In Logistics
Diego Rodríguez

Diego Rodríguez
Director of Logistics Practice

Read this article in Spanish here.

Step into the unpredictable world of 2024, where the economic landscape is a rollercoaster of triumphs, pitfalls, and looming uncertainties in the region. The stage is set with the good, as resilient economies in the U.S. and Latin America promise a steady climb, yet a closer look reveals an impending slowdown that challenges the very foundations of prosperity.

The logistics sector in Latin America braces itself for a seismic shift with artificial intelligence, blockchain, and drone technology promising greater efficiencies, yet supply chain managers grapple with underutilized data and a reluctance to embrace strategic decision-making.

Enter the bad, where China’s once-insatiable appetite dwindles, spelling trouble for Latin American nations heavily dependent on commodity exports. Security risks escalate, transforming the South American landscape into a battleground against cargo theft and a surge in highway robberies.

The ugly unfolds with the Red Sea complications, Cape of Good Hope detours, and Panama Canal restrictions threatening to disrupt port schedules, leaving perishable exporters in South America at the mercy of unpredictable climates. Mother Nature’s drama, fueled by climate change and El Niño, emerges as the ultimate antagonist, throwing the entire supply chain into chaos.

As companies navigate these treacherous waters, the adaptability mantra becomes a survival imperative.

The Good

2024 Logistics Outlook Latin America | Resilient US and Latin American economies

Resilient US and Latin American economies

The performance of the U.S. market in 2023 stood out as one of the strongest among developed economies globally. However, it is anticipated to experience a more significant slowdown compared to the global average in 2024. Real GDP Growth is projected to decrease from 2.4% in 2023 to a mere 1.0% in 2024, although it is avoiding the contraction that was anticipated a year ago. The main driving force behind the U.S. economic activity will continue to be resilient consumer demand, supported by a recovery in private investment triggered by the realization of public investment bills in 2024. This is expected to positively impact the demand for products exported from Central and South America to the U.S.

Regarding the economy and monetary policies, 2024 will witness a shift in policies by the Federal Reserve and central banks across Latin America, initiating interest rate cuts as inflation rates decline to more manageable levels. The rate cuts in Latin America commenced earnestly in Q4 2023, likely occurring 12 months ahead of potential cuts in the U.S. Cheaper credit is expected to stimulate investments in the private and consumer sectors across Latin America. However, a robust U.S. economy, coupled with a stronger U.S. dollar, may lead to capital outflows seeking less risky assets in the United States. The anticipated scenario aligns with the view of the EIU, predicting a slowdown in Latin America’s real GDP growth from an estimated 2.4% in 2023 to 1.6% in 2024 as growth decelerates in the US and China.

Significant inflows of foreign direct investment (FDI), driven by nearshoring in Mexico and critical minerals development in South America, along with robust workers’ remittances in Mexico, Central America, and the Caribbean, as well as a continued recovery in tourism in the Caribbean, are expected to support economic activity in 2024. Mexico is poised to continue as the top nearshoring investment destination due to its diversified manufacturing capabilities, affordable labor, and advantages under the USMCA. In Central America and the Caribbean, nearshoring opportunities are concentrated in the textile and light manufacturing sectors, except for Costa Rica and Panama, which aim to integrate with the U.S. in the high-tech industry through tax incentives and free zones. The importance of nearshoring in the economic landscape in the region cannot be overstated, as global executives strive to optimize and de-risk global supply chains while minimizing their carbon footprints.

In Brazil, muted global growth and reduced agriculture and livestock output due to the El Niño phenomenon are expected to contribute to a deceleration in economic growth from an estimated 2.9% in 2023 to 1.7% in 2024. The Brazilian Tax Reform, approved in 2023, will serve as a positive catalyst for the country’s entire economy. Although specific details regarding tax rates and industry impact remain unclear, there is an overall optimistic sentiment in Brazil. This regulatory change aims to simplify the Brazilian tax system by consolidating five taxes into one, fostering economic growth, enhancing business competitiveness, and shifting the tax burden from production to consumption. The expectation is that in 2024, the systematization commission and the 19 technical groups established by the national government with states and municipalities will finalize all the details and complementary laws.

2024 Logistics Outlook Latin America | Greater adoption of technology

Greater Adoption of Technology

In the logistics sector of Latin America, there is a growing momentum for the adoption of technological advancements, such as artificial intelligence and blockchain. In the year 2024, major multinational corporations are prioritizing the enhancement of efficiency, visibility, and security. A prevailing trend across the region is the insistence of companies on incorporating flexibility, tracking reports, and key performance indicators (KPIs) into their contracts with logistics providers. Given the uncertainties surrounding consumer spending and disruptions in ocean transport anticipated in 2024, robust inventory management and warehouse management system (WMS) solutions have become crucial to avoid the overstocking errors observed in 2022.

The utilization of drones for inventory control, vertical storage, and vertical inventory administration systems to streamline warehouse tasks and facilitate distribution operations is gaining prominence as new requirements among retailers and lifestyle brands in South America. Some Peruvian and Brazilian companies have already embraced artificial intelligence to predict product demand based on sports events and weather conditions in specific locations. Nevertheless, supply chain managers in Latin America acknowledge that supply chain data is not as extensively utilized for strategic decision-making as they would prefer.

The Bad

2024 Logistics Outlook Latin America | China’s insatiable appetite slowdowns

Demand from China Slows Down

The Chinese economy is exhibiting signs of strain, with growth rates expected to decelerate and remain below 4% until 2028. Several structural factors contribute to China’s diminished growth potential, including an aging population, global companies diversifying and de-risking supply chains by reducing dependence on China, and a weakened domestic market due to the housing industry downturn. These factors pose risks that will reshape the growth trajectory of trade figures between Latin America and China, given China’s dual role as a buyer of commodities and a supplier of goods and capital to the region.

