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Logistics Rewired: Navigating Supply Chain Complexities in LATAM

Logistics Rewired Navigating Supply Chain Complexities in LATAM - Webinar Transcript

Leo Ospina: Hello everyone and thank you for attending today's webinar. Today's webinar’s Logistics Rewired Navigating Supply Chain Complexities in LATAM.

We're really excited to have you join us as we discuss a region of the world that is near and dear to our hearts. Below, we'll begin by covering a few housekeeping items before we jump into the nitty gritty of the webinar today. On your screen, you'll see a sidebar to the right of the main stage. If at any time you need assistance during the live webinar, please message us and in the help chat located on the sidebar. You can ask questions through the Q & A tab through the webinar.

Your questions will always be visible to you and our Flexport team. And we'll do our best to answer all the questions before the webinar ends. A copy of the presentation slides will be dropped in the chat. An on demand version of the webinar will be available shortly after the webinar concludes and can be accessed using the same link that you're using here today.

To start off just something quickly legal. Brief note, please keep in mind that all the information provided on this session is based on the situation at this current time and may not be customized to your specific business requirements. We always recommend reaching out to Flexport experts to discuss your particular situation. So please reach out if you do want any help with any particular situation that you may have.

Why don't we start? For those of you that don't know me, my name is Leo Ospina. I'm the Director of Partnerships for the Americas here at Flexport. I essentially manage all of our operations, growth and strategy into and out of Latin America. With me, I have two amazing panelists, the first one comes with over two years of decades of experience working in the logistics space where she has led substantial teams and helped companies build out large ocean portfolios. We're extremely excited to have Yasi Jimenez is joining us and she's been at Flexport for over six years. And she's going to be leading our north and southbound strategy into and out of Latin America.

We also have an esteemed guest and great friend of Flexport Stephen Liston, who's joining us today. He's a Senior Director at the Washington DC Office of the Council of the Americas where he manages the trade advisory group, trade policy engagement and multilateral institutions and member outreach. Through his substantial career in working with Latin America and the US government. He has held posts in countries like Brazil, Peru, Chile, amongst many others. We are honored to have such a knowledgeable and experienced panelists join us today. So why don't we go ahead and jump into the actual nitty gritty of the presentation.

So what will we be covering today? First, we're going to give you a quick sort of overview of Latin America, some tidbits that you should know about the region. Really, we're going to dive into how fast of a region is and how diverse of a region it is. After that, we'll go into the current state of trade in Latin America, so you can have, so you can understand what is going on? How are things, how is COVID affecting the region, how are policies affecting the region, and really dive deep into the ocean market itself through Yasi's experience and her knowledge.

After that, we'll talk a little bit about the opportunities and benefits as we look ahead of working in the region. And as you're looking to potentially near shore or diversify your supply chain into and out of Latin America. And then finally, we'll give you four pieces of advice, key takeaways that we think you should have as you're looking to explore Latin America as a place to diversify your supply chain. And at the end, of course, as I had mentioned at the beginning of the session, and my apologies for the mishap, we'll go through the Q & A, and the questions you guys might have for us.

So first, before we get going, we'd like to learn a little bit about you and why you're joining us today. So before we start, we'd like a quick poll to learn a little bit about sort of why are you here? So are you here because you want to learn about Flexports capabilities into and out of Latin America? Are you interested in hearing about nearshoring? And the benefits of diversifying your supply chain? Or do you already ship into and out of Latin America and want an update on the state of the market? Or is there a whole another reason altogether? As to why you're going to be joining us today? Please let us know. We'll give everybody a couple of minutes so that you can go ahead and answer the poll.

Alright, looks like we have few votes. Looks like a lot of you already shipped into and out of the region. We'll give everybody a few more seconds to answer.

Alright, so it looks like we're pretty split. It looks like you know, 20% of you are actually looking to learn more about our capabilities. Another 20% of you are actually interested in hearing about nearshoring and policies. And 40% of you are actually shipping into the region already and kind of want a market update. So hopefully, we'll give you guys all the information you need to know throughout this session.

So let's start first with the LATAM overview and a little bit of facts about the region and what you should know about the region itself.

Quick Facts About LATAM

So one of the first things that you should know about the region is that it's a pretty expansive region. It's a region that consists of over 30 countries. And it goes from Mexico all the way to Argentina and covers the Caribbean as well. That means that there are 30 to 35 countries that exist, that have different languages, have different cultures and have different people. And the land mass itself is about two and a half times the size of the US. That's pretty substantial if you think about how big of a region it actually isn't how diverse it is.

From a trade perspective, the region itself accounts for about $545 billion worth in trade, which is again, a very substantial market. And so there's lots of opportunity, languages that are spoken are Spanish, Portuguese and French, and some English as well and some countries like Jamaica. And trade with Latin America isn't just one way direction, right? Trade in Latin America actually has numerous directions, China actually trades with some countries more than the US. Europe has major trade with countries like Brazil and Mexico. And the US, of course, is a major trader with countries like Colombia and Mexico. And so it's not just a one way trade, actually, Latin America offers opportunities for you to really diversify your trade lanes in numerous directions.

