Panama’s Colon Free Zone: Challenges and Opportunities of a Logistics Hub

Panama’s Colon free trade zone is becoming a distribution option for Latin America, particularly as the Panama Canal widening nears completion. Yet, the location has significant challenges, according to the just-released report, “Panama’s Colon Free Zone: Challenges and Opportunities of a Logistics Hub.”

According to Miami-based freight-forwarder Lilly & Associates International, the paper’s developer, “The Colon Free Zone’s major advantage is access to Latin America and the Caribbean.” Poised as the “Gateway to the Western Hemisphere,” the Colon Free Trade Zone experiences “corruption, labor unrest and drug related violence,” much like many of the markets it serves.

“Labor costs are higher than the regional average, with minimum wages well over $2.31 for most professions,” the report says. Furthermore, the difficult in recruiting, hiring and firing workers led to a ranking in the World Bank Employing Workers index of 177 of 183.30.

That said, Panama is considered a business-friendly environment with a currency pegged 1:1 to the US dollar, and more than two dozen banks do business in the Colon Free Trade Zone.

“Although a Panama hub might not be ideal for every company, I have witnessed ocean freight import rated into Panama from China, along with exports from Panama into Latin America and the Caribbean, that average 30 percent less as compared with the United States as an origin or destination,” says Lilly & Associates International Business Development Manager Nelson R. Cabrera. “As shippers continue to optimize their supply chains, many are discussing the plausibility of Panama as a warehousing and distribution hub.”

The paper explores Panama’s unique geography, political and economic climate, infrastructure, economic fundamentals, labor force trends and laws and international trends.