In Logistics

As Latin America’s economy continues to recover, logistics companies ran reap the rewards of stable currencies and an increased flow of goods. E-commerce will also contribute mightily to a greater flow of goods — and more revenue opportunities — for logistics players not only in terms of last mile delivery but fulfillment, air cargo and reverse logistics. However, it’s not all boom: a number of threats loom on the horizon for LatAm logistics firms. Here’s a look at the logistics trends we expect to see in Latin America in 2019.

The Good

The combination of recovering economies and e-commerce growth mean a favorably high flow of goods throughout Latin America, allowing logistics operators to increase revenues. For instance:

  • 5 to 3.5% projected growth of the Latin American packing industry through 2021
  • 6% projected growth of beauty industry in Latin America through 2022
  • 3% growth expected for LatAm footwear industry through 2022
  • 8% projected growth for the nutrition and dietary supplements market in Latin America
  • 5% CAGR for non-alcoholic beverage market in Latin America through 2021

Switching from offline to online, Forrester’s forecasts a CAGR of 19.3% for online retail in Latin America between now and 2022. It’s estimated that Latin America’s e-commerce volume will expand to US$118 billion in 2019, and of this nearly $60 billion will come from retail e-commerce traffic.

LatAm logistics providers are responding to the e-commerce boom by changing their warehousing approach, positioning warehouse and forward stoking locations closer to denser customer nodes for faster fulfillment for e-commerce customers. Some companies are starting to use robots and warehouse automation to speed up stacking, moving items to packers but most importantly expand their fulfillment capabilities and lowering operational costs in the long run. In addition, logistics players are increasingly using big data and analytics to analyze how their fleets operate, including their number of stops, delivery times, fuel use per route and more, all with an eye towards achieving greater efficiency.

The Bad 

Return rates for products purchased via e-commerce are still high: 20% in Mexico, for instance. And while 3PLs in Latin America have been offering more reverse logistics services, but the art of reverse logistics is far from mastered in the region, meaning more losses. The pain of less-than-stellar reverse logistics operations in Latin America will be felt particularly with cross-border e-commerce products. Often, companies are just shipping new products to customers to avoid the cost and headaches of customers trying to ship back products that were incorrectly shipped or faulty. Some companies are even considering amassing returned products to later auction them off on marketplace sites. Regardless, reverse logistics is far from solved and will continue to be costly for LatAm logistics players.

Disruptive start-ups will continue to gain ground in 2019 in Latin America, eating into profits by offering to handle the first and last mile transportation. This will pressure vertically integrated firms and 3PLs to drop their prices.

In the Life Sciences and Healthcare industry, companies in the region continue to struggle with inventory write-offs, spending millions of dollars on expired pharmaceuticals. Pharma customers lack the visibility to know the medicines that are truly used in hospitals and the pharmaceuticals are sitting idle on shelves, becoming, obsolete while regional logistics vendors have a limited capacity and service solutions to remove pharmaceuticals from shelves and exactly know how the inventory turns.

The Ugly 

A couple of market forces could possibly make for a very rough year for logistics companies in Latin America. The disrupters are pressuring companies to drop their prices to compete, and this is on top of global price pressures. This has meant that many companies have had to slash costs by laying off employees and shedding unproductive assets. While moves like this may improve the balance sheet while potentially creating more efficiency, the cost-cutting could also reduce their capabilities to serve existing and future clients, causing loss of business. A number of companies could find themselves caught in the middle between the need to reduce their costs and drop prices to compete with disrupters while having increased costs because of the need to expand their infrastructure and acquire expensive big data analytics software.

In addition, the trucking industry is highly fragmented, making it a challenge to select a logistics vendor because of the need to balance cost with reliability and coverage. And 3PL firms can be affected by these market conditions in the near term because they often lack a steady flow of backhaul contracts and don’t pursue smaller firms. As such, they will continue to miss out on the opportunity to work with on-demand and crowd-shipping platforms, those losing revenue while dealing with the same downward cost pressures that other logistics players are struggling with.

Security risks and insurance costs for logistics vendors are expected to rise as organized crime gangs become more sophisticated on finding new ways to get their hands onto expired medicines and high-value consumer electronics. For instance, Brazilian and Colombian gangs repackage expired medicines to then resell them to pharmacies with new expiration dates. This situation also creates added costs pressures for logistics vendors that now are liable for the inefficiencies of the reverse logistics cycle for expired products.

 

Next Steps

Contact  us if you need a deeper understanding of logistics challenges and issues in specific LatAm markets or in the entire region. Our team can help you with opportunity benchmarking, competitive analyses, evaluation of potential partners or acquisitions, lead generation for logistics firms and much more.

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