Last Mile Delivery in Latin America: Growth & Opportunities

The Rise of Rapid Delivery in US E-commerce

Within the United States, Amazon Prime’s same-day and next-day delivery options have effectively set the benchmark for the entire e-commerce landscape.

Consumers increasingly prioritize convenience and immediate access to purchased goods, a trend demonstrated by the significant number of U.S. shoppers – approximately 45% – who hold Amazon Prime memberships.

Retailers Adapting to Consumer Demand

Recognizing this shift, many prominent retailers are actively working to emulate Amazon’s speed by collaborating with companies specializing in last-mile delivery.

Walmart, for example, has made substantial investments in Cruise, focusing on the implementation of autonomous vehicles for delivery services.

Strategic Acquisitions and Partnerships

Target has taken a different approach, directly acquiring last-mile delivery startups Shipt and Deliv to bolster its own delivery capabilities and enhance speed.

Costco has forged a partnership with Instacart to provide customers with same-day delivery options.

Even Domino’s Pizza is participating in this trend, collaborating with Nuro to utilize autonomous vehicles for last-mile delivery of its products.

The Last-Mile Delivery Landscape

• Walmart is investing in autonomous vehicle deliveries through Cruise.
• Target acquired Shipt and Deliv to accelerate delivery times.
• Costco utilizes Instacart for same-day delivery services.
• Domino’s Pizza is partnering with Nuro for autonomous vehicle last-mile delivery.

These developments highlight the growing importance of efficient last-mile delivery as a key competitive advantage in the modern retail environment.

Latin America: A Lagging Region in Last-Mile Delivery

Global investment in last-mile delivery has surged in the last five years, yet Latin America (LatAm) has experienced comparatively limited funding. Throughout the past decade, over $11 billion has been channeled into last-mile logistics worldwide.

However, Latin America has only attracted approximately $1 billion in investment during the same timeframe, according to research from PitchBook and WIND Ventures.

A significant portion of this investment, roughly $300 million, was directed towards Spanish-speaking Latin American nations.

This figure is notably low considering the region’s consumer base exceeds that of the United States by 110 million people.

Dominance of Loggi and Market Fragmentation

Loggi, a company based in Brazil, represents around 60% of all venture capital investment in Latin American last-mile logistics.

However, Loggi’s operations are confined to Brazil, leaving major Spanish-speaking countries like Mexico, Colombia, Chile, and Argentina without a dominant, independent last-mile provider.

Currently, approximately 60% of the last-mile delivery sector in these countries is served by small, informal businesses and individual drivers utilizing their personal vehicles.

This fragmented landscape leads to operational inefficiencies stemming from a lack of advanced technologies, such as route optimization, and limited economies of scale.

E-commerce Growth and Emerging Challenges

These challenges are intensifying as e-commerce in Latin America is experiencing rapid growth, with a compound annual growth rate of 16% over the past five years.

Retailers are failing to fully meet evolving customer expectations.

Modern consumers anticipate free, dependable same-day or next-day delivery – consistently on time and without issues like damage or loss.

Delivering on these expectations presents considerable difficulties within the LatAm context.

Theft is a particularly acute concern, as instances of unprofessional drivers diverting products for personal resale are prevalent.

Furthermore, the cost of providing free, expedited delivery options remains prohibitive in many areas.

Challenges Hindering Last-Mile Delivery in Latin America

Latin America experiences significant difficulties in achieving efficient last-mile delivery. A primary reason for this lag stems from complex, multi-stage processes traditionally employed in e-commerce fulfillment within the region.

Typically, goods undergo a lengthy journey: initially collected from the retailer, then transferred to a cross-dock facility, followed by warehousing, another cross-dock transfer, and ultimately, delivery to the end consumer.

In contrast, contemporary delivery models streamline this process considerably. Products move directly from the retailer to a cross-dock and then onward to the customer, eliminating the need for intermediate warehousing and an additional pre-warehouse cross-docking stage.

Beyond these operational hurdles, technological deficiencies also contribute to the problem. A substantial portion of delivery coordination and route planning in Latin America still relies on manual methods like spreadsheets or handwritten notes.

Dispatchers are often required to make phone calls to drivers for assignment, a process that lacks efficiency. Conversely, in the United States, sophisticated computerized algorithms are widely used to optimize delivery routes.

These algorithms significantly reduce both delivery expenses and transit times by automatically determining the most effective routes – maximizing deliveries per vehicle – and assigning drivers based on factors like location, vehicle capacity, and route familiarity.

The implementation of such optimization algorithms remains largely uncommon within the Latin American retail logistics landscape.

Specific Roadblocks to Efficiency

• Complex, multi-stage delivery processes.
• Reliance on manual dispatching methods.
• Limited adoption of route optimization technology.
• Insufficient warehousing infrastructure.

Addressing these issues is crucial for improving the speed and cost-effectiveness of last-mile delivery services throughout Latin America.

