Overview of the logistics operators sector in Brazil

By: Maria Fernanda Hijjar, Beatris Huber and Leonardo Santiago

Many years have passed since the entry of the first Logistics Operators (LOs) in Brazil. From a new market in the 90s, this sector is currently made up of mature companies, which on average have an experience of around 30 years in the country.

For those who still have doubts about their scope of action, ABOL (Brazilian Association of Logistic Operators), created 10 years ago, defines Logistic Operators as service providers capable of carrying out transport, storage and inventory control activities simultaneously. They differ from other companies that perform specific logistics services (such as transporters and warehouse managers), as OLs are able to integrate and manage various logistics activities, offering complete solutions.

 

Figure 1: Activities Performed by Logistics Operators in Brazil (% of Operators performing each activity)

Source: ILOS Institute and ABOL - Profile of Logistics Operators 2022

 

Market Size

Comprising about a thousand companies, the Logistics Operators sector earned a total of R$ 2021 billion in Brazil in 166, equivalent to almost 2% of the country's GDP (calculation carried out by the ILOS Institute in 2022).

Although some companies stand out for their larger size, in general, the Logistics Operators sector is not a segment with a high concentration in a few players. Currently, the five largest OLs in the country represent around 10% of the segment's revenue. And the top 25% OLs earn 75% of the industry's revenue.

The Gross Revenue of LOs grew in 2021 compared to 2020 in most Logistics Operators (by 82% of them), showing an important economic recovery after the most critical year of the COVID-19 pandemic. The increase in the Logistics Operators' revenue was accompanied by an increase in the number of customers served: 72% of the LOs gained customers in 2021 compared to 2020).

When specifically observing the evolution of the larger Logistics Operators (with revenues above R$ 600 million), it is clear that the size of the company really influences its ability to recover after an economic crisis. The financial structure of the largest Logistics Operators, their ability to obtain financing and make investments to adapt to changes, their operational scale, their regional and sectoral scope and their wide range of services offered are examples of characteristics that make these less vulnerable OLs, being more robust to withstand moments of crisis and reestablish themselves to grow again. In the year 2021, almost all Big OLs (94%) increased revenue and gained customers, more than the rest of the market.

On the other hand, Intermediate-sized Operators (invoicing between R$ 100 and 600 million) were more active in mergers and acquisitions. In all, 26% of medium-sized OLs participated in mergers and acquisitions in 2021, a direction that indicates that such operators seek to gain market share more quickly, aiming to become bigger and more robust and, in the future, become part of the category of large logistics operators.

Although this movement of grouping logistics companies has been taking place regularly, the market remains quite fragmented, being served by Logistics Operators and also by more than 280 carriers and 878 self-employed truck drivers registered in Brazil. To get an idea of ​​how much shipping companies (cargo owners) spend on Transport and Storage in Brazil, the ILOS Institute estimates that this figure reaches an amount of R$ 850 billion, an amount 5 times greater than the current revenue of Operators Logistics in the country, showing that OLs have opportunities to participate even more in this market.

 

OLs' Sectors of Activity

Customers of Logistics Operators are present in virtually all sectors of the economy, from basic industry to consumer products and services. However, the focus of OLs on segments that manufacture products with higher added value is clear, as is the case of the Cosmetics sector, served by 65% ​​of the country's Logistics Operators. Other examples of segments in which Logistics Operators are highly active are the Electronics, Auto Parts and Pharmaceutical Industries, which are also manufacturers of high-value products.

All these segments deal with high logistical needs and requirements, moving more expensive products with higher margins. In this way, the industries in these sectors end up having budgets that support the hiring of more premium logistics services, thus adapting to the value proposition offered by the Logistics Operators.

On the other hand, the evolution of Logistics Operators in terms of field of activity is also greatly influenced by economic movements. The rapid advance of e-commerce, for example, brought to light the immediate need to increase logistical capacity to support the sharp rise in deliveries of purchases made online. Thus, from 2020 to 2022, most Logistics Operators began to operate in electronic commerce, in operations involving different activities, both storage and transport. Even though this is a segment that brings little financial margin, e-commerce was the sector that grew the most in terms of LOs activities: in 2020, around 26% of LOs were active in e-commerce logistics operations, and in 2022 this percentage increased to 42%. It is worth noting that the logistics required for delivery to individuals, especially small volumes, is different from that aimed at the traditional movement of products between companies, requiring the Logistics Operators who started to operate in this sector to invest in adapting processes, vehicles, equipment, technology and partners.

In addition to e-commerce, an evolutionary analysis shows that Logistics Operators have been growing in terms of activity, mainly in the sectors of Cleaning Products, Cosmetics and Technology.

 

Figure 2: Sectors Served by Logistics Operators in Brazil (% of answers)
Source: Source: ILOS Institute and ABOL - Profile of Logistics Operators 2022

 

OLs' Areas of Operation

The decision on which regions to operate is part of the strategy of each Logistics Operator. Most of the larger OLs (83%) operate throughout Brazil, thus allowing the provision of more comprehensive services to customers with a national presence. This differential allows Logistics Operators to absorb a greater volume of cargo, however, without focusing on a specific region, it is possible that the Operator will not achieve good profitability in regions with a small scale of movement. In addition, it requires the OL to assume the numerous and distinct logistical complexities of a country with continental dimensions such as Brazil.

In turn, the smaller LOs are those with more regional operations, with most positioning themselves as specialists in local markets, being very knowledgeable and even dominant in a given region. Because they are regionally specialized, they can attract customers interested in hiring local people with a high level of service, however, they are limited in terms of increasing volume and restricted to some customers.

