What do Latin America’s leading retailers, grocery store chains, manufacturers, and e-commerce companies have in common?
They all depend on truck drivers who can deliver cargo across the region—cost-effectively, efficiently, and reliably. But high logistics costs, a problem throughout Latin America, often make that difficult. Prohibitive shipping fees are exacerbated by additional challenges plaguing intercity transport: an informal marketplace where drivers are rarely paid in a transparent or timely manner, and a lack of technical innovation that has stymied progress. As a result, economic development and productivity have suffered.
Liftit, a two-year-old Latin American-based tech firm that connects truck drivers to businesses that need cargo delivered, has begun to solve these once-intractable challenges. Using a model similar to that of a ride-hailing app—but adapted to trucks—Liftit helps companies in Colombia and Mexico decrease shipping costs by around 25 percent. Liftit’s drivers can find work more easily than before, receive payment promptly, and obtain advances for key expenses.
IFC’s recent $2.8 million equity investment will allow Liftit to continue automating and optimizing the delivery process. Funding will also fuel the company’s launch in other Latin American countries, such as Argentina, Brazil, and Chile.
Steering toward growth and security
Liftit aims to improve business and retail operations in Latin America, where the lack of technology in the logistics sector hampers commerce and limits the flow of goods and services. Reducing shipping expenses is especially critical for countries in the region—where logistics can account for as much as 15 percent of a product’s cost. That’s nearly twice the comparative rates in the United States and Western Europe.
Liftit is equally focused on improving the lives and livelihoods of its drivers, who traditionally have scant job security. In Mexico and Colombia, more than 70 percent of truck drivers are independent and rely on third-party transportation brokers to connect them with clients. This system lacks pricing transparency, with high rate fluctuations even for the same routes, and layers of middlemen who share fees. Inefficiencies result in an underutilization of trucks, which on average are empty 50 percent of the time. Since drivers aren’t paid unless they are carrying cargo, job security is low—and predictably, turnover among drivers is high.
Liftit has reduced this “driver churn” to 1 percent through incentives such as discounts on tires and advances for gas purchase. (Fuel often represents the bulk of costs for drivers, and price fluctuations can put a strain on working capital.) Drivers for Liftit also have access to in-app tools and receive alerts on prohibited loading zones, preventing unnecessary fines. The company is developing a list of best driving practices, which will help professionalize truck drivers.
Drivers for Liftit who do not have a banking account will benefit from access to digital banking products through partnerships being developed with private commercial banks. This will bring these employees into the formal economy, where they will be able to access credit.
Improving market competition
By illustrating the commercial viability of an asset-light logistics platform, Liftit is expected to help bring down market-wide logistics costs. Liftit also has the potential to spur a sector-wide improvement of technological capabilities, or traditional companies will risk losing market share.
Improvements like these will resonate throughout Latin America, where roads are the main mode of cargo transportation. In Colombia, for example, more than 72 percent of domestic cargo is transported via road networks, versus the 27 percent that is transported by rail. Comparative figures in Mexico are 75 percent and 25 percent for road and rail/sea transport, respectively.
Liftit now operates in all major Colombian cities—including Bogota, Bucaramanga, Cali, Cartagena, and Medellin—which together are responsible for more than 65 percent of the country’s GDP. Last year’s launch in Mexico City will be followed by expansion to Guadalajara and Monterrey. In addition to its drivers, Liftit currently employs more than 200 people, more than a third of whom are women.
Since the early 1990s, IFC has contributed through investments and advisory services to the development of Colombia’s key transport sectors. In addition to a multi-billion dollar fourth-generation (4G) road concessions program to help rehabilitate and develop thousands of kilometers of roads on the most important arteries, IFC has invested in ports, airlines, and airports. We have also played an important role in the Mexican transport sector, notably on several large investments in ports.
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Published in April 2019