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Moving Goods In and Out of Emerging Markets

This article brought to you in conjunction with World Trade Online

By Lara L. Sowinski

The road is paved, but watch out for the potholes

The residual effects of the Asian financial crisis and Europe's economic downturn continue to reverberate through the global market. But, unlike the world's more developed and stronger economies, many emerging market economies have taken a little longer to dust themselves off and get back on their feet. Countries such as Argentina, the Philippines, and the Czech Republic have remained committed to economic reforms, which have now begun to pay off. Trade and investment with these emerging market economies is on the rise. Yet, challenges exist in areas like infrastructure, non-tariff trade barriers, and customs procedures.

By Plane, Train, and Boat: The Situation is Improving, Generally

Freight volumes into Latin America, especially Argentina, Brazil, and Chile, are strong right now. So strong, in fact, that air carriers are going to be able to add a fuel surcharge onto cargo bound for Latin America. Eight of the major air carriers servicing the southbound Latin America trade lane are imposing the surcharge due to a price increase for fuel jet fuel was about 35 cents a gallon at the start of the year, but has risen to 57 cents a gallon. Despite the hike in air cargo rates, a recently concluded open-skies agreement between the US and Argentina will give shippers more flight and carrier options when moving goods between the two countries. The agreement is especially important because Argentina has historically maintained one of the most restrictive markets in Latin America.

Shippers now have more options for air cargo flights in and out of the Philippines, too. United Airlines has expanded its number of cargo flights to five per week. The carrier says it plans on expanding Manila cargo capacity about 60% by next year. Northwest Airlines resumed twice-weekly cargo flights last September, and Air Philippines, a four-year old domestic carrier, recently added international services to the US, Japan, South Korea, Hong Kong, and Taiwan. Additionally, the country's financially stressed flagship carrier, Philippine Airlines, has signed an agreement with Lufthansa Airlines that gives the German carrier rights to operate cargo and passenger flights to major cities in the Philippines.

In the express consignment arena, FedEx's domination of Subic Bay north of Manila, which serves as the company's Asian hub, will be challenged by newcomer United Parcel Service (UPS). UPS, in an agreement with Globe Distribution Services, Inc., recently opened a branch on the former US naval base. Although UPS uses Taipei as its primary Asian hub, according to the company's managing director, UPS chose to expand its operations on Subic Bay because of its strategic location in the Asian region and the significant role it plays in the growing Philippine economy.

The Philippine government aims to compound its economic growth with a planned 1,200-mile rail link between the country's second biggest island of Mindanao and the country's key ports. Located in the southern part of the Philippines archipelago, Mindanao is a principal food and natural resources producer. Both Dole Fresh Fruit Company and Del Monte Foods Inc. of the US maintain large operations on the island, which is also attractive because it's relatively free of regular typhoons and other natural disruptions. The project, which is a top priority of President Joseph Estrada, could be completed within six years once financial backing is secured.

Ocean transportation is responsible for moving the vast majority of Argentina's foreign trade, and Buenos Aires is the country's largest container port Privatization of the port began in 1994, with millions of dollars thus far invested in port equipment, facilities, and the automation of cargo handling. The privatization process has unfortunately brought with it labor problems, though, due to the hundreds of dockworkers who have lost their jobs in the changeover. However, work stoppages and wildcat strikes at the Buenos Aires seaport are not as common as those in Brazil's port of Santos, a neighboring port and major competitor. Meanwhile, pilferage at Buenos Aires can sometimes be a problem, especially for high-value shipments of chemicals, finished products, and electronics.

Unlike Argentina or the Philippines, transportation and infrastructure throughout the Czech Republic, while steadily improving since the fall of the Iron Curtain only ten years ago, is nonetheless poor by international standards. A report by European Union transportation officials states that a total of $90 billion is needed to upgrade highways, railroads, and ports in the former communist nations of Central and Eastern Europe. As part of the overall criteria for membership in the European Union, the Czech Republic, along with Poland, Hungary, Estonia, and Slovenia, must make significant improvements in their respective infrastructures. The costs for these improvements will be mostly borne by the individual countries, although about one-third of the tab will be paid by the European Union and international organizations.

