In Logistics

While 2018 should offer some encouraging positive developments for logistics players, ongoing market shifts will also present problems and hamper growth. Another factor is tech disruption in the logistics space, led by new startups that are encroaching and cutting into margins. While foreign investment in Mexico was up by 10% during the first nine months of 2017—good news for the logistics industry, which made Mexico the cornerstone of its Latin American strategy—a failed renegotiation of NAFTA could lead to the demise of that agreement, as could even a successful renegotiation, depending on the terms.

Here’s our take on what’s ahead for the LatAm logistics sector in 2018.

The Good

Logistics firms are now able to take advantage of technological developments, using predictive analytics, data gathering and WMS to help anticipate warehouse needs and optimize inventory positioning. This can help companies reduce express air freight and warehousing costs. E-commerce’s growth in Latin America is another bright spot. Cash on delivery is showing signs of expansion in the e-commerce space, and e-tailers see the opportunity of COD to reach unbanked customers in the region—who happen to represent the majority of consumers. This could provide a solid new source of revenue for logistics firms, provided they find a way to manage the security risks involved with cash and issues with fulfillment with COD in Latin America.

Another positive development is the rise of marketplaces for legacy carriers, similar to marketplaces that sell air travel. This could drive new business because they speed up the often tedious process of shopping for logistics. In addition, 3PLs can also license this technology and outsource their own transportation needs to vetted carriers and thus avoid needing to own its own trucks.

The Bad

The first and last mile of freight transportation are becoming increasingly Uberized, as startups like Rapido, CargoX and Chazki hire drivers and vehicles to deliver items. While these companies are not yet a major threat, they certainly have the potential to grow even more in 2018 and cut into profits for legacy players as more companies gravitate to them for savings and efficiency increases.

And as these tech disrupters arise, market conditions continue to present difficulties for logistics carriers. Air cargo yields for Miami International Airport—through which a disproportionate percentage of US-LatAm air cargo volumes pass through—have been dropping steadily since 2014 after the collapse of Latin American currencies. While LatAm economies are finally showing signs of recovery, such as projected 1.3% growth in GDP for 2017 and forecast 1.9% growth in 2018, consumers are still not purchasing at pre-2014 levels to spike the flow of products transported by logistics carriers.
Ocean cargo is also competing more effectively against air cargo thanks to better cool-chain technology and protocols, and this will likely continue to pressure logistics firms when it comes to higher-value perishables, especially with short to mid-length runs.

With hikes in the Fed expected for 2018, LatAm currencies should only post modest gains against the dollar. As such, even with LatAm consumer markets recovering, there are likely to be yield declines, making for another challenging year for US-LatAm air cargo.

The Ugly

NAFTA presents the biggest possibilities for impacting LatAm logistics severely in 2018. Recent reports suggest that Canadian government officials feel that the Trump administration will pull out of NAFTA this year. If this happens, protectionist countermeasures from Mexico and the resulting disruption in the flow of goods could take a heavy toll on logistics players.

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Contact us to find out how our logistics practice leaders can help your company prepare for LatAm logistics market shifts in 2018, whether it’s handling tech disruption, helping freight forwarders adapt to lower freight rates, generating new leads for your company and more.

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