Investors Bet on the Uber of Brazilian Trucking
Brazilian truckers still get much of their business off of handwritten placards.
The antiquated and inefficient system was ripe, low-hanging fruit to Federico Vega. While cycling from Patagonia to Brazil, he met truckers who complained of spending most of their time looking for freight, receiving low wages and dealing with disorganized transportation companies that sometimes reneged on payment.
So Vega built CargoX, an Uber-like enterprise that links truckers and companies requiring their services. It also guarantees payment and maximizes logistics so cargo holds don’t go empty.
Federico Vega, founder and chief executive officer of CargoX Transportes, speaks during the Milken Institute Global Conference in Beverly Hills, Calif., May 2, 2017. (Patrick T. Fallon/Bloomberg News)
“We have the chance to have a massive impact in Brazil,” Vega said in an interview. “We’re starting a revolution more than a company, getting top investors to explore this market.”
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Some of those “top investors” Vega refers to include Goldman Sachs, its biggest backer, and George Soros, who holds a small stake. And the Uber comparison isn’t just talk.
Oscar Salazar, the ride-hailing unicorn’s founding chief technology officer, was an early CargoX investor. Its clients include Unilever NV and Ambev SA, and it has about 7,000 drivers registered. Ambev and Unilever declined to comment.
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“CargoX showed impressive growth since it launched in 2016 and we believe that it has great potential to continue expanding,” Hillel Moerman, co-head of Goldman Sachs Private Capital Investing Group, said. “The business has solid proprietary technology infrastructure that gives them the opportunity to reduce the cost of moving freight while improving the level of service.” Soros Fund Management declined to comment.
Vega is tackling an industry that’s fractured and overbuilt, according to one advocacy group. It’s also disgruntled, if the recent country-crippling strike is any indication.
Most of Brazil’s 150,000 transportation companies are small, disorganize, and don’t know how to calculate operating costs, cargo transportation industry lobby NTC & Logistica said.
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Of the 1.77 million trucks, 37% are owned and operated independently, according to land transport regulator ANTT.
There are 300,000 surplus trucks on the roads, the result of favorable lending by state bank BNDES in the years preceding Brazil’s two-year recession. That only means more trucks on the roads without cargo, according to NTC’s technical director Neuto Gonçalves. In that context, rising fuel prices last month triggered a 10-day trucker strike that throttled activity nationwide, led to downward revisions for 2018 GDP, and laid bare Brazil’s logistical vulnerabilities.
The strike led the government to establish minimum freight rates — whether trucks are loaded up or not. That may soon mean less autonomous truckers for platforms like CargoX, Gonçalves said. Transport companies are instead likely to buy up more trucks and optimize their fleets rather than employ the costlier independent drivers, he said.
But Vega doesn’t see it that way. As long as the economy improves, he sees no real impact from the minimum charge. And he’s planning accordingly.
CargoX’s headquarters is in a prime Sao Paulo location and feels less like a transportation company and more like a startup, with an open-plan layout for its 250 employees — none of whom have come from the industry. Vega expects that number to grow to 450 by the end of the year, with revenue jumping from $40 million (150 million reais) in 2017 to $174 million (650 million reais) in 2018.
Vega stressed that the location of the company is meant to attract top tech talent as opposed to setting up shop in a cheaper location outside of the city. Their rival, TruckPad, is apparently thinking the same way. The offices are located less than 10 minutes apart.
TruckPad was started in 2013 by Carlos Mira, who previously worked in cargo transport and logistics in Brazil. The start-up has 550,000 truckers registered and active on the platform, TruckPad said by e-mail.
A confident Vega shrugged off the competition.
“I believe that for incumbent transport companies in Brazil and family-owned companies that have existed for 50 years, it will be very hard for them to change their DNA.” Vega said. “It is very hard for traditional companies to disrupt themselves.”
With assistance from Katia Porzecanski.
