Regulations to support distribution network efficiency

As Peruvian authorities continue to direct funds towards infrastructure modernisation, transport sector operators look for better roads, ports and airports to help improve logistics operations. Years of economic growth have led to new domestic and international opportunities for Peruvian firms. However, strained distribution networks, competition from informal operators and excessive legislation in some areas are showing how an inefficient logistics sector can hinder growth.

Sector Figures

Despite improvements, Peru’s infrastructure remains limited for the amount of economic expansion the country has experienced in recent years. In the World Economic Forum’s “Global Competitiveness Report 2014-15” Peru was ranked 88 out of 144 countries for the infrastructure category. Another study, the World Bank’s 2014 “Connecting to Compete”, which assesses logistics performance across several measures, ranked Peru 71 out of 160 countries in terms of its logistics performance index.

Out of the several elements that make up the index, Peru’s worst performing aspects were Customs activities, ranked 93rd, and tracking and tracing, which came in at 83rd place. This suggests that the heavy investments in infrastructure will need to be matched by an overhaul of Customs procedures and a better structuring of the logistics business. Figures by the Peruvian Association of Logistics Professionals (Asociación Peruana de Profesionales en Logística, APPROLOG) put the value of logistics in Peru at 20-30% of product sales, compared to 12% in neighbouring Chile.


Besides the physical aspect of infrastructure, transportation systems are also undermined by an excessively fragmented logistics market, with service levels diluted by the number of competing companies. “Peru is an unattended market in terms of logistics, because there is a lack of operators offering quality services,” Oscar Peña Aparicio, general manager at LSA Enterprises, a logistics firm, told OBG. “Part of the problem is also driven by the customer, who is weary of better services increasing the final cost.”

Peña also contends that one of the barriers to entry of more professional, complete- service logistics companies is the poor quality of infrastructure in parts of the country. With a vast geography to cover, and an array of small logistical companies and independent truck drivers in the market, the number of large-scale logistics operators in Peru remains limited.

“The informal sector is very big, with more than 60% of trucking fleets having a single truck,” César Venegas Núñez, executive director at the Business Alliance for Secure Commerce, an international association promoting trade security, told OBG. In many cases, large companies outsource part of their transport to smaller companies, taking responsibility for a certain service without necessarily being involved in the operational side of it. This helps logistics companies adapt to changing demand patterns, but it also fuels the existence of a large number of informal or semiformal logistics providers competing on price.

“The government should be stricter in demanding quality standards for logistics companies, as the informal sector is on the rise and it reduces prices to below market competitiveness,” Stefan Saettone, director at Cargo Master, a transportation company, told OBG.


The most visible element of government attempts to enhance logistics have been road improvements, a privileged target of public investment policy.

Projects such as the $552m Longitudinal de la Sierra highway or the Longitudinal de la Selva highway are helping upgrade national roads and connect the country. This work is necessary and overdue. Peru’s roads are ranked 102nd in the “Global Competitiveness” report. Logistics operations in the country have become more difficult because of the pressure that added traffic puts on existing highways, which affects delivery times as well as road maintenance efforts.

There are an estimated 200,000 new vehicles on the roads every year, according to government figures.

“Some roads no longer have a peak time, because the peak time lasts for the whole day,” Violeta Vargas, commercial manager of GS1 Peru, a logistics firm, told OBG. This has become especially visible along Peru’s central highway that connects Lima to the Rimac Valley and Andes highlands, where an increase of the number of mining trucks has worsened traffic flow and affected road maintenance negatively.


Investments into road infrastructure are expected to improve conditions for road transportation. Ministry of Transport and Communications statistics put the extension of existing road connections at 156,792 km, although only 87% of these were paved as of 2013. This has a significant impact on the performance of the logistics sector, especially outside major road arteries. However, the state of Peruvian roads has also decayed in some areas due to the rising number of heavy trucks. Damage could be partly mitigated by targeting specific taxes on industries that use heavy transport vehicles on particular roads. Furthermore, removing at least some of the pressure of heavy cargo traffic from roads will also be easier in the medium term as plans to invest in new railroad transportation options move ahead (see analysis).


While investments take time to materialise, tweaks to the legal framework could positively impact the sector in the meantime. Logistics operators assert that some types of regulations make their business costs excessively high, especially for certain cargo, such as food products. “For example, to keep food products in a warehouse, regulations demand a certain amount of distance between parcels, as well as from the walls and ceilings. The operator commands a price per sq metre. Being able to put five boxes of a product or a thousand, will make a difference in the price per unit, and these price increases will eventually be passed on to the consumer,” Vargas told OBG.

Other times, she said, it is the lack of clarity of some laws that leaves logistics operations vulnerable to fines and other sanctions by authorities during the movement of goods. “This impacts mostly the big logistics firms, not the small informal ones, because they are operating under the radar,” Vargas said. APPROLOG is working to establish a committee to lobby the government in an attempt to ease restrictive legislation that pushes up the costs of business.


Excessive costs have also been registered in air freight procedures. Peru’s Association of Exporters (Asociación de Exportadores del Perú, ADEX) recently said that logistics costs in the air sector amounted to $20bn annually, according to local media reports. While investments to renovate airport infrastructure are taking place through existing concession holders, lack of efficiency in air freight in Peru is due mainly to the existing regulatory framework. Contrary to international standards, which include charge and discharge prices within global air freight prices, in Peru these are charged separately. In Lima’s Jorge Chavez airport, for example, cargo is serviced by a network of warehouses around the airport. These charge every movement done on the cargo, including transportation between the warehouse and the airport. ADEX believes that these additional costs discourage Peruvian firms from exporting.

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The Report: Peru 2015

Transport chapter from The Report: Peru 2015

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