Ports, Rail, Aviation and Logistics

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Poor transport networks and services contribute to high logistics costs and require high inventory levels in Latin America and the Caribbean. Unreliable infrastructure leads to higher losses in transit, the need to hold higher inventory rather than order just-in-time, and generally higher cost of transport. Average logistics costs across the region range from a low of 15 percent of product value in countries such as Chile to a high of 34 percent, in Peru. By comparison, the average share of all logistics costs to product value in OECD countries is around 10 percent. 

Much of this extra logistics cost burden on Latin American products can be attributed to differences in infrastructure quality and reliability - particularly in transport.  Poor quality and reliability result in damaged goods, demurrage charges, lost sales and higher inventory levels.  While U.S. businesses typically hold inventories of around 15 percent of GDP, inventories in Latin America and other developing regions are often twice those.  Such levels are expensive to maintain, principally because they tie up capital which has a high cost in most of LAC.   This significantly increases unit costs, diminishing competitiveness and productivity.  Assuming an interest rate for financing holdings of 15-20 percent, the cost to an economy of additional inventory holdings is more than 2 percent of GDP (Guasch 2004).

Although privatization initiatives improved the operation efficiency of individual facilities, trade agreeements and regional agreements (NAFTA, CAFTA and Mercosur) place a premium on integrating transport modes within a larger network. Thus, there is a need for technical assistance on policy and regulation as well as support for investment in intermodal facilities, logistics services, trucking and transport services regulations. The Uruguay Forest Products Transport Project is facilitating the cost-efficient transport of forestry products through the rehabilitation of roads, railways, and ports, increasing physical and financial coordination, and encouraging public-private partnerships in railways.  

The Transport Unit also continues to conduct detailed logistics analyses in El Salvador (for the Recent Economic Developments in Infrastructure Report; in Costa Rica (Country Economic Memorandum on Growth and Infrastructure), Colombia (Competitiveness Study) and Mexico (Logistics and Competitiveness).  These studies have used extensive firm-level surveying, logistics cost modeling and infrastructure and service diagnoses in order identify and quantify the costs of bottlenecks in the free flow of inputs to manufacturing as well as export products.  The resulting recommendations are used by Governments to address regulatory and service constraints to firm competitiveness and to formulate trade and growth-oriented transport and logistics policies.

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