How Covid Brought Digitalization to Mexican Logistics

Many experts argue that the coronavirus pandemic catapulted the traditional logistics industry into the fourth industrial revolution, accelerating the shift to paperless trade and contactless technologies. Now in the spotlight, due to the near-shoring trend and increasing competition with China for trade supremacy, Mexican logistics is at a crossroads: making the fast changes needed to ride the COVID-19 wave, or fully embracing an elusive culture of innovation and digitalization for long-term success.

Digitalization is not a new challenge in Latin America, but strapped for resources, lacking in infrastructure and facing a traditional culture often resistant to change, it took a world-changing pandemic to kickstart a revolution that was decades in the making. Though no Latin American country made it to the top 50 in the World Intellectual Property Organization (WIPO) 2020 innovation index (Mexico is No. 55), a study by fintech EBANX SA shows the groundbreaking impact of the pandemic on the adoption of digital channels in the region. According to the study, the number of online consumers increased by up to 30% in some countries — a jump that shouldn’t have been possible before 2022.

Change is rapidly picking up pace. So, is the logistics industry ready to ride the wave?

The short answer is yes, it must. But the road ahead is not without challenges.

Tech Uncertainty

Stakeholders along the supply chain have built analog processes that worked for generations. Now, pushed to adopt technology, the fear of the unknown heightens, as technology is often perceived as a substitute for human capital. Add to this the slower generational relays and a top-down leadership culture, and you get non-digital natives playing catch-up.

Innovation tends to be received with resistance among employees scared that the technology they help build will end up replacing them. So, instead of rethinking processes, companies embrace technology to a point where it remains not threatening, for example providing warehouse employees with barcode scanners, instead of automating the process.

The Informal Economy

Approximately two-thirds of Mexican businesses fall into the “informal” category. This is evident on the carriers side of logistics, as barriers to entry are low and regulations flexible.

Commonly known as "hombre-camión" or "owner-operator," it’s estimated that 97.5% of cargo transport permit holders in Mexico are in the micro-small range. Without properly defined back-end processes and a lack of organizational structure, the road to digitalization gets even steeper.

Slow Government, Fast Bottoms-Up

Though several processes within the industry are clamoring for innovation, tax and regulatory procedures represent a blocker for change. Governmental institutions are slow to adapt to the changing times, still requiring physical documents, like invoice packages, as part of complex official proceedings.

Strides are being made, starting from the ground up, for example document digitization. Just a dozen years ago, around 90% of shippers refused to accept PODs in digital format. Today, prompted by COVID-19 and the rise of remote work, we've seen that 98% of our clients prefer this format. However, as more types of documents in the supply chain are digitized, companies will need to build digital ecosystems to integrate them to their existing processes, from filing and billing to data storage and privacy capabilities.

Logistics represents one of the biggest spending hubs for companies, and without better tools to optimize productivity and efficiency, incumbents will struggle to remain competitive in the next 10-15 years. Now, clients are more digitally savvy and considerations such as fast delivery, total traceability and integrated door-to-door services — not long ago thought of as privileges — will become minimum requirements for any international logistics operation.

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Originally published in Supply Chain Brain.