FORTUNE MAGAZINE MAY 2021
Aras Kargo Responded Very Quickly to the E-commerce Market
Aras Kargo General Manager Utku Ayyarkın and CFO Barbara Hagen
1. Protectionist world trade policies, EU growth problems, the Brexit process, the ongoing political process in the Middle East and lifestyles that remain far from being normalised are restricting the development of the transport and shipping sector in our country. Based on the developments in Turkey and the world, how does Aras Kargo manage its operational processes? Can you take stock of the last two years?
We have seen an unprecedented change, both socially and economically, unfold with the arrival of the pandemic in our lives. On a global scale, there has been a significant change in the way all sectors do business. We are witnessing in particular the relevance and rise of e-commerce and the shipping sector in the supply chain both globally and domestically. There has been a lot of momentum in the shipping industry following the global pandemic and changes in technology. As our industry goes digital, business processes are simplified, risks are reduced, with increased efficiency and capacity. While brands that can match the change will claim their place in the competition, brands that cannot do so will be left stranded in the race. For this reason, we fully embrace change as our compass and align all our investments and planning in this direction.
Apart from the digital transformation of the sector, it is important for e-commerce companies to support the process with marketplace operations at the point they have reached today. This is because shipments do not only consist of delivery, but also purchasing requires a very serious operational process. In order to manage this process properly, customer integration between the two sectors becomes very important. Thanks to mutual integration and mutual investment in the technological infrastructure of the e-commerce and shipping sectors, we will be able to react together much faster to the growing market.
With 28 transfer centres, almost 1,000 branches, around 16,000 employees and a fleet of over 5,000 vehicles, Aras Kargo is at the disposal of its customers. With our investments in automation and IT infrastructure, our operational experience and expertise, we have achieved double-digit growth in recent years. In 2020, we have achieved 65 per cent growth. We plan to continue this growth trend this year. We are investing to apply digital transformation to every step of our business processes. In the last two years, we have invested almost TL 300 million in the transfer centre, IT infrastructure and operational processes.
2. What is the added value of e-commerce for Turkey? What impetus is expected from this situation for shipping companies? What issues will the shipping sector have to focus on in the near future?
The e-commerce sector recorded very robust growth in 2020 due to the pandemic, with its share of the economy increasing by more than 100 per cent from 8 per cent to 18 per cent. The pandemic has brought unprecedented growth to e-commerce not only for individual consumers but also for inter-firm trade. For brands operating in the retail sector in particular, which have had to close their physical shops due to the pandemic, e-commerce revenues have become the powerhouse that keeps them afloat. Such growth in this area is also mirrored in research on the sector. For example: Based on the findings of the We Are Social Digital 2021 report, produced by UK-based We Are Social in collaboration with Hootsuite, the number of internet users in Turkey reached 67 million in 2020, including the pandemic period. The number of online shoppers was 37.2 million. Judging by the report, the rate of online shoppers in the 55-64 age group was between 30 and 40 per cent in previous years, while in 2020 it was 70.5 per cent. In Gen Z, this rate is 74.9 per cent.
On the other hand, according to the association of e-commerce operators (ETID), online shopping spending statistics jumped 85 per cent in 2020 compared to the previous year due to the coronavirus outbreak. There were important developments in e-commerce during the epidemic. People switched their old shopping habits to the digital world and started shopping for new products without actually leaving their homes. Consumers began to adopt new shopping habits. Because of this increase in supply and demand, many brands that used to sell physically are now selling online. Therefore, many brands that had not previously gone digital entered e-commerce. They entered the e-commerce market by developing new, distinct business models.
This state of affairs also affected our business volume and triggered significant changes in our business model. It honestly felt like trying to change all 4 wheels of an Aras Kargo vehicle whilst it's on the move at a speed of 100 kilometres on the highway. We have seen the following fundamental changes in our company:
The number of parcels requested by our marketplace and e-commerce clients almost tripled in the first days of the pandemic in our country and during the campaign periods.
- On the other hand, the number of parcels from our B2B customers shipping from facility to facility decreased.
- Whereas before the pandemic we went to one location and delivered more than one product (e.g. 5), deliveries to households have increased under the impact of the pandemic and our business model has completely changed so that we now deliver one package to each location.
- We have visited many more addresses and transported much smaller parcels as part of this new business model.
- The number of addresses we visit every day has increased from 500 thousand to over 1 million. By the end of 2020, we visited 200 million addresses, which means we visited the population of Turkey more than twice.
Due to the increase in e-commerce during the pandemic, SMEs producing in different cities in Anatolia, especially in East and Southeast Anatolia, started to ship their products all over the country. This phenomenon was also manifested in the transport of goods from the provinces. The provinces that contributed to the volume of shipping in this process are mentioned here - as examples: Iğdır, Bilecik, Adıyaman, Bartın, Tunceli, Kilis, Uşak, Şırnak, Giresun and Batman. We have managed the increasing cargo volume with our investments in digitalisation and new hires, creating over 1000 new positions.
3. Where is Aras Kargo investing in the digital transformation process? What do you have in store for the technological development of the shipping industry? What can we expect regarding your goals for IoT technologies? What do you think about the potential benefits of IoT applications?
