At a D2C & eCommerce meetup in Jaipur last week, two founders; one from a skincare brand and another from a home-decor startup, were complaining about the same issue. Metro deliveries were smooth, but Tier-2/3 orders were draining margins. Rising last-mile costs, unpredictable timelines, RTO spikes, and weak visibility were hitting them hard.
“Whenever demand grows outside metros, our logistics collapses,” one said. The other added, “Tier-3 gives us growth, but also the highest cost-to-serve.”
Their conversation reflects a wider truth: India’s next wave of ecommerce growth is coming from smaller cities, but the logistics backbone hasn’t caught up.
As demand shifts beyond metros, old assumptions; dense pin codes, predictable volumes, strong infrastructure, no longer hold. Tier-2/3 India is now driving acquisition and festive surges, demanding a new playbook for cost, speed, and customer experience.
Why Tier 2/3 India Has Become the New Logistics Battleground for D2C & ecommerce
Tier 2/3 markets have moved from being “emerging zones” to becoming the core of India’s ecommerce & D2C volume engine.
- Approximately 91% of India’s ecommerce shipments are domestic, and the fastest-growing share comes from Tier 2/3 demand.
- Festive 2024 and 2025 surges were significantly powered by Tier-3 shoppers, especially in fashion, beauty, home & kitchen, and electronics accessories.
The opportunity is massive, but so are the friction points. These regions face higher last-mile costs, weaker network density, patchy warehousing, poor visibility, and more delivery failures than metros. If brands don’t realign their logistics strategy for emerging India, the cost-to-serve grows faster than revenue, crushing unit economics.
The Hidden Cost Problem in Emerging India for D2C & ecommerce
Last-mile is still the biggest cost sink
India’s average shipment cost is roughly ₹75 per order, with about 60% (~₹44) concentrated in last mile.
Why?
- Dispersed demand clusters
- Low delivery density
- Longer travel radiuses
- Fuel inefficiency
- Non-standard addresses
Globally, the last mile absorbs ~53% of costs. In India’s smaller cities, the imbalance is even more pronounced.
Delivery failures worsen the economics.
- Global average: 5% failed deliveries
- India’s Tier-2/3: often significantly higher
NDR (non-delivery) and RTO leakages are double-digit margin killers, especially in fashion and D2C & ecommerce categories.
When demand grows in smaller cities, cost doesn’t scale smoothly; it expands faster unless networks evolve.
Returns and RTO: The Silent Profit Killers
Returns are the biggest blind spot in D2C & ecommerce cost planning.
Global benchmarks show returns running between 16.9% and 24.5%.
In India, the number is often higher for categories like:
In India, the number is often higher for categories like:
- Apparel
- Beauty
- Footwear
- Electronics accessories
High RTO zones map directly to Tier-2/3 clusters because of:
- Unverified or vague addresses
- Limited delivery confidence
- Heavy reliance on COD
- Customer communication gaps
- Weather-driven unpredictability
Without pre-delivery confirmations, fit prediction, and doorstep QC, RTO becomes a recurring cost trap.
Infrastructure Gaps Where D2C & ecommerce Supply Chains Break
1. Warehousing imbalance
Only 19% (approx) of India’s warehousing stock exists in Tier-2/3 regions.
This causes:
- Slow replenishment
- Limited assortment availability
- Higher damages
- Expensive same/next-day delivery
2. Fragmented networks
Poor road connectivity, slow rail integration, and limited cross-dock availability add days to the supply chain.
Long-tail SKUs suffer the most due to inconsistent pooling or consolidation.
Long-tail SKUs suffer the most due to inconsistent pooling or consolidation.
Visibility and Data Fragmentation: D2C & ecommerce CX Challenge
Tracking remains a major CX pain point outside metros.
Why?
- Patchy network connectivity
- Inconsistent milestone formats across carriers
- Manual exception management
- Data lag in hub-and-spoke systems
- Unreliable ETAs without congestion intelligence
With expectations rising, 66% of shoppers expect same-day or accurate time windows, visibility is now a CX differentiator.
Platform and Policy Shifts; ONDC, ULIP, NLP, and the Gaps
India is modernising its logistics backbone, but the shift is uneven.
- ONDC enables multi-carrier access but brings onboarding friction, KYC hurdles, and limited SMB enablement.
- ULIP/NLP promise interoperability, but unified data standards are still maturing.
- Drone/autonomy pilots remain metro-centric.
Tier-2/3 brands still face:
- Billing disputes
- Weight discrepancies
- Limited evidence standardisation
- Cross-carrier visibility gaps
- Inconsistent dispute frameworks
The New Rules of Tier-2/3 Logistics
To win in emerging India, logistics must adopt these critical capabilities.
Rule #1: Micro Fulfillment Is No Longer Optional
Brands must build:
- Micro-fulfillment centers in growing corridors
- Pooled cross-docks
- Dynamic inventory placement
- Cold-chain and bulky SKU micro-nodes
Only then can they neutralize speed penalties.
Rule #2: Routing Must Become Rural-Intelligent
Standard maps break in smaller cities.
Next-gen routing requires:
Next-gen routing requires:
- Address intelligence
- Landmark-based navigation
- Local-area clustering
- Multi-attempt orchestration
This approach can reduce NDR by 10–18%.
Rule #3: Returns Prevention Must Move Upstream
The right interventions can eliminate a large portion of unnecessary RTO:
- Pre-delivery confirmation
- Fit/size prediction
- Doorstep QC
- Fraud scoring
- Courier selection by category
Rule #4: Billing Assurance Must Become Automated
SMB D2C & ecommerce brands lose massive margins to:
- Weight disputes
- NDR deductions
- Incomplete delivery evidence
Automated reconciliation and standardised evidence are now critical.
Rule #5: SLA Promises Must Match Ground Reality
Over-promising is dead.
Logistics must adopt:
Logistics must adopt:
- Congestion-aware SLAs
- Surge-aware slotting
- Lane reliability patterns
This is essential in unpredictable Tier-2/3 geographies.
Rule #6: Unified Event Streams Will Define CX Leadership
Brands need carrier-agnostic visibility across:
- First mile
- Mid-mile
- Last mile
- Returns
Predictive ETAs tied to city-level patterns are the next frontier.
How Platforms Like PalletIt Are Closing These Gaps
As Tier-2/3 India reshapes logistics, aggregation isn’t enough.
Brands need orchestration.
Brands need orchestration.
Platforms like PalletIt are enabling this shift through:
✔ Micro-fulfillment + pooled cross-dock networks
✔ Rural-intelligent routing using address intelligence
✔ Automated billing assurance
✔ Predictive ETAs and cross-carrier visibility
✔ Returns-prevention workflows
✔ Congestion-aware promise accuracy
This data-driven orchestration aligns perfectly with where India’s next 200 million shoppers will come from.
Final Word: Tier-2/3 India Isn’t a Challenge. It’s the New Default.
The logistics rules written for metros no longer apply in an economy where Tier-2/3 demand is surging, infrastructure is evolving, and customer expectations are accelerating.
Brands that win in 2025 will rebuild their logistics playbook around emerging India realities:
- Denser micro-fulfillment
- Rural-intelligent routing
- Returns prevention
- Automated billing integrity
- Unified data
- Honest SLAs
- Carrier-agnostic orchestration
Tier-2/3 India is not a future possibility.
It is today’s reality, and the logistics ecosystem must evolve to serve it.
It is today’s reality, and the logistics ecosystem must evolve to serve it.
For more infomration, visit: https://shreemaruti.com/palletit/