Digital-first brands are increasingly turning to AI-led interventions to strengthen last-mile reliability in Tier-2 and smaller cities. AI voice calls, automated order and address verification and COD-to-prepaid conversion have improved delivery completion rates by 11%, according to data from Velocity Shipping, the AI-powered shipping aggregation platform by Velocity.
Tier-2 and beyond cities have become key growth markets for India’s e-commerce ecosystem. According to Bain & Co’s How India Shops Online 2025 report, three in five new online shoppers since 2020 are from Tier-3 cities and smaller towns, while nearly 60% of new sellers since 2021 are based outside Tier-1 markets.
However, fulfilment infrastructure has struggled to keep pace with demand. Velocity Shipping’s analysis of over 40 lakh orders processed shows a clear demand-fulfilment gap in Tier-2 and smaller cities. These markets accounted for more than 67% of total shipments, but only about 60% were successfully delivered. This is far lower than the metro fulfilment rates of 73%.
This gap is largely due to structural challenges such as inconsistent address formats, limited courier coverage, larger delivery areas, and a high share of cash-on-delivery (COD) orders, which increases the risk of cancellations and failed deliveries.
“For digital-first brands, logistics inefficiencies are where profitability is increasingly lost,” said Abhiroop Medhekar, Co-Founder and CEO of Velocity. “While demand from Tier-2 and Tier-3 markets has grown significantly, fulfilment reliability remains inconsistent due to higher last-mile costs, limited network density, and operational complexity. What our data consistently shows is that proactive, early AI-driven intervention across order and address verification, risk scoring, and delivery workflows significantly improves delivery outcomes. When brands apply operational intelligence across the fulfilment journey, delivery success rates improve, RTOs fall, enabling scalable and profitable expansion into these next wave of high-growth regions.”
The fulfilment challenge is emerging at a time when India’s digital commerce ecosystem itself is expanding rapidly. According to McKinsey & Company’s 2026 report “The Great Unbundling of Indian E-commerce: MSMEs and the Direct-to-Consumer Revolution,” India’s e-commerce market is projected to grow from $70–80 billion in 2024 to $180–200 billion by 2030, where the D2C channel is expected to grow nearly three times faster than traditional marketplaces. The report also notes that 53% of MSME’s prefer direct-to-consumer channels due to lower platform and delivery costs; however, fulfilment efficiency remains a challenge. With Tier 2 and Tier 3 consumers now accounting for more than half of online demand, brands are increasingly focusing on optimizing delivery channels to better serve customers in these regions.
Failed deliveries are a major profitability drain
Failed deliveries and return-to-origin (RTO) shipments are not merely operational inefficiencies but a significant financial burden for brands. According to Velocity Shipping’s analysis of over 1000 digital-first brands, failed deliveries and RTOs account for around 25 to 30% of revenue losses during peak festive periods.
Even when demand is strong, weak logistics infrastructure makes deliveries harder in smaller cities. Many Tier-3 pincodes still have limited coverage from national courier networks, forcing brands to rely on regional partners or postal services. This leads to uneven service quality, slower deliveries, and poor visibility into where orders get stuck. Issues like unclear addresses, lack of standard location data, and last-minute customer cancellations further delay or derail deliveries. This makes it harder for brands to convert orders into actual revenue in these fast-growing markets.
Parikshit Batra, Co-founder, PureFlow Tape, a D2C brand focused on nasal strips and breathing wellness, said, “Earlier, we faced multiple challenges, including fake delivery attempts and issues with last-mile fulfilment, particularly for COD orders. Since partnering with Velocity, we have seen a significant improvement in delivery success rates. The use of AI-led features has contributed to higher delivery success rates, while consistent customer support and dedicated account management have helped streamline operations. We have been working with Velocity as our shipping partner for quite some time, and the experience has been consistently positive.”
AI-led verification is improving delivery outcomes
To address these bottlenecks, Velocity Shipping has deployed an AI-led intelligence layer across the fulfilment journey. Orders are assessed before dispatch using buyer risk indicators based on historical return behaviour, COD patterns, and address quality checks, allowing brands to identify high-risk shipments early and reduce avoidable delivery attempts. Once an order is placed, automated WhatsApp messages enable customers to confirm, cancel, or update delivery details. For non-responsive customers, typically 30–35% in COD-heavy segments, AI voice calls are triggered to validate intent and verify delivery attempts.
Velocity Shipping data shows that orders processed through Velocity’s AI verification flows in Tier-2 and beyond cities recorded an improvement in delivery completion rates by 11%.
“Shipping used to be one of the most unpredictable parts of our operations,” said Pratham Solanki , founder of Magnet Club, a premium bottom wear D2C brand. “Incorrect addresses, unresponsive customers, and frequent delivery failures were driving up costs and hurting the customer experience. Since moving to Velocity Shipping, that uncertainty has reduced significantly. With AI-led order confirmation and address verification, orders are validated before dispatch, eliminating the need for constant manual follow-ups. The process is now far more controlled and data-driven, which is critical given how inconsistent courier performance can be across regions. We’ve seen fewer failed deliveries, better cost efficiency, and a much smoother post-order experience, allowing us to focus on scaling the business rather than managing exceptions.”
A key driver has been AI-enabled nudges for COD-to-prepaid conversion. When COD orders originate from high-risk locations, AI voice agents initiate local-language conversations, explain prepaid benefits, and offer real-time incentives. Prepaid orders, which reflect higher purchase intent, demonstrate materially better delivery performance and lower RTO rates.
A challenge in India’s logistics ecosystem is the variation in courier performance across pincodes and regions. As a result, a logistics partner that delivers efficiently in one region may not necessarily replicate the same performance in another, making it challenging for businesses to rely on a single network for consistent service levels. However, many businesses continue to work with a limited set of logistics partners, often basing these decisions on recent experience rather than comprehensive, data-led evaluation. This can lead to inefficiencies such as inconsistent delivery timelines and higher RTO rates, ultimately affecting customer experience.
In this context, shipping aggregation is increasingly emerging as an important layer in the fulfilment stack. By integrating multiple logistics partners into a single platform, shipments are dynamically allocated based on pin code-level performance rather than relying on a single courier network. This enables a more tailored approach to fulfilment, where shipments are matched with the most suitable courier for each destination.
Platforms like Velocity Shipping continuously evaluate courier partners on parameters such as delivery timelines, RTO rates, escalation frequency, and adherence to service-level agreements. Each order is then assigned to the most suitable courier for that specific location. This reduces manual intervention, improves delivery consistency, and lowers RTO rates.
In addition, automated NDR (non-delivery report) validation mechanisms help address premature or inaccurate delivery failures. Customers are prompted in real time to confirm delivery attempts, while discrepancies are escalated to logistics partners, improving order recovery rates and minimising avoidable returns.
Velocity recently earmarked an investment of ₹100 crore to scale Velocity Shipping, strengthening its commitment to enabling digital-first brands with faster, more reliable and transparent logistics powered by AI-led interventions across the e-commerce funnel. Since its launch in 2025, Velocity Shipping has witnessed strong traction, onboarding over 1000 brands and recording more than 50% month-on-month growth in order volumes.
Velocity Shipping enables same-day, next-day, express and standard deliveries, helping brands meet rising consumer expectations without adding operational complexity. The platform works with multiple third-party logistics (3PL) partners, including Delhivery, Ekart, Amazon, Blue Dart, Blitz, Pikndel and XpressBees, allowing brands to access the best-performing courier networks across regions through a single interface and serves over 19,000 pincodes pan-India.