A look at the changing Latin-American trucking industry

If you're like most Americans, you don't know much about things in other countries outside of the U.S.

You most likely don't know that the capital of Canada is Ottawa, Ontario, and you probably don't know that the full name of Mexico is the United Mexican States.

In this issue of Tire Business, we are looking south of our border to Latin America.

Latin America consists of the countries of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela, so this is a lot of territory to cover.

The largest players are Argentina, Brazil, Chile, Mexico, Colombia and Peru, so when I write about the trucking industry in Latin America (Lat-Am), I am focusing primarily on these countries.

As you know, the trucking industry in the U.S. lives and dies by the economy. This is true in all countries, so a look at the overall economy in Lat-Am is necessary to understand exactly what is going on down there.

Latin America's overall economy has been in the dumper in recent years, plagued by high inflation (7.6 percent in March) and unemployment, slow economic growth, and political uncertainty.

This year, it is improving due to a faster recovery in Brazil as a result of a more strategic monetary policy and a smaller drag from Argentina, whose inflation rate hovers around 50 percent but which received $10.8 billion in financing from the International Monetary Fund in April to help protect the peso and revive its economy.

Mexico is struggling with uncertainty over domestic policy, softer dynamics in the U.S., floundering oil output and contracting industrial output.

Colombia is dealing with sliding oil prices, a decline in coal production, soaring unemployment and downbeat consumer sentiment that weighs on household consumption.

Despite all of these drags on the economy — as well as increasing trade coming from China — the Latin American economy is projected to grow 2.1 percent in 2019 and 2.5 percent in 2020, which is creating a boom for the trucking industry and increasing truck sales.

It is expected that annual sales of commercial vehicles throughout the region will top 200,000 units by 2023.

The trucking industry in this region is highly fragmented, with providers ranging from owner-operators (about one-third of the industry) to sizable fleet operators and experienced freight forwarders who may not own any trucks at all.

It also is very outdated and inefficient since it uses old technology such as faxes and pen and paper to organize shipments that result in slow-moving freight, miscommunication between the shippers and freight haulers, and low productivity.

For example, Brazil has an excess of 300,000-350,000 trucks running 40 percent empty all of the time. Packages can take as long as 45 to 60 days to reach their destination, and transportation costs in the region are high, averaging about 15 percent of the cost of sold merchandise.

Volatile prices

For many consumer goods companies, their largest single cost line item, after labor, is logistics. Further getting a quote for freight shipments is difficult as rates are not available online and prices fluctuate greatly.

The World Bank reported that in 2016, no Latin American country was in the top 25 percent of the Logistics Performance Index global rankings. Panama is on the top-ranked Lat-Am country for logistics and shipping, yet it came in 40th; Chile was next at 46th, Mexico was ranked 54th, and Brazil came in at 55th.

But technology and e-commerce are disrupting the trucking industry in this region. Latin American fleets are looking at advanced services such as driver behavior management, video safety and prognostics that telematics companies offer.

However, low internet network penetration in the region presents a problem for these fleets.

Despite this challenge, OEMs such as Daimler Trucks, Volkswagen Truck (MAN & Scania), Paccar (Kenworth, DAF) and Volvo Trucks are expected to invest heavily in telematics solutions to develop the truck-as-a-service (TaaS) model, in which the truck operator, instead of owning the truck, pays the OEM per use.

The OEM owns the truck and uses telematics and digital connectivity to manage the risk and maintenance of the truck while the fleet operator is responsible for the fuel and driver costs.

Under this model, the fleet "hires" the use of the truck, including all service and maintenance, for a fixed period, with a maximum anticipated mileage parameter. Any miles above that, the operator pays as he goes.

Some OEMs also offer an "uptime guarantee" that puts the responsibility on the OEM to ensure that the customer never loses revenue due to a broken-down truck.

They may also provide fleets with access to telematics data on driver behavior, with the option for a driver training program to help drivers improve their skills in ways that boost fuel economy, put less wear and tear on the truck and keep the drivers safer on the roads.

Another obstacle to overcome is the lack of proper infrastructure, which affects the broad penetration of alternative fuels and powertrains, such as natural gas and hybrid vehicles, which in the mid-term are focused on niche market segments.

However, Latin America is one of the fastest-growing regions in the world for e-commerce. This year Lat-Am e-commerce is expected to grow approximately 20 percent to $118 billion from 2018 with 151 million people in this region purchasing goods online.

Online customers are demanding a level of service that is faster, cheaper, more customer responsive and more traceable than logistics has operated in the past.

This great opportunity has been recognized by OEMs that are focusing on vehicle platforms for last-mile deliveries that encompass new body designs with superior volume and payload as well as cab-overs with better turning radius and technology availability.

