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The growth of e-commerce volumes in tier 2 and 3 cities in India is outpacing that in tier-1 cities, according to a recent report.

"Smaller Indian cities are now accounting for a bigger volume of e-commerce sales. E-commerce growth in tier 2 and tier 3 cities in India is outpacing that of tier 1 cities," said an ICICI Securities report.

Volume share of these smaller cities in India's e-commerce market increased to 46 per cent in Q4CY20 from 32 per cent YoY. Also, online spending per customer in tier 2 and tier 3 cities has also improved as these cities held a 43 per cent share of the e-commerce sales value last quarter, up from 26 per cent YoY.

"This has raised hopes of a sustainable last mile delivery economics emerging for the industry - yet hyperlocal last mile small parcel deliveries remain economically as challenging as ever," it said.

"We continue to see emergence of end-to-end logistics contracts with Bajaj Electricals and Flipkart with Mahindra Logistics," it said, adding that the trend, while accreting value to the service provider, also gains currency as emergence of multiple channels is increasing supply chain challenge and risks.

This, in a way, is also augmenting demand for organised warehousing, the report said.

It noted that post GST implementation, a gradual move towards organised large format 'grade A+/grade A++' warehousing is leading to significant business opportunities for sector participants.

ICICI Securities, however, sees challenges with asset heavy road transportation players and it said that many transportation models are at the risk of not reinventing, especially as SME business environment recovers and new star-tup ecosystem starts to aggressively target the same.