We must strive for greater regional integration

Free trade zones are a driving force behind contemporary economic development. Logistics centers, which are present at every stage of a product’s journey to its final destination, are no exception to this trend. Free trade zones can serve as storage and distribution centers located near transportation hubs, thereby reducing logistics and transaction costs.

We spoke with Mauricio Papa, General Manager at Costa Oriental—Uruguay’s largest regional logistics and distribution hub in free trade zones—about how free trade zones attract investment, diversify exports, and foster innovation through knowledge transfer.

How does Costa Oriental operate in Zonamerica?

Costa offers logistics services to companies that want to supply the region through the free trade zone. Companies outsource their logistics operations to us. This requires us to develop quick and flexible solutions for companies that must meet unstable demand, with very pronounced peaks and troughs. The challenge is to provide solutions in complex contexts, with rapid changes in product lines and business practices. Costa Oriental has the capacity to handle these situations at very competitive costs.

What are the main logistical challenges for cross-border trade?

There are many obstacles to cross-border trade. And new trade restrictions are constantly emerging. Just think about the years of the pandemic, for example. Entire countries were locked down, transportation was halted, and strict health controls were implemented. In the wake of all this, international freight rates skyrocketed by incredible, unimaginable percentages—rates that were thought never to come down again. For example, Argentina has new import restrictions. So all these complications are best handled in a free trade zone near the market and through a logistics provider that offers you more flexibility.

Why is flexibility a key differentiator?

Customers do not need to run their own operation with their own staff and facilities. For example, some products require an import license, and it is unclear how long it will take to obtain one. A product manufactured in Asia cannot wait for authorization from a specific government before being shipped. So, the product is brought to Uruguay, and once authorization is granted, it is sent to its destination. In the meantime, the large inventory is stored flexibly in the free trade zone.

In Uruguay, the free trade zone is very flexible; products can be redirected to a country other than the one initially planned. At Costa Oriental, we assist with this process thanks to Uruguay’s free trade regime and the country’s socioeconomic stability. We also add value as a logistics provider by absorbing fluctuations in demand. For example, we offer the ability to adapt products to the specific requirements of each country’s market. In electronics, the type of cable used varies by country. Most products require changes to the plug, voltage, and packaging. These tasks are performed at Costa Oriental every day to ensure that inventory meets the technical specifications of each destination country.

What policies position Uruguay as a logistics hub?

Many years ago, being a small country was synonymous with lacking scale, lacking a market, and lacking the ability to develop local industry. We struggled with this situation as a country for a long time. Over the past few years, successive governments have had the foresight to develop the country as a logistics hub. We are very close to the two largest countries in South America, geographically in a privileged position. We also provide access to Paraguay, which has no direct access to the sea. If you ask me what Uruguay did right, the first thing is stability. The rules don’t change. They don’t change with different governments. There’s no risk that a company will set up shop and then the rules of the game will change. In the case of free trade zones, there’s a law that guarantees the rights companies have to operate here.

At the same time, the various stages of the logistics chain—the airport, the port, and the roads—have been streamlined and modernized. The container terminal is being expanded, which is vital for trade. Uruguay has a reliable customs system, which is essential for operating a distribution center. In this regard, it doesn’t matter who wins the election. These are the advantages Uruguay has; it had the foresight to recognize that we will never have the scale of our neighbors, but we can complement each other.

What would be the next steps to take to improve trade and logistics integration?

Mercosur is a trade agreement marked by barriers between countries, obstacles, and customs duties. The difference compared to Europe is vast. Logistically, the theory is the same. In Europe, supply chains rely on distribution centers located in small countries like Belgium or the Netherlands. This model is feasible. We must strive for greater regional integration.

Learn more about the Eastern Coast here.