The Influence of Major Retailers on Last-Mile Delivery

The expansion of last-mile delivery services across key global markets – including the United States, Europe, and Asia – was significantly accelerated by the introduction of complimentary same-day and next-day delivery options from prominent retail brands.

This availability of rapid, no-cost delivery fundamentally reshaped consumer expectations.

As a substantial portion of consumers began anticipating free, expedited delivery from leading retailers, the broader retail and e-commerce landscape was compelled to adapt and offer similar services.

Consequently, venture capital investment within this sector experienced a dramatic surge.

The Correlation Between Retail Innovation and Venture Capital

Consider the demonstrable increase in VC investment directed towards last-mile delivery startups coinciding with the implementation of free same- and next-day delivery by major retail corporations.

This pattern highlights a clear cause-and-effect relationship.

The following image illustrates this trend:

A Pivotal Moment for Latin American E-commerce

In 2018, Mercado Libre, the leading e-commerce platform in Latin America, initiated its network for same-day delivery services. Consequently, venture capital investment in last-mile delivery solutions began to increase significantly in the same period.

This development has triggered a chain reaction, poised to generate substantial expansion within the last-mile delivery sector across LatAm as consumer expectations shift towards free, rapid delivery options like same-day and next-day service.

Catching Up to Global Trends

Mercado Libre’s launch occurred approximately four years after comparable services were introduced by retailers in Europe and Asia. It also lagged behind Amazon’s implementation in the U.S. by eight years.

Despite this later entry, last-mile delivery now presents a considerable market opportunity for investors, startups, and retailers, particularly considering LatAm’s position as one of the world’s fastest-expanding e-commerce regions.

Rapid E-commerce Growth in LatAm

Forecasts indicated that e-commerce sales in Latin America would experience growth of around 37%, reaching $85 billion in the previous year.

A key factor driving this expansion is the increasing adoption of mobile shopping. Mobile commerce is projected to account for 49% of all e-commerce transactions in 2021, more than doubling its 21% share in 2016.

Significant Growth Potential Remains

Substantial opportunities for further growth still exist. Currently, e-commerce sales constitute only 6% of total retail sales in LatAm, a figure less than half that of the United States.

Several factors contribute to this potential, including a growing middle class – having expanded by 50% over the last ten years – a GDP per capita comparable to the Asia-Pacific region (excluding high-income nations), and widespread internet access exceeding 65%.

Mobile Connectivity and Future Projections

Latin America boasts one of the largest mobile internet markets globally, with approximately 250 million individuals utilizing 4G-enabled smartphones as of 2020.

Considering these elements, market analysts anticipate robust growth in the last-mile delivery market within Latin America in the years ahead. Investment in this sector is expected to continue its upward trajectory.

Identifying Promising Startups for Investment in Last-Mile Delivery

Startups poised for success within the rapidly expanding last-mile delivery market will demonstrate a specific set of capabilities. These essential characteristics include:

• Advanced Technology: Implementation of leading-edge route optimization technologies is crucial. This will minimize both delivery expenses and transit times, enabling more affordable and dependable service.
• Substantial Fleet Capacity: Maintaining a large, dependable fleet is fundamental to guaranteeing consistent and punctual deliveries.
• Effective Driver Management: Successful driver acquisition and retention necessitate a unique, attractive, and cost-effective strategy.
• Competitive Pricing Strategies: Pricing remains a significant consideration for many consumers. Achieving competitive rates relies on efficient routing, low driver costs, and substantial operational scale.

The successful advancement of the last-mile delivery startup ecosystem in Latin America is vital for numerous parties, all of whom stand to gain but must adopt strategic approaches. Retailers, with the exception of established players like Mercado Libre and Amazon, will likely depend on third-party startups for order fulfillment, requiring careful partner selection.

A considerable opportunity exists within the Spanish-speaking countries of Latin America. The top three last-mile e-commerce delivery startups in these regions have collectively secured approximately $100 million in venture capital funding, excluding companies focused on food delivery or ride-sharing.

This figure is notably smaller when compared to Brazil, where Loggi has raised around $500 million. For investors, the last-mile retail delivery technology sector has already yielded several unicorn companies, including Loggi, Nuro, and Bringg.

This doesn't include prominent food delivery unicorns such as Rappi and DoorDash, or ride-sharing giants like Uber and Lyft. Last-mile delivery has proven to be a reliable area for identifying high-growth venture capital opportunities, and Latin America represents one of the most significant remaining global prospects.

Latin America is home to approximately 650 million people, and they represent a consumer base that is only now beginning to experience the benefits of widespread free same-day and next-day delivery options.

The evolution of last-mile delivery will substantially improve their everyday shopping experiences. Currently, Latin America represents the most important growth market for last-mile delivery services worldwide. Despite a delayed start, the region is now positioned for rapid expansion.

Entrepreneurs, investors, and retailers who act strategically can all capitalize on this emerging market. Ultimately, consumers will be the primary beneficiaries, gaining access to the convenience and speed of receiving packages directly at their door, often without additional charges.