Latin American e-commerce: a goldmine on one side, a bandit on the other
- “While Latin American e-commerce is booming, logistics is facing serious security problems. How to balance the opportunities and challenges of business in this land? This article delves into the complex landscape of the Latin American e-commerce market, revealing the risks and opportunities involved.
The scorching sun bakes the interstate highway that stretches across the desert. A convoy of freight cars loaded with e-commerce parcels speeds along the road from Mexico City to the northern state capital.
All of a sudden, a gunshot rang out, and several heavy pickup trucks with large steel plates welded to their front ends came roaring up from behind. Wearing camouflage headgear road bandits armed with AK-47, out of the car window, intending to flank the convoy. The security personnel of the lorry immediately picked up their weapons and prepared to counter-attack. A fierce road fire fight is on the verge of ……
This is not a film plot, but a real-life example of what happens on Mexico’s national road network.
Behind this scene of gunfire flying, is the whole Latin American market is flourishing, booming e-commerce growth momentum. With consistent double-digit sales growth over the past decade, the roots of online retail are sinking deeper and deeper into the soil of local societies, allowing many players to see the opportunities for nuggets of gold.
According to INEGI’s forecast earlier this year, in 2023, online retail sales in Latin American countries such as Brazil, Mexico and Argentina will reach $129 billion, and e-commerce growth in Latin America as a whole will reach 15.4 per cent, nearly 50 per cent higher than the global average growth rate.
However, e-commerce logistics is a major problem for doing business in Latin America. Looting by road bandits is just one of the many logistical messes. A seller said bluntly: “In addition to road bandits, customs clearance problems, tax policies, inventory pressure, time management, none of them is a light. It can be said that the inability to take care of all ends is equivalent to directly out of the game.”
For China’s overseas merchants, the Latin American market, far away from the Earth’s opposite metatarsal point, is a dangerous and fascinating market: on the one hand, it symbolises opportunity, growth, purchasing power and prosperity; on the other hand, it is lurking in risk, loss, irresistible factors, and even violence.
With huge logistical supply chain challenges, is it possible to get a share of this emerging market? How do those explorers who have already penetrated into the local area find the anchor points to solve the difficult problems? These questions have been placed in front of the sea merchants.
Pai, storage capacity is lacking, sellers are trapped in a time-sensitive predicament.
Platform “logistics arms race” is about to start
“With most people’s stereotypical perception is very different, Latin America is actually not as poor as imagined, infrastructure is not from scratch.” Yan cultural relics flow emerging countries regional director Dai Jiadi told Yibang power, “you can understand it this way: backward, but once prosperous; straitened, but willing to spend money; chaotic, but still retain the rich heritage of the modernisation process.”
In terms of hard economic indicators, Chile, Brazil, Mexico and other countries are no less than middle-income countries (before 2008, the level of per capita GDP has climbed to 10,000 U.S. dollars above and below). The fact that people have money to spend is a basic fact. In addition, more than 60% of local users tend to use instalments and overspend. This has resulted in the consumption share of GDP in all major Latin American countries reaching over 64%, much higher than China’s 39%, with the consumption side of the economy playing an extremely significant role in driving the economy.
Unlike Southeast Asia and Black Africa, Latin America’s level of urbanisation can be described as overwhelming in several emerging regions, with almost all of them exceeding 80% (92% in Argentina, 88% in Chile, 87% in Brazil, 82% in Colombia, 81% in Mexico, and 79% in Peru), and even underdeveloped regions such as Bolivia and Haiti have a passing level above 60%. Many of these countries have large-scale infrastructures that were inaugurated as early as the middle of the last century - especially airports that are densely packed around the region and still play an important role today - and those distribution networks that were established in the traditional retail era are undergoing a digital transformation. Together, these are the key prerequisites for the e-commerce economy to take off.
Thanks to these resources and market endowments, AMI estimates that Latin America’s e-commerce volume will continue to grow by 22 per cent between 2023 and 2026, with a total GMV of more than $700 billion.
However, logistics remains one of the biggest shackles preventing e-commerce sellers from striking further gold. Due to the geographical constraints of mountain ranges, rainforests and deserts, as well as the degradation of transport networks during radical privatisation, Latin America’s logistics modernisation has been unsatisfactory. Compared to Southeast Asia, another typical emerging market, Latin America is inferior in terms of both road and rail transport, except for air transport resources.
