The Journal of Commerce / December 4, 2000
By Larry Luxner
MONTEVIDEO -- Uruguay, a quiet, relatively prosperous nation of 3.2 million people sandwiched in between vastly larger Brazil and Argentina, wants to make a name for itself as the new logistics platform of the Southern Cone Common Market (Mercosur).
That's the stated goal of many of the 400 shipping and logistics executives who attended a regional logistics conference Nov. 15-18 in Montevideo, the Uruguayan capital.
"Our opinion is that things will happen in South America the same as they did in Europe," said Santiago Bassols, director-general of the Barcelona-based Instituto de Logistica de Iberoamerica, which sponsored the conference. "Because of the EU, most companies are changing their distribution strategies in order to provide the best service to the market. In most cases, European companies are concentrating their activities among three to five distribution centers, changing from a national distribution policy to a European policy. Nike, for example, closed 20 distribution centers and opened one big center in Belgium for all of Europe. Nissan has two distribution centers for spare parts -- one in Amsterdam and one in Barcelona."
Mr. Bassols said it all depends on the type of product being transported.
"The more value a product has, the easier it is to concentrate in a single distribution center," he told JoC Week. "In South America, companies will soon start to think about closing national distribution centers and concentrate their stock in multinational logistic hubs. Uruguay is located in between the two main South American markets, Brazil and Argentina. Companies dealing with high-value products could choose Uruguay as the platform for Mercosur distribution.
"Uruguay could be similar to Holland, a small country in between very important markets," he added. "Ricoh has already decided to concentrate some of their product distribution in Uruguay. Xerox is doing the same."
Juan C. Rodriguez, commercial manager at Costa Oriental S.A., Montevideo's largest third-party logistics provider, says he's convinced that Uruguay -- already the administrative headquarters of Mercosur -- should also be the customs union's natural logistics platform as well.
"Uruguay offers multinational companies various advantages, starting with reduction of inventories in each country, so you don't pay duties on the goods until you need them," he said, adding that "Uruguay is a service economy, it has a national port, and the distance to our main markets is very small."
According to Rodriguez, it costs only $150 to move a container through the Port of Montevideo, as opposed to $230 in Buenos Aires and $300 in Santos, Brazil. The 50-hectare Montevideo Free Zone, located just outside the capital, handled $1.7 billion worth of merchandise in 1999, a number expected to rise to $2 billion for 2000. Main destinations for the free zone, which directly employs 1,500 people, are Argentina (40%), followed by Brazil (25%), Uruguay (20%), and Chile (10%).
Uruguay is not without its problems, however. Efforts to privatize and expand Montevideo's container terminal fell apart earlier this year, following the scrapping of a concession agreement by the government of former President Julio Maria Sanguinetti.
More than two years ago, the state-run National Ports Administration (ANP in Spanish) awarded Maersk-SeaLand and its local agent, Christophersen S.A., a concession to invest $118 million in the port over a 30-year period. The plan was to convert Montevideo from a sleepy Atlantic port into the main transshipment hub for South America's powerful Mercosur trade bloc.
But the deal unraveled, following political wrangling and allegations of corruption.
"This was definitely related to the elections," said Christophersen's president, Jorge Fernandez. "Some unions and leftist parties were opposed to it, and there was a lot of criticism about the form the concession was taking. It brought the entire process to a very sad end."
Since the November 1999 inauguration of Jorge Batlle as president, the Uruguayan Ministry of Transport, headed by Lucio Caceres, has been talking about forming a joint venture, 20% of whose shares will belong to the National Ports Administration and 80% of which will be auctioned on the Montevideo stock exchange.
"They are avoiding the word privatization, and are instead talking about joint ventures between private interests and the government. I hope they are successful," said Fernandez, who claims the private sector has spent $8 million to keep the port functioning at the minimum level.
An auction is supposed to take place in February or March 2001, according to Ana Rey de Delgado, an economic analyst at ANP headquarters in Montevideo. She says her agency expects $100 million in private investment over a six-year period from a specialized operator on an international level. So far, P&O Nedlloyd has shown interest in the project, along with Belgian, Spanish and Chilean consortia.
"They've been trying for two years to privatize the terminal," said Bassols. "You cannot develop Uruguay as a logistics platform without it. This is a big problem, because the productivity of container handling in Montevideo is lower than it should be. I think the port would be better in the hands of a private company. The government is in favor, but they don't know how to do it."
Fernandez says the goal is for Montevideo to "become a hub for the region in the same way Freeport and Panama are hubs." As envisioned, Montevideo would become a transshipment port in which containers come from the Far East. Cargo destined for Brazil and Argentina would be discharged there, and lines on their way to the United States or Europe would take that cargo to Santos or other Brazilian ports.
"The advantage is that lines coming from the Far East save at least seven days' sailing time by not calling on Brazilian ports," he said. "On top of that, Brazilian ports are very expensive. Many containers, if they're discharged here, will go by truck to Brazil, because the internal cost of Brazilian trucks is very high."