Complex regulations and bureaucracy commonly confronting logistics players in Latin America are being streamlined as a result of COVID induced digitization. Before the pandemic, the electronic transmission of data prior to the arrival of goods to customs was very rare in the region outside of express mail. The physical inspection and clearance of goods only began when products arrived onsite, such that no one used advanced declarations, and shipments were habitually delayed. Customs agents relied on random and infrequent inspections, exposing the port of entry to additional risks. COVID has forced accelerated modernization upon Latin America’s inefficient importing processes.
#1 Digitizing Customs Processes
Combating the pandemic obliged countries to expedite the clearance and release of medicines, diagnostics, kits and equipment. Customs organizations in countries across the region, including those in Peru, Panama, Colombia and Chile, quickly suspended deadlines and procedures to prevent goods from falling into legal abandonment. They also suspended both light sanctions and the deadlines for the execution of bank or financial guarantees while fully committing to accept 100% of digital documentation for imports and exports by the end of 2020.
Additionally, governments in Colombia, Ecuador, Peru and Mexico expanded the use and transmission of digital documents to clear and release imports. For instance, in Argentina it used to take seven days to clear and release goods but in August 2020, clearance was cut to three days, according to a leading freight forwarder consulted by AMI. In Mexico, the certificate of origin was eliminated under the new USMCA. Mexican authorities aim to recognize the origin of the merchandise with any commercial document issued by the importer and exporter describing the goods and its origin by end of 2021. Also, Colombia and Chile agreed to virtually issue, send and receive Certificates of Digital Origin (COD) to streamline export and import operations, in accordance with the guidelines set by the Pacific Alliance. COVID obliged governments to speed the clearance of critical medicines and equipment: now they realize that digitization and streamlining can be applied to many other imported goods.
Below is a breakdown of digitization improvements we expect to see in customs procedures during 2021:
#2 Automation of Manual Processes
Under intense pressure to streamline all processes, the entire logistics industry in Latin America (customs brokers, logistics providers, customers) accelerated the automation of outdated manual processes. Changes included: implementation of electronic bill of lading exchanges, physical inspections with the use of digital equipment, electronic payments for duties and taxes, automated quoting processes with shipping companies, further implementation of Authorized Economic Operator (AEO) programs, and the enlargement of domiciliary customs programs, among others. This phenomenon is coined as the e-commerce spillover effect into the B2B world, in which shippers and consignees demand greater transparency, information and better customer service from logistics operators.
#3 Digital Freight Forwarder Platforms
We can expect to see a rapid adoption of these platforms due to their focus on the digitization of quoting processes, documents and tracking solutions. The adoption of these platforms is fueled by the shift from air to ocean transport among perishable shippers, due to high airfreight costs, limited air capacity and better atmosphere-controlled-reefer ocean transport. For instance, Peru shipped 100 containers a week of asparagus to Miami during the month of August 2020 while mango producers increased the use of ocean shipping to reach European customers. The migration from air to ocean transport will likely persist throughout 2021 despite the additional challenges of unreliable transit times, uneven availability of containers and ocean freight disruptions that threaten the freshness and integrity of the produce. However, digitization helps mitigate some of these risks by offering real-time visibility of merchandize conditions and shaving time at both ends of the supply chain.
#4 Increased Adoption of APIs
We expect to see more LatAm logistics companies using application programming interfaces (APIs) in 2021. With APIs, organizations of all sizes can connect supply chain IT platforms with virtually any other system, like TMS and WMS. APIs can instantly connect inventory and order management systems from websites like Shopify to external fulfillment and logistics operators.
#5 Increased Adoption of Online, On-Demand Marketplaces
COVID spiked e-commerce demand during the lockdown periods and initiated millions of Latin Americans to digital commerce. With all of these new customers and the continuing digitization of payments in Latin America, in 2021 we will see additional demand for non-traditional warehouse space. In turn, this will promote the growth of online marketplaces in the logistics sector that can offer flexible, on-demand storage space with seamless quote comparisons.
Because of the growth rates that e-tailers in LatAm are forecasting for 2021 (over 35% based on AMI analysis), we anticipate an even greater reliance of e-tailers on 3PLs for the management of their inventory and shipping needs. Among the new strategies that AMI identified in its discussions with online sellers and logistics vendors is the greater use of underutilized retail locations in malls. These locations are now being repurposed to become mini-warehouses so that companies can fulfill online orders while also providing curbside pick-up for online grocery (and other essential) orders.
But the need for new sources of product space isn’t the only demand driver for online marketplaces and their logistics partners. On the cross-border e-commerce front, there is encouraging news about a potential pilot project led by the governments in the Pacific Alliance (Mexico, Colombia, Peru, Chile) to identify the supply and demand of products and raw materials that come from the bloc. The project’s goal is to ultimately launch an exclusive marketplace platform for companies, importers and exporters in 2021 to promote an increase in B2B business volumes at a intraregional level; this will allow them to counteract the ever-deeper penetration of Chinese online goods in their markets.
From the shippers’ side, we are seeing examples of CPG and beverage companies consolidating cargo to reduce empty miles traveled, lower transportation costs and reduce their carbon footprint. Thanks to marketplace platforms like CARGO X in Brazil, shippers have real-time visibility of their freight. Such solutions inform its users of truck location, traveling speed, idle time, load densities, and other crucial data that they use to optimize yields and cut waste.
Competitive Implications of Digitization
For Latin America, greater customs digitization will lower the cost of imports and improve speed. That will benefit both consumers and business, especially manufacturers who rely upon imported components and inputs. Improved transparency from digitization, should, all things being equal, lower petty corruption.
The automation of manual processes will unleash greater productivity levels, data and price transparency, along with better customer service in the logistics sector. The more tech-adept logistics firms will consolidate their share in fast-growing e-commerce and cold chain markets. The market share gains of leaders will spur other logistics players to invest in digitization and automation in order to catch up – providing a welcome opportunity to global technology providers.
Legacy logistics players will need to adapt their business models in Latin America to incorporate the on-demand models to bring flexibility into their operations to cope with the additional demand for non-traditional warehouse space, ground transportation and last mile services. The more flexible players in terms of pricing and operational structures will gain the upper hand in the value-added logistics service market.
Next Steps
Contact AMI to help you study how digitization trends can impact your business. If you offer technology solutions for logistics companies, AMI can help you expand your business in Latin America with lead generation research, competitive intelligence, opportunity benchmarking, and partner (distributor/rep) searches. For legacy logistics firms, AMI can help you study the best practices of nimble new age platform-driven competitors as well as identify potential acquisition and partnering targets.
