Air transport drives e-commerce expansion in Latin America

Air cargo continues to improve slowly despite the lack of international widebody passenger traffic. According to IATA, all regions except Latin America contributed to the growth rate of 9.9% freight tonnes per kilometer (FTK) in June 2021 the same period in 2019. Industrywide, available tonne kilometers (ATK) in June 2021 were still 10.8% below levels recorded in June 2019, with Latin America displaying a flat trend over the first half of 2021. Cargo load factors in Latin America were also down significantly in June 2021 despite an improvement in demand, a trend opposite to the record highs shown across all other regions.

However, projected freighter fleet growth during the next two years tells a different story. Latin America carriers plan to add about forty freighters through the end of 2022, based on orders and agreements , according to our sister publication, Cargo Facts . As throughout the world, the air express segment in Latin America has grown faster than air cargo volumes with the shift in traffic to more business-to-consumer packages due to the rapid expansion of e-commerce.

Growth across segments

Cargo Facts Consulting analyzes the new additions by type, shown in Fig. 1, we observe double-digit growth in all segments. In the widebody segment the growth is linked to LATAM’s 767-300Fs and Mas Air A330Fs, a total of 11 units. In 2021, LATAM announced the conversion of up to ten Boeing 767-300ERs, resulting in an increase of nearly 80% of the carrier’s cargo capacity. LATAM plans to expand its service offerings and take advantage of operating a single fleet type with a total of 19 Boeing 767-300 freighters by the end of 2023, according to LATAM Cargo. This aircraft is the preferred platform for LATAM because it combines the payload and range to serve the markets in its network.

In the narrowbody segment, most operators are introducing 737 Classics — or MD-80Fs in the case of Aeronaves TSM. The exception in the region is Azul, the first carrier in the region to transition to the A321 freighter platform. Powered by the implementation of SmartKargo’s cloud-based cargo management system, which allows for an optimized utilization of the available cargo capacity, Azul is growing its network and tonnage carried. The first 737NG freighters in the region will be flown by Copa Airlines before the end of the year. In the feeder segment, the growth is significant but off a much smaller base with two CRJ-200Fs (TUM AeroCarga) and one ATR 72F (Modern Logistics). But is this growth matching the expansion of e-commerce in the region? Figure 1 - Overview of freighter capacity growth by segment in Latin America through 2023

E-commerce takes off

Retail e-commerce sales in Latin America grew 63% in 2020, reaching $105 billion and positioning the region as the world’s fastest growing e-commerce market ahead of Asia Pacific, the Middle East and Africa. Brazil, Mexico and Argentina account for approximately 70% of all e-commerce sales in the region. Before the pandemic, e-commerce penetration was around 5% of the regional economy but it doubled by the end of 2020. However, this rate is still far below the figures in the largest digital economies such as the European Union, United States and China, where e-commerce accounts for 15% to 20% of all transactions.

While the rest of the world saw multinational e-commerce platforms experiencing rapid growth during the pandemic, a number of local e-commerce retailers were able to establish themselves as the leaders in the region. MercadoLibre, the largest Latin American e-commerce platform, has steadily expanded its shipping business, logistics network and digital payments solutions, and managed to double its value in 2020, and is now worth $88 billion according to the Financial Times. Other emerging platforms such as Colombia-based Rappi, Canasta Rosa in Mexico and TiendaNube in Argentina posted record sales last year but can’t compete yet with MercadoLibre’s service offer and logistics network. Amazon, which entered the Latin American market back in 2015, has doubled its market share in the region, reaching around 4% in 2020.

Last year, CFC wondered if the pandemic would provide an opportunity for MercadoLibre to expand its operations in Latin America and position itself as a leader in the market. This year, we confirm that the e-commerce leader continues to invest in the growth of its own logistics, as evidenced by the recently launched Meli Air fleet of four aircraft. Meli Air has two 737-400Fs operated by Sideral Linhas Aereas in Brazil and two DC-9-30Fs operated by Aeronaves TSM in Mexico, all featuring the yellow Mercado Libre livery. The two 737-400Fs are now flying between Sao Paulo (GRU) and Goiania (GYN) and between Sao Paulo (GRU) and Recife (REC) in the northeastern part of Brazil. Meanwhile, the DC-9-30Fs are flying from a hub in Queretaro (QRO) to Culiacan (CUL), La Paz (LAP), Merida (MID) and Cancun (CUN) with occasional flights to Hermosillo (HMO), Tijuana (TIJ), Mazatlán(MZT), Chihuahua (CUU), Monterrey (MTY) and Ciudad Juarez (CJS).

Regional utilization

CFC has analyzed the daily utilization of the major cargo carriers in Latin America during the pandemic and has compared that to the utilization in 2019 for each fleet type (see Fig. 2).Most e-commerce shipments are currently transported in narrowbodies with LATAM, Avianca and AeroUnion widebodies carrying more general cargo from the U.S. and Europe. All carriers except AeroSucre showed increased utilization in the last 18 months, with most narrowbody fleets showing greater growth in utilization than the widebody fleets. Figure 2 - Utilization by fleet type of cargo carriers in Latin America: 2019 vs. 2020

[caption id="attachment_19590" align="alignnone" width="1024"] Source: Cargo Facts Consulting Analysis of AC utilization, ch-Aviation[/caption]

The challenges facing the development of air cargo transport in Latin America include needed improvements in air navigation, traffic handling, airport infrastructure and connectivity. A new multilateral agreement to liberalize air cargo services in the region has resulted in the expansion of seventh freedom traffic rights without restrictions for all-cargo services on routes and capacity. The agreement is currently in place across Brazil, Chile, the Dominican Republic, Ecuador, Guatemala, Panama, Paraguay, Peru, Uruguay and Venezuela, and will remain in effect until the end of 2021, and will likely be extended beyond that time. The seventh freedom traffic rights agreement allows for a more efficient vaccine distribution right now, and in the long-term carriers could benefit from a greater liberalization in the aviation sector and, therefore, creates potential for cross-border e-commerce growth.

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