The effects of demonetisation are wearing off now, and logistics company Gati Ltd said that the indication that its Cash-on-delivery business now accounts for 50% of ecommerce orders is “a signal that now the demonetisation piece is definitely behind.” This is still lower than a year ago, when Cash on Delivery accounted for 67% of its ecommerce business.

“We do not need to worry about that going forward,” Dhruv Agarwal, Chief Strategy Officer of Gati said on its earnings conference call. “It is now about the industry fundamentals and of course our competitiveness in the context to take us forward.” Gati reported ecommerce revenues of Rs 214 crores for FY17, up from Rs 207 crores in FY16, but there’s a sense that things could have been better, had it not been for demonetisation. “Q3 typically is the best quarter for e-commerce because that is when the big Diwali sale etc., and as you know right after that in November we had demonetisation, which actually affected our Q3 number could have been much higher than it was.” Q3 reported a decline in orders.

There were lingering effects of demoneization in Q4-FY17, “which took more time to taper of in select industry verticals such as consumer durables, textiles and apparel.” Q4FY17 reported revenues of Rs 50 crores. This is down from Rs 63 crore for the same period last year – Q4-FY16. Note that in Q4-FY16, Gati said that its ecommerce business saw about 16,000 orders per day.

Funding for ecommerce companies brings hope for Gati

Ecommerce logistics are profitable for Gati, and its margins are in double digits. Dips in volumes also negatively impact its margins, but there is additional pressure expected, the company said, because of consolidation in the ecommerce space (Flipkart buying Snapdeal), and a stronger focus on profitability, there is going to be pricing pressure.

There is hope as well, as fund-raising has returned to the ecommerce sector, with Flipkart recently raising funds. “if you recall” Agarwal said, “last year there was nothing called a May sale. Why? Because the industry first of all was starved of funds. They were not in a position to do what they are doing this time, but the year before that there was May sale. So I think last year was a significant aberration in the e-commerce story.” The sales in May, from both Amazon and Flipkart, Agarwal said, are “signs of normalisation.”

Gati now looking to go to sellers directly, instead of online marketplaces

What is perhaps worrying for it is that ecommerce retailers have taken fulfilment centres in-house. Gati used to operate fulfilment centres for ecommerce retailers, which was a Rs 25 crore business for it in FY16. To counter this shift, Gati will now be going to sellers and vendors directly. It invested in Browntape.com in Q3, which is a service which enables vendors “to sell on multiple marketplaces with the same pool of inventory”, and give them access to data, marketing and technology”. Founded in 2012, Browntape provides an order and inventory management solution which enables merchants to sell on various marketplaces like eBay, Amazon, Flipkart, Tradus, Shopclues, Rediff and Shopify among others.

“We have set it up as a multi-use facility and we will be going to the seller and vendor direct and saying that put their inventory with us we will be able to physically fulfill their orders where ever the order comes from on whichever e-tailer the order is generated from.”

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