CargoX is transforming Brazil's trucking industry through technology
March 27, 2019 |
Company founder Federico Vega developed an app that's driving efficiency among Brazil's truckers
Taking a break between high school and college, Federico Vega set off on an extended bike tour through Latin America in 1999. Starting out from his home in Puerto Madryn on the Argentine coast, he snaked his way north deep into Brazil. Travelling some 1,500 kilometers (930 miles) in all, he stopped at various truck stops along way to grab some sleep, maybe get something to eat.
It was during those pit stops that Vega would hang out with truckers who would readily share their stories. Many grumbled about low wages and transport companies that failed to pay them. Highway robbery was yet another danger in addition to the crumbling roads.
Vega eventually went on to college and a career as an investment banker in London. But those months on the road left an impression, planting a seed for what eventually would become CargoX, a company he launched in Brazil in 2016. An Uber-like enterprise, the company connects truckers and cargo shippers through an app that’s starting to wring efficiencies from Brazil’s troubled trucking industry.
If successful, Vega’s digital solution could have a profound impact on the logistical challenges undermining Brazil’s economy. Brazil’s truckers spend 60% of their time driving with empty trailers on return trips or waiting to pick up cargo. The industry is running at half its capacity, less when calculating wait times, says the 37-year-old Vega.
Such poor logistics hamper timely deliveries of parts to manufacturers and goods to retailers. Eventually they push up prices and cut into profits, all of which deters investment in the economy, Vega says.
It’s a common problem throughout Latin America. Brazil together with the region’s other three big economies — Argentina, Colombia and Mexico — ranked between 51 and 61 out of a list of 160 countries on the World Bank’s International Logistics Performance Index in 2018, with little improvement over the past decade. The index measures efficiency in customs clearance, trade and transport-related infrastructure, as well as in arranging shipments, delivery times and the effectiveness of tracking and tracing, and logistics services.
The São Paulo-based company, which includes the Blackstone Group, Goldman Sachs and Soros Fund Management among its investors, allows truckers to plan their pickups and deliveries ahead of time, rather than hunting for jobs at truck stops or running empty between delivery and pickup. For example, truckers using Vega’s app on their smartphone or computer can schedule a delivery of Heineken beer to the northeast and then pick up a Unilever shipment for the return to São Paulo, doubling a driver’s income. In exchange, CargoX takes a fee ranging from 5% to 30% of the cost of moving the cargo. For bigger clients, the company charges a fixed fee for handling everything from selecting a trucker to arranging insurance.
The app is catching on. More than 250,000 independent truckers, or 28% of the 900,000 owner-operator trucks in Brazil, use it. Vega hopes to double that by next year.
Companies also use the app to track shipments in real time. For example, shippers can schedule drop-off and pick-up times at ports, meaning that 100 trucks can do what took 1,000 trucks previously, easing traffic and reducing carbon emissions in the process. With 90% of commercial cargo moved by trucks in Brazil, that improved productivity has a huge economic benefit. “When you are able to utilize the amount of trucks you have in the market in a better way, then by default you reduce the cost of moving freight,” Vega says. “You make it faster, you make it cheaper.”
Employing machine learning technology, CargoX can also chart which highways are prone to robbery, directing drivers to take a different route. It can also identify drivers that shippers should avoid by flagging those whose trucks have been involved in multiple hijackings or those who frequent truck stops notorious for drugs and prostitution, grounds for expulsion from the CargoX network.
Vega is eyeing expansion for CargoX, which is already running cargo into neighboring Argentina and Paraguay. Latin America, he says, has the kinds of geographic and demographic features that favor his trucking app. The region is larger than Europe and the U.S. combined, with relatively few railways. It also has only two main languages and a similar culture from Argentina to Mexico, unlike in other big markets like India and Europe. And there is less competition. In the US, Amazon, Uber and startups like Trucker Path and Transfix are vying for business with similar apps. A similarly competitive landscape also makes it hard to enter China.
The emergence of electric and self-driving trucks presents CargoX with new opportunities. Vega cites the Full Truck Alliance Group, his company’s Chinese equivalent, as an example. It recently bought a string of gas stations that it plans to equip with EV chargers. “That is where freight is going — into electric and self-driving trucks,” Vega says.
CargoX’s expansion hasn’t been without challenges. There is some resistance in Brazil, and there likely will be in neighboring countries, where truck unions are strong, such as in Argentina. “We may face pushback at the beginning, but the incumbents eventually will wind up giving up because they will realize that even if they kill CargoX, somebody else is going to do it,” Vega says. “They are starting to see that they cannot stop it.”