Latin American Shipping: Opportunities for Startups

In 2014, the US government launched an initiative called “Look South” to show companies in the United States the benefits of shipping to the Latin American market. Despite numerous trade agreements between Latin America and the US, 58% of US companies at the time were exporting to only one other country: Canada or Mexico.

Latin America is a close US trading partner, yet the complicated shipping logistics in most Latin American countries – whether by air, water, or overland – are hurting the region’s supply chain.

The challenge of automating and streamlining shipping logistics in Latin America is becoming more pressing as e-commerce and other B2C delivery businesses take hold. Not only are large corporations dealing with sending and receiving bulk cargo across the region, but individual consumers want more on-demand services that require better organization and logistics.

Latin America still lags behind in the development of its shipping industry. The World Bank reported that in 2014, no Latin American country was in the top 25% of the Logistic Performance Index global rankings. In 2016, this figure hardly changed; Panama is the top-ranked Latin American country for logistics and shipping, yet it comes in 40th on the LPI global rankings. Chile is next at 46th, with Mexico and Brazil ranking 54th and 55th, respectively.

As Chinese foreign direct investment in Latin America steadily increases, so is investment in the regional shipping industry. Chinese investment in Latin America averages US$10B per year for the past eight years. As President Trump’s trade war intensifies, Chinese FDI into the US has cratered by 92% to $1.8B, while Chinese FDI to Latin America has surged to $15.3B in the first half of 2018.

While China’s investments typically focus heavily on oil and mining, Chinese companies are increasingly investing in the Latin American shipping and logistics industries, as well as in infrastructure. In total, almost 20% of China’s FDI to Latin America in 2012 went to trade and shipping infrastructure and has continued to grow.

This new interest in expanding Latin America’s shipping capacity is helping privatize and streamline the industry across the region. Of course, improved shipping infrastructure also helps China increase bilateral trade with Latin America, a growing market for Chinese goods.

A Brief History of Shipping in Latin America

During the 20th century, Latin American governments focused on developing their local economies. Governments owned ports and shipping businesses to keep a tight grip on their domestic markets and local industries. Unfortunately, the result of government intervention in the shipping industry was that Latin America’s ports were among the least efficient in the world by the end of the 20th century.

In the 1990s and early-2000s, many governments decided to modernize their operations to fit the rapidly-globalizing economy, using private corporations to run port operations and drive more competitive practices. Today, ports, freight shipping, and air cargo industries are starting to become competitive in the global market, but there’s still lots of work to be done.

Over the past decade, consolidation and containerization are both in Latin America and worldwide trends in the shipping industry. In Latin America, the number of shipping companies decreased by 27% over the past 20 years, lowering competition across the region.

The standardized use of containers is also pushing Latin America’s governments to modernize and upgrade the infrastructure at ports and warehouses. However, in many Latin American countries, this modernization is not keeping up with global developments in the shipping industry.

There is ample opportunity in the Latin American shipping industry to develop new solutions to local logistics challenges all along the supply chain and in ecommerce. Here are a few of these opportunities.

Opportunities in Latin American Shipping

Given the inefficiencies of many shipping options in Latin America, there is still room for new players to enter the market and dislodge the current dominant corporations. The most exciting sectors for innovation in shipping are in trucking, consumer/third-party shipping options, and in last-mile delivery. Startups in the logistics industry have their work cut out for them in Latin America, and these sectors are the most prominent battlegrounds for innovation so far.

Trucking in Latin America

The Latin American trucking industry gained a lot of attention in May 2018 when Brazil’s CargoX reached US$200M in annual revenue. Freight shipping in Latin America is famously uncompetitive, yet The Economist noted that trucking in Latin America is 15 times more concentrated than in the US. In Brazil, where the founder of CargoX Federico Vega has spent the past six years, trucks run empty up to 70% of the time.

Beyond inefficiency, trade regulations across the region complicate freight shipping unnecessarily. For example, a truck sending goods from Brazil to Argentina cannot advance to Chile to pick up more products before heading back to Brazil. Brazil is the third-largest trucking market in the world, with over 2.6 million trucks. CargoX currently holds just 3% of market share, but Vega expects explosive growth.

