In Latin America, e-commerce underperforms, representing anywhere from 0.5 to 2.5% of retail sales versus 8.5% in the U.S. With a dearth of brick-and-mortar retail options available to Latin America’s increasingly demanding consumers, e-commerce ought to be flourishing more than it is. Getting in the way is the lack of logistics support for e-commerce merchants. Through the studies we’ve conducted of Latin American e-commerce and logistics, we’ve identified five logistics obstacles that plague online shopping in the region.
#1 Fulfillment Delays and Lack of Reliability
A study conducted by the Argentine Chamber of Electronic Commerce (CACE) in 2015 revealed that 58% of e-commerce deliveries require at least a week to be delivered and another 34% require more than two weeks. Though Brazilian and Mexican shoppers receive their online orders faster, slow delivery is a top three complaint in those markets as well.
Outside of Brazil, online sellers lack the infrastructure to pick up, sort, consolidate and distribute goods beyond first-tier cities, arguing that there is lackluster demand to justify such investments. Even within the region’s largest urban clusters, traffic is so overwhelming that same day or next day shipping terms can be impossible to fulfill. In Sao Paulo, the 20 km trip from the international airport to downtown can take anywhere from 1.5 to 4 hours. Distribution centers rarely operate on 24-hour shifts due to security concerns, costly overtime and a lack of trained personnel, which prevents shippers from picking up goods at night when there is less traffic.
The last mile of delivery can be the biggest source of obstacles. The mere fact that most delivery addresses are too unsafe to leave parcels unattended means that couriers find themselves returning two or three times to complete the delivery. Zip codes and postal systems are still being improved and rolled out in several cities across Latin America in order to facilitate e-commerce.
Logistics start-ups and Uber-type firms are starting to disrupt e-commerce fulfillment in Latin America. In Brazil, the firm Loggi connects independent drivers with retailers. Their software application automatically calculates delivery costs and routes to provide same-day deliveries, from warehouses to customers, bypassing consolidation centers at logistics facilities. All that drivers need to do is accept the job and pick up the goods. In Mexico, TransFast uses certified urban shippers including cyclists, motorcyclists and car drivers to deliver documents, goods, pets and food from online retailers, individuals and restaurants offering same day deliveries. Colombian taxi app Tappsi Envios partners with e-commerce retailer Linio to offer same-day express deliveries in Bogotá. The competitive advantages that these startups bring to the market include both faster delivery and lower costs.
Overcoming security concerns remains an unaddressed issue but the introduction of SmartPost- style lockers will likely help. Amazon.com’s delivery capabilities in Mexico will include locker facilities in 1,500+ Oxxo convenience stores. Customers will receive an email or text indicating in which locker (near their delivery destination) their package is held, plus a code, good for a limited period of time, such as 48 hours. Other iterations of the same are likely to follow, based upon the level of acceptance of Amazon’s initiative.
#2 Cross-Border Customs Delays and Corruption
Bureaucracy, red tape and corruption in customs are the greatest hurdles for cross-border online purchases in Latin America. For instance, in 2015 Americas Market Intelligence (AMI) conducted a mystery shopping exercise for a leading logistics company in which packages were delivered across all continents using several logistics firms. In Asia, Europe and North America, packages arrived within two to five days as predicted but in Latin America all parcels encountered obstacles at customs. In Argentina, customs officials requested a bribe to expedite the clearing of the packages. While in Colombia and Mexico, local authorities did not clear the goods arguing the receiver must be a registered importer (in itself a time-consuming process) prior to delivery and refused to release the package.
So onerous are customs bureaucracy, corruption and delays in Latin America that cross-border e-commerce remains an untapped market. In 2015, cross-border e-commerce represented <10% of Brazil’s online market, in spite of enticing pricing differences found for the same product off-shore. In Mexico, Colombia and Argentina, local experts estimate cross-border to bring in less than 7% of total e-commerce.