We are in a circle of transformation from an operating company to a technology company. We are continuing our technology investments in two areas: branches and transfer centres. Regarding the investments in our branches, we have started our uninterruptible data security project so that our business is not interrupted even during natural disasters and earthquakes by securing our machines. Under our centralised data system project, we have collected customer data that was previously kept in the branches in a single centre and prevented erroneous data. With the self-service application we developed, we pioneered our SMEs' entry into the digital world. We upgraded our mapping infrastructure to handle the increasing address and data operations and launched the courier route optimisation project. We invested in our handheld terminals for instant access to data. We developed our self-service applications and renewed our voice response system and mobile application. We differentiated our shipment delivery method. We started contactless delivery with ID card reading and SMS code. To optimise this process and ensure that our customers can reach us at any time, we have completely improved our call management processes. With this in mind, we have increased the capacity of our call centre by 2.5 times.
Amid this process, we forged ahead with our investments in our transfer centres. With the automation investments we have made in 8 transfer centres to better manage time and capacity, we have become the most prominent player in the industry producing work with automation, by tripling hourly processing capacity through a capacity increase of more than 300 per cent.
With all the investments in automation, we would not be able to move the packages that connect people to life if it were not for 16 thousand of employees doing their jobs in the field every day. Our employees in the transfer centres, in the branches and the couriers, carry hundreds of parcels every day. To kick off the new year, we wanted to say thank you to them and made a thank you film with the slogan "There is no 'we' without 'you'". It is they who make Aras, Aras. We have received some very positive feedback from our staff and the industry. Once again, I would like to thank all our staff for their dedicated work in this process.
4. What about the opportunities and risks of the next period?
The turnover of goods during the pandemic period opened up new opportunities for the sector, both in terms of redefining needs and adapting to the new situation. The shift of a large part of purchases to e-commerce websites, the stagnation of the entertainment, holiday and travel sectors and the shift of consumer spending to the purchase of products made at home resulted in an unexpectedly strong increase in the volume of business in the shipping/mail sector.
Particularly in the e-commerce sector, Turkey has huge potential in which it has not yet tapped. In the Netherlands, e-commerce accounts for 60 per cent of the volume of shipments, in the United Kingdom 65 per cent and in Singapore 80 per cent. In Turkey, this share is lower. Lately, the Covid 19 pandemic is increasing these figures day by day. As Aras Kargo, we have an investment plan of over TL 1 billion in a 3-year projection to manage the growth of the market in a healthy way. Moreover, e-export activities are increasing day by day and reaching bigger and bigger numbers. This means that Turkey is entering international markets and increasing its exports. At this point, it can be clearly seen that a robust shipping/mail sector is needed to conduct both domestic trade and exports under healthy conditions and to create economic growth. Global trade is made of bridges, not barriers. The measures to be taken in this area will enable Turkish companies to strengthen themselves, gain competitive advantages and grow in both domestic and international markets.
From Aras Kargo CFO Barbara Hagen
1- The impacts of both domestic and international developments directly affect the transport sector. Along with the economic downturn in the country, problems of economic and political instability, and economic stagnation due to problems that threaten human health, such as the coronavirus, affect the future expectations of the shipping sector. What exactly are your expectations for the next quarter on behalf of Aras Kargo and what will be your financial strategies in a competitive environment?
Turkey holds economic strength and potential, with a dynamic population, skilled workforce and access to neighbouring markets. Its population is young and dynamic. It is also a market with high growth potential in e-commerce. According to the Ministry of Commerce, e-commerce grew by 18 per cent globally in 2020. Turkey also benefited from this momentum, growing by up to 66 per cent year-on-year. More than 90 per cent of this growth was in the domestic market. The ratio of e-commerce volume to general trade increased to 15.7 percent. Despite the fact that the e-commerce volume is slightly lower compared to Europe and the US, we expect the e-commerce market in Turkey to continue to grow thanks to the young population, internet usage and the development of access to neighbouring markets. As Aras Kargo, we will maintain our investments in this area.
Regardless of the negative impact of the pandemic on global markets, our industry was positively affected by this process. E-commerce purchases were on the rise and it was possible for us to expand our business during this period because we are positioned as a reliable partner for e-commerce providers. We aim to stay a reliable partner for our customers in the coming period. To this end, we will continue to invest in our service quality. We have announced a major investment plan for the next three years to further reinforce our distribution infrastructure. In addition, we will focus more on the end consumer and further strengthen our position in the industry with this strategy.
2- Given the exchange rate fluctuations and economic outlook/growth, do you think it would be beneficial to take a defensive route? Digital transformation, new market entrants and new business models are bringing radical changes to the transport and shipping industry. What have you put on your agenda to maintain your competitiveness?
We are gearing up for a challenging future, but do not see this as a defensive strategy. We attach great importance to digitalisation and are preparing for this change by focusing not only on the shipper, but also on the recipient. In the upcoming period, no company will be able to ignore e-commerce and mobile commerce. Hence, the growth of the business volume of companies will be actualised through digital transformation. Companies that have high adaptability and value innovation will be one step ahead of the competition.
In the aftermath of the pandemic, it once again became clear how important the shipping, logistics and transport sector is to the global economy. During this period, we saw fluctuations in the financial markets and declines in countries' growth figures. Nonetheless, both domestic and international trade could continue through these sectors. We believe that with the increase in immunisation rates around the world, there will be a rapid recovery in global markets. Turkey's exports increased significantly in March despite the fluctuations in global trade. The shipping sector keeps a very dynamic structure due to the impact of e-commerce. We are placing more emphasis than ever on making technological investments, strengthening infrastructure and making business processes more efficient to meet increasing e-commerce volumes and changing demands. We have made investments in digital transformation and transfer centre automation to manage time and capacity well. In the coming period, we plan to invest a total of TL 1 billion in our distribution infrastructure, which includes all our operations such as transfer centres and branches.