Latin America struggles with trade logistics. Here’s what we can do.

You are an efficient producer and want to start exporting. You have the resources and an understanding of potential markets. You also have the installed capacity, the source suppliers and have identified buyers in other countries. However, what is more likely to hurt your competitiveness is moving your goods to the customers.

Armies win wars by being better at the logistics of big distances. Big, successful multinational corporations know how to move their products from one location to another in the cheapest possible way, thanks to their mastery of trade logistics.

We have often spoken about the need for our firms to join the network of global supply chains. In a world of just-in-time delivery, these chains will work only as well as the transportation and logistics infrastructure that link them.

Unfortunately, Latin America and the Caribbean falls short. Three data points from our own research at the Inter-American Development Bank (IDB):

• In Latin America and the Caribbean (LAC), logistic costs are double what they are in the advanced OECD economies.
• 40% of the disparity in international freight between Latin America and the European Union is explained by differences in quality of port and airport infrastructure.
• Border crossings are big chokepoints. One example: it takes on average between two and three days in LAC to process border documentation for exporting, compared to less than a day in Europe, the United States or Canada.

The efficiency of ports, airports, and roads is clearly an important issue for international trade. We work with our colleagues that finance infrastructure projects and they help countries do this. At the IDB´s Integration and Trade Sector we look beyond the asphalt and iron to cut the red tape that also slows down trade.

HOW CAN WE MAKE TRADE LOGISTICS MORE RELIABLE?

Implementing Authorized Economic Operators

There are several things governments can do. One is implementing the Authorized Economic Operator program. This allows parties involved in trade – from manufacturers to importers and brokers – to be officially recognized for fast-track access at borders by their customs authorities, in keeping with standards set by the World Customs Organization. Three out of every five accredited companies reported reductions in border crossing times once certified.

One-stop-shops for trade

Another key element is putting in place one-stop-shops for all goods traded, the so-called trade electronic single windows (ESWs). In 2015, we measured the impacts of these ESWs. Countries that had them cut their export time by 32% over eight years. Those that did not, increased their export time by 13%. The benefit-to-cost ratio for Costa Rica’s single electronic window was a whopping $16-to-$1.

The next step is ensuring that these systems are interoperable with other national systems. Since 2014, the IDB´s Integration and Trade Sector has been supporting Pacific Alliance countries (Chile, Colombia, México and Perú) on such a platform for their individual single windows. These countries started interoperability efforts by sharing phytosanitary certificates (June 2016) and certificates of origin (end of 2017). The homogenization of customs declarations is the current challenge being undertaken.

Digital customs

Another key element is digital customs, meaning any automated or electronic activity that contributes to the effectiveness, efficiency, and coordination of customs activities. This includes using smartphones more often, websites to communicate information and promote transparency, and automated customs clearance systems.

Processing the resulting data helps cut clearance times, improve coordination among all national and international agencies involved in trade, and increase the likelihood of detecting irregularities and illicit consignments. The IDB has digital customs initiatives in Argentina, Costa Rica, Nicaragua, and Panama, among others.

LAC countries can also make their ports smarter. Using big data and predictive analytics, ships can be notified electronically of any delays and advised on best arrival times, and sensors help identify port maintenance issues in early stages.

Improving the Salto Grande border crossing

All this can sound detached, but it has a real impact on people’s lives.

We recently had the chance to visit a project of ours that is bringing closer the Concordia and Salto regions in Argentina and Uruguay, respectively.

Though separated by a river, the two provinces are powered by agriculture and tourism. In a $50 million project we financed, the two countries are working together to make trade between the two more seamless. For instance, we are designing a regional brand that considers productive structures and tourism services on both sides of the borders. The project is looking at how producers on each side could develop value chains in blueberry and citric products, among others. We are also helping to upgrade the Comodoro Pierrestegui Airport and developing a binational border card system to facilitate movement of people at the border and strengthen the region’s attractiveness for tourism.

The ultimate vision is for goods and services – and people – to move between both countries through the Salto Grande border crossing much more quickly, helping develop the surrounding areas and creating economic and social development on both sides of the Uruguay river.

This is the second blog in a series that explain how we at the IDB are working to boost exports in the region. The first post is titled Trade Globalization and Digitalization. Next blog post in the series: overcoming information barriers.