Top Export Countries / Commodities to USA - YTD Sep 2021

And it's really not just about one or two products really, when you look at this slide, and these are some of the bigger export countries from an ocean perspective, you will actually see that the products that are exported out of Latin America vary from tires, to washers and dryers to car parts, to wood, to furniture. So really depending on what it is you're looking for, whether it's apparel, whether it's furniture, whether it's wood suppliers, the region overall actually has a diverse group of suppliers that can really sort of apply to your specific supply chain needs, you'll just need to figure out where exactly that is, and what countries that are and partner with somebody who can explain those to you.

But Latin America isn't just an ocean market, it actually also is an air market. And so when you're thinking about your supply chain, and sort of what you need to do to make sure you de-risk yourself, you shouldn't just come up with a plan that's focused on ocean, but really a plan that's focused on air, ocean. And if you're thinking about Mexico as a region of the world that you want to actually import an export into, cross border trucking is also going to be a very important component of that as well.

So as you're looking to partner with somebody, and you're looking to think about a freight forwarder, or somebody who can really help you dive into the region, think about all the solutions that you need to put in place and think about somebody who's going to be able to help you across the board. So next slide, please.

What Have We Seen Last Couple Of Years

So as we talk about, you know, trade in the region itself, I think there are a lot of things that we also need to make sure we talk about. And obviously, you know, Stephen, you and I haven't had the chance to go in a couple of years and get one of these webinars. And I thank you again, for joining us today. Can you jump in a little bit and tell us about what's going on in the region over the last couple of years? What have you seen COVID obviously has affected the region as much as other regions of the world.

Stephen Liston: Yeah, so thanks for having me Leon. It's really a pleasure to join you today. And man, a lot has happened in the last two years, right? I mean, what feels like two weeks in some ways, but it's been a long time. You know, the last time we talked, we were really focused on some upheaval going on in the region. In 2019, there were a lot of demonstrations, protests, a lot of countries, and basically COVID shut all that down. What did it do? Well, Latin America was one of the region's hardest hit by COVID, both in health terms, and in economic terms. In 2020, the economies went through the floor, there were huge numbers of deaths, as well as illness, a lot of shutdowns, it was hugely disruptive to the region and its productive capacity.

Last year 2021, we saw a rebound as we did everywhere else. But we also saw inflation take off enormously. Inflation was the highest they've seen in 15 years last year. This is before what we in the US are going through this year. So inflation is a big problem. In addition, the IMF and others are predicting that Latin America is going to have the hardest time this year in terms of recovery, in large part because China and the United States are slowing down and so commodity exporters aren't going to be able to export as much.

So there's a real economic challenge that the region has to overcome. The benefit of that for those of us doing business is, they really want to reactivate their economies, they really want to trade, they really want investment. So I think there's a lot of interest in these countries in attracting that. And then politically, you know, we've seen a big shift, some of your customers might have seen, you know, read about others, this big shift to the left. We have had a lot of elections, we have new Presidents in Peru, in Honduras, in Chile, who are all left leaning Presidents, we have a new one in Ecuador, who's right leaning, we have elections going on this year in Colombia, Costa Rica, and Brazil, also a chance of some left leaning presidents there, what's going on?

It's not so much about ideology at this point, it's really about this economic problem that people are having this not dissimilar to what we've had in the United States where people feel like they're just not getting the standard of life that they want and they're not happy with their governments. So all those problems that were there in 2019, guess what, COVID temped them down, but they haven't, if anything, they've gotten worse. But again, that means governments and companies are really hungry, to reactivate their economies and to reactivate business and to try to get things moving again.

Leo Ospina: Yeah, I think, you know, what, when you mentioned the left leaning side of the new government, you know, it's interesting to me, because, for a really long time, it has been pictured or imagined that nothing even means, you know, really left leaning socialist and, and capitalism. And what I have found is that actually, many of these left leaning governments are hyper capitalist, just more socially liberal, right? And so, you know, the Hondurian President is a perfect example you know, we were talking and we were discussing the other day. The fact that, you know, the first head of state that she met with was Kamala Harris and so, even though she's left leaning, really the the bonds that they're trying to create in terms of are really with the US and really trying to build a relationship with the US, and I think that is very true special, especially for Central America and Mexico that are so closely tied to the US I think, a perfect opportunity to think about sort of left leaning in a different way in the region.

Stephen Liston: Yeah. And we have, interestingly, I don't think that trade and economic policies that there is an interest throughout the region in the US and elsewhere in more inclusive growth, right? And making sure people don't get left behind. That's certainly true in Latin America, as it is in the United States. But interestingly, the trade policies, the interest in the United States were to have gotten very inward looking in the last couple of years, that didn't change much between the Trump administration and the Biden administration.

So there's still a lot of work to do on that print. And the other thing, of course, that surged over both the Trump and Biden administration is this competition with China. And China is a big player in Latin America, they are the first or second trading partner for many many countries in the region. So there's an interest there's an understanding, I think a growing understanding in Latin America, of what trade with China means, and what it involves for them.

But many of them, especially commodity exporters, minerals, agriculture, are very heavily involved in trade with China. But there is an increasing desire to do trade with the United States. They know the United States has been investing and continues to be the largest investor in them for a long time. So I think there's a lot of opportunities there. There's a lot of interest whether governments are left leaning or right leaning.

Leo Ospina: Yeah, absolutely. That's very true. Great. And what about the GDP? How are we seeing GDP in terms of the region evolve?

