It is a well-documented fact that COVID-19 lockdowns accelerated the adoption of e-commerce in Latin America. Some preliminary figures indicate:
- 70% growth in physical domestic e-commerce volumes across LatAm in 2020
- 30% growth in cross-border e-commerce volumes in Latin America in 2020
- 500% growth in grocery and medicine home delivery in 2020 in Latin America
- An estimated 50 million consumers in LatAm tried e-commerce for the first time in 2020
Such growth has proven profitable for almost every logistics and fulfillment company serving the e- commerce market in Latin America — after all, a rising tide lifts all boats. However, this tectonic shift raises new questions, whose answers will have strategic implications for the future of logistics players in LatAm. At AMI, we have identified five important opportunities for logistics operators in the region.
#1 Telemedicine accelerates home delivery of medications
Pharmaceutical retail, like all brick-and-mortar retailers, had to pivot to home delivery after lockdowns forced them shut. Farmacias del Ahorro in Mexico, a leading pharmacy chain, doubled its home delivery offering and increased online sales five-fold in 2020 versus 2019. Some of that growth came from servicing the new demand generated by telemedicine. Already under development before the pandemic, telemedicine exploded during lockdowns. Unable to receive patients in their clinics and offices, medical practitioners provided diagnosis and advice by zoom or phone, issuing prescriptions, then fulfilled online via pharmacies.
The pandemic was the runway needed by pure online telemedicine players to gain traction. Now they proliferate. Companies like Doctorya, 1doc3, teledoc, and virtualdoctor are just a few of the more than two dozen new players sprouting across the region, most of them focused on one national market but a few attempting to win customers in multiple countries. Online medical advice is not new to Latin America: it has been around for a decade, but now it is more than a government-sponsored rural medicine tool. Online medical advice is mainstream in Latin American cities today, particularly among younger consumers. 1doc3.com in Colombia features more than 500 doctors and has served more than 1 million customers, most of them urban and young. One of their most promising segments are youngsters (under 18) seeking advice on STDs and other taboo subjects which they cannot consult offline doctors without being accompanied by a parent or guardian.
The reputation of these online medical providers is closely tied to the successful fulfillment of prescriptions. Since they cannot predict the geography of their customers in a given country, their logistics partners must be capable of fulfillment nationwide. That limits with whom they can partner.
Why is this an opportunity? Prior to the proliferation of online telemedicine, most prescriptions were delivered by the pharmacies themselves, but the geographically agnostic nature of the online channel requires a more centrally orchestrated national fulfillment strategy that leverages pharmacy locations and the delivery capabilities of logistics firms.
To serve this market, logistics players need to understand the service requirements of online medicine, pharmacies and the public sector to deliver medicines to patients. They also need the answers to the following, among other, key questions:
- How big is this opportunity and how quickly will it grow?
- Who drives the business between online telemedicine, traditional doctors, pharmacies, private and public hospitals? What are the needs of each?
- What is the regulatory environment governing telemedicine and how is it likely to change?
#2 Continued growth from domestic e-commerce merchants
Every formal retailer must embrace e-commerce or face extinction. That message was learned the hard way in 2020 by millions of SME retailers in Latin America last year. Building a profitable logistics service for these small, often unsophisticated retailers in a scalable fashion is one of the great challenges and opportunities facing logistics providers today in the region. Small retailers and pure e-commerce merchants struggle to make any profit when they sell through Amazon, Mercado Libre or Alibaba because of the hefty advertising costs charged by such platforms to earn them top search placement.
The arrival of Shopify and other solutions providers who provide an e-commerce platform for small retailers will be widely embraced over the next few years. Though a smaller opportunity than serving the large e-commerce platforms, these small retailers are, none-the-less under served and ready to pay for logistics and e-commerce fulfillment.
The rapid growth of some small e-merchants into much larger companies in less than a year bodes well for the creation of mid-size e-merchants that represent even juicier targets for logistics providers. Another choice cluster of clients is the list of mid-large brick and mortar retailers who had little or no online sales pre-COVID but today support large e-commerce volumes. These include grocery stores and department stores.
