Regional Pulse: High airfreight rates ex-Asia encourage Latin American supply chain near-sourcing

Although regional connectivity within Latin America remains strained, rising airfreight rates are encouraging some shippers to re-evaluate the cost of importing from Asia, and to begin near-sourcing supply chains within the LatAm region. [caption id="attachment_86361" align="alignright" width="469"] (Photo/LATAM Cargo)[/caption] “We have been talking with some of our customers because of the cost of importing from Asia to Latin America, and they are starting to realize and review that they might need to reorganize … their providers’ locations,” Maximiliano Casal, co-founder and chief operating officer at Mexico-based, automated freight forwarding startup Nowports, told Air Cargo World . “Some of our customers [have started] buying more [with] a regional mindset. If they are in Mexico, they start buying [from] Colombia, or if they are in Colombia, Chile or Uruguay, they start buying [from] Peru, Bolivia and those kinds of countries.” While sourcing supply chains within Latin America may be more expensive than buying from Asia, when considering the product cost plus the cost of airfreight, it ends up being about the same, said Casal. Meanwhile, capacity within the region remains a challenge to navigate compared to Asia, said Casal. He added that routes to and from Brazil have been especially difficult due to low connectivity caused by the pandemic, including on routes from Brazil to Mexico and Brazil to Colombia. “Before the pandemic, you were able to move freight from Brazil to Mexico within three to four days,” he said. “Right now, we are getting up to eight days because sometimes the [flights] are full.” The fact that airfreight is roughly five to six times the cost of maritime adds additional issues, Casal added. In addition to capacity to and from Brazil, routes between U.S. and Chile are also experiencing pressure, said Casal. Meanwhile, commodities, food and beverages, industrial materials, medical and pharmaceutical products, and the automotive industry are some of the main drivers of airfreight demand in Latin America, he added. Carriers have been working to increase connectivity to and from Latin America, including Montreal-based Air Canada Cargo, which has been in the process of converting several of its 767 aircraft into dedicated freighters to provide additional capacity on cargo routes. Starting in October, Air Canada Cargo plans to operate freighters between Toronto (YYZ) and Lima (LIM) and Quito (UIO) . “Main-deck capacity opens up opportunities we didn’t have before in verticals that include automotive and aerospace parts, oil and gas equipment, pharmaceuticals, hazardous materials … [and] perishables like produce [and] flowers,” an Air Canada Cargo spokesperson told Air Cargo World. “Consistent capacity out of LatAm is critical for perishables, and these flights will connect to our network. For example, we’ll see a lot of perishables from Quito and Lima connecting through Toronto for Europe or Asia on our cargo-only, or passenger flights.” Countries in Latin America have been hit especially hard during the pandemic, which has led to a decline in regional cargo traffic since March 2020. Since then, efforts have been made to provide increased capacity support, including an air cargo liberalization agreement between 10 Latin American countries as well as LATAM cargo growing its 767 freighter fleet to help meet regional cargo demand. While cargo traffic in most regions has been recovering and increasing compared to pre-pandemic times, Latin American carriers are still seeing a lower performance. However, Latin American carriers in May reported a significant improvement in cargo traffic with a 14% decline compared to the same month in 2019, contrasted with April’s reported 32.3% decrease, according to the latest market analysis by the International Air Transport Association (IATA) . Despite the improvement, IATA noted that it is not clear whether May’s rebound will continue in the coming months.

Regional Pulse: High airfreight rates ex-Asia encourage Latin American supply chain near-sourcing

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