Stephen Liston: Well, it's just not growing at the rate that it should be. I mean, we're predicting the IMF is predicting maybe two and a half percent over the region. Now we're talking about 30 countries. So there's a huge amount of variety here. If you're talking about commodity export, countries, those with minerals as you know, Argentina, Chile, Ecuador, Colombia, Peru, these have a lot of minerals that they're exporting. You're talking about agricultural exporters, oil exporters, very different picture here right, oil prices going up.

LATAM Overview

If you're in Suriname, Guyana, you're in good shape right now. Brazil, you know, Colombia, Ecuador, these are oil exporting countries. But what we're seeing overall is that growth is not sufficient, really even real GDP growth to keep up with population growth. This is a problem. They're not growing fast enough. So that's why they're so interested in doing more business and seeing more exports and having more investment from the United States and elsewhere.

Leo Ospina: Yeah, absolutely. And I think we're gonna see a lot of that in the upcoming months and in the upcoming years. Even with the new elections of new governments, I think priority for them is going to be really growing the economy and ensuring that sort of they're a little bit more stable to bring more quality across the map right, for all of the people in the different countries.

Stephen Liston: I think most governments are really interested in doing that. They want to hear from investors, they want to hear from people interested in exporting, importing what do you need? And so I think it's a great opportunity, as is so many places right now, a great opportunity to go in there and encourage that business.

Leo Ospina: Yeah, definitely. Next slide.

US Trading Partners

And you know, Stephen, I think a lot of people, next slide, please feel that Latin America is a small region of the world, it's not very important. But you know, we have this back here or this diagram showing a little bit about sort of, you know, who are the US is biggest trading partners, and one of the big surprises here, I mean, for many people is probably that Mexico is just as big as Canada and China.

Stephen Liston: Yeah, absolutely. And I wanted to bring this in, thanks to our friends at UStradenumbers.com, this great chart that just helps us situate Latin America because I've been doing Latin America for 30 years. And I think Americans tend to undercount Latin America, they tend to not understand where it figures. So just a couple of interesting things, as you say, this tier one of countries, three large countries, Canada, Mexico, China. Each account for 14% of US trade in 2021 we're looking at trading goods in 2021 here.

And then there's a second tier of about 10 countries between two and 5% of US trade. Notice that the next Latin American countries, Brazil, which is 1.7, then that third tier about 19 countries, but Brazil is essentially in the same place as Italy, France, and Malaysia, in terms of the amount of trade it's doing with the United States. And then this next here, we see chill a little farther down, essentially, where Spain, Hong Kong and Israel is Colombia does as much trade with the US as Turkey and Saudi Arabia.

So just to point out that there are about 10 of the largest 50 trading countries with the United States are in Latin America. So it's a major source of US trade, US exports and imports. And so I just wanted to sort of set that stage there, because there's huge amount of opportunity. And of course, these are countries that we have been trading with for a long time.

Leo Ospina: Yeah, absolutely. And Yasi, you know, next slide.

Current State of LATAM Trade

I'd love to go a little bit deeper now into, you know, what is going on in the ocean? You know, Stephen told us a lot about sort of the politics and the trade, the policy, the GDP of Latin America, you know, with COVID going on, and all of trade lanes really being affected by one crisis, whether it's a ship being stuck in a canal or a war in Russia and Ukraine or COVID itself. Can you tell us a little bit about what's going on in the ocean market here in Latin America? Yasi, you may be on mute. We can't hear you.

Yasaida Jimenez: I was, I’m sorry. Thank you, Leo and hello everyone. I'm very happy to assist everyone here with this webinar. Well, as a general statement, the trade has been developing very well positive, you know, across the region, in each interaction, you know, with every other region of the world, I would say with Europe, North America, Asia in the past years.

You can see here that the development only from January through November 2021 was positive on the export side with a 6.6% growth on the import 26.6%. And then overall the trade LATAM you have highlighted in green what it means right and we already explained this scope only with 17.1% growth.

These pretty much coming of course with these economies all of the countries reactivating after being or face very hard and lockdown in 2020 after when the pandemia just kicked in. You know that we had in LATAM are delayed reactions. You know, we started seeing this first in Asia, North America then impacting immediately Mexico, Europe and for LATAM, we had like replication that it started with us late. And it was really roughly but a momentum because when for the moment that it impacted us, Asia was already activating again, but they couldn't continue with Latin America because we were going through the whole negative motion.

So, but this is pretty much the reaction in 2021, you know all of the market reactivating, just to reposition inventory you know, in specific countries. And then when we compare the development against 2019, which is pre pandemia, this is before everything started off, we could see also that there is a growth a significant growth on the export side of 6% and on the import of 17% with a total trade, growth impact of 17, 12% in the region.

The main demanding countries across the region are also displaying here, as Leo mentioned, we're going to be chairing the presentation. So, this is gonna help us to what are the countries really that have been leading this growth in and now within the region. Next slide to continue explaining what is the current state of the trade please.

Growing Challenges in the Past Two Years

So, as I mentioned, the past two years we have been seeing a lot of challenges when the whole pandemic started, you know, in landed in this market. I would like to start in remarking what is happening with the main hubs. Main hubs we mean that you know, as the ports like Kingston Calcedo, Cartegena, Colombia, if we go to Panama, then on the Atlantic side, you've got Cristobal Manzanillo, and then on the Pacific, you have Balboa roadman.