As expected, the Southeast region has the greatest presence of OLs: 97% of them work in this region, which is the region with the greatest economic development in the country. The South region is the second with the highest presence of OLs, served by 75% of them. Then comes the Midwest region (62%), Northeast (58%) and North (44%).

Over the years, the OLs' strategy of seeking geographic expansion, thus seeking to increase their market in which they operate, is evident. The presence of Logistics Operators grew in all regions of the country between 2020 and 2022. The Center West stands out specifically, which among all Brazilian regions was the one that grew the most in terms of OL activity. The Midwest is the third Brazilian region in GDP per capita, especially on account of the Federal District and Mato Grosso.

 

Figure 3: Regions served by Logistics Operators in Brazil (% of responses)
Source: Source: ILOS Institute and ABOL - Profile of Logistics Operators 2022

 

Differential of the Logistics Operator

Logistics Operators position themselves in the market as logistics companies that differentiate themselves by offering customized and flexible solutions, being able to adapt and serve customers with the highest demand for quality, integrity and cargo security, bringing technological solutions and innovations. This position, declared by most Brazilian LOs, demonstrates the focus of LOs on offering services to customers who value higher service levels, and who seek and can pay for added services that go beyond fast deliveries and cheap services. Offering more elaborate services may require, for example, special operating licenses, much more accurate controls, real-time monitoring, continuous visibility of customer flows, among many other actions that make the service more complex and costly.

 

Figure 4: How the Logistics Operator positions itself in the market for its customers (% of answers)

Source: Source: ILOS Institute and ABOL - Profile of Logistics Operators 2022

 

Investments and Development Actions

When looking at the topics that are most being developed by Logistics Operators, increased integration with customers and the use of technology and automation draw more attention. This shows that OLs are part of a journey of technological development that has been intensifying. And this journey is accompanied by an increase in the level of service and productivity, observed by more than 80% of the LOs interviewed by ILOS. It is also worth mentioning the increase in training for LO teams, essential for companies to be able to continuously develop.

Finally, the actions that demonstrate the growth of the Logistic Operators' market stand out, such as the expansion of the portfolio of services, the regions of operation and the segments served, which had already been evidenced previously and which continue as a driver of the future actions of the OLs.

 

Figure 5: Actions under development by Logistics Operators (% of OL that is increasing, maintaining or reducing)

Source: Source: ILOS Institute and ABOL - Profile of Logistics Operators 2022

 

Tech

When it comes to the use of technology, the search for integration by Logistics Operators is very remarkable. Systems that allow aggregating the operating platforms of the LOs with that of their customers and their suppliers are key for this segment. It is worth noting that the OLs need both to deal with their customers' information and to hire outsourced services to operate the services (such as third-party transporters and storage teams). Carrying out this integration efficiently is a critical factor for the Logistics Operator sector: currently 78% of the LOs are increasing their investment in technologies that allow this integration.

In second place among the technology items with the greatest attention from OLs, Data Analytics using Artificial Intelligence and Machine Learning stands out, which can be extremely useful for, for example, improving efficiency in product distribution and warehouse management.

 

Figure 6: Evolving technologies among Logistics Operators (% of OL that is increasing, maintaining or reducing)

Source: Source: ILOS Institute and ABOL - Profile of Logistics Operators 2022

 

Directors of the OLs

The current moment of Logistics Operators shows different strategic priorities for each one of them. Between Improving Service, Gaining Market or Reducing Costs, there is no predominant driver among all Logistics Operators operating in Brazil. The fact that there is no single strategy does not mean market misalignment, but the search for the best positioning for each context.

Increasing the Service Level, for example, is more present in the larger Logistics Operators, who seek to retain their customers and attract customers with the highest margins.

In turn, medium-sized OLs are the ones that have most sought to grow their market share by gaining market share, including through mergers and acquisitions.

Cost Reduction, on the other hand, is a priority for smaller LOs, who depend on this action to keep their companies alive in the market, as they deal with tighter margins and need to reduce expenses.

 

Figure 7: What is the most important strategic driver of the Logistics Operator? (% of answers)

Note: Small = Fat < BRL 100 million // Medium = Fat between BRL 100 and 600 million // Large = Fat above BRL 600 million. Source: Source: ILOS Institute and ABOL - Profile of Logistics Operators 2022

 

Conclusions

Logistic Operators earn R$166 billion annually, equivalent to about 20% of the country's transport and storage costs. Composed of around a thousand companies, the sector employs around 2 million people directly or indirectly.

The year 2021 was marked by the recovery from the pandemic crisis, when 82% of OLs saw revenue growth. The margin increase, however, was not so strongly perceived.

Companies from all sectors hire OLs, especially those segments that move products with higher added value and that require special services and care. The OLs seek to increase their coverage in the country, both regionally and by sector, and have directed their efforts to serve customers who value premium services, with customization and flexibility.

Technologies aimed at greater integration with customers and suppliers have been prioritized by the LOs.

As strategic priorities, the larger Logistics Operators focus on improving their level of service, while the small OLs struggle to reduce costs. As for medium-sized OLs, they primarily seek to gain market share, both through organic growth and through mergers and acquisitions.

 

References

This article was based on the report called Profile of Logistic Operators 2022, developed by ILOS – Institute of Logistics and Supply Chain and ABOL – Brazilian Association of Logistic Operators). The report was based on the results of the survey applied by ILOS with 117 Logistics Operators operating in the Brazilian market. More information available at https://abolbrasil.org.br/

 

This article was published in Technology on 10/10/2022