Focus on Latin America: Brazil, Argentina, Chile

Mallory Alexander International Logistics – a global 3PL with corporate headquarters in Memphis – has examined the relative strengths and weaknesses of the transport networks in three major trading nations.

This overview, while hardly comprehensive, points to the complexity U.S. shippers must deal in the coming years.

Brazil strongly depends on the highways system, with more than 56% of freight moving on its highways per annum. But according to B. Lee Mallory, the 3PL’s, executive vice president, only 26% of the highways are in excellent or good condition.

“Concentration of rail in the country is in Sao Paulo, Minas Gerais and Rio Grande do Sul,” observes Mallory. “This mode is used chiefly to move raw materials, but analysts say that increased privatization and expansion of rail will alter this significantly.”

Ocean cargo shipping is clearly destined to grow exponentially in Brazil, as it currently represents only 1% of total cargo moved in the country. For that to happen quickly depends on how fast new road access to harbors and warehousing can be achieved.  Air cargo, too, is expected to ramp up, say analysts, especially now that a new regulatory agency – Agencia Nacional de Aviacao Civil – has been created.

One of the chief barriers to entry, however, may not be related to sea or air transport. Prevailing over regulatory restrictions is often the greatest challenge, say logistics leaders.

“The best markets, such as Brazil, still put big obstacles in high bureaucratic institutions with complex tax structures,” says Jaime Cabrera, vice president, Latin America for ICAT Logistics, Inc. in Miami.

Gustavo Paschoa, Sales, Marketing and Engineering Director for Penske Logistics South America, agrees, but says Brazil is improving in some areas.

“For instance, at the end of last year, a new law for drivers was implemented which improved regulations and benefits for the,” he says. “This is an essential law in Brazil, especially in the long term, but in the short-term it has been a great adjustment for shippers, increasing transportation costs even further.”

Since Brazil is a member of the Mercosur, any bilateral agreement must affect all countries in this trade community, notes Paschoa. Even without this trade agreement, he say, Brazil has created a good environment for U.S. shippers to start their operations there.

“And not only to bring in imported goods, but also to encourage companies to introduce their manufacturing to Brazil and get tax benefits and exemptions on duties,” he says.  “Large companies from the U.S., Europe and Asia are announcing new facilities and/or assembly lines in Brazil, with the objective of entering our market and providing services and goods for the entire South American region busing the near-sourcing concept to have more flexibility and competitiveness in the region.”

Chile, meanwhile, enjoys a high level of foreign trade, with exports accounting for 40% of GDP. Furthermore, the nation claims have more bilateral or regional trade agreements than any other country in the region.

Due to heavy government regulation, however, analysts say there are still some significant barriers to international competitiveness due to inefficiency.

“The railroads, for example, remain under state control,” says Mallory. “Port’s, too, are owned by the state but with recent changes in the law, there are now ten independent, companies, fully responsible for management, development, financial administration and assets.”

Highway networks in Chile remain fragmented, though most roads are well maintained, and due to the country’s mountainous geography, aviation is very important. Chile has 370 useable airports but only 62 have
paved runways.

“Pricing is a key issue in all aspects of logistics and transportation areas in Chile,” says Mallory. “The need for increased professionalization and more efficient technology has been identified as the challenge for the industry.”

Argentina has a good infrastructure system in comparison with other Latin American nations, but many areas need significant improvement. For example, the majority of Argentine roads are two-lane national and provincial routes. At the same time, Argentine rail lines have not been well maintained over the past several decades, with many key segments inoperable today.

“Despite these challenges, Argentina’s rail freight traffic has increased by more than 10% in each of the past five years,” says Mallory. “As a result of improved utilization and efficiencies, the cost of rail transportation has dropped by 25%.

Most of the country’s major ports are located on the Atlantic coast, with little freight transported along the domestic waterways. Air cargo represents only 1% of the total cargo transported in the country, although that may change if the government is successful in privatizing some of the nation’s 142 airports. So far, only 33 major airports have been turned over to private companies to operate.