- Logistics development in six Southeast Asian countries
“For sellers like us who laid out Latin America at an early stage, the dual lack of local distribution capacity and warehousing capacity used to be the problem that gave us the biggest headache.” Mexico independent station seller Carlos said.
With the back of the platform logistics system sellers are different, independent station players into Latin America often need to face the more complex logistics situation, the need to explore the logistics solutions suitable for their own business alone - or their own first logistics pits are stepped on again.
“The most troubling thing for us in the early days was the timeliness problem, and the three culprits affecting timeliness were jamming, transshipment, and extreme chaos in warehouse management.” He said.
In Mexico, it was common for goods to be stuck in customs for three or four months if the logistics provider was unreliable. “The logistics provider will constantly stall you, let you wait a week and then another week, a large number of goods hanging overseas, creating a heavy pressure on the turnover.” Carlos said.
The “relay race” type of multi-party transit is also a big feature of Mexico and Brazil and other Latin American countries. In the local business enterprises are less concentrated, and there is a lack of local giants with absolute dominance. For example, in Mexico, the completion of the national network of private logistics providers are only three, and more logistics companies have a strong “localism” colour, often only in a few specific states to form a competitive advantage.
As a result, parcels have changed hands many times after customs clearance, and it has become the norm for them to move to a new home after crossing a state border. This long logistics chain also makes the timeliness greatly reduced.
The low level of warehouse modernisation is another important factor affecting timeliness. “Around 2015, most of the Mexican overseas warehouses were still converted from traditional warehouses, and the lack of a perfect inventory management system and the irregular operation of Mexicans were their most fatal weaknesses.” Carlos claimed.
During the peak selling season, the influx of goods immediately overloads the already fragile warehouse management system. On the one hand, new goods can not find available warehouse space, on the other hand, has been sold goods have not yet been entered into the system, resulting in the warehouse capacity is occupied by the virtual. A large number of goods to be out of the warehouse are arranged in a chaotic manner, making it difficult for forklifts to move goods, further reducing the turnover efficiency. In addition, the warehouse transfer process frequently occurs during the loss of pieces and send the wrong pieces of phenomenon, but also let the seller anxious.
For a group of e-commerce platforms aiming to strategy Latin America, in this poor flow of goods in the environment, if you want to share the cut fat, a fierce “logistics arms race” is almost inevitable.
Local e-commerce giant Mercado launched its own logistics fulfilment division, Mercado Envíos, as early as 2013 to build a warehousing and distribution system. During the epidemic, Mercado took advantage of the rapid growth of its e-commerce business to further improve its logistics facilities in Mexico, Chile, Colombia and Brazil.
Today, Mercado Logistics operates an exclusive fleet of Meli Air aircraft, the largest electric cargo fleet in Latin America, more than 30,000 employees, and over 8,000 Meli Places locations. As of the second quarter of 2023, 56% of all orders were delivered “same day/next day”, 80% of orders were delivered within 48 hours, and the penetration rate of its own logistics network reached a record 93.9%.
Since 2015, Amazon set up its first logistics centre in Mexico, a few years after the billions of dollars, the intention is to “one day to the goods” fulfillment services to several major countries in Latin America. Today, in Mexico, Amazon has about 40 distribution centres, with an area of more than 92,900 square metres, directly employing more than 8,000 employees, and indirectly employing 32,000 employees; in Brazil, since 2020, the number of its distribution centres has also increased from 1 to 12, with a total area of more than 30,000 square metres.
Relying on a highly developed network of brick-and-mortar shops and shopping centres, veteran retailer Walmart has a logistical base for its online business. The company now has about 20 distribution centres in Mexico and has also acquired a series of unicorns engaged in crowdsourced delivery to meet its own growing demand for orders.
In addition to these “e-commerce veterans” born in the Western Hemisphere, in the logistics arena in Latin America, those with Chinese genes have become the opposite of the “new forces”.
