E-commerce is undergoing explosive growth in Latin America, despite high taxes and trade barriers. It brings some major opportunities for airlines and innovative logistics providers, writes Robert Platt.
There is little doubt that the e-commerce market in Latin America and the Caribbean holds tremendous potential for the global air cargo industry.
The region, home to over 627 million people, now boasts more than 121 million people who use the Internet to purchase goods, a figure that is expected to balloon to 161 million by 2021.
Much of this growth is being driven by a rapidly expanding middle class — according to the World Bank Group, more than 50 million people became members of the middle class over the last decade, representing an increase of over 50%.
Eric Hartmann, Vice President of AGUNSA Aviation Services, said that much of the growth in the region is being driven by improving local currencies, and in particular Brazil’s, the powerhouse of the region.
Major upgrades have been made to the region’s transportation in the last five to ten years, as well as new airports and warehouses that are comparable to “any leading trade facility in the world”.
However, there are still some problems for air cargo supply chain stakeholders who want to enter the LATAM market.
“There are fragile political situations in various countries in the regions, so we have ups and downs, but these cycles are much shorter than they have been in the past,” Hartmann stated.
“The volatility of exchange rates is something all importers and exporters in the region also have to deal with – in a mere week it could make the difference of being something positive or negative for your business.”
At the forefront of the e-commerce movement in Latin America is the Mexico-based e-retailer Linio Mexico, which launched in 2012 and now dominates the online retail market in Mexico, Colombia, Peru, Venezuela, Chile, Ecuador, Panama, and Argentina.
Edgar Hiram Erives, Linio’s International Operations Manager, stated one of the main reasons for such strong growth was that Latin America is relatively new in the e-commerce market, resulting in 59% growth for the region last year.
However, the picture is far from perfect, stated Erives. One of Linio’s main challenges has been facing the taxes and trade barriers that many countries have inside their tariff policies.
“As a customer can enjoy paying 0% tax in some thresholds, they can also face a very high tax. For example, in Argentina a tax can reach almost 60% in some categories,” he said.
Erives added that another challenge is the varying configuration of a customer’s address from country to country.
“There are countries in which the customer does not even know their ZIP code because they do not usually use it. So, we need to grant the correct creation of the air-waybills to ensure that the carrier that completes the last mile will be able to deliver the package,” he stated.
“Another obstacle was that only 25% of Latinos have bank accounts. So, developing payment solutions as cash-on-delivery and payments in convenience stores is a big strength for Linio.”
Carlos Herrera, Chief Executive Officer of Aeropost, which handles end-to-end supply chain logistics, said that his business has experienced a 25% annual growth rate thanks mainly to an increase in e-commerce purchases.
The market is being boosted by an increase in demand for credit cards and bank accounts from Latin American consumers, with a growing middle-class population eager to access merchandise not available in their local areas, he said.
“This year to date we have transported USD325 million worth of goods into Latin America, and this is still growing,” stated Herrera.
“The aviation industry needs to keep in mind that we are in a position to own the growth in this market in LATAM. Ocean freight is out of the question with e-commerce because it moves too slowly. Aviation is also in the best position to handle returns.”
In comparison with other growing regions, infrastructure is not quite such a large issue, he added. “Much of the population in Latin America lives in the capital cities, and so much of the consumer market is actually urban.”
Dan March, Chief Executive Officer of WCA Ltd, said the air cargo industry is already beginning to benefit from the cross-border demands of both business-to-business (B2B) and business- to-consumer (B2C) players in the Latin American market.
Miami, itself, has already seen a rapid rise in logistic providers that are trying to create innovative solutions for e-commerce shipments into the LATAM region.
“However, the airlines need to work with logistics companies to provide a new level of service for B2C e-commerce and help build pressure on national and local authorities to reduce the import complexity and cost,” he said.
Latin America and the Caribbean also have one of the lowest levels of intra-regional trade and the region lacks a dominant trade hub. But March stated that e-commerce can help develop intra-regional trade, with B2C sales of goods growing more than five times faster than overall trade — actually reaching 20% per year 2012–2017.
“The biggest challenge to cross-border B2B and B2C growth is logistics. Complex Customs compliance, importation, and rapidly changing governmental rules have ensured cross-border e-commerce shipments are expensive, slow and poorly integrated into the domestic delivery market,” said March.
March added that Latin American consumers will ultimately benefit from the e-commerce boom, as activity begins to catch up with the penetration in other markets.
“Innovative logistics providers, both domestic and cross-border, that can engage and provide real solutions to the demands of the e-retailers have a golden opportunity,” he stated.
TIACA’s 2017 Executive Summit, which takes place from 18th to 20th October in Miami, features a session on Latin American opportunities and challenges for the air cargo market and a session on e-commerce growth in the region.