Transportation and Logistics Central America

Transportation and Logistics Central America

Dynamics of the New Logistics Infrastructure

Transportation and Logistics Central AmericaCentral America’s global trade has increased significantly in the past 10 – 15 years, in no small part as a result of strong efforts to reduce tariffs within the region, as well as improvements in market access due to the adoption of important Free Trade Agreements.  However, the growth of Central America’s trade has not been as impressive from a global perspective and there is growing evidence that the gains from trade agreements and liberalization policies have been limited by barriers in transportation and logistics Central America.

Come 2015, when post-Panamax ships begin to traverse through the Panama Canal after its expansion is complete sometime next year, Central American countries have an onus to dramatically improve their intermodal roadways, port network infrastructure, the quality of their trucking services and strengthen their governmental institutions if they are to thrive in the global economy.

Multiple reports released at the recent IDB Annual Meeting in Panama City implore countries to establish national logistics agendas to improve policy coordination and eliminate bottlenecks that restrict the region’s ability to compete in the global marketplace.

Efficient and effective logistical performance demands the public sector act at the local, regional, and national levels, within a coordinated agenda, with shared priorities and objectives, based on congruent information that reforms public policies and allows continuous monitoring.

The need for more coordination is especially crucial as the enlargement of the Panama Canal will accommodate post-Panamax ships that are capable of carrying 12,600 containers, versus the 4,500 for the current vessels.  Currently only two countries in the region can accommodate post-Panamax vessels: the Dominican Republic through the port of Caucedo, and the Panama terminals.

Transportation and Logistics Central America

Post-Panamax ships will forever change the dynamics of transportation and logistics Central America and globally.  Instead of vessels stopping at multiple ports and unloading a few dozen containers, post-Panamax vessels unload dramatically greater volumes into a hub and spokes system.  This system will require ports and roads to handle significantly greater volumes of freight more quickly and efficiently.

The entire region must change course in the way it handles transportation logistics to upgrade its integration with the world and continue to grow. Companies may be very efficient at producing goods at low prices, but when there are inefficiencies in their transportation logistics within the country, by the time they ship abroad they lose their competitive advantage.

High transportation costs have plagued the country’s exports and made it difficult to effectively compete in the global marketplace.  For example, in Central America, transportation logistics can account for 20-60 percent of delivered goods prices. Transportation and Logistics Central America

These reports assessed the readiness of 18 ports in 7 countries in Central America plus the Dominican Republic, in sections that range from transport and trade regulations to geography.  For instance, only one port–Caucedo–received a “Very Good” rating in ground connectivity, which factors in road congestions, security and the number of lanes at port gates, among others.  6 ports received “Good” ratings, 4 were “Adequate” and 7 were “Poor.”

Ground transportation throughout Central America is complex, because the region is too small and does not have enough traffic volume for a dense short-sea shipping maritime network, but it is too big and lacking in road infrastructure to be adequately served by land for national and international trade needs.

The reports recommend countries develop a national coordinating body to oversee both ocean and ground transport, and highlights that an integrated ocean-ground inter-modal transportation network is imperative for future development of the region.

One of the studies on transportation and logistics in Central America looked at the trucking industry, from regulations to cargo security and border crossings.  Trucking rates are exorbitantly expensive and security costs astronomical and the lack of low-sulfur diesel fuel inhibits fleet renewal investments with the latest more efficient engine technologies. The percentage of paved roads in countries such as Honduras and Belize stands at an impotent 22%, and in Nicaragua it is a ridiculous 15%.

It is often said that the supply chain is only as good as its weakest link and in the case of many of the regions countries, the roads, more often than not, are this link.

Border crossing coordination needs significant improvement and countries must tackle difficult domestic issues, such as laws that protect national fleets by prohibiting foreign trucks from transporting domestic cargo on their return routes, making the service more expensive for everyone.

What to do next?  Learn more about Logistics Services in Central America.