Chile, having developed the most extensive trade relationship with China among all the countries in the region, stands to be particularly impacted by any Asian slowdown. For example, our estimation indicates that Chile’s total exports to China experienced a decline for the first time in three years in 2023, amounting to US$37 billion. Notably, China has held the position of Chile’s largest trading partner since 2009, a status especially evident in the agricultural product sector.

For other major commodity exporters like Brazil and Argentina, China’s demand for their raw materials remains an uncertain factor influencing their economic performance in 2024. Ultimately, a downturn in trade figures translates into a reduced volume of containers and airplanes facilitating freight movement between the two regions.

2024 Logistics Outlook Latin America | Security risks on the rise

Security Risks on the Rise

Security concerns regarding cargo theft, damage, and contamination are on the rise in Colombia, Peru, Chile, and Ecuador. Specifically, in Brazil, São Paulo and Rio de Janeiro emerge as the most critical states, experiencing 74% of cargo theft events. While the historical average for food & beverage and tobacco theft stands at 13%, it spiked to 18% in 2023, resulting in approximately 18,000 cargo robberies. Unfortunately, this troubling trend is anticipated to persist and worsen in 2024.

The surge in highway robberies necessitates increased spending on security measures for both clients and service providers. Consequently, insurance policies in South America are experiencing a continuous upward trajectory.

Chile is witnessing a significant escalation in freight crime levels, reaching 27% higher than pre-pandemic levels. This surge is accompanied by a notable increase in the frequency of insurance claims. Hijacking is emerging as the preferred modus operandi for cargo crime incidents, with electronics, foodstuffs, and high-end apparel being the most targeted commodities, according to insights from consulted companies.

In response, logistics companies responsible for product transportation and distribution are implementing multiple layers of security, including security convoys and rigorous monitoring with traceability. Despite these efforts, the high incidence of cargo theft exerts pressure on transportation spending, leading to increased expenses for security and insurance. Multinationals are now reassessing the criteria used to determine whether a cargo requires a security escort, prompted by the escalating security-related issues observed throughout 2023.

The Ugly

2024 Logistics Outlook Latin America | Panama canal

Stormy Seas Ahead in 2024 due to Shipping Route Issues

The smooth sailing of logistics in 2023 is hitting some stormy seas in 2024. Brace yourselves for the turbulence caused by Red Sea complications, rerouting via the Cape of Good Hope, and Panama Canal restrictions. These hurdles are set to unleash a tidal wave of uncertainties, prolonged lead times, and disruptions in port and vessel schedules. And guess who’s going to be caught in the crossfire? Perishable exporters in South America, especially when their peak season hits in February, March, and April.

But that’s not all! The Panama Canal is turning into a real drama queen, thanks to low water levels fueled by climate change and El Niño-induced droughts in Latin America. It’s like Mother Nature’s giving us a preview of what’s to come in the years ahead. The Panama Canal Authority, responding to a measly two weeks of rain in December, decides to bump up daily transits from 20 to 24 in January 2024. But wait, the real nail-biter is the long-term impact of climate change threatening to permanently cap the number of daily transits.

The drought in the Panama Canal and chaos in the Red Sea are giving shippers on South America’s coasts a logistical nightmare, especially when it comes to importing raw packaging materials and exporting finished products to and from Asia and the East Coast of the U.S. Companies are pulling out all the stops to navigate these troubled waters. Alternative routes, new modes of transport like rail and cross-border trucking – they’re throwing everything but the kitchen sink into the mix to dodge the delays plaguing ocean transit. Adaptability is the name of the game!

2024 Logistics Outlook Latin America | Climate change finally hits Latin America

Climate Change Finally Hits Latin America

Latin America is in the grip of the disruptive El Niño phenomenon, wreaking havoc on weather conditions by intensifying droughts, heat waves, and floods across multiple countries. Scientists are sounding the alarm, predicting that this phenomenon will persist into the first half of 2024, posing a direct threat to food supplies and disrupting already fragile logistics networks. The repercussions of the climatic chaos experienced in 2023, with Peru grappling with low rain levels and Chile facing excessive downpours, have been severe, especially for perishable crops. A striking example is the staggering 70-80% reduction in mango production during the 2023-2024 season compared to the previous year.

The impending shock to agricultural production will undoubtedly reverberate across the availability and pricing of food. Agriculture, encompassing crops, livestock, forests, fishing, and aquaculture, bears the brunt, absorbing 26% of the total damage and direct losses incurred during such climatic events, with the figure escalating to a staggering 82% in the case of droughts. The harsh reality is that companies in Latin America are poised to grapple with soaring transport costs in 2024 due to the escalating impacts of global warming. Paradoxically, there may be some silver lining as businesses could encounter favorable rates in cold storage services, given the widespread availability of space in the wake of these environmental challenges.

Next Steps

Contact our logistics practice to learn how our research, competitive intelligence, strategic analysis and experience advisory services can help your firm more intelligently navigate the markets of Latin America. As the previous years have shown, disruption produces both pronounced winners and losers in a given industry.  Those who do not anticipate and adapt to market trends fall victim to them. 

Our logistics & industry practice is a one-stop solution that helps companies make strategic decisions in Latin America by collecting reliable market intelligence from customers, competitors, government, and subject matter experts. Thirty years of experience helps our senior consultants convert market intelligence into great advice. 

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