So all of these are key Salcedo Dominican Republic all these are main ports connecting the world with Latin America, we have seen how these hubs have been, you know, reaching their maximum operational capacity due to the heavy influx of input cargo you saw right in the enormous before that inbound has been extremely strong because of the high demand out of the LATAM countries and that has created a lot of backlogs.

Booking restrictions, you know, that comes off and on, we have seen the carrier's just putting in place momentarily booking restriction, in particular a port connecting ports, just because they are not able to cope with the amount of cargo right to tranship. And having to flag put in place red flags not to receive more cargo whether because they don't have person around the COVID restriction or because they don't have to jars where to put these containers or they don't have just the manpower to control all of the transferring of this cargo. So they have been putting booking frustration off enough, we have been monitoring this in the past years to see when the situation is getting better when it's going back and monitoring that very closely.

The impact on that of course, is the port congestions we you see versus you know, delayed in order for them to unload the cargo cut and run most of the time cargo backlogs, you know, been facing all of these terminals and of course, at the end impacting the clients because you also at the end of the day, you cannot deliver as planned, and it creates delays.

We also see capacity reduction across the region in the past two years that has been growing there are two main factors for that. Number one is the high cost of the charters, you know the vessels air renewal, within that shipping industry, we saw how last year increased three four times you know more than it used to cause him before the pandemia. And in some cases to carrier were forced or been pushed to make the decision of just letting those charters there so to expire, because the market would not all in the commodities would not allow to pay for those increases. So we saw that coming a lot in intra-Central America, Caribbean all of these connections, these charters were canceling of course that put a lot of pressure on the capacity, but that has to do more with the costs.

And then the second case or a factor is being you know ocean carriers also a shifting larger vessel for a smaller vessel to offer in LATAM putting these larger vessels in main markets in Europe or Asia where the demand was extremely high, where they needed you know to a pretty much cope with the growth in these main markets and that of course put also a little bit more in of these a situation too tight a more the capacity in the LATAM region.

The equipment turnaround time also has been a lot of under pressure and as you can imagine, we face bottlenecks right? We talk about a TP Eastbound in how heavy amount of containers, you know, keep sitting at the port internally in the US that we cannot manipulate whether because we don't have chassis or also challenges with the ground transportation, a deficit service, or even our cheapest, you know, being able to manage the amount of containers that they need to unload. So all of these delays occur creates an imbalance on the equipment flow across the globe. And the only way for carriers to really manage this has been to put in place restriction on the exceptions or extension of the free time. So we have seen also more and more being implemented in the past year.

Another significant point, is this schedule reliability, how deteriorated it's been. You know, and we don't see that improved as an average in Latin America is we have 52%. Of course, it varies by corridor in my area, but globally, we can see the last developing is under 32%. LATAM alone, North and South County also ranging between 50-52% the delayed any has to do with what I just explained. With a poor congestions and all of these delays and in the main hubs.

What we also see as another point of factor that has been growing into the challenge, of course, is the the sustained demand for all of the LATAM products Stephen already explained right? How our bigger trade partners here in his head that the man has been so consistent in the supply chain diversion also has created that these backlogs extend the seasonalities, you know.

Every market goes by season, every commodity, and as we haven't been able to cope on the shipping industry to cope with the standard flow of the seasonality, then they get extended, and sometimes we find a little bit overlaps, you know, between one season in another in different commodities in a particular market that we also had to cope with in these very challenging year.

So, I just a recap here, pretty much what we have seen has been like the main factors very high level impacting across the region in our interaction with the rest of the world. And I hope that is helpful for you to have like a more holistic view of how we have seen change, you know, since 2019, with all everything started off different for the LATAM region.


Outlook, well, we would like to have more clear picture here, but indication with information that we have in hands right now is that the situation will remain the same as they stand, you know, for the rest of the year. We don't see really any indication of any magical event you know, to happen that we could bring violence or some kind of normality to the region before the pandemia.

Also, we don't see the addition of capacity coming in soon. It will depend on two factors. Number one, the new deliveries orders that they ocean carry, they have put in place new larger vessels, more sophisticated vessels, right, that will be delivered to the market by middle end of 2023. It could be on evaluation that they cascade down some of the larger vessels that our terminals can cope down to LATAM, so that they can restore some of these capacity that were caught during this past year into the trade wherever it makes sense and in the trade can afford, and that could keep a supply demand balance.

And also a the charter costs, you know how soon the demand will a down and in charters also cause we come to some kind of decent, you know, cost that the specific market can pay for it in when I say specific market, I'm referring to the commodities right, if the sector it can absorb to have you know, x rate that will be able to pay off for for that news agreement.

So this is what the current we'll be monitoring and see in the dailies we will be pretty much a one to two elements that will be considered for the capacity to be added to the LATAM again.

Schedule service reliability will continue under pressure depending on main trade lanes development, bottlenecks, I mean we don't use the bottlenecks continue so tight, in North America, China and Europe, then it will continue creating the pressure on our service rotation here in LATAM as well, because all of these services are connected.

The ocean carrier will continue monitoring, the operationally spent with all of these, port congestion, service delays, of course all of that will create a pressure on the rate, because they will try to recoup or recover any potential losses in port by having to cut and run, leaving containers, rollovers in terminals, paying for storage, all of these additional costs, somehow will be translated to the market within the rates. And we're gonna continue seeing that, at least for the remainder of the year, which means that rate will be on the high side, depending on what areas and port areas we are referring to. Next slide.


