When automobile manufacturer Fiat in 2010 announced plans to build a $1.8 billion plant in northeastern Brazil, CEVA, a global non-vessel-operating common carrier and third-party logistics provider, saw an opportunity to offer value-added transportation services to the company.
CEVA is able to provide a full package of services, including management of ocean and inland transportation services, warehousing and customs brokerage. CEVA aims to be a true logistics partner to its clients, not just offering access to ocean transportation, said Bernardo Bernat, senior director of ocean trade for Latin America. “Otherwise, transportation will be commoditized,” he said.
From Mexico to Argentina, Latin America is becoming the land of opportunity for NVOs and 3PLs. Many of the region’s economies are growing faster than those in North America and Europe, and trade is booming.
Yusen Logistics is expanding its operations in Latin America to take advantage of the growing trade within the region and between Latin America and other regions. Yusen’s north-south business this past year was up about 20 percent, compared with 1 to 2 percent in the trans-Pacific, said Tim Nolan, senior vice president and general manager of the international division at Yusen Logistics (Americas).
“Overall, we’re looking at 100 percent growth in the region across air and ocean forwarding in the near term, with ongoing investment over the coming years,” Nolan said.
The NVO and 3PL formula for growth is quite basic. As global manufacturers move to the region, they create more jobs for the local population. That generates income, so local consumption increases. The result is a strong domestic market and a growing export and import trade. “Our customers are moving south, so we have to be where they are to support their business,” Nolan said.
3PLs also are participating in a trading boom fueled by a flurry of infrastructure development in seaports, roads and rail connections to inland centers of manufacturing, mining and agricultural, said Walter Kemmsies, chief economist at Moffatt & Nichol Engineers, which designs port facilities around the world.
As global companies expand their operations in the interior of countries such as Brazil and Mexico, their international supply chains become elongated and more complex, and they often seek the expertise of 3PLs, Kemmsies said.
Also playing out is a subtle dynamic fostering greater hemispheric trade: China is investing heavily in Latin America to gain access to raw materials and food products. Chinese money also is pouring into infrastructure development to move the products from interior locations to seaports.
The economic impact of these investments doesn’t diffuse throughout the economies of the region, Kemmsies said. Brazil, for example wants to export value-added manufactured products, but China is buying little in manufactured goods from Brazil. As a result, Brazil is reconnecting with the U.S., which maintains a much more balanced trade with South America, he said.
Another factor driving the growth in NVO activities is the near-sourcing of electronics, apparel and other time-sensitive products in Mexico and Latin America as production in China becomes more costly. Ryder System’s operations in Mexico are growing at 10 to 20 percent a year, said Gene Sevilla-Sacasa, vice president of international supply chain solutions.
Companies that establish manufacturing facilities in Mexico, or national retailers that source product there, can reach the entire U.S. market within 48 to 72 hours via truck, compared with several weeks when sourcing in Asia, Sevilla said. This is especially compelling for companies that want to manage their inventories more tightly and reduce lead times, he added.
Probably the biggest reason NVOs are expanding in Latin America is the strong economic growth there. GDP is increasing 4 to 11 percent a year, depending upon the country, versus low single-digit growth in the U.S. and Europe. Manufacturers are producing for domestic and regional consumption as well as for export to the United States. Mexico manufactures 1.5 million automobiles a year, with one-third of the cars sold within Mexico, Sevilla said.
Outsourcing of logistics services is widespread in Latin America, but most countries present significant hurdles. Capgemini’s 2012 Third-Party Logistics study found that 65 to 84 percent of companies there outsourced international and domestic transportation, warehousing and freight forwarding services, and more than 20 percent outsourced customs brokerage, inventory management and cross-docking services.
In Brazil, 90 percent of the companies outsource transportation and 75 percent outsource warehousing. Logistics providers, however, face byzantine customs laws, multiple taxing authorities, inconsistent enforcement of regulations, underdeveloped port, road and rail infrastructure, especially in the northeast, and congestion throughout the supply chain.
Global manufacturers call on NVOs and 3PLs to navigate these hazards. CEVA approaches cargo clearance with a professional and ethical strategy that seeks to minimize delays while complying with all local laws and regulations, Bernat said.
Under these circumstances, the logistics providers must strike a delicate balance between serving shippers and carriers. A container can sit for 21 to 30 days in Brazil because of customs delays. This generates “sensitive negotiations” with ocean carriers and their customers concerning free-time allotments for the equipment, Bernat said.
Cargo clearance is an issue for shipments moving between Mexico and the U.S., so Ryder participates in programs such as the Customs-Trade Partnership Against Terrorism, Free and Secure Trade, and the Business Alliance for Secure Commerce that offer faster clearance times for trusted companies, Sevilla said.
Ports throughout Latin America must deepen their harbors and build larger marine terminals to accommodate the mega-ships that are common in the east-west trades and are just beginning Latin America service. The average vessel size in the Latin America trades exceeds 4,000 TEUs, but some 8,000-TEU ships already have called at ports there, Bernat said.
One strategy to deploy in this interim period may be to serve large hub ports with the mega-ships and transship via smaller vessels to ports that don’t have deep harbors and large container terminals, he said.