Target Logistics (TLG)

[slow_feet]

10/17/06 -- CAFTA Non-starter Despite Growth in Central American Trade

MIAMI, OCTOBER 17: Trade between the U.S. and Central America is showing a modicum of growth although the new CAFTA agreement between the U.S. and seven Central American nations is providing no impetus at present to this modest rise in volume.

"CAFTA tpday is more smoke and mirrors than a genuine contribution to U.S.-Central American trade," stated William Casas, District Manager at the Miami office of Target Logistic Services, a leading freight forwarder serving the Central American market. "Other factors are stimulating this small rise in cargo activity including a slowly rising standard of living in the seven nations making up Central America and early stages of industrialization to complement Central America's humongous agricultural base," he asserted.

To participate in this rise in U.S.-Central American trade activity, Target has embarked jointly on an ambitious program to increase its business south of the border. It is coordinating activities with a Central American-based partner, Arce Campos; a leading freight forwarder with headquarters in San Jose, Costa Rica. Target and Arce Campos are winning business by creating cost effective supply chain solutions to shippers both in the U.S. and Central America.

Casas believes the CAFTA agreement, in time, will generate more business between the U.S. and Central America. "But like everything else south of the border, things move slowly," he stated. "There is any number of obstacles to overcome," he said. "Reducing tariffs and simplifying customs regulations is only part of the problem," continued Casas.

He pointed to poverty, still endemic in much of Central America's population despite a modest growth in GDP among the seven nations. "The countries comprising Central America total some 34 million people, slightly more than California's," he said. "Yet, their per capita income is less than one tenth of the Golden State. The region remains overwhelmingly agricultural although the governments in Central America are making concerted efforts to attract industries to their countries." Casas reported that factories making paint, inexpensive apparel, detergents, tires, paper, fertilizers and insecticides have been established in or near urban areas. "These efforts are starting to bear fruit and increased shipments of locally produced industrial goods are beginning to flow northward," stated the Target district manager.

Panama stands somewhat apart from the other six nations of Central America. Principal reason; the Panama Canal. Marine parts and supplies often are required in a hurry for cruise ships and freighters traversing the Canal. Casas notes that a specialty of Target's Miami office is marine shipments--often on an emergency basis. "It is not unusual for our Miami office to receive a phone call at 2 AM from the traffic manager of a cruise line to send 'like yesterday' items needed for one of its ships about to pass through the Canal. These items may consist of anything from multi-ton parts for the ship's propulsion gear to cartons of dishwasher detergent to clean 3,000 piece of cutlery."

Most of the growth in Central American trade is via ocean, with air freight volume generally flat. Target's partner, Arce Campos, reports that volume out of its Limon office, Costa Rica's largest port, is showing solid growth in ocean freight.

Interestingly, air freight volume is more dependent on the service airlines provide rather than strictly economic trends. Because Central America is a relatively small market for passenger traffic, air freight gets relatively short shrift from the combination carriers serving Honduras, El Salvador, Nicaragua, Belize, Panama, Guatemala and Costa Rica. Continental Airlines, the U.S. carrier with the most flights into and out of Central America, flies only narrow bodied 737s and MD-80s with very little space allotted to cargo. Indeed, comments Casas, there often is more cargo stowed in the passenger bins of the airplanes than in their cargo holds. Central Americans returning from the U.S. load up on all types of consumer goods from television sets to toothpaste, he reported.

Central America also is served by a number of all-cargo airlines operating primarily from Miami. These include Tampa Airlines and Amerijet, but these and other carriers, often consigned to "cockroach alley" at Miami Airport, are small, often inadequately capitalized and prone to bankruptcy. They generally fly aircraft including early model 727s and DC-10s that are obsolescent by U.S. airline standards. "They get the job done, however," affirmed Casas.

Target is aided greatly in its Latin American operations by the partnership arrangement with Arce Campos. The San Jose-based forwarder, with more than 100 employees and offices throughout Central America, is a giant in that region's world of freight forwarding. In addition to freight forwarding, Arce Campos acts as a customs broker, does warehousing and inventory control for a number of Target customers. Jointly, the two companies have sufficient forces to generate new business, particularly in the auto parts field. Target recently snagged Mobis Corporation, exclusive distributors in Latin America for Hyundi and Kia auto parts.

While CAFTA currently is generating more attention in political circles rather than on the freight dock, Casas believes the law's intent of stimulating trade between the U.S. and the seven nations of Central America will have a beneficial effect in the not too distant future. "There is reason for optimism," claims the Target district manager. "Our partner, Arce Campos, reports that Central American governments and currencies are more stable than in the past. They tell us there is a growing partnership between governments and private interests to modernize their nations and make them part of the global economy."

Target Logistic Services plans to expand its Miami office to handle increased business both in Central and South America.
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