Across the region, freight shipping is one of the most common methods for moving cargo; however, there is an imminent need for technology that helps improve fleet management to optimize and upgrade the current systems.

Several startups in Latin America’s largest markets are tackling these difficulties:

CargoX: Brazil’s “Uber for trucks” increases the efficiency of shipping in Brazil by connecting truck drivers with companies that need shipments so that trucks no longer run empty.

Gurucargo: This Uruguayan startup organizes shipping logistics for air, sea, and freight transportation, providing accurate quotes that have become a benchmark for the region.

Shipit: ShipIt helps any company outsource their shipping and packing process using the lowest cost courier available.

uShip: uShip leverages over 788,000 providers to ship almost anything over land. The startup operates in Chile, Argentina, Brazil, Colombia, and Peru.

Third-Party Shipment Options

E-commerce is booming in Latin America. To learn more about this topic, check out my articles on Argentina, Brazil, Chile, Colombia, Ecuador, and Peru.

China has become a major exporter of consumer goods to Latin America through the recent expansion of AliExpress into countries like Chile, Mexico, and Argentina. Young people have grown accustomed to buying very low-cost Chinese goods via AliExpress and waiting two months to get their products selecting the free shipping option. If they want to receive a package faster, the cost of shipping by DHL or other private companies is often exorbitantly expensive and requires paying customs duties upon entrance to each country. As international e-commerce grows in Latin America, consumers are demanding faster, cheaper, and more reliable shipping for their purchases.

To serve the growing demand for B2C shipping solutions, dozens of third-party shipping startups are tackling the Latin American market. These companies often integrate the entire shipping process, from packaging to customs to delivery, for small e-commerce businesses that benefit from outsourcing the expensive shipping process. In fact, even larger companies like MercadoLibre and Ripley are using these services to ship goods more quickly and accurately.

Here are some of the startups helping make shipping more accessible to small businesses in Latin America:

SimpliRoute: This Chilean startup helps companies optimize their delivery routes to lower logistics costs.

Shippify: Shippify is a Brazilian startup that helps e-commerce companies integrate their platforms with third-party delivery services.

Chazki: This Peruvian startup uses real-time tracking and artificial intelligence to help customers get their deliveries quickly, no matter where they live. Chazki is fighting the challenge of delivering to people without a formal address by storing information in their app that allows packages to be tracked even when the customer has no address.

Mienvio: This Mexican startup helps ecommerce companies in Mexico choose the best shipping method for their product and lowers shipping costs and delivery times around the region.

Sr Envio: A Mexican shipping company supported by YCombinator.

Globalshopex: This Chilean startup has a payment integration that allows Latin Americans to buy products in their local currency and pay for shipping that goes directly to their door. They have a freight forwarder in the US and China as well to directly handle deliveries.

The Battle for On-Demand Delivery

A few months ago, I wrote an article about the battle for last-mile delivery in Latin America, which involves influential startups like Rappi, Mercadoni, Cornershop, and Glovo. These apps deliver groceries or food to customers’ homes within a few hours and have become increasingly popular across Latin America over the past few years.

While Glovo and Rappi focus on delivering just about anything to customers’ doorsteps, they are also targeting the competitive food delivery market. The Latin American on-demand delivery industry is receiving significant international attention recently, most notably with Walmart’s reported recent decision to acquire Mexico’s Cornershop for US$200M, and Andreessen Horowitz’ investment in Colombia’s Rappi last year.

While many of these on-demand delivery startups are only competitive within a few countries at the moment, the battle for regional market share in this sector is hot. PedidosYa, one of the on-demand food delivery leaders, just built a large logistics center in Buenos Aires to help streamline its delivery processes. There is fierce competition to become the company that delivers just about anything to customers’ homes within a few hours.

Shipping and delivering goods within Latin America is no small feat. Between local regulations, poor road conditions, and fragile infrastructures, it can be expensive and slow to send products via air, land, or sea within Latin America.

Since there is also heavy government involvement, innovation within the industry can be slow and bureaucratic.

Nonetheless, as the Latin American middle class grows, the demand for imported goods and quick shipments is pushing entrepreneurs to disrupt the shipping industry and bring new solutions to this archaic industry.