Express firms aim for double-digit growth in South America

As South America’s leading economies expand in 2007, the top international express companies are laying out their strategies for healthy growth in this key emerging market.

Foreign express companies are upping their activity in South America this year, expanding their networks and product and service offerings in the belief that optimistic economic growth forecasts for the region will hold good. DHL has restructured its Latin American operations in anticipation of double-digit growth, while TNT is expecting the same following its purchase of Brazil’s Mercurio. UPS expanded its routes and increased the frequency of services between the region and the rest of the world at the beginning of this year, while FedEx is upgrading cargo-carrying capacity to the region through fleet upgrades and targeting small-and-medium-sized enterprises (SMEs) in six top countries.

Entering a period of political stability, continued economic growth

Optimism in the South American market is based not just on promising sales growth forecasts but also on a macroeconomic picture that gives the region a far healthier hue than at the beginning of the decade. GDP growth in the region is mixed but stable, exports showed double digit growth last year and the region has a combined current account surplus of USD 51 billion. The region seems less vulnerable to the crises of the past through floating exchange rates, which have allowed the top countries to pay off part of their external debt and raise international reserves.

Real GDP of the three largest South American economies – Argentina, Brazil and Chile – are expected to grow by an average of 4.5 pct in 2007 and then ease to annual growth levels around 4.0 pct. Argentina is expected to grow at an impressive 7.5 pct in 2007.

All the major international CEP players now have strong footholds in South America. DHL and FedEx are seen as the market leaders, with TNT and UPS currently vying for third place.

The acquisition of Mercurio, Brazil’s leading domestic express company, was a major step by TNT in South America. Mercurio, with 101 depots, 2,000 vehicles and over 6,000 staff, has annual revenues of some EUR 190 million and a 15 pct market share. The acquisition gives TNT a launch pad for expansion in countries such as Argentina, Chile and Uruguay, and opens up the opportunity to create a South America road network. “Mercurio’s cross-border network provides us with an excellent opportunity to grow and expand even further throughout South America,” said Marie-Christine Lombard, group managing director, TNT Express.

DHL invests in infrastructure and services

DHL also sees double-digit growth in South America, said Roger Crook, DHL Express International Americas’ chief executive for the region, based on the rising need for businesses to have reliable transportation and express delivery services within the competitive framework of globalization. "We are forecasting growth in imports and exports for almost all countries,” he said.

The company is investing some USD 80 million in Latin America and the Caribbean this year, deepening its national networks in 16 main countries and expanding the international terminal at Panama. It says 2007 growth could be as much as 20% up on 2006, with business from the hi-tech, pharmaceutical, and automotive and textile sectors expected to grow strongly. In Brazil, DHL is building 15 new express centers this year and considering launching direct flights between Brazil and China to replace its current roundabout way of shipping Chinese exports to Brazil via Europe or the USA.

The Deutsche Post subsidiary also recently consolidated its regional management structure, transforming its modern new Buenos Aires offices into the headquarters for nine Spanish-speaking countries: Chile, Uruguay, Paraguay, Bolivia, Peru, Ecuador, Venezuela and Colombia as well as Argentina. DHL Express had turnover of USD 300 million in this sub-region last year, news agency Buenos Aires Económico recently reported, including revenues of around $40 million in Argentina.

FedEx targets SMEs

FedEx, with more than 3,000 employees in its Latin America and Caribbean (LAC) region, is focusing particularly on small- and medium-sized businesses in South America. “Helping small and medium-sized companies become stronger and more competitive exporters is a priority for FedEx,” said Juan N. Cento, president, Latin America and Caribbean Division, FedEx Express. “FedEx is a premier ally of this business sector and provides more than transportation services by helping SMEs take advantage of global trade.”

It has set up SME membership programs in Argentina, Brazil, Chile and Colombia, with the help of local government agencies and industry associations. Key elements include education on international commerce, export seminars and practical workshops. FedEx is also rolling out country-specific web sites dedicated to SMEs.

Moreover, the US carrier places a strong focus on technology. Half of all FedEx shipments in LAC are now performed using e-business digital technology, which is more than double the utilisation rate of three years ago. It also offers so-called “get“ rates, offering online local currency rates in 42 LAC countries in Spanish, Portuguese, French and English, allowing customers some constancy in the face of the region’s fast-moving and sometimes dramatic exchange systems. Overall, FedEx offers not only international express but also heavy freight, logistics and supply chain management services in the region.

UPS enhances international services in South America

Like FedEx, UPS has been established in the Americas since the late 1980s and now covers more than 50 countries and territories, but has the most employees in the region of all the international express carriers: more than 6,000. It also has 1,200 cars, vans, trailers and motorcycles and boasts over 100 daily flights by B-757s and B-767s to LAC countries from its American air hub at Miami, and 51 intra-American flights.

