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ECONOMY | 24-08-2020 07:00

MercadoLibre eyes more cross-border shipping in land of red tape

Already Latin America’s biggest company by market value, e-commerce giant is embarking on a new strategy to look across borders and boost international sales.

Already Latin America’s biggest company by market value, e-commerce giant MercadoLibre Inc is embarking on a new strategy to boost international sales despite operating in a region notorious for trade barriers, tariffs and red tape.

MercadoLibre, the Buenos Aires-based online commerce firm now worth US$60 billion in the stock market after a big rally during the pandemic, primarily sells products to clients from within the same country. A push into more cross-border trade is an opportunity moving forward, Chief Financial Officer Pedro Arnt said in an interview.

Some pilot programmes have begun to expand shipments into the region and the company is considering setting up distribution centres in free-trade zones so that it can deliver imports quickly. The plan is part of a broader strategy to expand its logistics footprint, speed up deliveries and reduce dependence on outside carriers. The company will spend more than US$500 million this year on its logistics network, including warehousing and subsidised shipping.

The shopping platform has thrived in 2020 as online purchases soared with most people locked down at home, boosting both its own merchandise sales and use of payment services provided to other retailers. The company’s founder and Chief Executive Officer Marcos Galperin has seen his net worth nearly double to US$5.2 billion, according to the Bloomberg Billionaires Index. That marks the highest percentage jump among all Latin American billionaires on the list.

Analysts say the stock is ripe for further gains, with a half-dozen firms raising target prices this month after profit more than tripled in the second quarter. It is now the most-valuable publicly traded Latin American company, edging out iron ore miner Vale SA.

“Our biggest challenge is continuing to deliver the excellence in consumer experience while managing three years of growth in three months,” Arnt said from Buenos Aires. He sees “enormous opportunities” in Chile and Colombia – two markets that have been posting the strongest growth over the past months.

Sales from international trade currently make up less than 10% of the total, with countries that have relatively low barriers like Mexico, Colombia and Chile leading the segment. It already has hubs in five countries, and plans to build two new sites in Brazil and Mexico.

In the World Bank’s ease of doing business index, Brazil and Argentina rank 124th and 126th respectively while Chile, Mexico and Colombia are listed at number 59, 60 and 67 out of 190 countries.

Brazil hurdles

The company now handles just over half of its own deliveries and that capacity should grow in coming years, Arnt said. The retailer learned the value of its own network the hard way back in 2018, when Brazilian postal service Correios raised freight fees and a 10-day trucker strike hampered deliveries in its largest market, reducing profit margins.

Correios workers entered a nationwide strike earlier this week, with no end date in sight. Brazil represents 53% of revenue for the company.

“As we grow our logistics network, the ability to move volume away from them increases,” he said. He added that the firm has been working “very closely” with Correios to minimise disruptions.

MercadoLibre is still looking into the possibility of selling perishable groceries, but the idea isn’t likely to come to fruition in the short-term.

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by Carolina Millán & Vinícius Andrade, Bloomberg

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