Shopee and SHEIN are a pair of dazzling twin stars. They have been making headway in Latin America not only through their Chinese supply chains, but also through their local logistics development, which they continue to build up. In just two years, they have become Brazil’s largest local warehouse and logistics tenant, renting a total of 193,000 square metres of warehouse space - the equivalent of 27 large football pitches.
Shopee’s investment in logistics in the Brazilian market has increased rather than decreased in a climate of downsizing. It has poached executives from Mercado to run its Brazilian logistics business, and has entered into partnerships with more than a dozen local merchants. Since June this year, Shopee has opened several new distribution centres to improve the efficiency of tailgate distribution. There are now more than 100 similar secondary distribution centres across Brazil.
SHEIN, on the other hand, has taken a different approach by building its supply chain directly in the local market, producing and distributing products locally, shortening the length of the entire logistics chain, thus improving timeliness and reducing customs clearance costs.
Another powerful brigade from China is Ali’s Global Sell-through. Currently, with the support of its widely deployed Brazilian overseas warehouses, its cross-border parcels can be delivered to core cities in 5-10 days.
In addition, local e-commerce platforms such as Via, Americanas SA and Magazine Luiza have also relied on traditional retail channels to open up the e-commerce logistics system, bundling physical shop networks, fulfillment services and distribution centres to form a logistics capability that cannot be underestimated.
Heavy security burdens, high barriers to customs clearance, few counterpart talents
##Latin American e-commerce logistics is difficult in what exactly?
In the Latin American market, logistics security is a huge challenge. “Lost shipments are the norm, and full truck robberies also happen from time to time.” Lin Wei, founder of Weishi Logistics (engaged in cross-border logistics and warehousing services in Latin America), talked to Yibang Power, “Many practitioners have experienced encounters with road bandits.”
How to avoid as much as possible? Lin Wei pointed out that the first thing to do is to beware of the so-called high-risk road and high-risk time - the slum area, the ring capital area are the main position of bandit activity, whether it is interstate transport or intra-city delivery need to be careful to do a good job of security. Secondly, try not to travel at night, arrive in the city before nightfall and spend less time outside the city. Lastly, transport teams should be spread out as much as possible to reduce the number of targets, while keeping a low profile and not spray-painting the company’s logo on the vehicles can also avoid the risk of being targeted by gangs of hijackers.
The security environment also indirectly affects the local customs clearance cycle. In some unexpected security events, highway closure, strict inspection of loaded vehicles, large-scale ground clearance and other initiatives, may seriously delay the next few weeks of customs clearance time, or even cause a brief shutdown of customs services.
Due to a variety of security needs, in Mexico, many key logistics nodes into military control, strict inventory of goods and delayed timeliness, gradually become the e-commerce freight must be considered in advance of the risk of matters. “Logistics efficiency is often a casualty of unexpected developments.” Dai Jiadi said.
In Brazil, the customs clearance problem presents a different picture, playing a “roadblock” is the complexity of the customs process.
José, a seller on the Latin American e-commerce platform Mektor, said that there are four major difficulties in Brazilian customs clearance that plague Chinese cross-border sellers:
First, the “goods and tickets” system, that is, in addition to the express delivery of the face of the bill, but also need to provide invoices at any time, tax certificates for the relevant departments to check;
Second, to pay customs duties, you must register the main body of the company in the local area, go through a set of local processes;
Third, Brazil only allows a single category of containers into the country, can not be randomly set cargo consolidation, flexible customs clearance, small single cargo flow is very unfriendly;
Fourth, the current tax reform, customs around the world to do their own thing, enforcement is elusive, making it difficult for sellers to make the most optimal choice among several customs clearance programmes.
“Latin America is also a traditional society that tests people’s resources.” José said. For smooth customs clearance and less interference from force majeure, it’s important to turn to the added benefit of local customs clearance resources.
Dai Jiadi also pointed out that for e-commerce logistics, customs clearance is the biggest barrier to entering Latin America, so in the whole business chain, the integration of customs clearance resources has become the most valuable and easy to realise. If you want to make the flow of goods unimpeded in Latin American countries, you must seek in-depth co-operation with local shipping families and customs clearance enterprises.
