Last-mile Logistics in the Middle East: Technology Brings Order in Chaos
Over the past year, I have been advising my friend Idriss Al-Rifai, Founder and CEO of fetchr, the leading last mile logistics in the GCC. The company currently operates in 6 countries, raised funds from a who’s-who list of investors, including New Enterprise Associates, 500 Start-ups, Endeavor Catalyst, Beco Capital, Dhabi Capital (Abu Dhabi ruling family private office) and many more. The company is now in final stages of raising a Series B to fund its regional expansion, growing by double digits every month. In the past 2 months, the company’s revenue nearly doubled.
Last mile logistics is a mature industry in developed markets, with the postal offices doing their jobs for hundreds of years in some cases, and privately held businesses like Fedex, DHL providing value-added services focusing on same day or overnight deliveries. Finding an address in Europe or in the United States is not rocket science. Everyone has an address which usually used street names and house number, sometime floor number. It’s a different story in emerging markets where population outgrew the street marking system. When Idriss was Head of Operations at Marka VIP, an online private sale company focusing on luxury goods, he quickly realized that something was not right. Industry return rates (packages not delivered after a given number of attempts) were appalling, around 15% in the UAE and nearly 40% in Saudi Arabia. The problem was not only these high return rates were leading to poor customer satisfaction, it also meant lost revenue in a country where most customers pay cash at delivery. The flash sale model of Marka VIP was based on impulse buying, and the risk of customer changing their mind was increasing exponentially as days passed and customer annoyance at the delivery experience increased. The single largest impediment to ecommerce in the MENA region was last mile delivery.
I have to pause here: I just got a call from my health insurance broker who is asking for my home address for the delivery of my insurance card. This comes after 2 weeks of back and forth calls between me and the incumbent delivery company Aramex who just simply won’t find my home in Dubai and ended-up returning the card. How timely!
Confronted with this situation, Marka VIP raised a $10 million round of financing in 2012 for the main purpose of setting-up its own distribution platform. The initiative was bold but poised to fail: last mile delivery is a radically different business than eCommerce and the scale of Marka VIP was not going to generate the network effect and economies of scale to run an optimal delivery operation.
Idriss left Marka VIP to set-up Mena 360, which later became fetchr. He started putting together a robust technology platform and that would incorporate API integration with vendors, the development of an app where customers could drop a smart phone PIN instead of having to describe their address, artificial intelligence for driver routing optimization. This was removing multiple human steps in the process, replacing pen & paper, phone calls, arbitrary delivery decisions. Very quickly, the new technology bore fruits: return rates went down to 2% in the UAE from 15%, and to 6% from 40% in Saudi Arabia. Delivery windows were reduced to 2 hours in most areas vs. 4-8 hours for the competition. 97% of all packages were delivered within 24 hours of the customer placing the orders (vs. 2-4 days for the competition – 2 weeks and counting for my insurance card!). Ecommerce players signed-up with fetchr at a fast rate, with fetchr even entering into agreements to take over entire fleets of delivery vehicles and drivers from clients willing to outsource their operations. Today, fetcher’s client base includes the best names in the industry, including Groupon, Chalhoub Group, Jawwy, STC, Carrefour, Namshi, Geant, Al-Tayer, Jumbo Electronics, and, of course, Marka VIP. Banks quickly followed with the delivery of credit cards, which tend to be all the more sensitive that only the credit card holder is allowed to take the delivery: Mashreq Bank, RAK Bank and Emirates NBD, the largest financial institution in the UAE.
The company further developed a C2C product (NOW by fetchr) involving same-day point-to-point single item pick-up and delivery, or next-day delivery as part of a scheduled delivery. The app helps track the status of the delivery and offers a bird’s eye view allowing clients to see their packages move across the city, and enabling the company to track each driver and its current task list (incl. ETA). For larger business customers, fetchr is offering a full logistics solution, including warehousing, fulfilment, last mile delivery, international services, collection on delivery, either via credit card or even in cash. For smaller business clients, fetchr is offering online payment gateway solutions (sellr by fetchr), cash collection on delivery and remittance services. The Company is also investigating a partial transition to an UBER-like outsourced model, by offering delivery jobs to third party drivers during off-peak hours. It is also investigating the possibility of UAV-deliveries, starting in the UAE which enjoys a drone-friendly legislation.
The company now operates in 5 countries, including the UAE, Saudi Arabia, Bahrain, Egypt, Jordan and is in active talks to expand across the GCC and beyond. The sky is the limit for fetchr in terms of growth: any country with a poor street marking infrastructure is a target, which includes South Asia, MENA but also East and West Africa. If the success of Aramex, the regional “pen-and-paper” leader in last mile logistics is any indication, fetchr could grow into a billion-dollar revenue company, better customer satisfaction, faster growth, and higher margins.
On the date of publishing this blog, I receive my insurance card. Alleluja!