Here are some recommendations more related to ocean right, we, today when we talk to our clients, we highly recommend to prioritize the delivery orders, important shipments first, we don't, we always recommend to not combined what is really really important for to interrupt your supply chain, and your production or delivering orders, to combine that with orders that are can be less important, because as I explained, having those shipment congestion, port congestion on the HUB's, it also put at risk those shipment where you can have multiple containers in one bill of lading that will be the first one to be rollout, right? Rollover in order for the carrier to elevate the pressure on that connection.

So we always recommend that this needs to be segregated, it is not in that with a priority at least of importance. That's why we recommend to split the amount of containers so that it doesn't get stuck in the hubs. Alternate equipment size is required as well, so whatever is available, here we can talk about NOR's, if you're asking for a 20 for a particular business, you can also work with 40, 40 high cube, 45 containers, I think that is more about taking or being aware of the situation that this is momentary that the market will get back to normal, we won't last this forever right? And that we need to be flexible enough to make sure that at least our product do not stop shipping as needed. Because we are not in a position today, really to stick to our precise demand because the whole supply chain is under pressure. And then forecast and provide monthly loading planning in alignment with your supplier is a must in today's market environment, we keep asking this right on a monthly basis, quarterly basis so that we can line up with a shipping lines, and this is highly recommended because the carriers also internally can work in put efforts towards our planning. And we need to make sure that the clients, at some point also they stick to their planning so that they can make sure that everybody is at least on a one goal right, on what is exactly what can be achieved. So I think that the most important part here is the communication flow as we see so many elements that can happen as much communication we can establish between supplier, consignees in this whole supply chain, the parties involved. I think thats a highly recommended when we say, okay, it's not only about the forecast, it's about the planning, how is the supplier engage with that, how is possible that, of that have that cargo be really delivered on the timings that are being put in that plan so that we don't spend too much time in the transactional conversation so what can be done or not cannot be done.

And lastly, keep close a communication on the new market development, trying to anticipate potential impacts towards your shipments and planning. I think that as much as you learn and are close to your service provider to freight forwarder, you know to understand how this is evolving, because this is gonna continue changing, there are traits or corridors that are a little bit more stable but there are others that are very dynamic like Asia Latam is very dynamic, is changing every week, will also have a lot of variety on the Europe right? Intra Latam also changing very rapidly, I would suggest that the communication is very close to your freight forwarder to your service providers, so you understand what is evolving and how that possible change impact your shipment, so that you can really take measure or do any deviation or even a change to another product, not necessarily to ocean, but you can combine to other type of a transportation service offering that quote, you know alleviate the pressure that you might see, depending on the situation on the ocean side. So this is pretty much what I have as a recommendation. Leo, now back to you to continue the as per agenda.

Ocean Constraints Have Resulted in an Increase of Air Volume and Clients Looking for Alternative Origin: Apparel Case

Leo Ospina: Yeah, and I think, Yasi thank you so much for all of that information, that was really detailed, and I think really important for people to understand, you know, yes, there are issues, yes, there are issues like everywhere else in the market, but there are solutions and there are things that we can all be doing to really alleviate the pain a little bit. I want to also bring up one example here of a customer, that's actually a Flexport customer, and what we saw over the last year and a half is that they actually switched their supply chain, and this goes back to one of the original points that I made, you have to have a multimodal plan in place, and you have to be agile, right? So we're talking a lot about agility, a lot about making sure that you're able to switch container types, but not just switch container types, but actually be able to switch modes as well, if the commodity allows for it, right?

This customer in particular saw that the ocean market was really falling apart. And for them timeliness and making sure that their product arrived on time, this was a clothing customer was key number one, and so what we were able to do was really find a solution and put a solution in place to actually get air freight out of Peru over to the US into Canada and into Asia where their products are sold. So just making sure you guys are you know, you're staying agile, you're thinking about different options, and that you're not just stuck on sort of what's worked for the last decade, because we're just in a very different spot right now. And as Yasi already mentioned, it's not going to be like this forever, but it is going to be like this likely for the rest of this year.

And so, you know, just, it's something we want to push, we don't want to paint a rosy picture like everything is perfect, we don't also want to be gloomy and whatnot. But we do want to be honest with everybody about sort of, what are the solutions that we're finding, and what is working for other customers into and out of the region. Next slide, please.

Air Market Also Has Challenge

I think, in talking quickly about air and we won't dive as deep in air as we just did an ocean, but air is also very similar, it's obviously been affected by COVID, the fact that passenger flights are still not up to the level that they were before has affected the air market and of course, is affected specifically the Southbound market that we've seen. So, what we expect for the rest of the years that the Southbound market will continue to be really tight, and we'll need to continue to plan ahead and you'll need to make sure that you have your partner who's informing you on what's available, what's not available, similar to what Yasi said, prioritize what you need to prioritize, plan ahead and try to give as much anticipation as possible to your partner as they're planning to move your freight.

