The lure south of the border
Package-express and other carriers are increasingly eyeing Mexico and other Latin American countries as potentially rich sources of freight volume. However, they also fear overly restrictive and complex trade policies south of the border may leave them unable to effectively tap those markets.
“I believe that Latin America, home to half-a-billion people south of the U.S.-Mexico border, has the potential to be the next hotbed of trade and economic growth,” said Mike Eskew, chairman & CEO of United Parcel Service. “But it is clear the Americas are at a crossroads. Although we’re neighbors, our border and customs policies make it sometimes seem like we’re enemies.”
Speaking at the U.S. Commerce Department’s inaugural Americas Competitiveness Forum, Eskew said trade issues facing the region are particularly nettlesome, impeding what should be clear “built-in advantages.”
“The first is geographical proximity,” Eskew said. “In an era of just-in-time supply chains, proximity is everything. Latin American markets can be accessed by land and sea. Another key advantage … is several free-trade agreements. [But] We also have so many complicated customs and security requirements in place that it’s often easier to import goods from Europe or Asia. So the choices are to adapt or become irrelevant.”
Still, those issues aren’t slowing down efforts by express carriers to expand their operations in Latin America. For example, DHL recently opened a new international “gateway” facility in Hermosillo, Mexico, to meet growing freight volumes moving between Northwest Mexico and the U.S.
“Northwest Mexico is a growing market with significant trade with the U.S. in key industries, including automotive and electronics,” said Lindsay Birley, executive vp-international products & services for DHL. “Our new Hermosillo gateway allows us … to make cross-border shipping easier for customers by effectively reducing international transit times and providing later shipment cut-off times.”
The main attribute of DHL’s Hermosillo gateway, however, is how the customs process has been streamlined there. “It allows us to move shipments faster to and from the Northwest Mexico region, which is a critical factor for companies shipping across the U.S.-Mexico border,” said Birley, noting that Mexico is the second-largest importer of U.S. goods and the third-ranking country of origin for U.S. imports.
These gateways are part of DHL’s North America Trade Lane initiative, launched in November 2006, which aims to increase the speed and efficiency of all cross-border shipments across North America, Birley added.
Speed is also the key to successfully opening up Latin American trade lanes to the U.S. added UPS’ Eskew, who pointed to the automotive industry to illustrate how the current customs process slows things down.
“Did you know that the average North American-produced vehicle crosses the border more than seven times during production?” he said. “During the journey, each vehicle faces a staggering 28,200 customs transactions. By comparison, cars imported from Europe or Asia to North America involves just a single customs transaction. If we delay cross-border shipments by just a day, the Americas lose their proximity advantage over Asia.”
He added that the North American Free Trade Agreement (NAFTA) between the U.S., Canada and Mexico already has created the second-biggest trading bloc in the world behind the European Union. He said NAFTA accounts for far more trade than the U.S. conducts with China – and similar trade volume could exist with Latin America.
“Between 1997 and 2020, Latin America’s real Gross Domestic Product (GDP) is expected to grow 4.4% annually,” he said. “That’s faster economic growth than Asia at 3.6% and much faster than the 2.8% global average.”
But successfully tapping into the freight produced by that economic growth requires several things, said Eskew. These include:
- Developing a single, streamlined customs clearance system between Latin America and the U.S.
- Identifying “trusted shippers” and enabling them to get in the “fast lane” for customs processing
- Raising the minimum dollar value at which imported goods must receive customs clearance and separating the release of shipments from the collection of duties and fees
- Increasing spending on transportation infrastructure, particularly the road and rail networks.
Esker noted that Latin America is spending less than 2% of GDP on infrastructure compared to 3% to 6% by China and South Korea. “Global commerce is like a river -- it tends to flow down the paths of least resistance,” he said. “While Asia and other regions work to make their countries friendly to trade, we cannot be comfortable with the status quo.”
