New Delhi: India Post is looking to tap the growing e-commerce market in the country, according to an official at the postal department who did not want to be identified, and will build 20 mechanized warehouses and booking centres that will exclusively handle shipments from e-tailers.

The move will help such companies, many of which are yet to turn profitable, reach remote corners of India—India Post’s 150-year-old network reaches almost all of India’s 640 districts—and also reduce their operating costs.

According to the Internet and Mobile Association of India, the e-commerce market in the country expanded from 8,146 crore in 2007 to 45,000 crore in 2011.

Many e-commerce companies in India have succeeded by getting around the aversion most Indians have to using their credit cards online.

This has entailed offering customers the option of paying cash on delivery and this, combined with the logistical challenges involved in shipping, have prompted at least some companies to build their own delivery networks.

For a typical Indian e-tailer, shipping and delivery costs could account for as much as 6-15% of total product cost, according to Praveen Sinha, co-founder and managing director at Jabong.com.

Sourabh Goyal, head of logistics at Jasper Infotech Pvt. Ltd that runs Snapdeal.com, which started using India Post a few months ago, said the company is currently “testing the model".

Goyal added that the reach India Post provides is a big advantage for e-commerce companies. Currently, typical e-commerce companies service around 11,000 pin codes across India. India Post reaches almost 25,000.

Most e-commerce transactions are currently restricted to the large cities. Goyal said the 11,000 pin codes account for almost 90% of the company’s transactions. Sinha said the top 30-40 cities account for almost 50% of the company’s sales with the other half being spread out across the rest of the country.

Sinha, whose company has also been experimenting with India Post, admitted that “there were some teething problems initially...., like last-mile tracking of orders."

To be sure, India Post has to prove its ability to service e-commerce companies. The India Post official cited above said this shouldn’t be a problem.

“A separate platform, which can be built at very little additional cost, will ensure that the shipments reach on time and there is minimum wear and tear," this person said, adding that India Post also has lots of experience in handling cash, which should benefit e-tailers offering the cash-on-delivery option.

Mint couldn’t immediately ascertain whether India Post will come up with a new price offering for e-tailers using its services or stick to its current so-called value payable post (or VPP) model.

According to a November 2011 report by Avendus Capital called India goes Digital, courier companies charge between 65- 75 for outstation delivery; 35- 45 for handling the cash-on-delivery feature; and an extra 40- 55 for returns.

India Post charges 6% of the value of a product as delivery cost and levies no extra charges for handling cash or return.

The average size of an e-commerce transaction in India for most big e-retailers in the country is around $18-$30 according to Sinha of Jabong.com, which makes the India Post offering cheaper in most cases.

Still, there are people who buy smartphones and laptops from websites and in these cases, the India Post offering will prove much more expensive.

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