On the Northbound side, perishables are going to continue to be sort of, the ones driving most of the volume and they're going to be continuing to take most of the volume, whether it's flowers out of Columbia, or cherries out of Chile, those are really going to be the biggest exporters that you're going to be seen, and they're going to be dominating sort of the airspace. And then the last thing to consider, and I think Stephen talked a little bit about this, is E-commerce right? One of the things you know, one of one of the big benefits of COVID, and I know COVID hasn't had a ton of benefits, but one of them is that, we've seen a huge growth in E-commerce, right? Because people are staying home. Companies like Mercado Libre in Latin America was actually the number one company in Latin America for a short period of time beating out a company like Petrobras in Brazil.

So you're seeing that economies are changing the way people function and buyer changing, and so we expect that lots of products will actually continue to grow. And this will likely mean that air volume continues to increase into the region as well. Next slide please. ### Why LATAM Makes Sense

So you know, as we're thinking about, and as you're thinking about sort of opportunities and benefits as we look ahead and we look at Latin America, I know a number of you were asking about nearshoring, potentially what are the options here? So we want to talk about four things that we think are really key, and really sort of help Latin America stand out from other regions of the world in terms of trade with the US. So Stephen, can you tell us a little bit about, sort of all the different free trade policies that exist, and sort of what makes Latin America special?

Stephen Liston: Yeah, well, thank you Leo. One of the reasons that Latin America sort of punches above its weight is these free trade agreements and its proximity to the United States. And obviously, most of us are familiar with USMCA, the US, Mexico, Canada trade agreement. That's why Canada and Mexico are so big, because essentially we have an integrated North American market, things still have to move across borders, but the supply chains are pretty much integrated there. But we also have free trade agreements with Central American, Dominican Republic through CAFTA-DR. We have free trade agreements with Chile, Panama, Colombia, and Peru. And then we have sort of a next tier down of agreements called a Trade and Investment Framework Agreement with countries like Argentina, Brazil, Ecuador, Paraguay, Uruguay, and with the Caribbean common market.

So, we have a lot of trade agreements that help us spur trade, and honestly they would like more, they want more access to the US market. So there's a lot of interest, and that helps Latin America punch above its weight. The other thing you mentioned supply chains, you know you hear a lot in the US about onshoring. The reality is that for many products onshoring for many different reasons, is not going to be what happens. But what most companies are looking at now is resilient supply chains, if COVID taught us one thing, is you don't want to be dependent on one country, any one country for your supply chains, so a lot of companies are looking how do I make sure that whatever happens, whether it's a war in Russia and Ukraine, or pandemic that's moving its way around the globe, I can do my supplying.

So we're seeing Latin America what advantages does it have, well it's close, it's close to the United States. So as you're looking to have resilient supply chains in the United States, we're hearing more about nearshoring, about ally shoring, working with friendly countries on these things, and I think we're gonna see more of that, we haven't seen as much as politics might like, but we are going to see more of that going forward, because it just makes sense. For companies going strictly with the lowest cost supplier is not in the long term, the best strategy, I think a lot of a lot of people have seen, so I expect that we're going to see more of that.

And the E-commerce as you're mentioning, just it's completely changed the way Latin Americans were working just as it changed the way we're working. So I think we're gonna see more interest in these digital economy and digital trade agreements, and getting bigger areas where we can sort of make sure that we can do the sales of both goods and services across the region. And then there's the cultural thing, right? You're going to talk about that. But the cultural, I mean, we got, we know each other for a long time. So go ahead, I'll turn it back to you.

Leo Ospina: No, it's fine Stephen, I'm sorry to interrupt. Yeah, no, I think you bring up very great points, right. The fact that Latin America so close, you know a few things on that front. One, one transit times are much faster, right? A ship from Colombia to Miami, or to Port Everglades can can be five to seven days, right? Very different than if you're shipping from Asia, for example. Time zones as well, when you're dealing with suppliers actually is truly an issue for lots of clients. You have to wait sometimes, until midnight to be able to talk to your counterpart in Asia, here you know, at least timezones are very similar. And with Latin America I find that, you know although we're different cultures are very similar, and then and one of the more important parts of really working and doing business with Latin America is actually sitting down and getting to know the people on the other side of the table, right? And depending on the country, you might be drinking a tequila, mezcal, and argualdientoI or rum with them.

But it's a really important part of developing these relationships, and them being so close really allows you to do that in a very functional way, right? Miami to Colombia is three hours, Miami to Mexico City is three hours, Miami to Costa Rica is three and a half hours. So you know, it's rather close compared to some of these other places around the world where you might be looking to suppliers, and it actually makes the relationship much easier for people to develop and actually, you know extend I would say. I think one of the other big benefits too and you know, I don't want to overblow this because the price of freight is still pretty high, compared to where it was a couple of years ago. But Yasi, do you want to talk a little bit about like, where we're seeing pricing right now in terms of compared to other trade lanes of the world?

Yasaida Jimenez: Well, it varies by pockets right, it depends on what corridors we are referring to. We have seen really air rates at some point competing with Asian, TP Eastbound right, which is the one that we monitor the most at the moment. But we have seen that compared to the East Coast of South America to North America for example, where we have seen significant increases in the past year, but they're comparable, I would say, yeah, those were where you could see some similarities are on the high side. But for the rest, I would say it depends if it is interlocked LATAM, if it's departure transit time, then we would say, Central America, Caribbean connecting with North America, the rate can be you know, I know three thirds of what we can see in a main corridor. So I wouldn't like to disclose numbers, but if we have to be specific, but I have to say that intra regional calls are a lot lower, not in favor at the end of the day, because this is one of the reasons why the charters had to be expired in vessels with no got renew or larger vessels, we put in more profits on markets because the rates were absolutely more higher than what the LATAM market was paying off. And not really on that advantage from a product perspective, but I have to see that you don't see really as much the cost compared to the main a corridor such as Asia to LATAM or Europe to LATAM, you don't see those rate levels really a flowing within the region.

