Market Overview: Logistics in Mexico awaits true innovation

Mexico is often times seen as the gateway to Spanish-speaking Latin America, and in recent years with the introduction of new technology companies to the region there have been no exceptions.

With a market of over 120 million people – second only to Brazil’s 200 million people market – an economy steadily on the rise, and a political landscape that offers a better outlook to foreign investors than most of its regional neighbours, Mexico has built what now appears to be a promising landscape for the new players of world innovation.

Areas of innovation

As a perfect example, companies like Amazon and Uber chose Mexico to be their starting point on their path to enter Latin America. Although, the former still has to prove to be successful in scaling their business through the rest of the region, while the latter has already proven to be able to leverage their learnings in the Mexican market to enter and expand within other Latin American markets.

Additionally, large SaaS companies from the more seasoned players like SalesForce, and Adobe, to the up and comers like Zendesk chose to set up shop, and oversee their Latin American business expansion from Mexico.

Even Didi,  China’s top rail-hailing app, chose Mexico as one of their first destinations while expanding overseas, while their main competitor Uber counts as their second largest globally. (https://thelowdown.momentum.asia/didi-attacks-ubers-two-biggest-cities-globally/)

Ecommerce landscape

An industry that has shown massive growth fuelled by innovative foreign, local, and regional players, as well as by more traditional players has been the e-commerce space. Reports suggest that from 2009 to 2015, e-commerce in Mexico has grown an average of 48% year over year. Just in 2016 the industry showed a 28% growth to reach a $17 billion USD market size, something economist had classified as “una locura” (crazy growth).

The interesting part of the anatomy of industry dominance, as opposed to what we see in other mature markets, is that top market players are a mix of both digital-native and traditional players. In 2016 the top 5 players included digital players like MercadoLibre, Amazon, and Linio, as well as the still powerful US retail chain Walmart and Mexican department store Liverpool.

This is largely explained by the main categories represented in e-commerce transactions, where five out of the top ten categories include physical goods, like apparel, accessories, video games and consoles, jewellery, toys, and furniture.

This not only gives a fighting chance to traditional players, which have the added advantage of offering physical stores to interact with products, but also poses challenges and opportunities in the logistics arena, where Mexico has every player available offering competitive solutions, but at the same time an opportunity to innovate and ride the wave of the e-commerce growth that is still in its infancy.

Why logistics is not keeping up

The logistics industry in Mexico is privileged in the sense that amongst the value propositions it accounts for, we can find some of the most successful parcel delivery companies including foreign players like FedEx, UPS, DHL, as well as local ones like Estafeta.

However, despite the fact that these large corporations have multi-million dollar investments in Mexico to open logistical centers and distribution points, amongst other infrastructure projects, to keep up with the growing trends, the logistics industry in Mexico hasn’t truly innovated in at least 20 years.

We spoke with Jaime Aparicio Macias, CEO and Founder of already extinct “Simsa”, which was the very first courier company in Mexico and expanded to 8 out of 32 states by filling in the void that the Mexican Postal Service and larger parcel companies could not fill.

In Jaime’s view “the innovation back then did not come in the form of new technologies, but in the form of creative solutions and services that truly addressed the business needs of Mexico’s largest banks and service providers with needs to reliably reach their customers through the regular mail.”

He also adds that “today’s changing the landscape in the purchasing behaviours and delivery expectations of merchants and end consumers, offers a unique moment in time for existing companies, and entrepreneurs alike to take advantage of the new technologies and the collaborative economy trends to innovate.”

Limited attempts to innovate

A few attempts to use technology to improve services by small startups can already be seen. Companies like iVoy use a mobile app to connect customers with the services they offer, and 99minutos offers on-demand deliveries allowing customers and merchants to track their shipments in real time.

These implementations, however, are seen by Jaime as “improvements to the way of running a traditional logistics enterprise” where the true challenges that customers face when purchasing online aren’t being addressed still. Challenges like improving the ability to easily return purchases to the merchant, managing decentralised points of origin, and guaranteeing timely, and inexpensive deliveries continue to be the main issues faced by both merchants and customers.

Mexico awaits true logistics innovation

The table in Mexico is set for those with a true hunger to innovate to have a feast. Small and large e-commerce players are in constant search for new ways to improve their customers’ user experience, and the delivery part is key to making this happen. Customers on the other side, are proving to be increasingly open to engage in the digital purchasing world, but are very demanding when it comes to building trustworthy relationships with these merchants whose hands they can no longer shake.

Whether it is new creative entrepreneurs, or experienced players trying to stay ahead of the curve, the next 3 to 5 years will be interesting to monitor closely as it will open a room full of new opportunities.

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Thanks for reading The Low Down by Momentum Works. This article is contributed by our partner Consensus Capital, which fosters entrepreneurship across Latin America. Run by Rocket Internet alumni, Consensus Capital has extensive experience building and scaling tech companies across the continent. 

If you’d like to get in touch with us about any issues discussed in our blog, please drop us an email at [email protected] and let us know how we can help.