In Logistics

Diego Rodríguez

Senior Director, Logistics Practice

AMI

Before we delve into specifics in terms of our 2023 logistics outlook for Latin America, which we frame as “good,” “bad,” and “ugly” below, we have to offer a general assessment, given the situation.

While we’d like to be wrong, our analysis suggests that there will be a widespread slowdown in Latin America’s logistics and economic sectors in 2023. The first half of the year will start with the same economic softness experienced in Q4 2022, helping supply chains return to normality at the expense of less economic activity. In contrast, the year’s second half could become a wildcard determined by the soft landing in the US economy and China’s rebound in consumer demand—this could help spark an upsurge, however modest.

Challenges abound as the shipping industry in the region faces new problems in 2023: plummeting rates and too many containers. The sharp decline in freight rates will impact ocean and air service revenue to and from Asia. In addition, local terminal operators in Mexico and Chile shared with AMI that container yards are filling up quickly in January, indicating further signs of falling demand and an imminent economic slowdown in the region. Hiring freezes and layoffs at the global headquarters in firms like CH Robinson, DSV, Uber Freight, and Amazon is also likely to put expansion plans in Latin American markets outside the big two markets (Mexico and Brazil) on hold, slowing the pace of innovation.

As you can see, the outlook for the industry is anything but simple. There are many factors at play that could lead to different outcomes—it’s not a straight line between two points, it’s more like swirling liquid in a globe.

That said, in an effort to help you understand the major factors and their effects on the Latin American logistics industry, below we go into greater detail to highlight them and explain their impact. Our hope is that this will help you discover opportunities and mitigate risk—and of course, our market intelligence services can offer further resources to achieve those goals and others.

FREE REPORT


The LatAm Logistics Market Data Portrait

A detailed infographic report that features Latin America's big-picture, and granular data for six of the largest logistics markets: Brazil, Chile, Argentina, Colombia, Mexico and Peru

The Good


Tansport crates with Chinese flag on the conveyor belt.

China is open for business, and Latin America will benefit greatly

As China exits its strict COVID lockdowns in Q1 2023 and factories return to normality after the new lunar year break, we expect internal demand among Chinese consumers to gain momentum, benefiting countries in Latin America. Data show China’s recovery is gaining momentum, with factory and services activity growing for the first time in four months as the economy reopened. Early signs from the Lunar New Year holiday show travel and box-office spending significantly stronger vs. 2022. A revamped Chinese economy will undoubtedly benefit commodity exporters such as Chile (67% of copper exports go to China), and Brazil (70% of its soybean exports go to China), but other sectors, like perishables, are ready to join the party too. Latin America’s exports to China, traditionally shipped by air, are expected to grow in 2023 as Chinese consumers return to restaurants and the service sector leads the comeback. According to interviews with cargo operators, volumes to China could grow at double-digit rates this year. Chile, Peru, Ecuador, and Colombia are top exporters of perishables to China.

However, due to the flow imbalance, Asia remains a challenging destination for Latin America’s perishables. Chinese shipments to Latin America go primarily to the eastern coast, especially Brazil, as it is one of the fastest-growing markets for Cainiao, the logistics arm of the eCommerce giant Alibaba. In contrast, countries on the Pacific coast export most perishables.

Cross-border e-commerce is another sector growing between China and Latin America. Since 2020 Caino has leased B747-8F capacity from Atlas Air and now has eight weekly flights from Hong Kong to Sao Paulo and added stops to Miami, Santiago, and Bogota in 2022. The development of Cainiao‘s logistics facilities in Latin America will accelerate the growth of cross-border eCommerce parcels from Chinese merchants to the region, with delivery times dropping to less than two weeks on average in 2023.

2023 will bring new opportunities for non-traditional exporters in Latin America too. We foresee the manufacturing of high-tech goods, electric vehicles, and the renewable energy industry as the most dynamic in China’s economy. All this means more opportunities for other materials produced in Latin America, like lithium employed in batteries for electric vehicles, aluminum used in solar panels, and wood used in wind turbines.

3D rendered concept of trade deals and international commerce agreements with the country of Mexico.

Nearshoring in Mexico continues to grow cross-border freight volumes

While congestion at ports may be a thing of the past and transportation rates are coming down, senior executives continue to de-risk their supply chains to find flexibility and new alternatives to serve consumers. Nearshoring is the buzzword in the industry, with Mexico as the top-of-mind location in the region to increase its exports and integrate further into U.S. and global supply chains.