Support for a new pan-European corridor that would run from Germany to Istanbul, passing through the Czech Republic's capital city of Prague, is also gaining among European Union transportation officials. The proposed road, rail, and waterway link█called the Multimodal Pan-European Transport Corridor IV█is needed to minimize the growing delays at border crossings. It will also help to expedite the movement of freight across Europe.

Pre-shipment Inspection: Becoming the Norm

Pre-shipment inspections, currently required in over 30 countries in Latin America, Asia, and Africa, are usually implemented to combat under-invoicing (which depletes a government's import duty collections). It also enhances import duty collection by verifying the value of goods and the proper tariff code classification for customs purposes. Argentina requires pre-shipment inspections for all imports of consumer goods and vehicles valued at over US$800 FOB, with some exceptions. The major companies providing pre-shipment inspections include SGS Societe Generale de Surveillance, Bureau Veritas, Intertek Testing Services, Inspectorate PLC, Socorec International Inspection, C.U. Holding B.V. and Surveyseed Services.

Customs Clearance: Not so clear

Non-tariff barriers, whether in the form of pre-shipment inspections or quotas, for example, tend to proliferate in emerging markets.

Nevertheless, there are some encouraging signs in the Philippines, whose goal it is to improve the efficiency of the customs clearance process. In particular, the Philippine government has contracted the country's first accredited value-added network provider, InterCommerce Network Services, Inc., to provide basic electronic data interchange (EDI) services to the Philippine Bureau of Customs for the past year. International shippers, who have become impatient with the Philippines' outdated customs practices and procedures, still largely manual and paper intensive, have praised the development. Over a dozen companies are using the country's EDI gateway, which is available to importers, brokers, freight forwarders, consolidators, shipping lines, and anyone else in the logistics chain.

For its part, Argentina is leading an effort to harmonize customs clearance procedures among the 34 countries negotiating the Free Trade Area of the Americas (FTAA) the hemispheric free-trade zone planned for 2005. Customs harmonization was at the top of the agenda during last month's FTAA trade ministers meeting in Toronto, Canada. In particular, trade negotiators want to simplify and streamline procedures for low-value shipments, express shipments, and shipments of promotional or sales materials.

Delays in the customs clearance process throughout Central and Eastern Europe remain a problem, despite results from a recent report, which seems to indicate a slight improvement. The report, commissioned by the global express delivery company DHL, says six out of ten multinationals still encounter barriers in the region, with one-third having lost revenue because of delays. On a positive note, though, the Czech Republic was found to have one of the better customs clearance procedures. Frequent changes in customs rules and regulations were cited as the main cause of delays in the clearance process.

Unfortunately, more changes in the customs clearance process may be ahead, due to pending legislation aimed at fighting misuse of Europe's in-transit system. The in-transit system is essentially a deferred customs clearance procedure, which allows goods to travel from the port of entry to the port of final destination, where the duties are finally collected. However, some shipments are being illegally diverted, with the goods ending up on the market at cut-rate prices.

The European Commission, the European Union's executive body, has devised a reform program called Common Transit to crack down on fraud related to the in-transit system. The tougher rules are likely to be in place by the end of the year.

As one would expect, the inherent complexities of shipping goods across international borders are often times compounded when emerging market countries are involved. Frequent changes in customs rules, corruption, language barriers, and weak infrastructures must be identified and addressed in order to avoid serious problems. However, with proper planning, shippers can effectively navigate the peculiarities of countries such as Argentina, the Philippines, and the Czech Republic, to take advantage of the best these emerging markets have to offer.

Lara L. Sowinski is Features Editor of World Trade Magazine

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