In Logistics

For the logistics industry in Latin America, 2022 will prove as disruptive and almost as volatile as the previous two years as the COVID pandemic rewrote the playbook for the sector. Demand fluctuations, cross-border e-commerce going local, sky-high carrier rates and profits, labor and equipment shortages, Omicron spikes, and Central Bank interest rate hikes will all play a role in defining the market landscape in 2022.

The Good

Profits will remain strong in 2022 in the ocean and air freight space: Port congestion will continue impacting the availability of equipment, labor, and cargo space during the first half of 2022, permitting container lines to continue charging above-average rates for cargo space.  Ocean rates are expected to stay elevated well into 2022, setting up another year of soaring profits. According to maritime research firm Drewry, the ocean industry will report almost $190 billion of operating profit for 2021, more than the operating earnings of Apple and Microsoft Corp combined, while A.P. Moller-Maersk A/S, the world’s second-largest container carrier, will match or surpass its combined results from the past nine years. Another critical element benefiting profits in 2022 is that ocean carriers and customers began discussions to enter annual contract negotiations much earlier this year, with retailers and other importers jumping at the opportunity. Paying the cost of this pricing trend is small business that struggles to find space for its cargo and when it can, must pay elevated rates in both the spot and long-term market.

Airfreight will become the primary revenue generator for airlines in Latin America in 2022: According to IATA, the global air freight sector will also post record revenue in 2022, reaching $170 billion in line with 2021 figures. Passenger flights will continue generating losses for airlines with travel restrictions and fears of traveling abroad impacting revenue. Under this scenario, we expect several commercial airlines to mimic LATAM airlines and offer direct online freight booking options for customers and belly capacity at 85% of pre-pandemic levels. In a post-COVID world with outbound perishables exports booming in Latin America, the deal between LATAM and is a clear example of the digital disruption coming to this sector. We will see a rapid transition of shippers and forwarders towards online booking for cargo space as hotels and flights are booked today. For instance, LATAM Cargo group is investing in nearly doubling their B767 freighter fleet over the next two years to deliver increased customer volumes and compete head-to-head with pure cargo carriers.

On the other hand, powerhouse names like CEVA, DSV, DHL GF will likely expand their air freight charter services from Latin America to North America and Asia as ocean shipping bottlenecks keep customers turning to air freight at least through the first half of 2022.

A busy year for mergers and acquisitions as global firms expand into new services: Thanks to the record profits of 2021, we can expect international logistics firms with deep pockets to expand into land-based logistics, fulfillment, and contract logistics in 2022. The acquisition of assets, digitization, and technological disruptions of traditional services to further global players’ relationships with top customers is a natural next step. 2022 should bring a record level of investments and M&A activity to the sector in Latin America.  Gaining a lot of attention among potential acquirers are Latin American logistics startups: Nowports, Klog, Liftit, Nuvocargo, Melonn, Loggi, and Cargo X. Lastly, investment in the latest logistics technology will disrupt traditionally low tech segments like freight and customs.

Cross-border e-commerce will pivot towards new logistics models in Latin America: Thanks to the supply chain and logistics snarls experienced in 2021, cross-border e-commerce is poised to show another record year in 2022 with a forecasted increase of 23% year-on-year in Latin America, according to AMI’s logistics practice.  As delivery predictability becomes more relevant for online retailers, we expect big consumer brands and e-commerce firms like Alibaba and Amazon to transport a more significant share of their goods to foreign bonded warehouses in Panama, Miami, Colombia, and Chile, the most common springboards to serve the Caribbean, Central America, Andean markets, and South Cone countries.

Advanced inventories permit e-commerce players to ship directly from overseas locations to end buyers.  This will help reduce transportation costs and transit times, especially during peak seasons.  In addition to the growth in revenues from storage and last-mile delivery services targeted for cross-border e-commerce sellers, we predict the rise of after-sale services, supply chain financing, compliance consulting, and local marketing to promote the brands.

The Bad

Container shortages linger into 2022: The containershortages and trade lane imbalances that the global maritime transport experienced in 2021 will not abate in 2022. Buckle up, because congestion in ports will continue during the first half of 2022. The container shortage will impact the ability of port, airport, and truck operators to move fruits, vegetables, coffee, and flowers out of Latin America on time, especially during Q1 2022. We predict a slightly lower number of ships servicing ports in South and Central America as ocean carriers transfer them to service the US and Europe, where rates are much higher and capacity is tighter.

We anticipate a shortage of 40-foot containers in Pacific ports, especially in Mexico, Colombia, and Chile, as exports continue to grow at over 10% per year.   The container shortage will impact logistics operators and Latin American exporters alike. We forecast between a 5% and 8% drop in export volumes of fresh produce in 2022 destined to European and US markets as ports cannot clear the backlog. Due to the unpredictable maritime transit times and destination port delays, farmers are more careful to ship only produce that will not quickly perish.

Labor, safety concerns, and goods shortages: In Q1, 2022, Omicron will cause labor shortages as most jurisdictions obligate a 2-week hiatus from work when infected.  However, Omicron will peak in most countries between the last week of January and the last week of February so the labor shortage should recede by mid-March.  Omicron will move quickly because no one wants more lockdowns in the region — they are politically untenable at this point. 

Many believe that China has a much larger spread of Omicron on its hands than officially reported.  If that is the case, the low infection levels in China will help accelerate the virus and could lead to record hospitalizations.  That could prove very disruptive to China.  Any slowdown in China will have a knock-on effect for Latin America, particularly South America.  The immense trade between China and Latin America could be adversely affected.

The Ugly

A hawkish Federal Reserve triggers an equity market meltdown in 2022: In light of rising inflation, the Federal Reserve will stop printing money and start raising rates quite aggressively to nip in the bud US inflation.  An aggressive Fed will immediately impact equity prices and could trigger a slowdown in investment by publicly traded companies.  Higher rates will make it difficult for Argentina, Brazil, Jamaica, and El Salvador, among others, to meet their debt obligations, possibly triggering further downgrades in their national debt, thereby raising borrowing costs.  A deteriorated fiscal position and the erosion of real wages due to high inflation will exacerbate capital outflows from the region.  That will weaken local currencies and slow the import of finished goods to the region.

Next Steps

Contact our logistics practice to learn how our research, competitive intelligence, strategic analysis and experience advisory services can help your firm more intelligently navigate the markets of Latin America.  As the previous two years have shown, disruption produces both pronounced winners and losers in a given industry.  Those who do not anticipate and adapt to market trends fall victim to them. 

Our logistics & industry practice is a one-stop solution that helps companies make strategic decisions in Latin America by collecting reliable market intelligence from customers, competitors, government, and subject matter experts. Thirty years of experience helps our senior consultants convert market intelligence into great advice. 

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