Aggregator in logistics: A Boon or Bane

In recent years, domestic transportation has seen a surge in aggregation model. An aggregator brings together multiple transporters, fleet owners, and service providers onto a single digital or physical platform to offer logistics services. Instead of owning assets, the aggregator acts as a facilitator, connecting demand (shippers, manufacturers, e-commerce players, SMEs) with supply (express service providers, part load service operators, truck owners, freight forwarders, couriers).

The value created by aggregators varies considerably across different sub-segments of logistics, particularly from the perspective of network operators and their operating models. Aggregators deliver the greatest value to a logistics network operator, when their client base is highly fragmented, difficult to access, or consists of low-ticket transactions spread across wide geographies. However, for large institutional or B2B clients, the incremental value added by aggregators remains limited. Aggregator can be helpful to a logistics service provider, who have limited resources for accessing customers.

The aggregation model is already proven successful in international freight forwarding and helps international logistics network operators in overcoming challenge of setting up full-fledged operations in overseas markets. By acting as channel partners, aggregators enable network operators to seamlessly generate business across multiple countries. In such cases, these aggregators also provide first and last mile connectivity from port to hinterland and adds significant value for the operators in cross border businesses. Over period of time aggregation model has become large and organised in global freight forwarding. Large aggregators have created their own tech platforms, and bring some value add by way of real-time tracking to matching demand with available capacity.

But on the domestic transportation side, most of the e-com logistics aggregators are organised new age platforms, who have given significant access to logistics service providers in reaching to small D2C e-com shippers. In the journey of exponential growth of e-commerce, all logistics service providers were focused towards large market places of e-com portals only. As market is maturing e-com logistics players are also trying for their direct access to D2C brands. In case of B2B, still majority of express / part load aggregators are unorganised, with limited tech and customer centricity.

Shipper perspective

Normally it is perceived that aggregator brings the consolidation benefit in pricing to the shippers and access of small shippers to a wider pool of service providers. Access to a wider network to shipper is true, while pricing benefit may not be true specially when aggregator is unorganised / semi organised. Such aggregators typically lack a standard pricing framework or rate card, with charges varying from customer to customer and a high degree of opacity. Most of the time charges of such aggregators to small customers are high.  In some cases, unorganised aggregators resort to unethical practices, such as offering kickbacks to secure volumes from shippers. Such practices often persist due to weak governance on the shipper’s side, inadvertently increasing the stickiness of these aggregators. Apart from commercial and compliance risk, use of such aggregators also poses risk of inconsistent services. Multiple network service providers may have varied commercials and varied service quality. Selection of a specific service provider by aggregator may be driven by commercial factors. Which can lead to service disaster for shippers. In case of any in transit damage / delay may lead to serious grievance. Absence of proper contracts, tax compliance, and regulatory adherence by these aggregators exposes shippers to legal/financial risks.

Network operator perspective

Overall, aggregators function as an additional channel of sales for network operators to generate volumes with relatively less effort and cost. In the model, there is no fixed cost for network operator, instead it brings incremental sales at a predefined rate. However, it introduces an intermediary layer between service providers and end shippers, with the aggregator retaining control over the customer relationship. Aggregators typically work with multiple service providers, and their choice of operator for a particular load is often guided by margin considerations and acceptable service levels. This creates a high risk of business churn for network operators, since switching costs for aggregators are nearly zero in the transportation sector. While operators often collaborate with aggregators in the hope of capturing volumes from competitors, any favourable pricing move by a rival can easily shift volumes away, exposing operators to heightened competitive pressure.

Since unorganised aggregators often lack strong compliance and governance practices, bookings routed through them carry inherent risks for companies. These risks vary from document compliance to revenue leakages to risk of bad debts. In order to safeguard risk of bad debt, network operators have taken some serious steps like zero credit to aggregators. While majority of business of aggregators is on credit, in a way aggregators are financing logistics cost for their customers.

Conclusion

In consumer-facing businesses, channels play a critical role as last-mile reach is often impossible without them. However, in transportation, where clients are primarily business entities, network operators can typically establish direct relationships. For companies with the infrastructure and resources to access a larger customer base, intermediaries may offer limited long-term benefit. In fact, our experience suggests that such engagements do not always create sustained value for network service providers. Therefore, the decision to integrate aggregators into a broader strategy requires careful evaluation of facts and long-term implications.