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Guatemala Well-Placed to Counter Container Crisis With Consolidated Freight Model

The use of consolidated cargo, sharing containers among companies, brings down shipping costs and speeds up the movement of freight, while companies can import into Guatemala and re-export to other Central American countries, according to industry insiders

Consolidated freight, sharing containers among a number of companies, is a cheaper alternative for shipping
July 15, 2022 | 01:04 pm

Guatemala City — Guatemala is better prepared than many countries to face the current container crisis, which has led to delays in deliveries and interruptions to the global supply chain, according to Ignacio Valls, executive director of Almacenadora del País (ALPASA), a Guatemalan logistics company.

Valls told Bloomberg Línea that while warehouses in the country maintain higher occupancy, there is still concern about the prices of raw materials, while delays in deliveries have increased fivefold.

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The “just in time” premise, which refers to the timely supply of raw materials and components for manufacturing, and which allows for reducing inventories and coordination between the links in the value chain, has been undermined as a result of the Covid-19 pandemic, and which has led to a container crisis, a freight bottleneck that has caused delays to deliveries worldwide.

“That ‘Swiss watch’ of ‘just in time’ is no longer working, and there is greater concern about having the raw materials or the finished products needed to keep businesses running,” he said.

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The logistics sector continues to suffer from the escalation of prices in the supply chain that had already hit end consumers due to the pandemic, and which is now added to the energy crisis in Europe due to Russia’s invasion of Ukraine.

The global scenario is complicated, and in Guatemala the effects of an increase in demand and shortages of certain products are being felt, Valls adds, although he says he is optimistic because he considers that in Guatemala “the outlook is less severe” compared to other countries that lack macroeconomic strength.

Consolidated cargo as an alternative

María Dolores Contreras, director general for Guatemala and El Salvador at logistics company Oceánica Internacional, says the crisis in the shipment of global freight was aggravated by the Covid-19 pandemic, as prices have risen as never before, and even companies that dominate the market have seen their shipping costs increase by up to four-fold.

“Previously, a container cost $4,000, and now for the same container one must pay between $8,000 and $12,000, even up to $16,000, which also brings as a consequence the rise of the cost of products in the markets of each country,” she said.

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In addition to that, high demand, the shortage of ships and containers, as well as the logistic stress on ports and land and air transport, are keeping trade under pressure, which is affecting many countries’ imports.

To solve these problems, a new way of transporting goods for commercial purposes from various parts of the world has emerged, and which is known as consolidated cargo, which consists of mixing shipments among various companies within a single container.

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The advantages of such method are lower costs and greater operational capacity, and the use of such method has increased by 25% over the past two years.

“This option allows companies to avoid delaying shipments, without having to wait for large inventories, as shared, or consolidated, cargo, facilitates the movement of goods,” Contreras said.

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StepParticipants in consolidated cargo
1.Manufacturer and/or supplier
2.Freight agent
3.Consolidation warehouse
4.Shipping companies
5.International transit
6.Destination port
7.Customs
8.Local transport to warehouse
9.Tax warehouse
10.Local delivery or client pick-up

What is the cost of consolidated cargo?

Prior to the pandemic, a container took approximately 30 days to travel from Asia to the United States, but now transit times are up to 120 days, which means processes had to be restructured and planned well in advance.

When opting for the consolidated cargo option, a product enters the country and is moved to a bonded warehouse, with the advantage that the merchandise remains stored and taxes are paid as the product leaves, which means that payment is factored in during the payment of storage costs, but that purchase orders can be scheduled for delivery and the goods flow is maintained.

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Consolidated freight is calculated as follows:

  • The price of a container is between $10,000 and $11,000, and has a capacity of between 45 and 50 cubic meters.
  • Using the consolidated cargo option, space can be requested per cubic meter and the price ranges between $170 and $200.
  • If a company wants to use 10 cubic meters, the cost is equivalent to approximately $2,000.
  • Additional costs at ports also need to be taken into account.

Guatemala as a logistics hub

Due to its geographical advantage, Guatemala is becoming a logistics hub for other destinations in Central America, according to Contreras.

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For example, through bonded warehouses, importers bring in consolidated containers, which allows them to re-export products to their subsidiaries in other countries such as El Salvador, Honduras and Nicaragua, while allowing other companies to enjoy the same flow of inventory.

Valls recommended that for this process to be successful, clients should seek advice on the cargo services of a consolidated company, which can support their clients with the management of a shipping rate according to the individual company’s requirements.

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Companies should also seek advice on processes, types of purchases, customs procedures and the management of the transfer of the container from port to Guatemala City, and also verify the reputation of the advising company to generate a long-term relationship of trust, in order to become strategic partners and thus become the best option in logistics, she said.

Taking advantage of nearshoring

Valls explained that countries like China began, back in 2018, to decrease the amount of exports to the United States, along with other low-cost manufacturing countries such as Vietnam and Malaysia. Then, starting in 2020, Mexico began to increase its exports to the United States.

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The greater geographic proximity offered by Mexico allows more immediate delivery, “but it is worth remembering that Guatemala is part of the Central American free trade agreement, and we have begun to harness the advantages”, Valls said.

However, costs are still comparatively high in terms of energy and labor compared to ‘low-cost’ countries, such as Vietnam, he said.

And Guatemala also requires major improvements in infrastructure, such as ports and highways, for the sector to develop, Valls said.