Why is this an opportunity? These companies are struggling with servicing demand, not just at the fulfillment level but also inventory management, supplier management, customs management (if they import).
#3 The new logistics competitors: e-commerce platforms and retailers
Mercado Libre, Magazine Luiza, Wal-Mart, Falabella and Grupo Éxito have all taken steps to vertically integrate their way into logistics and fulfillment. They did this to help improve the quality control of delivery to buyers — a crucial ingredient of good consumer UX — as well as to improve their operating margins.
The Mercado Libre and Amazon moves into logistics have been focused on opening new distribution centers, facilitating full control of the seller’s inventory is fully managed by the marketplace with the goal of serving a larger number of customers with two-day shipping. However, Mercado Libre went a step further and launched air services in Mexico and Brazil using leased planes. The success (or failure) of these vertical integration efforts will help drive the behavior of any copy-cats. This is now an existential threat to logistics firms that have relied upon e-marketplaces and omni-channel retailers to drive growth.
Why is this an opportunity? For suppliers of technology, real-estate and support services, more well-funded logistics players is better than few.
#4 Domestic e-commerce fulfillment
COVID-19 not only expanded the e-commerce market in Latin America, but it also shifted its focus. Most of the new market growth since March 2020 has been for smaller-ticket, higher-frequency purchases such as food, household items, entertainment and technology goods. The asset-heavy, internationally-focused business model of big logistics players is not well-positioned for a domestic e-commerce driven market. To compete in the domestic e-commerce markets in Latin America, companies like FedEx, UPS and DHL need to bring down their fulfilment variable costs.
Why is this an opportunity? Domestic e-commerce demand, which grew an estimated 70% in 2020, is here to stay. With 50 million new consumers now e-commerce experienced, a critical mass of buyers will keep demand growing as salaries recover. Companies that can find the cost agile model to deliver 2-hour to same day fulfillment at a low-cost variable will enjoy a long-term growth trajectory. For some of the region’s leading logistics providers, this means changing their business model, teaming up with jobbers and small-scale suppliers (Uber model). Such a transition, while maintaining quality and regulatory compliance, won’t be easy.
In order to find the right approach, these legacy players need to answer the following strategic questions:
- What are the fulfillment costs of these more agile business models?
- How did the achieve such a low-cost structure?
- What would it take to replicate or buy them?
- What are the legal obstacles to running a contractor driven business model?
#5 Cross-border e-commerce fulfillment in Central America and the Caribbean
Before the pandemic, there was a trust barrier for many Latin Americans, especially when it came to using their credit and debit cards online to make purchases. Trust was also a barrier for American e-commerce merchants, which were reticent to accept LAC issued credit cards. COVID lockdowns brought both sides to the table.
Why is this an opportunity? 2020 helped bring together reluctant e-commerce buyers and sellers. For customers in small LAC markets, cross-border purchases are usually the only option, a fact that is not likely to change. As purchasing power in these economically damaged economies returns, cross-border traffic will grow with it.
The most competitive business model serving these customers is U.S.-based PO boxes who consolidate online purchases in Miami, after which they are air shipped by commercial airlines. Import volumes are dictated by the de minimis thresholds established in each destination market. Such a model avoids most import tariffs. Competing with these models remains the most pressing challenge to other players who want to capture cross-border fulfillment growth.
Logistics providers, support service companies and technology providers are still coming to terms with the breath-taking pace of change in Latin American logistics over the last year. The shifting market is filled with more opportunity than threat but maximizing the former and minimizing the latter requires a brand-new reading of the market as well as external thinking to disrupt old ways of doing business that are unlikely to prove effective under new market conditions. That is where AMI can help.
Contact us to find out how our LatAm logistics market intelligence can help you take advantage of these opportunities, counteract your competition, generate new leads and much more.