Mercado Libre’s New South American Air Freight Network Mirrors Amazon’s Model
Mercado Libre, the Latin American e-commerce equivalent of Amazon and Alibaba, is rapidly expanding its fledgling private-label cargo airline to enable faster delivery of orders to a wider consumer base.
The online marketplace plans to double the size of the fleet over the next year with the help of a new partner that has never operated cargo planes.
Under a 10-year deal struck in April, Brazilian low-cost airline Gol Linhas Aéreas Inteligentes SA will operate six standard-size 737-800 freighters across Brazil for Mercado Livre, the Brazilian subsidiary of powerhouse e-commerce based in Argentina. 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 launched a cargo division to jump on the wave of air cargo fueled by pandemic supply chain turmoil and e-commerce demand. He is familiar with the 737-800, operating 84 of the standard passenger jets in December.
The first cargo plane will enter service in late August, Gol said in its second-quarter earnings report.
AerCap Holdings (NYSE: AER), a major aircraft leasing company, announced in July that it was leasing Gol six 737-800 freighters converted by Boeing from the passenger configuration. Three of the planes are expected to be delivered in the second half of the year, with the remaining planes being converted in 2023. Gol said it has the option of adding six more 737 freighters by 2025.
E-commerce spending in Brazil topped $33 billion last year, with more than $2 billion in associated logistics spending to support the market.
Mercado Libre established the in-house air cargo operation Meli Air about 18 months ago to ensure fast delivery to the Latin American e-commerce market, as did Amazon (NASDAQ: AMZN) in the United States and the logistics arm from Alibaba Cainiao in China have outsourced flying to all-cargo airlines.
Meli Air currently has a fleet of four 737-400 jets 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 flights for the other four planes contracted to Mexico-based charter carrier Aeronaves TSM. Azul, another Brazilian airline, operates a cargo plane for Mercado.
Mercado Libre said the new Gol deal will increase the number of direct flights from Sao Paulo to northern regions and reduce delivery times by up to 80%. The delivery time to Manaus, for example, will be only one day, instead of nine currently, while the time for destinations in northeastern Brazil will drop from four days to one day. Other cities, such as Goiania and Cuiabá, will receive packages the next day. The goal is to make deliveries to customers within two days in most major cities in the north and northeast.
Mercado Libre said in its second-quarter earnings report on Wednesday that it was working to optimize the density of its ground network and counter rising fuel costs by introducing more efficiency. Last mile delivery costs have improved with the launch of a new crowdsourced shipping option in Brazil and Mexico. New management tools and pricing incentives help reduce inventory levels in distribution centers.
“We are confident that our shipping services will continue to be a driving force in e-commerce adoption and a key differentiator for our services. Therefore, our shipping network remains a key investment area for continued expansion to reach more merchants and buyers with a distinguished logistics solution,” the e-commerce company said.
Mercado Libre has 20 distribution sites. Last year it bought Kangu, a Brazilian logistics company with operations in Brazil, Colombia and Mexico. Kangu has over 5,000 neighborhood store pickup and drop-off points where e-commerce sellers can reach customers.
The company generated nearly $2.6 billion in net revenue, a 53% gain over last year and a new quarterly record. Operating income was $250 million, with a profit margin of 9.6%.
Gol’s freight strategy
Gol’s partnership with Mercado Libre resembles the 2020 decision by leisure carrier Sun Country (NYSE: SNCY) to expand into air cargo, flying a handful of 737-800s as a contractor for Amazon.
The first Gol freighters are being converted in China at Boeing-authorized maintenance and repair facilities. The airline is discussing with Boeing the possibility of performing future conversions in-house at its maintenance center in Confins, Brazil, a Gol spokesperson said in an email.
The conversions include the demolition of the passenger cabin and the modernization of the aircraft with a cargo door, robust interior walls and floor, a rigid cockpit barrier and a cargo handling system for containers.
Gol said it plans to expand the range of logistics services it offers and increase tonnage capacity by 80% in 2023 to generate additional revenue of approximately $184 million over the next five years. .
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Azul presents the first Embraer 195 cabin freighter