Lankan and Indian customers, especially before COVID, were reluctant by nature to utilise a credit or debit card on a website, as they fear it may be stolen and used fraudulently, despite advanced security protocols in place and widespread adoption in other countries. This major stumbling block was addressed by the introduction of an icebreaker in India, in the form of Cash on Delivery (COD). COD allows an order to be placed, and the customer can pay in cash upon receiving it at their doorstep. This proved to be very successful in India and made its way into Sri Lanka across the majority of online common marketplaces. E2E e-commerce was typically the preserve of the Western Province, and still remains so with over 50% of volumes occurring in Colombo and Gampaha, but COD has facilitated its entry to the Northern, Eastern and Central Provinces mainly and to the rest of the provinces too. However, the adaptation of CoD faced some hurdles as most 3PL providers were not comfortable or capable of taking on the challenge and added responsibility of CoD. They would now be required to collect cash from each delivery and transfer the total amount back to the merchant. This change took some time to effect but has since caught on and been accepted as a necessary component of doing e-commerce in Sri Lanka. Lagging in tech Another area that Sri Lanka lags behind the globe in the area of e-commerce and 3PL is in technological proliferation and utilisation. For a smooth e-commerce experience, streamlined and interconnected systems are essential. However, Sri Lankan providers have hit some hiccups. Two areas are stock management and payment gateways. Stock management In Sri Lanka, it is possible for one to place an order via an e-commerce website for an item that displays as being ‘in stock’, only to be informed some time later that the order cannot be fulfilled as the item is ‘out of stock’. This occurs because some e-ecommerce players have not properly integrated their inventory management systems to their slick e-commerce marketplace platform. Real-time stock status is of paramount importance towards the success of e-ecommerce, else a customer may become disinterested in the platform and find an alternate way to obtain the product. Another misstep that occurs is when the product delivered does not match the one ordered, for example, a customer may order a refrigerator in silver, only to receive the same model, but in red. In this case, the stock system did not adequately capture the customer’s order or wasn’t able to recognise the different colour permutations of the same model of refrigerator. Either way, the customer receives a sub-par experience that may deter future purchases. Insufficient payment gateways There is a myriad of payment gateways on the market, from several types of major credit and debit card, to online payment avenues such as PayPal, Genie, eZcash, Payhere, mCash, Solo, Frimi, etc. An online common marketplace needs to integrate as many as possible, as well as the important COD option. If there is a narrow mix of payment gateways, a customer may purchase products simply because they cannot pay for them. Outsourcing of inventory management to 3PL In matured E2E e-commerce ecosystems such as Amazon in the US there are two leading fulfilment methods to make sure a seamless buying experience to any buyer. One method is the marketplace purchases products from merchants, maintains their inventory in their fulfilment centres and thus order fulfilment too is done by the marketplace itself without outsourcing to a 3PL provider. The other method is for marketplaces to obtain stocks from their merchants on consignment basis and perform fulfilment on their own. These steps are taken to make sure accurate and swift deliveries can be performed to by eliminating a few steps in a usual process. In Sri Lanka, on one side merchants are still reluctant to practice the consignment-based method and on the other side marketplaces have not reached a sufficient level of development to manage purchased items in fully-fledged fulfilment centres. Data analysis and insights is another area where Sri Lankan players can improve. This is not an industry in which the traditional view of logistics can be applied. Data and artificial intelligence will play a major role when a merchant has to decide what and how much stocks to be consigned to a marketplace for online sales. Sri Lanka is still very much a traditional brick-and-mortar market, and once vaccinations gain traction, thus increasing mobility, we will be back to visiting shops and buying things in person. Therefore, vendors need to avail themselves of the data offered by online common marketplaces in order to make informed decisions on stock allocations, and allocate appropriate stocks to the 3PL provider, whilst retaining sufficient quantities for offline sales. Cross-border trade – another stumbling block Cross-border trade is when products are exported out of or imported into Sri Lanka. A large proportion of products traded via E2E e-commerce are sourced through cross-border trade, as they come to our shores from overseas. On that front, our statutory regulations, particularly Customs ordinances are fairly archaic and inflexible towards facilitating cross-border trade in an e-commerce environment. A practical example would be when the latest iPhone is released. An e-commerce vendor might order a certain quantity of these for sale in Sri Lanka. However, after a while, the demand may wane, and the vendor will be left with excess stocks. On the other hand, a nearby overseas market may be experiencing sustained demand for the product. The logical step would be for the marketplace to re-allocate the phones to that market and cut losses. However, our cross-border regulations make this a lengthy and tedious procedure. This is common in E2E e-commerce, where products may be moved across markets in response to demand variations. Other countries have recognised this and formulated separate cross-border trade and customs rules for E2E e-commerce players. Conclusion In conclusion, it can be seen that Sri Lanka has some way to progress if it is to reach the same level as matured E2E e-commerce markets who have partnered with 3PL to optimise their operations. These two growing industries have recognised the value of partnership and innovation and have worked independently as well as collaboratively to uplift the industry. Sri Lanka has the capability to reach the necessary level not only within Sri Lanka but also to grow to become an active e-commerce hub in the Indian Subcontinent region.