Leo Ospina: Yeah, absolutely. And that is true that, supply was minimized, because our prices were lower in the region. But overall it does do risk from a timing perspective, it does do risk from like a supplier perspective. And I find that there is more stability right, into and out of the region than in other regions of the world right now. I think the last point that we want to make in terms of why Latin America might make sense for your supply chain is, their variation of goods as we mentioned in the slide earlier, and we're happy to send this deck out to everybody. Different countries produce different products, whether you want car parts out of Brazil or Mexico, or you want plywood out of Brazil, or you want clothing out of you know, Honduras or Guatemala or Peru or Colombia. Really, there's a big variation, even medical products are starting to be developed in places like the Dominican Republic and Costa Rica. And so the variance is pretty great. You're just gonna have to make sure that you're partnering with somebody who understands the different markets who can really drive that understanding and who can help you. And so, why don't we go a little bit, and so next slide, please.

I'd like to take another poll, another quick poll. After seeing sort of this presentation, and learn a little bit more about Latin America, will you begin to explore your supply chain needs into and out of the region? Do you think you'll diversify your supply chain in your suppliers into and out of Latin America? We'd love to know and understand whether what you're thinking there. Will give everybody 30 seconds to answer. All right, well it looks like a lot of you are saying yes, which is great to hear. Some of you are saying no, and we'd love to understand a little bit more, and you can reach out to us afterwards. And we can set up private meetings to understand sort of, hey, what it is you're looking for, and what we didn't cover that you wanted to cover. But sounds like overall, people are pretty excited about the opportunity of shipping into and out of the region.

Alright, let's continue. So, you know, before we let you guys go, we did want to give you guys a few key takeaways and recommendations from us, from our team here, in terms of what's going to drive success for you in the region.

What You Need To Know

So first, as I mentioned, now, a number of times, please partner with somebody who understands the region, they're going to help you move faster, they're going to help you allow to pick the right partners, they're going to help you develop a strategy for how you move your cargo the right way. Again, different markets will offer different products, whether it's Mexico with cross border trucking, or air, or ocean, or LCL. Pick somebody who can really sort of fulfill all of these things and all of these gaps for you.

Two, I think a multimodal approach is really key, if again, if the commodity allows it, I know there's some commodities that is just not possible. But if it is possible, please think about sort of how can I implement sort of, even if it's 10% of my supply chain over to air to give some balance and ensure that the most important products are actually arriving on time and you don't have to shut down your supply networks. I think the third point here, I'll give to Stephen for him to speak on consulting with government and trade agencies.

Stephen Liston: Yeah, just having from where I sit and having worked in the government, I just, I always want to encourage people to consult with these government agencies. Every country has an Investment Promotion, Export Promotion Agency, that's really there in many ways to help companies do business in their country thats there to encourage them, and that can help often, help resolve issues that you may be facing, that can help give a layout of where, what facilities they have, where it's worth doing business, where they want you to do business, what kind of incentives they give. And so, talk to those export promotion agencies, that the US has its own Export Promotion Agency, the International Trade Association, you can go to trade.gov. And I recommend highly if you're looking at a new market that you consider a gold key service offered by the International Trade Administration, and go to your local commerce department office, it's a real value in terms of meeting, just connecting you with people who are interested in doing business with you through the US government in that country.

And that gets to the third thing, which is embassy trade officers. Most country, every country has a US embassy with someone who manages trade, either E-commerce Department or State Department. Talk to those people, let them know you're interested, and find out what they know about the market. They can be a huge resource, and they're also there to help you if you're having issues with anybody. So courage you to do that.

Leo Ospina: Okay. Thank you, Stephen. And then, Yasi do you want to give us a quick recap of all the great recommendations you had given earlier on the ocean side?

Yasaida Jimenez: Sure. Well, number one, learn to use as many equipment types as possible, you know during these times, provide monthly forecasts of volume to your partners, service providers, split shipment as we recommended right, the most important, do not let them to get combined prioritize between what is important and less important so it doesn't get a stop in the hubs. And most important, get closer to market updates and understand the dynamic, I think that is very key, increase the communication across the whole parties involved in your supply chain, because that will minimize really the impact of your shipping, planning as much as you know, you can get in control and anticipate what is going to happen. I think that's key, at least for the remainder of the year, so that you can act well advance in time.

Leo Ospina: Great, thank you Yasi. Next slide, please. One other last poll that we wanted to take is, hey, if you want Flexport to reach out to you, I know 20% of you actually came to us today to learn more about our capabilities into and out of the region. That wasn't the whole purpose today, the purpose wasn't to sell Flexport. But if you are interested in having us join you or reach out to you, our group of experts, whether it's Yasi, or me, or somebody on our air team, or any of our other important stakeholders who work with the region day in and day out, we're more than happy to schedule meetings with you to talk about our setup and our structure into and out of the region, we currently move a ton of business into and out of the region. And so, please go ahead and answer the question we'd love to reach out and hear about what your needs are specifically. So, before we go right into the Q&A, one PSA that I did want to quickly talk about, of course is the Ukraine crisis.