Mexico is becoming increasingly attractive to U.S., European, and Asian firms looking to serve US consumers as the economic war between the US and China, the Ukraine conflict, and growing costs associated with manufacturing in Asia, including labor and transportation costs, force executives to find new production hubs.

Global producers already operating in Mexico are expanding their manufacturing capacity to serve US consumers, boosting USD spending on logistics and transportation services during the last decade. Still, the uncertainty surrounding the US and global economy in 2023 and 2024, coupled with lower contract rates between shippers and services providers, will slow down growth from double to single digits logistics spending.

Mexico’s small parts supplier base is growing, with Chinese and other Asian suppliers manufacturing in the country to circumvent US trade tariffs.  However, importers shifting their sourcing to Mexico and Latin America report challenges in locating suppliers with the right production quality and shipping networks.

According to estimates published by the Inter-American Development Bank (IDB), nearshoring could increase LatAm’s total exports by $78 billion per year ($64 billion in goods plus $14 billion in services) in the near and medium term. Mexico will see the most significant gains in Chihuahua, Ciudad Juárez, and Monterrey as the prime destinations for cross-border logistics and distribution facilities in 2023, while El Paso and Calexico are the top destinations for cross-border logistics on the US side.

According to the World Bank, only 15% of Latin America’s trade occurs within the region, compared to 38% in North America and 55% in the European Union, with Brazil, Argentina, and Colombia having the world’s lowest trade ratios to GDP. Suppose Latin American countries can build and expand their links to one another in the new global context that is taking shape after the pandemic. In that case, they may capture the economic and commercial dynamism that comes with the integration into global supply chains in sectors like automotive, textile, and processed foods, boosting the demand for trucking, warehousing, and cold storage services.

FREE REPORT


The LatAm Logistics Market Data Portrait

A detailed infographic report that features Latin America's big-picture, and granular data for six of the largest logistics markets: Brazil, Chile, Argentina, Colombia, Mexico and Peru

The Bad


big ten wheels truck with container for logistic running on the road.

Ocean, trucking, and air freight rates will underperform

The shipping industry in the region faces a new problem in 2023: Plummeting rates and too many containers. The sharp decline in freight rates impacts ocean and air services to and from Asia, considering that average spot rates in January 2023 are at levels seen only before the pandemic. The market sentiment is bearish, as weak rates experienced by carriers are caused by excess capacity coupled with a drop in sales among importers, which is an indicator of the excess in inventories in Latin America. Local terminal operators in Mexico and Chile shared with AMI that container yards filled up quickly in January after containers were unloaded. This indicates further signs of falling demand with fears of an imminent economic slowdown in the region.

In the Latin America to North America lane, air freight volumes are expected to be lower in 2023 vs. 2022 but still 15% higher than in 2019. This lane’s average spot airfreight rate was around USD 1.43 per kg in January 2023, only 13% above the pre-pandemic level, the lowest among all corridors, according to Xeneta’s client note in January. The pricing landscape will be driven this year by the return of belly freight space almost back to pre-covid levels, passenger airlines’ online booking platforms better equipped to steal market share from only cargo airlines, and shippers continuing shift from air to cheaper and more reliable ocean services. We predict a rate war among carriers is likely because the capacity constraints experienced in the last two years have eased, and now we’ll have overcapacity in Latin America.

As rates remain low during the first half of 2023, we expect carriers will cut lane services this year in Latin America and migrate capacity towards more profitable service lanes, where volumes are stable and rates are attractive. As a result, shippers will likely find better rates in both air and ocean, opting for shorter capacity commitments in 2023 (less than three months on average).

Drop in cost of container shipping. Fall in profits from the transportation of goods. Lack of transport capacity and global container shortage crisis. Decrease in shipping rates. Trade traffic decline

Global trade hit the brakes

The trade outlook in Latin America will show a depressing picture in 2023 as industrial activity recedes globally and demand for materials and goods retreats. According to the WTO, Latin America will record the slowest export and import growth globally in 2023 (see table below). The manufacturing sector in Mexico and Brazil will slowdown in 2023 due to lower internal and external demand, mainly for consumer-driven industries, where oversupply is the highest.  The most significant decline in trade is expected in goods and materials related to construction, consumer goods, and retail. The consensus among sources consulted expects sluggish export growth and a decline in imports due to lingering inflation.

