How high? It's getting harder, and more expensive, to sell to the world's biggest consumer

Latin Trade, May, 2004 by Doralisa Pilarte

Exporters to the United States after Sept. 11, 2001 have had to make major adjustments to meet a mountain of tough, new federal regulations, rules that continue to pile up. Over the coming months, U.S. authorities will tighten the final screws on a behemoth, all-encompassing security machine, escalating costs for international trade.

Those added costs come as the United States negotiates a laundry list of bilateral trade deals as it heads toward completion by year's end of the granddaddy of them all, the Free Trade Area of the Americas (FTAA), much-heralded as creating the world's richest trading bloc. Each smaller deal, too, hinges on actually being able to reach the world's most voracious consumer market, the US$11 trillion U.S. economy.

So, is the United States closed for business? "Of course the U.S. is open for business," says Ambassador Cresencio Arcos, director of International Affairs for the U.S. Department of Homeland Security. "The issue is, this is not a one-dimensional problem. We cannot ignore the security. It's striking a balance. It's an issue we face continuously. Los costos, that's what everybody's pissed off at."

Los costos, the costs, is also what everybody is trying to keep a lid on. Balancing security and the free flow of legitimate trade means meeting regulations and staying in business. "This is like termites in the basement: It's slowly eroding the trade competitiveness of trade hubs like Miami, Los Angeles and others," says Antonio Villamil, a former U.S. Undersecretary of Commerce for Economic Affairs and current chair of the Florida Governor's Council of Economic Advisors. "And we don't see it as a slow process. It impacts the potential for expansion of international business, which is the critical component of trade."

In view of what many see as the makings of a major bottleneck looming over the horizon, shippers, exporters and customs agents are dancing a kind of two-step: They're lobbying Washington to be reasonable about rules while scrambling to meet security deadlines.

Small problems can get big fast. DHL Express had a run-in with the new regulations as they were introduced in November, says Cindy Haring, director of Global Customer Solutions for DHL Latin America in Mexico. DHL had a customer's cargo flying in from the Far East in transit through Miami International Airport with a final destination of Mexico. "The documentation the airline was presenting was rejected by customs in Miami and we were working closely with the airline. We ended up having to take it up all the way to customs in Washington D.C. Miami customs had their own interpretation [of the regulations]. This took weeks."

The cargo was nevertheless critical to the client, an auto manufacturer in Mexico. The delay shut down assembly lines. "It wasn't perishables, but you shut down the line and it costs hundreds of thousands of dollars," Haring says. "And this is what our customers are confronting. We have a transit time, and they're expecting it."

Delays derail a key productivity tool--just-in-time inventory, where parts are ordered and shipped as needed to minimize warehouse costs. The method, made popular by Japanese factories in the 1980s, hinges on fast, reliable shipments. "We had extra staff working, manning the desk 24 hours a day, to be working with the airline and cover all bases and make sure the information was correct," says Haring.

It also prompted DHL to go the extra mile to avoid a repeat performance. "We've taken many steps, training our officers overseas and our customers as to what these new rules mean," Haring says. In addition, each DHL office in Latin America has been reconfigured to include one employee dedicated to ensuring that documentation meets U.S. requirements.

Containing costs while complying with new rules is a constant challenge, especially when dealing with food and flowers that can spoil in hours if delayed. Poorly applied, security rules reduce the trade advantage of areas with geographic proximity to the United States, such as Central America, where 75% of exports are perishables like plants and fresh vegetables, fruit and seafood.

The Latin American Association of Express Companies (Cladec) saw the writing on the wall months ago and began taking steps to make sure its customers' cargo, especially perishables, did not perish en route. Cladec represents express delivery providers serving Latin America and the Caribbean--FedEx. UPS, DHL Express and TNT--and the domestic express industry associations in Latin America. Cladec members transport documents, packages and freight throughout 34 countries and employ more than 11,000 people in the Americas.

Its approach includes new technology, which the 10-year-old trade association knew would be a big part of the answer. Cladec 18 months ago began developing software that met U.S. regulations for advance electronic notification of shipments.

The association has been working with customs officials in the United States, Chile and Argentina, where the project has been started, to develop software as part of a risk-assessment program. "As soon as the plane takes off ... we can transmit the information of what kind of packages are in the plane, who sends them, what the value is and how much they weigh," says Ana M. Guevara, chairman of Cladec's International Trade Committee and vice president for public affairs at UPS. "That goes electronically to customs. The software we've developed will allow customs to pull out and sort that information."