While LatAm’s expected e-commerce growth in 2021 and increased digitization will offer benefits for the logistics industry (via greater demand and better operations efficiency), significant challenges await. The difficulty of distributing the COVID vaccine in Latin America (due to both terrain and weak infrastructure) and problematic security issues (ranging from hijacking to counterfeiting of vaccine doses) could make 2021 a very costly year for logistics operators in the region.

FREE PRESENTATION
The 10-Year Outlook for Latin America
Based upon the extrapolation of unmistakable trends reshaping our economies and societies today
The Good
COVID spiked e-commerce demand during the lockdown periods and initiated millions of Latin Americans into 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 logistics services, including non-traditional warehouse spaces and the growth of online marketplaces offering last-mile and distribution that can offer flexible, on-demand services.
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. Markets like Brazil, Mexico, Peru and Colombia are positioned to handle more e-commerce orders than they saw coming into the pandemic, meaning they are placed to sustain the COVID-19 surge in 2021 thanks to the investments in logistics technology and infrastructure (TMS, WMS, returns and reverse logistics). Categories with relatively low e-commerce sales—including fresh foods, groceries, and alcoholic drinks—will continue moving toward online sales in the post-COVID reality. The shift towards online sales in these categories will lead to a rise in micro-fulfillment centers, curb-side pickup, and automated delivery services as supermarkets look for ways to cut costs associated with selling more online. This means growing revenues for logistics players that offer value-added logistics solutions tailored to e-commerce customers in need of outside support as they struggle to keep up with demand.
The Bad
Mexico, Costa Rica, and Chile were the first nations in Latin America to kick off their vaccination campaigns in December 2020. For a population of approximately 500 million people in need of the vaccine in the region, Latin America will require between 250 and 300 million doses—following the most conservative scenario—in the first vaccination phase, which will require a massive logistical operation on a scale that’s never been seen before. Latin America’s limited capacity to produce vaccines locally—coupled with tight budgets for imported doses and the logistical challenges in distributing and storing vaccines, some of which require ultracold storage—are major obstacles to getting significant portions of the population vaccinated.
All Latin American countries will face bureaucratic, last-mile challenges and cold chain constraints during the vaccine rollout. These factors support our view that the vaccination of vulnerable groups will not be completed during 2021, while the general population will not begin receiving the vaccine until at least 2022 (with the exception of Chile) and this immunization will not be completed before 2023. This situation will delay the economic recovery in the region, reducing GDP growth forecasts by at least 1% by the end of 2021. We expect populist governments to deny their responsibility for the delays in the vaccination campaign by blaming logistics operators, which could impact the reputation and brand name of firms with limited resources or expertise to deal with bad press.
As Carlos Neuhaus, the businessman appointed by the Peruvian government to oversee vaccine distribution, said in December, 2020 “The Pfizer vaccine is easier to distribute in Lima and big cities, but the other vaccines should go to the more complicated places” due to the limited cold room infrastructure and rugged Andean topography. This element will delay the number of vaccinated people in the first six months across second- and third-tier cities. Also, the operational costs for logistics firms distributing the vaccine in remote locations with unreliable power supply will likely increase as investments or partnerships with firms operating in other industries (e.g., foods) will be needed to create contingency plans to service those locations.
Refrigerated and freezer trucks that can transport vaccines aren’t in huge supply in the region. Furthering hampering this distribution is the fact that these trucks must also transport meat, seafood, and many other foods and medicines, such as insulin. Besides being limited in supply, these trucks are old: across Latin America, more than 50% of the refrigerated trucking fleet and its equipment are more than 12 years old. As such, the cold chain systems in Latin America are not built to take on this large of a challenge in such a short time frame. These factors will directly impact the ability of more than half of logistics players to meet the service and infrastructure requirements needed by governments to distribute the vaccine. We predict that a narrow field of competitive logistics players will meet the discretionarily steep requirements imposed by governments to bid on these contracts, opening the window for corruption and nepotism.

FREE PRESENTATION
The 10-Year Outlook for Latin America
Based upon the extrapolation of unmistakable trends reshaping our economies and societies today
The Ugly
Increasing cargo theft and personal security threats (to drivers), most acutely in Mexico, Central America and portions of South America, has pushed up insurance premiums and overall logistics costs as the pandemic has fueled unemployment and crime rates all over the region. With the vaccine as one of the most valuable products distributed in 2021, security threats are on the top of the priority list for logistics players. Pharmaceutical and logistics firms have begun employing military escorts during the last mile so they can prevent criminal organizations from targeting trucks and distribution hubs. For instance, DHL in Mexico partnered with the military to secure its last-mile operation. We expect the military escorts in Central America and South America to be assigned only to large shipments, meaning that logistics players will be left to pay for their own security details on most of their shipments, adding another layer of complexity to the distribution of vaccines. Some of the most sophisticated organized criminals with links inside governments in countries like Mexico, Colombia and El Salvador will likely be tipped off to target vaccine shipments with no security escorts, which in turn will impact logistics firms and skyrocket security costs in some markets.
According to IATA, the likelihood of vaccine tampering, production of counterfeited doses, and even attempts to disrupt the distribution are more concerning in Latin America, given its higher crime rates versus other regions in the world. Logistics firms will not only be assigned the responsibility of rapidly delivering doses but also be charged with safeguarding the integrity of vaccines through the use of technology tools to monitor and report on their operations in real time. As a result of this, people could end up poisoned or falsely believe themselves to be vaccinated when they aren’t, creating the opening for government officials to wrongly accuse logistics players of not handling vaccines properly. In the ugly scenario that a logistics firm is involved in this PR predicament, we believe that only a few global firms have the experience and resources to counteract this kind of reputational risk.
For the firms that have not yet embraced sufficient technology in their operational processes, 2021 could become an uglier year than 2020 to compete with logistics disruptors, not only with the vaccination campaign, but also within the increasingly connected e-commerce world. Struggling transport companies that have not invested in digitizing their operations will risk going out of business, not because of the COVID-induced economic crisis, but as a result of clients who now demand faster and more reliable service from their logistics partners.
Next Steps
Contact us to explore how our market intelligence services for logistics in Latin America can help your company anticipate challenges, find new opportunities (including through the privatization of postal services in LatAm), benefit from digitization, avoid disruption from new competitors and more.