Ukraine Crisis: How You Can Help

For those of you that don't know much about Flexport, Flexport has an entire department that's called flexport.org. Flexport.org does some of our best work, and honestly is near and dear to my heart, and something I'm really proud of. They work one on carbon emissions, they work too to set up partnerships with nonprofits in the cities and communities that we live in, and so that we can volunteer. And they help nonprofit organizations also ship at cost. So we don't actually make any money of them, helping organizations really need to get cargo from A to B. During the PPE crisis, we shipped millions and millions, hundreds of millions of PPE goods into Latin America, into the US and into other parts of the world as well. And obviously, we're trying to help with the crisis that's going on in the Ukraine. We have a big fundraiser going on right now, we've actually raised enough money to deliver one plane over to the Ukraine already with supplies. Our CEO himself is paying for a second plane to go. But we'd love for you to partake and really join us in this effort to help the millions at this point of refugees that are fleeing sort of the crisis and the war in Ukraine. So go to flexport.org/donate if you want to learn more, and thank you so much again for for joining us today.

You know we have, it looks like a few minutes, we have like three minutes for some Q&A if we don't actually get to your questions today, don't worry, we will respond, we'll make sure we send something detailed for you. But we'll go ahead and answer a couple of the questions that have come in. And the first one that came in was as for Yasi, and it's from Beth, and she talks about exports out of Brazil and how they're growing right, you know Brazil, of course this major market for us in the region. What steps are carriers taking to increase capacity Yasi? And our rates expected to remain high through the rest of 2022 into the East Coast ports. And I think this is a perfect time to speak about the congestion, not just in Brazil, but in places like Savannah as well obviously.

Yasaida Jimenez: Yeah. Well, I regret to inform that there aren't no really plans to increase capacity, at least for this year, in that corridor, it will remain under pressure. That is one of the areas where we saw capacity being reduced last year, which means that the rage will continue on the high side, so we don't see really that to be alleviated. Of course, I have to say that now in the recent a quarters, it slowed down a little bit compared to the craziness that we saw in Q4 last year in 2021. I mean, cargo was carrying roll over and over and over and there was no way really for you to get lifted, it was a complete nightmare. Even the carriers were checking in this planning, we don't see that now going on but still capacities on the pressure. A lot of planning and conversation is required around that, with your service provider. But no, unfortunately we don't see capacity being added, at least for the remainder of the year.

Leo Ospina: Yeah, Brazil is one of those markets that I think is just going to continue to boom as inflation goes up, the radar goes down, prices of goods in Brazil go down, which means that people buy more, really, that is like the opposite effect of inflation that we see I think. And in the last couple of years, if you think about the housing market in the US, interest rates were really low, people built homes, bought homes, remodeled. And I think that was a major part of why we saw a lot of plywood, especially coming out of Brazil, in record numbers like we hadn't seen it in the past.

Yasaida Jimenez: Yeah.

Leo Ospina: And so, really, really, really interesting, but it's important to keep an eye out on everything that's going on to understand, sort of what's going to happen in the market, right? And not is it, it's not just the COVID crisis and all of these other things, but the economy and how that plays a role in terms of supply chain and the congestion and where people are buying goods is also actually pretty key in understanding that as well. I wanna, quickly, one question for Stephen. Stephen, does Latin America, I'm not sure if you're an expert on this, but have enough aluminum to divert business from China and Vietnam that's coming from industry?

Stephen Liston: Well, this is, sure. I mean it's, when you see enough aluminum, it's got plenty of aluminum, it's got a lot of other minerals, copper, and lithium now is coming in as big one too. I don't know what, how they compare on aluminum specifically, whether they can divert that, but it's really about a question of what people are willing to pay, right. And I think Latin America is going to factor in a major way for most of these minerals, my understanding is they are a major supplier. So China has slowed its growth, and of course the US has too, but the US is actually recovering pretty well. So I think it's going to be a question of which economies are pulling that in. And I think Latin America, you know it's commodities, they're going to sell where the prices are going well. But China's going to be a factor for a long time to come in terms of global trade, it's like, in long term it's going to boom. And so I think we need to start figuring that one out as a country, and as a leader.

Leo Ospina: Yeah, absolutely. And I think, it's incredible, like the diversity again, and countries like Peru and Chile have all these minerals, right. And I think we'll see a big increase in terms of what gets exported and where gets exported to. And as I mentioned to you prior to this meeting today, I think that we have an opportunity and when I say we, I mean the US has an opportunity to really sort of drive alignment and invest in the region and sort of strengthen our relationships. And I see that as a great opportunity as well for anybody looking to diversify into and out of the region.

So it looks like we're at time unfortunately. But as I mentioned to everybody on this call, we will be going ahead and answering all of your questions, sending you emails. Please reach out to us if you have any other questions, we'd love to set up a meeting to understand your supply chain needs and really dive deeper to answer specific questions about specific markets and trade lanes. We have all the information, it's just a matter of understanding what it is you need and when you need it by, but we want to thank all of you for joining us. I hope you enjoyed our chat today and have a wonderful rest of your day.

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