To solve the issue, new firms are emerging. Miami-based Aeropost provides a US based PO box, through which customers based in Central America and the Caribbean can buy from international e-commerce sites who do not balk at delivering to a U.S. address. The product arrives in Miami, where it is consolidated and shipped onwards to the destination country. Also, the firm created an online marketplace to expand its footprint among customers, selling the trendiest articles of the season such as electronics, clothing, watches and toys. Customers have full visibility of shipping costs and delivery times before they place their order. Of course, Aeropost must also contend with customs officials in the region but as an experienced shipper, they are far more likely to resolve any problems expeditiously versus the average online shopper in Honduras.
#3 Lack of End-to-End Responsibility
According to Tomás Allende, founder of the start-up ShipNow in Argentina, there is a widely held (and flawed) perception among online merchants that a sale is completed when the customer buys it online, as opposed to when the customer receives the product in their hands. Too often, merchants and couriers blame one another when products arrive late or damaged to the customer. The lack of end-to-end responsibility only undermines trust in e-commerce by consumers. According to a study conducted by Kantar Worldpanel with more than 10,000 online shoppers in LAC in 2016, 73% of people still prefer to see the product before buying it and 37% don’t trust the delivered quality of what they buy online.
Experts contacted by AMI believe that the best way to solve this problem is by clearly communicating delivery prices and transit times to customers before the commit to payment. Also, the more delivery time alternatives offered to customers, the better, thereby offering the appeal of a wider range of delivery time versus cost trade-offs.
The consumer seeks the guarantee of a merchant or logistics company that will take full responsibility for any delivery mishaps, without question and will facilitate return and replacement of damaged goods. Amazon has largely achieved such a perception in the U.S. market, proving that such a guarantee, though costly, is an important competitive differentiator. Just like the credit card companies like Visa or MasterCard guarantee your money back on contested fraud, the same sort of guarantee is required as it relates to damaged goods. Without it, e-commerce will not flourish.
#4 Lack of Customer Returns Solutions
Every online consumer eventually needs to return an order, either because he made a mistake or the merchant did or it arrived damaged. How a merchant deals with returns can enhance or destroy a customer relationship—as the aforementioned Amazon U.S. operations example reveals. Few merchants in Latin America are effective at managing returns. International merchants selling into the region are even more stymied by returns. Leading integrators like FedEx, DHL and UPS offer return management services in Mexico and Brazil, though managers in all three companies privately admit that there is a lot of room for improvement. In less mature markets like Colombia, Argentina and Chile, e-merchants till now have been focused on catching up to under-served demand. The issue of client retention is only now becoming prioritized by e-merchants. As e-commerce growth matures and merchants rely increasingly on customer loyalty to drive business, return management excellence will grow in importance. Logistics companies that master the process will gain the loyalty of the e-commerce merchants, their customers.
#5 Poor Inventory Management
Most e-merchants are focused on the revenue side of the business, i.e. the pursuit of more customers and larger sales volumes. Inventory management is the last thing on their mind, that is, until their sales explode and their lack of investment in adequate warehouse management systems (WMS) jeopardizes their continued performance. According to local logistics experts, underinvestment in warehousing technology capabilities in Latin America is more acute compared to other emerging markets (such as Asia). Without adequate warehousing and inventory tracking, deliveries are delayed, stock-outs are frequent and customer retention, not to mention brand reputation, can fray. Well-administered inventory management both improves margins and reduces working capital requirements.
Turning Obstacles into Opportunities
All five obstacles represent market opportunities for firms looking to make their mark in what many believe to be Latin America’s fastest-growing logistics segment.
Exploiting said opportunities requires market intelligence—and this is where Americas Market Intelligence can help. Our logistics practice consultants help 3PLs and integrators size the market opportunity, understand the competitive environment (including disruptive start-ups), and master the regulations as well as generate specific client leads with e-merchants who require supply chain services. For merchants looking to improve performance in Latin America, AMI can help benchmark your logistics with the best-in-market as well as mystery shop the cost and performance metrics of different solutions providers.
Contact Americas Market Intelligence to learn more about how we can help logistics companies working in Latin America—as well as e-commerce firms, all via strategic intelligence that businesses need to succeed in LatAm.