At the beginning of the year, UPS increased its daily delivery options between the LAC countries and North America, Europe and Asia, to three instead of two daytime services, with deliveries now guaranteed at 08.30 and 10.30 the following day (Worldwide Express) and also at the end of the day (Worldwide Saver). "This expansion in service options redefines the delivery standards of the industry between Latin America and other leading economic centres around the world,” said UPS Americas president Stephen Flowers. “This will give North American importers and exporters more flexibility and precision and help them manage their just-in-time supply chain models,” he added. The importance of SMEs to the regional economy was also recently underlined by UPS’ Latin American Business Monitor publication. It reported that over 50 pct of SMEs in the region were planning to increase their staff and 72 pct saw China as one of their most important trade partners.

Boom in Brazilian express market

The Brazilian air cargo market is showing strong growth as commerce between the country, its Mercosur partners and the northern hemisphere has taken off. Brazil’s airport authority Infraero says air cargo imports and exports have been increasing 25-30 pct a year since 2003, and the express and parcel market growth is increasing at a similar rate. TNT believes the Brazilian express market, currently worth about EUR 1.3 billion in annual revenues, will show growth rates in the range of 10-15 pct in the coming years. It is aiming to match that at least following the acquisition of Mercurio, which has already achieved annual revenue growth of 15 pct-20 pct over the last decade.

The Brazilian express market is highly fragmented and generally characterized by fierce competition between the major international players, the Brazilian postal operator Correios and a large number of relatively small, locally-based air and road express parcel firms such as Espresso Aracatuba, Global Messenger, Itacargas, Kwikasair, Rapidao Cometa (FedEx partner), Total Express and Vextra. So far, the “big four” integrators have had limited presence in the domestic sector.

However, the high tax economy and subsidized nature of Correios give it a distinct advantage and allows it to pursue aggressive price strategies. The Brazilian postal operator has also just signed a marketing agreement with Correios of Portugal to produce identical express and parcel products for both countries’ markets. The express unit, Sedex, claims to have a major e-commerce delivery business carrying 78 pct of products ordered online, based on contracts with over 800 retailers.

Fast growth in Argentina

The Argentinean air express market is growing fast (1.5 million shipments and USD 65 million in revenues last year) and both DHL and TNT are expecting year-on-year growth in double digits; DHL Express, which claims to have half of the export market, predicts about 15-20 pct growth. The express market has benefited from the country’s strong economic recovery and the trend towards more specialized segmentation, such as B2B parcel distribution and time-definite services. But the sector remains characterized by poor customer service, outdated technology and lack of product standardization.

Alongside the big four international express operators, the main local competitor is the public postal operator Correo Argentino (CA) which has been through a turbulent recent history of privatization. Postal rival OCA also offers parcel and express, and regional carriers Ocasa and World Courier have a strong presence. Other significant Argentinean express operators include Grupo Andreani, CrossRacer, IBC and LHS.

Mixed picture in other South American markets

Chilean air express services have expanded significantly since 2002, according to the express industry association Atrex. Annual export tonnage relating to goods and documents grew nearly 19 pct between 2002 and 2005 from 3,559 tonnes to 4,228. Express import tonnage was up 25 pct during the same period and represents about 40 pct of the express exports. Atrex puts Chilean express market growth at about 10 pct a year with more than half the international shipments to and from the USA. Twelve per cent are with Europe, 11 pct with Brazil and Argentina, and 10.5 pct with China.

New infrastructure in the country is an urgent priority for the express operators, according to Atrex, since roads are congested and blighted by accidents and the main international airport is the only option in which to locate because of a serious shortage of usable buildings elsewhere. Limited development of the express industry in Chile is hurting SME exports, the association pointed out, especially to new markets such as China. In addition to the three big international carriers, the main domestic competitors include Choice Courier, Hot Express (IBC partner) and TLC Courier.

International express presence in other South American markets is less homogenous. Colombia and Venezuela are the biggest of the others, with DHL Express developing a strong foothold in both. The Deutsche Post subsidiary plans to invest USD 15 million (EUR 11.6 million) in Colombia over the next four years, encouraged by import-driven sales growth last year of over 20 pct. The company is expanding its network in the country, as well as diversifying and improving services, and claims to be the express leader on the Colombian package delivery market with a share of 60 pct.

In conclusion, South America is clearly a vast, relatively untapped market with a huge population. Although fiscal and infrastructure problems are likely to restrict market growth for years to come, as long as the basic macroeconomic and political climate remains stable, the region looks to be capable of providing international express companies operating there with guaranteed double-digit growth for the foreseeable future.