The meager growth rates in traded goods to and from Latin America will stem from slower consumer spending and excess inventories in the US and Europe. The new era of separate but interconnected trading blocs led by the US, the European Union, and China, boosted by “friend-shoring” manufacturing and shifting supply chains away from authoritarian regimes, will have a limited impact outside of Mexico in the short term.

Business Workers using digital tablet computer cargo and tracking delivery for Transportation and global network of smart logistics in blur warehouse background.

Investment in logistics technologies will dry up

Venture capital investors’ excitement for supply chain start-ups is cooling as supply chain snarls untangle and the shipping delays of the pandemic improve. 

According to TTR, venture funding for logistics startups in Latin America was down approximately 50% in 2022 vs. 2021, showing a more significant decline than the broader startup scene. The situation in 2023 is likely headed toward the same road as the era of cheap money is over. Startups focusing on last-mile delivery to consumers’ homes will likely experience the most significant decline in investments in 2023 due to slower growth forecasts for retail e-commerce orders in the region. In addition, the sharp contraction expected in consumer spending resulting from record-high interest rates in Latin America will likely produce more significant consolidation in the start-up scene. The current economic uncertainty will slow down logistics innovation in the e-commerce arena in 2023 and 2024. Investors’ appetite in the industry will focus on tech that can automate supply chain transactions and reduce the number of people needed for routine tasks. Startups digitizing paper documents and solutions reducing headcounts will attract the most capital as the overall business sentiment focuses on doing more with fewer resources. The emerging opportunity is that cargo owners and legacy logistics firms will be more willing to pay for software, cutting costs.

The Ugly


US recession

Steeper recession in the US and Europe will drag down economies in LatAm

The outlook for the global economy looks bleak, and Latin America is no exception in 2023: after Europe, it is the region that will grow the least in the world, according to the latest World Bank forecasts released in January 2023. According to the international organization, Latin America will grow 1.3% in 2023, less than half of the 3.6% in 2022.

The region is highly exposed to the slowdown in the US and European economies, which will reduce its exports and revenues in dollars. In addition, a decline in commodity prices and tightening financial conditions are expected to affect foreign investment levels, which are vital for developing and expanding the productive sector and integrating the region into global supply chains. As a result, several multinational companies moving production out of China are betting on other Asian countries like Vietnam and Thailand instead of El Salvador, Guatemala, or Panama. Among the most important regional economies, the World Bank estimates that Brazil will grow by 0.8% in 2023, Mexico by 0.9%, and Chile will contract by 0.9%, mainly because of monetary policies implemented to curb inflation and the price declines in raw materials. Chile exports metals and imports energy, with metal prices expected to fall more in 2023 than energy prices.

In Central America, growth is expected to fall to 3.2% in 2023 due to the slowdown in the United States economy, reducing exports of textiles and fruits, and the inflow of remittances. In other words, lower economic growth is more likely in this sub-region than a recession. A determining factor for the forecast for Central America is the flow of remittances since they represent a high percentage of the GDP and the domestic consumption of households. For example, Guatemala received $18 billion, Honduras $8.6, and El Salvador $7 billion in remittances in 2022, according to official data from the central banks of these countries.

This situation will likely impact the revenue projection of shipping companies, airlines, and cargo terminals, from import and export freight volumes even more when shipping rates reach rock bottoms.

Businessman leaving.

Widespread layoffs and the exit of global start-ups

The economic uncertainty surrounding the region in 2023, the drop-in shipping rates, and the new contract negotiation season favoring cargo owners are likely to cascade into scalebacks across big and small logistics firms in Latin America. For instance, Didi, the Chinese Uber with a strong presence in the region, announced layoffs in various countries, including Chile, Mexico, and Peru. In Brazil, it decided to close its food delivery application.

Layoffs are usually the initial signal to exit a market or region. For example, Jokr left Colombia at the beginning of 2023 after closing its operation in Chile at the end of 2022. It thus joined rivals such as IFood and UberEats, which had already shut down their operation in Colombia. Shortly before Jokr, the Greek platform Beat packed its bags and left Latin America.

Hiring freezes and layoffs at the global headquarters in firms like CH Robinson, DSV, Uber Freight, and Amazon is also likely to put expansion plans in Latin American markets outside the big two markets (Mexico and Brazil) on hold. Although labor laws in Latin America are more favorable to employees than employers, we expect the downsizing of headcounts and investments all over the region in 2023.

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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