On the one hand, the customs management cycle in Latin American countries is in the dimension of weeks or even months, if you want to avoid the jam, you have to understand the administrative logic of the local customs and compliance requirements, which undoubtedly need those who plough into the local customs clearance enterprise’s transmission, in order to grasp the specific scale of operation; on the other hand, it is exceptionally difficult for Chinese enterprises to cooperate with their official postal agencies, which often require a series of local registration steps and qualifications. On the other hand, it is extremely difficult for Chinese companies to co-operate with their official postal agencies, which often requires a series of local registration steps and qualification certificates.
“Undoubtedly, the earlier you lay out your customs clearance resources, the more you will be able to establish your core competitiveness,” he said. He said.
In addition, the integration of local logistics resources is not only for efficiency considerations, but also about the long-term stability of the business.
Logistics is a wide range of industries involved in the local business, storage of goods and even the construction of warehouses, may touch the cheese of the locals, and in some of the chaos of the law and order of the place, incurring the threat of harassment of the local “bully” in fact, it is also difficult to avoid a normal. Want to do business steadily, bigger, inevitably need to adopt a “co-construction” survival strategy, and local enterprises to share the dividends.
“Instead of being deeply involved in the game with the local snakes, it is better to directly pull the local logistics enterprises into their own business system, so that the local logistics community is also involved, so as to achieve the endorsement.” Dai Jiadi said.
In the final analysis, the localisation of e-commerce logistics exploration, ultimately to implement the “people” level - how to use people, with what kind of people have a lot to do.
Watson Wang, in Argentina and Mexico operating two overseas transit warehouse. He said that in the local, no one available is an embarrassing reality.
“Argentina and Mexico are actually considered populous countries, local higher education in developing countries also ranks in the middle and upper reaches, but each year from the business school out of the cross-border e-commerce-related direction of the graduates only a few hundred a year, divided into the field of e-commerce logistics talent is even less. We now have great difficulty in finding people.” He said.
Recruiting ethnic Chinese is not a route that works either. Compared with the size of the Chinese population in Southeast Asia, which is often in the tens of millions, it is rare to see Chinese faces in Latin America. There are only 30,000 Chinese living in Mexico, and only 120,000 in Argentina.
In this case, can only “two-pronged approach”: one side is parachuted into the domestic middle control, on the other hand is the recruitment of locals for integration.
“Airborne domestic middle management is really a helpless move, an epidemic or visa impact, the relevant personnel appointments and dismissals can only be suspended. But even more painful, in fact, or management of local grass-roots staff, their work thinking and the nationals are very different.” Lin Wei also said. Want to put when
“The first thing is to plan the warehouse process, do not let the local staff have too much imagination, if the work content is A → B → C → D, then clearly marked out, do not expect them to see A can be consciously associated with D, they are likely to make strange decisions; Secondly, the IT team should actively communicate with local colleagues with Mexican-style local thinking, to configure and optimise the architecture of the whole system to close the loop.” Lin Wei said.
Cross-border e-commerce sellers must make the choice of questions
The Latin American market has a multifaceted face, which is not only reflected in the e-commerce logistics encountered by the magic reality, but also closely related to the business choices of Chinese sellers. Unlike markets with mature logistics solutions, all possibilities are open in Latin America. Broken logistics patterns, complex policies and regulations, as well as volatile market opportunities, all provide sellers with a diversity of logistics options.
There are many choices, but the perfect solution is hard to find. The real situation is more often than not to lose this or that. Should be how to cross-border logistics in this question weigh the pros and cons, is every seller must face the problem.
Wild way to go through?
In Latin America, the system is not perfect, there are many loopholes in the field of logistics. Cross-border seller groups, there has always been no shortage of desperate for profit “wild” players.
They tend to “cheap”, “fast” as the credo of the choice of logistics solutions, and the risk of compliance, cargo safety and other issues of little interest. Grey customs clearance, cheap special line, “wild warehouse” and other unconventional means, has become the first choice of this group of people.
“The reason why they dare to choose unreliable grey customs clearance and cheap freight, there exists in itself a risky speculative psychology - the high gross profit of the goods is enough to offset the loss of the single, and do not care about the user’s waiting time.” Dai Jiadi said.
According to Wei Lin: “Although this method of exploiting loopholes does have its audience in an environment where the market is not yet saturated with competition, it is still important to go for compliance.”
