Mike Eskew, chairman and chief executive officer of UPS recently delivered the keynote address at the U.S. Commerce Department's inaugural Americas Competitiveness Forum. Excepted here are his insights on economic prospects for Latin America.
Looking to the Future
Latin America, home to half a billion people south of the U.S.Mexico border, has the potential to be the next "hotbed of trade" and economic growth. We have so many complicated customs and security requirements in place that it's often easier to import goods from Europe or Asia, than from our neighbors to the north and south.
One area of concern in the Americas is that our transportation infrastructures are not keeping up with the demands of global commerce. Communications and IT infrastructures also need modernizing. It is clear that the Americas are at a crossroads.
Putting the Region First for Trade
Trading with our neighbors in the Americas has a couple of built-in advantages that should make our region the first priority. First is geographical proximity. In an era of ‘just-in-time' supply chains, proximity is everything. When the distances are shorter, so are the supply chains.
Another key advantage of doing business with Latin America is the ability to avail ourselves of several free-trade agreements. No, we don't have a free-trade zone from one end of the Americas to the other. But we do have NAFTA, CAFTA, Mercosur and Multiple bi-lateral agreements between our various nations.
Removing Barriers to Trade
The first and most important action governments in the Americas can take is to speed and simplify border crossings. If we delay cross-border shipments by just a few days, the Americas lose their proximity advantage over Asia. To speed and simplify border crossings, there are a number of steps governments can take.
For starters, they can work together to harmonize their tariff codes, so global shippers don't have to look up different codes every time they ship to a different North or South American country. Another way to speed and simplify border crossings without compromising security is to identify trusted, certified shippers and let them get in the "fast lane" for customs processing. CTPAT and FAST are two public-private initiatives that let frequent shippers qualify for expedited processing, in exchange for following stringent security procedures.
Other common-sense steps include raising the minimum dollar value at which imported goods must receive customs clearance, so low-risk, low-value goods can cross borders without delay. Separating the release of shipments from the collections of duties and fees is another such step.
Another major step governments in the Americas can take is to improve transportation and IT infrastructures. It's not just ports, roads and railways that support a trading infrastructure. IT and communications infrastructure, both wired and wireless, support the seamless exchange of supply-chain information.
Stressing What's Important
We in the private sector can take action to improve the flow of North-South trade, as well. We can start by putting supply chains at the heart of our business strategy. Supply chains are no longer merely tactical considerations best left to the transportation department at the back of the building.
Besides the benefits to global trade, making supply chains part of your core business strategy also yields some key business benefits. About 10% of the cost of goods is wrapped up in logistics costs. Streamlining logistics networks can help cut these costs. Strategic supply chain management can also help you improve your financial performance. Supply chain enhancements in the last decade led to a 10% improvement in order-to-cash cycles.
A Challenge to the Community
Adapt or become irrelevant: we stand at the same crossroads in Latin America. There is great incentive for us to act, both on a government level and in the private sector. Increased intra-Americas trade can mean better standards of living for our people, higher GDP growth, increased tax revenue, more profitable companies with adaptive supply chains, and a stronger competitive role in the global economy. We all want that.
Mike Eskew, chairman and CEO, UPS