Logistics Startups Facing Difficult Roadblocks in Latin America

US venture capitalists have pumped over $1 billion into shipping and logistics companies since the start of 2014, and because of this boom, attention is now turning to Latin America - one of the fastest-growing regions in the world for e-commerce.

As online retail sales in Latin America are expected to reach $85 billion in sales by 2019, global investors and entrepreneurs are becoming increasingly interested in this part of the world. We’re seeing US heavy hitters actively investing in the region, despite the slowing economy. For example, Walmart recently redesigned its website for the Brazilian market and is now finalizing three new e-commerce fulfillment centers in the country. Amazon, too, has begun investing heavily in Latin America, specifically in Mexico with the launch of a Spanish version of its site.

These moves by big players in the industry have peaked the interest of venture capitalists and Latin American entrepreneurs alike, who are eager to get in on the action. But those who are interested in taking on the old-school shipping and logistics industry in Latin America should proceed with caution. There are many challenges still facing the region that new companies must tackle with patience and care.

Here’s a look at a few of the shipping and logistics startups in Latin America up to the challenge, and what roadblocks they still face to make a name for themselves in the region.

Lowering Costs for E-Commerce Retailers

E-commerce sales are on the rise, especially in Brazil, Argentina, and Mexico. However, shipping is continuously cited as one of the biggest problems for e-commerce retailers in Latin America. Logistics costs in the region are high, averaging about 15% of the cost of sold merchandise, according to the President of DHL Latin America’s Supply Chain.

Argentine startup, ShipNow, is on a mission to lower these costs for e-commerce retailers by acting as a shipping gateway. The company integrates with shipping and logistics companies as well as platforms such as MercadoLibre and Shopify. ShipNow matches any order with the best carrier for that order, so shipping rates are more competitive. This allows smaller shipping players to compete better and retailers to provide better tracking for their packages.

The majority of ShipNow’s customers are in Argentina, but the company is quickly growing with customers in Peru and Costa Rica. This type of innovation is key to solving the issues of cross-border and multi-carriers; however, cross-border e-commerce is still unpopular due to tricky customs regulations and little to no assurance from most governments in the region. For the fast-growing e-commerce market in Latin America, startups like ShipNow that solve fulfillment issues, especially across borders, will be well-received in the region.

Solving Same-Day, Local Deliveries

Sending packages a short distance can sometimes take days and the costs can be excessive for the service. Based in Belo Horizonte, Brazil, Shippify Inc. aims to connect e-commerce retailers with a verified community of urban shippers, bikers, motoboys, and taxi drivers to send their packages. The company also allows retailers to track and manage their packages in real-time.

Shippify claims it’s offering a new form of self-employment and opportunity for urban bikers and taxi drivers to generate extra income. But as innovative and efficient as it may be, the startup is already facing resistance from traditional mailing and shipping systems who view it as a competing, rather than complementary, service. For example, Shippify has already had to deal with their first encounter with the Brazilian Post.

Regardless of these bumps in the road, the service has enabled entrepreneurs, startups, marketplaces, and independent artists to easily connect their e-commerce stores, or mobile applications, in order to deliver their products. In Chile, Shippify has around 500 members who work for companies such as Babytuto, Depto51 and The North Face to deliver packages. The startup recently launched in Mexico as well, where e-commerce sales are also on the rise.

Tackling empty trucks

CargoX, a Brazilian trucking startup also known as the “Uber for trucks”, recently raised $10 million from Goldman Sachs in a Series B round of funding to enable the acceleration of its technology development. CargoX is dedicated to transforming the perceptions of trucking with its team of professionals from Brazil, Argentina, Russia, and the United States. There are big opportunities in Brazil as a result of the fragmented trucking market. One report shows that Brazil has an excess of 300,000 - 350,000 vehicles, with trucks running 40% empty all of the time. CargoX has discovered a way for businesses to ship goods with these truckers who have extra capacity.

So what are the challenges facing CargoX? Reducing this number of empty trucks, increasing revenue for truckers, and reducing costs for freight owners are the key obstacles facing the industry, and the main problems CargoX is trying solve.

As a result of rapidly growing e-commerce sales in Latin America, online stores and payment solutions have quickly developed and been implemented across the region. Unfortunately, shipping and logistics services have not been able to keep up at the same pace.

Many online retailers are faced with limited shipping options to compare pricing as well as limited tracking tools. Furthermore, many services in Latin America are running on antiquated technologies. Disrupting this industry will require more than a modern application to solve the problems retailers face startups in the region will also have to get around current government regulations and labor unions to bring their ideas to market. And while we’ve seen many startups like those listed above do so, there are still many more opportunities for better shipping solutions and more visibility into logistics in Latin America.

This article was originally published on Nearshore Americas.