In fact, in the context of Latin American countries actively regulating the operation of e-commerce, many countries have begun to work to simplify the process of declaration and audit. Many goods go through the formal customs clearance, do the cost of compliance declaration is actually not much higher than the grey clear.
The cost of the “wild warehouse” brought about by the cost reversal is more significant. The so-called “wild warehouse” that is established in the slums of cheap rent, the lack of sound storage conditions and security measures of the warehouse. These warehouses, despite their low cost, have huge pitfalls. Delays due to frequent power outages, damage due to stacking of goods directly on the ground, and theft due to a lack of management can cost sellers a lot of money.
Lin Wei said, in fact, most logistics providers also hope that their guests can try to be as compliant as possible, on the one hand, the only way to do long-term, to prevent force majeure strikes; on the other hand, logistics companies are also worried that more grey business will implicate their own entire logistics system, which will be seized by the authorities to investigate.
Do low-priced goods or high-priced goods?
Do high-priced goods or low-priced goods, is an important issue that many sellers are entangled. On the one hand, due to the inefficiency of the local light industry in Latin America, many daily commodities are difficult to buy locally or the price is too high, which provides an excellent market space for Chinese goods known for their affordability.
But on the other hand, due to long distances and high freight costs, sellers of cheap goods need to bear greater logistical pressure, and logistics costs will also erode the already thin niche. Higher-priced products, on the other hand, can improve delivery rates and customer satisfaction by choosing more stable and reliable specialised logistics, while apportioning logistics costs to the pricing of goods.
In a way, merchants’ pricing strategies are actually strongly tied to logistics costs. And Brazil is the country among the major Latin American countries that has the biggest impact on sellers’ product selection due to logistics policies.
“In the past, most Brazilian dedicated parcels had to rely on Brazil Post for customs clearance and tail delivery, this is because once the channel of commercial customs clearance and commercial delivery is chosen, goods from China can’t continue to enjoy the preferential policy of tariff-free individual parcels under $50 and must pay a hefty import tax. This has led to the fact that in the Brazilian market, most sellers price their main products below US$50 and shy away from branded products with higher price points.” Katie Dai explains.
But after the tariff reform (Remessa Conforme) in August this year, cross-border parcels under $50 must also pay a 17 per cent ICMS tax, which, along with other taxes and fees on the movement of goods between states, has put cheap products in a precarious position, with their profit margins squeezed even further, and buyers’ retroactive taxes driving up the rate of returns.
For those sellers who are hit by this, there are only two options: exit or transition. But from the perspective of logistics, the tax reform is actually not broken, this change brings not only shock, but also new opportunities and market imagination.
Dai Jiadi said, “We are also actively exploring a new mode of cooperation with local business faction enterprises, and will launch more customised service projects in the future to provide more different types of solutions in terms of timeliness and safety, to further improve the consumer shopping experience while enriching the choices for sellers.”
Lin Wei, on the other hand, pointed out that the moment is in a time of both chaos and opportunity. Under the tax reform, the law of customs enforcement is still in the “dark box”: how to randomly check, how to punish, how strong the customs enforcement, whether there are effective means of tax avoidance, which are all still to be explored.
“Despite the chaos of tax reform, but it is certain that when the dust settles, the entire e-commerce logistics system and commodity structure may be to the direction of quality development, and no longer bound to the past low price orientation, a new set of ecology will gradually arise.” He said.
In the face of change, José, a seller on the Brazilian station of Meikido, also confessed that as Chinese sellers who entered the Brazilian market at an early stage, they must admit that it is now difficult to continue to maintain the low price strategy.
“It’s a lie to say that there is no pressure, used to earning money to lay goods and then want to transfer to the boutique business, there is bound to be a painful period of change of track. But we don’t think this ‘reshuffle moment’ necessarily means the demise of the early seller group - at least we won’t choose to exit because of it.”
“A new wave of fine-shopping and branding has arrived, and tax reform is forcing Chinese sellers to rediscover their ecological niche. We have reason to believe that if Chinese goods can rely on quality and brand tone to establish a foothold in the North American market, then we have just as much to offer in the Latin American market, where competition is far from being caught in an involution.” José says confidently.
