Value Added Logistics

On the surface, value added logistics seems like a pretty straightforward process.

However, when you look a little closer there are an incredible number of moving parts, logistical challenges, interconnections, people, processes, equipment, and don’t forget the weather!  Every piece must be carefully choreographed to occur in a particular sequence.

Latin America cargo transport by value added logistics providers presents a number of unique challenges as most of the area consists of emerging growth economies. The underlying supply chain development hinges on the increasing sophistication of Latin American consumers. Not long ago, if consumers in Colombia bought chocolate from a retail store it would often be covered in a white glaze because it was so old. It wouldn’t even occur to them to return it to the store declaring its quality was unsatisfactory – because old or out of date products has been the norm.

Today however, it is no longer acceptable. Third Party Value Added Logistics (3PL) providers must be able to deliver goods and services that are of first-rate, high quality and be more efficient in their cargo shipping processes.

Third-party logistics (3PL) companies are investing aggressively in Latin America and GV USA Logistics is making massive investments in upgrading their facilities, operations and marketing, particularly in Colombia, Argentina, Brazil, Mexico, Chile, Venezuela, and Peru. Brazil is not far behind China and India in market size, compatibility, and growth prospects for 3rd Party Logistics providers.

Although Brazil’s infrastructure score has been weak, recent investments have intensified since the run-up to the 2014 World Cup. And the continuous infrastructure investment leading up to the 2016 Olympic Games are poised to inject a mammoth opportunity to become a major logistics market in the not too distant future.

Mexico is attempting to clean up its act in order to become more attractive to foreign investment. Mexico has unfortunately continued to decline in its attractiveness due to high levels of crime and violence caused by drug-related trafficking. However government and industry leaders have seen reasonable economic growth in recent years, due to rising benefits from a strong service sector.

Foreign direct investment into Mexico’s infrastructure remains high, and does not seem to be deterred by crime levels. This is primarily due to its close proximity to the USA. However, moving forward, there are several major issues that will play a significant role in how successfully Latin America develops into significant global logistics market for manufacturing and distribution.

First and foremost is their lagging productivity.  Latin American’s seem to have this Laissez-faire attitude for work which is primarily responsible for the regions slow economic growth. (about 1.4% per year since 1991; far less than the Asian economies) Restrictive labor laws across the region and area-specific regulations throughout the region have limited the capacity to encourage more productive companies from expanding into the Latin American market. On top of that stringent job security laws and high taxation rates make it difficult for companies to hire people in the local workforces.

Lack of supply chain and cargo transportation expertise compared to developed countries around the world have left Latin America in a weak position. Organizations must invest more in leadership and training, especially at the managerial level. One of the challenges is that colleges and universities throughout Latin America are not yet offering degrees in Logistics Management. More often than not, it’s only a topic within other curricula, such as industrial engineering. Students considering entering the logistics field must learn everything from how to manage a distribution center to how develop winning customer service strategies. And unfortunately, this takes time.

The second area of weakness is the scarcity of qualified managers.  This is where Latin America’s talent issue are most acute. High unemployment levels may seem to indicate that there are plenty of workers are available. However, those numbers don’t reveal the scarcity of qualified logistics talent.

The third challenge which is a vast issue for logistics operations in Latin America is the lack of the infrastructure to support the necessary information systems. This region is comprised of primarily emerging economies, and therefore what infrastructure systems exist, generally lacks 21st century sophistication or, in some cases, sheer availability. GV USA’s strategy is to invest in cloud-based systems and build the same common platform in Latin America that it operates in North America.

Technology is strategically important when managing logistics operations in Latin America. The reality is that transportation is highly fragmented. Cargo transporters have to deal with many small, fragmented owner-operators. In Brazil, each state levies a myriad of unique regulations and taxes. This creates major hurdles as it generates a web of transactions for our cargo transport management system (TMS) to handle. A TMS is too expensive for a single company to justify, particularly in a region where capital is tight. That is why GV USA is investing in cloud-based infrastructure where the expense can be spread across a multitude of providers and vendors. Otherwise, Latin American companies without a TMS end up doing a lot of manual work.”

Information and cargo shipping security remains a colossal challenge throughout the region. Crime is pervasive throughout Latin America, and it takes a heavy toll on everyone – particularly businesses attempting to enter the region. There is a dire need for improvements in the security of logistics provider networks that would reduce direct costs caused by increasing drug-related crimes of theft or losses during transfers particularly at transhipment facilities. Effectively doing so would lead to lower insurance premiums.

Organized crime is becoming more sophisticated, requiring 3PL providers to invest heavily in increasing the standards and sophistication of their security systems and procedures. Security is a never-ending battle because the moment you think you’ve got the situation under control, something new arises. 

Ground transportation is the most perilous security risk area of the entire supply chain throughout Latin America. The problem is the lack of alternative routes in the transportation infrastructure in many countries. The reality is that there usually aren’t multiple routes to destinations within a country. In many cases, criminals simply block the highway and start checking trucks to see what products they like. “It’s like shooting fish in a barrel.” To compound the problem, the police are vastly understaffed so they cannot patrol every kilometer of the roads. On certain routes, some cargo transporters hire private security forces to escort their trucks.

To combat highjacking, more and more trucks — especially in Brazil and Mexico — are now being equipped with state-of-the-art GPS tracking systems so they can be monitored in real time wherever they are. Additionally, individual packages are also being equipped with “Lojack-like” devices that can be activated by the shipper to assist law enforcement to track down stolen merchandise. Sophisticated subscription-based tracking systems will more than triple by 2016 throughout Latin America, according to industry experts. Brazil, in particular, will see significant growth in part thanks to a new regulation, Contran 245, which requires GPS tracking devices be installed in ALL vehicles sold there.

Some Latin American cargo transport carriers are more advanced in terms of tracking than even we are in the United States. If you were to visit a cargo transport office in many areas throughout Latin America you’d find a massive control room with video screens monitoring every truck and every delivery. The prolific crime and in turn security efforts have created a windfall in the transportation networks throughout Latin America with a concentrated focus on building a security infrastructure that would not have otherwise been created.

However, transportation infrastructure in Latin America are a long way from perfect in terms of physical and information security. In addition, ports are congested, roads are inadequate, and the pace of investment is slow.  Today, many countries are worried that the pace of growth will outstrip the rate of infrastructure improvement in their respective countries, which in turn, will keep logistics costs high; and that’s not good. Increasingly, countries are coming to the realization that if they don’t improve their infrastructures, they may not be able to grow fast enough to successfully compete in the global economy.

All is not gloomy though. More progressive Latin American countries such as Panama, Colombia, Brazil, and Uruguay have established free-trade zones, which attract heavy distribution-related investments. In Panama alone, their logistics hub development is booming as a by-product of the country’s progressive stance on trade and the most significant expansion of the Panama Canal since it was originally built.  Value added logistics providers have a tremendous opportunity in these forward-thinking countries.

What to do next?

Take a closer look at Air Cargo Co-Mingling or Consolidated Full Container Loads