Mercado Libre’s new South American air cargo network mirrors the Amazon model
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Mercado Libre, the Latin American e-commerce equivalent of Amazon and Alibaba, is rapidly expanding its fledgling private-label cargo airline to enable faster order delivery to a broader consumer base.
The online marketplace plans to double the fleet’s size during the next year with the help of a new partner that has never operated freighter aircraft.
Under a 10-year deal struck in April, low-cost Brazilian passenger airline Gol Linhas Aéreas Inteligentes S.A. will operate six 737-800 standard-size freighters across Brazil for Mercado Livre, the Brazilian subsidiary of the Argentina-based e-commerce power. Gol is guaranteed minimum annual payments of $43 million, according to a recent filing with the U.S. Securities and Exchange Commission.
Gol is one of several airlines that have started a freighter division to jump on the air cargo wave powered by pandemic supply chain turmoil and e-commerce demand. It is familiar with the 737-800, operating 84 of the standard passenger jets as of December.
The first cargo jet will start operations at the end of August, Gol said in its second-quarter earnings report.
AerCap Holdings (NYSE: AER), a major aircraft leasing company, announced in July it is leasing Gol six 737-800 freighters converted by Boeing from passenger configuration. Three of the aircraft are scheduled for delivery in the second half of the year, with the remaining planes converted in 2023. Gol said it has options to add six additional 737 cargo jets by 2025.
E-commerce spending in Brazil topped $33 billion last year, with more than $2 billion in associated logistics expenditures to support the market.
Mercado Libre established in-house air cargo operation Meli Air about 18 months ago to ensure fast delivery in the mushrooming Latin American e-commerce market, much like Amazon (NASDAQ: AMZN) in the United States and Alibaba’s logistics arm Cainiao in China have outsourced flying to all-cargo airlines.
Meli Air currently has a fleet of four 737-400 aircraft and two 54-year-old McDonnell Douglas DC-9s, according to flight-tracking site Planespotters.com. Two of the 737-400s are operated by Brazilian cargo airline Sideral Linhas Aéreas, with flying for the other four aircraft outsourced to Mexico-based charter carrier Aeronaves TSM. Azul, another Brazilian airline, operates one cargo jet for Mercado.
Mercado Libre said the new Gol arrangement will increase the number of direct flights from Sao Paulo to the northern regions and reduce delivery time by up to 80%. Delivery time to Manaus, for example, will be only one day, instead of the current nine, while the lead time for destinations in northeastern Brazil will be cut to one day from four days. Other cities, such as Goiania and Cuiabá, will receive packages the next day. The goal is to make customer deliveries within two days in most large cities in the north and northeast.
Mercado Libre said in its second-quarter earnings report Wednesday that it is working to optimize the density of its ground network and counteract rising fuel costs by introducing more efficiency. Last-mile delivery costs have improved with the start of a new crowdsourced shipping option in Brazil and Mexico. New management tools and price incentives are helping reduce inventory levels in fulfilment centres.
“We are confident that our shipping services will continue to be a driving force in adopting online commerce and a core differentiator of our services. Therefore, our shipping network remains a key investment area for continuous expansion to reach more merchants and buyers with a distinguished logistics solution,” the e-commerce company said.
Mercado Libre has 20 fulfilment sites. Last year, it bought Kangu, a Brazilian logistics company with operations in Brazil, Colombia and Mexico. Kangu has more than 5,000 collection and delivery points at neighbourhood stores where e-commerce sellers can reach customers.
The company generated nearly $2.6 billion in net revenues, a 53% gain from last year and a new quarterly record. Income from operations was $250 million, with a 9.6% profit margin.
Gol’s cargo strategy
Gol’s partnership with Mercado Libre resembles the 2020 move by leisure carrier Sun Country (NYSE: SNCY) to expand into air cargo, flying a handful of 737-800s as a contractor for Amazon.
The initial Gol freighters are undergoing conversion in China at maintenance and repair facilities authorized by Boeing. The airline is discussing with Boeing the possibility of performing future conversions in-house at its maintenance facility in Confins, Brazil, a Gol spokesperson said in an email.
Conversions include demolishing the passenger cabin and retrofitting aircraft with a cargo door, ruggedized interior walls and flooring, a rigid cockpit barrier, and a cargo handling system for containers.
Gol said it plans to increase the range of logistics services it offers an increased tonnage capacity by 80% in 2023 to generate incremental revenue of about $184 million over the next five years.
Source: American Shipper
Post available in: English