LATIN AMERICAN CHALLENGE

LATIN AMERICAN CHALLENGE

U.S. companies are optimistic about Latin America. In the first half of this year, they pumped over $15 billion in direct investments into Brazil alone, according to the Central Bank of Brazil. Mexico, which has largely recovered from the currency crisis of the mid-1990s, continues to attract U.S. manufacturers. But tariff and non-tariff trade barriers still impede the flow of commerce.

John Menna, UPS vice president of marketing for Latin America, said Mexico has led the region in privatizing infrastructure and reducing trade barriers. But he said Brazil, the other major Latin American trading partner, lags far behind.

''Tariffs are still very high, and the paperwork requirements to move goods in and out of Brazil are still cumbersome,'' Menna said. ''Laws are very protectionist. If I ship a $3,000 laptop to Brazil in an express mode, duties and taxes will almost double the landed costs.'' Part of the problem with duties and fees is that they are often interpreted by local customs authorities, said George Gonzalez, logistics chief for From2.com, a Florida-based provider of landed-cost and logistics services. Gonzalez said Brazil and Colombia have the region's most onerous local customs procedures. ''Certain laws may be passed on the national level but at the end of they day those laws are still interpreted on the local level,'' he said. ''Those interpretations can vary dramatically from the intent of the law.'' Menna said UPS is an active participant in global efforts to upgrade customs procedures in the region. ''We are trying to encourage different countries to speed up the customs process by clearing goods electronically,'' he said.

Part of the modernization challenge is the existing telecommunications systems, which vary across the region. While some countries such as Brazil have developed a significant technological infrastructure, much of the region lags far behind.

Still, Menna isn't sure that is a bad thing if you take the long view - as does UPS and most logistics firms operating in the region. ''There are two schools of thought about the technical infrastructure,'' he said. ''One is that there is a big advantage from starting from scratch because you can leap to the newest technologies. The other says that once you are behind it is hard to catch up.'' Manuel Zarate, freight gateway manager for PBB Global Logistics' new Miami-based logistics center - which the company opened in response to exploding growth in Latin America - said countries such as Paraguay, Venezuela and Colombia have technology limitations that will inhibit quick upgrades of customs services. Zarate said many importers in the region compensate by shipping under ex-works terms, enabling them to take control of the shipping and customs clearance processes. ''Shipping ex-works increases the power of owners of cargo to negotiate with local agents and decide who will be the broker, who will carry the cargo,'' he said. Zarate said the proliferation of small and midsize shipping agents and customs brokers in Latin America in the last 10 years has contributed to the opening up of trade in the region. In the mid-1980s, he said, it was the larger brokers and forwarders who dominated the market, which made it difficult for newcomers to the region in terms of freight management.

''Agents are very important in the Latin American market,'' Zarate said. ''We use a network of agents that interpret the local codes for us.''

A major concern for UPS is Latin American air-traffic rights. Last year's acquisition of Challenge Air Cargo, which at the time operated 120 flights per week into 13 countries, established UPS as the largest air cargo and express carrier in the region. It wasn't until Aug. 14 of this year, however, that the deal closed. UPS now is transferring the assets and aviation operating rights of Challenge Air to its own operations. Those rights are held in 14 Latin American nations, in addition to landing rights in Costa Rica and the Dominican Republic that UPS held before the acquisition.

''Traditional bilateral agreements are outdated and ill-suited to the new lines of business offered by the air transport industry,'' one UPS executive said. ''For example, services, such as door-to-door, time-definite deliveries, were not even in existence when most of the latest treaties were signed.''

PBB's Zarate doesn't think the air rights issue is a significant one for Latin America's larger trade picture. And he said the issue raises problems of its own in a region where most of the cargo is southbound. ''You still have to clear cargo on the other side, still have to use the back roads, and deal with customs difficulties in certain locations,'' he said. ''You still have to fly in both directions. If you fly a plane into the region you have to bring it back full of cargo to be profitable.''