The last-mile delivery is the greatest cost of e-commerce operations. In Latin America logistics companies spend a great deal of time finding unloading areas and identifying unnamed streets, as well as sitting in traffic.

As a result, the first and last mile of freight transportation are becoming increasingly "Uber-ized" as many Uber-type companies are popping up with networks of drivers and vehicles to deliver goods.

Currently these companies are small but as they grow they will force vertically integrated firms and third-party logistics (3PL) companies to drop their pricing.

In addition several shipping and logistics startups are determined to bring greater transparency, speed and truck capacity optimization to the industry because without it, e-commerce growth will be hindered.

They are focused on bringing down costs and accelerating service speed in the most inefficient stages of the supply chain by employing productivity enhancing technologies such as artificial intelligence (AI), machine learning, big data and the Internet of Things (IoT) technology, Uber-ization of labor-intensive activities and the use of market places to level the playing field for competitors. Their net impact drives down costs and disrupts the outdated trucking industry.

According to a report by ASIL Inc., it often takes up to 32 days to import goods into Latin America. For 28 of those days, on average, these materials are sorted through in-country customs and customs brokers.

As a result, inventory builds up and customs costs can be excessively high which frustrates customers as their goods often take too long to arrive.

Companies on the move

Logiety Technology Sapi de C.V. is a Mexican startup company that uses machine learning to streamline the international customs and taxing process by classifying and sorting products for import and export by material, size and weight.

Previously humans did this task by basing their decisions on years of expertise and by taking a lot of time. However, a simple mistake can cost thousands of dollars in fines depending on the country, so delays were constant.

Logeity uses a combination of images, natural text and data from international trade agreements to create its algorithm and highly accurate sorting system for tariff classification that is 98 percent accurate. Today, Logiety has optimized and accelerated workflows in 49 customs centers in Mexico, which are processing 10,000 operations a day.

A Uruguayan startup, gurucargo.com, is making it easy for anyone in the logistics industry to look up a price quote. It created an online platform that aggregates cargo shipping costs simply and transparently, enabling freight companies to cross-reference price quotes.

Now importers from all over the world use the online quote system to make sure they are getting the right price for their shipment.

CargoX Transportadora is a Brazilian trucking startup that has discovered a way for businesses to ship goods with truckers that have extra capacity. Its business reduces the number of empty trucks, increases revenue for truckers and reduces costs for freight owners, which are key obstacles facing the industry.

Despite owning no trucks, CargoX is one of Brazil's five largest shipping companies with more than USD $200 million in revenue.

ShipNow in Argentina lowers costs for e-commerce retailers by acting as a shipping gateway. It matches any order with the best carrier for that order so shipping rates are more competitive.

This enables smaller freight haulers to compete better and retailers to provide better tracking for their packages.

Shippify Inc., located in Brazil, connects e-commerce retailers with verified urban shippers, bikers, motorcycle delivery boys and taxi drivers to send their packages.

This company also enables retailers to track and manage their packages in real time. This reduces the time to deliver packages a short distance, which before was days, and drastically reduces the cost, which previously was excessively expensive.

The founders of Chazki, a Peru-based startup, realized that many companies already were outsourcing their logistics and delivery to third parties, but that these companies were not particularly efficient or reliable.

The lack of transparency and reliable deliveries put a hold on e-commerce sales as customers are often worried that their packages will not arrive on time, if at all. Chazki developed a platform that allows customers to track their packages in real time using a mobile app and became a pioneer of same-day delivery in Latin America.

Logsitics startups are at the forefront of the movement to capitalize on the opportunity in Latin America to power logistics networks with IoT. (IoT is the interconnection via the internet of computing devices embedded in everyday objects, enabling them to send and receive data.)

The possibilities for using IoT to improve logistics include fleet management through predictive analytics to reduce costs, warehouse management using connected packaging, smart containers that automatically register when stock is running low, and many others.

Low Power Wide Area Networks (LPWAN) that allow long range communications at a low bit rate among connected objects, such as sensors operated on a battery, are required to power logistics networks with the IoT. LPWAN now reaches more than half of Latin America's territory and since 2012, IoT implementation in Latin America has grown 333 percent. Using these IoT solutions to improve logistics in Lat-Am is just over the horizon.

Latin America is a challenging but growing opportunity for transportation related companies.

Certainly startups are already capitalizing on the opportunities that advanced technologies can have on an antiquated industry and are dragging the industry into the 21st century kicking and screaming. But when all the commotion dies down, the transportation industry in this region will be bigger, more profitable and globally competitive.