Direct-to-consumer (D2C) startups are increasingly adopting artificial intelligence (AI) solutions to improve last-mile delivery, especially in Tier-II and smaller cities. By using tools such as AI-driven voice calls, automated order and address verification, and converting cash-on-delivery (COD) orders to prepaid, these companies have achieved an 11 percent increase in delivery completion rates, according to data from Velocity Shipping.

Abhiroop Medhekar, co-founder and CEO of Velocity, explained that logistics inefficiencies are a major drain on profitability for digital-first brands. While demand from Tier-II and Tier-III markets has grown rapidly, delivery reliability continues to face challenges due to higher last-mile costs, limited network reach, and operational complexities. He noted that early, AI-powered interventions in processes like order verification, risk assessment, and delivery workflows significantly enhance delivery performance.

Although non-metro regions are becoming major growth drivers for e-commerce, ongoing last-mile issues often result in reverse logistics, increasing costs for companies. Failed deliveries and return-to-origin (RTO) orders can contribute to 25–30 percent of revenue losses during peak festive seasons. A Bain and Company report highlights that three out of five new online shoppers since 2020 are from smaller cities, and nearly 60 percent of new sellers since 2021 are located outside Tier-I markets. These regions account for over 67 percent of total shipments, but only around 60 percent are successfully delivered, compared to a 73 percent success rate in metro areas.

The gap is mainly due to structural challenges such as inconsistent address formats, limited courier networks, larger delivery zones, and a high proportion of COD orders, which increase the likelihood of cancellations and failed deliveries. India’s e-commerce market is expected to expand from 70–80 billion dollars in 2024 to 180–200 billion dollars by 2030, with D2C channels projected to grow nearly three times faster than traditional marketplaces.

Disclaimer: This image is taken from Business Standard.