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Security in the Logistics Chain and Its Impact on Mesoamerican www.cepal.org/transporte Issue No. 300 - Number 8 / 2011 BULLETIN FACILITATION OF TRANSPORT AND TRADE IN LATIN AMERICA AND THE CARIBBEAN This issue of the FAL Bulletin analyses the implications of logistics security for the Security in the logistics competitiveness of the member countries of the Mesoamerica Project. chain and its impact This study analyses a number of international indicators related to logistics security and proposes a set of actions on Mesoamerican to improve the organization of the governments and their coordination with the private sector, to enhance the efficiency competitiveness of the measures implemented and thus the competitiveness of their economies. The authors of this bulletin are Gabriel Pérez Salas, from the Infrastructure Services Unit of the Economic Commission for Latin America and the Caribbean (ECLAC), and Rosa Introduction G. González Ramírez and Luis M. Ascencio Carreño, from the School of Industrial Logistics security is an increasingly important issue in Latin America and Engineering at Pontificia Universidad Católica the Caribbean and is crucial to the development of the region due to de Valparaíso (PUCV). the potentially damaging social and economic effects of a break in the For more information, please contact [email protected]. logistics chain. Therefore, national and regional coordination of the different public and private initiatives in this area is critical. Introduction A break in the logistics chain, whether due to an administrative failure, a criminal act or a terrorist attack, has enormous consequences for the competitiveness of a country’s economy. In addition to the direct I. Impact of security on efficiency and losses caused by the event, there are repercussions along the rest of the competitiveness supply chain, such as delays in delivery or failure to deliver to customers, II. Security indicators in Central America contract losses or increases in inventory levels needed to compensate for the variability in delivery times, among other factors, which ultimately drive up national logistics costs. III. Security initiatives and standards in the region In the case of the countries of Central America, the issue is even more strategic given the rising crime that is affecting logistics chains and IV. Public policy recommendations driving up the logistics-related costs of doing business. The region invests for logistics security over US$ 6.5 billion per year to combat insecurity and violence (SICA, V. References 2011), still too little to solve the problem and reduce the enormous loss of innumerable human lives and the damaging effects on the quality of life of the rest of the population. Moreover, the lack of security has pernicious effects on the economy, driving down competitiveness, reducing national and foreign investment, and dampening employment and productivity by making consumer products more expensive due to the extra costs involved. INFRASTRUCTURE SERVICES UNIT Natural Resources and Infrastructure Division, UNECLAC www.cepal.org/transporte The International Conference in Support of the Central Moreover, the image of the company and of the country America Security Strategy, held in June 2011 in Guatemala, itself is damaged. In the former case, the image of the identified the main security threats in Central America manufacturing company is tarnished because stolen items as follows: (a) crime and violence; (b) drug activity; are usually sold on the black market without any control, (c) organized crime; (d) gangs; (e) illegal trafficking in and may even be altered. Meanwhile, the image of the small arms and light weapons; (f) natural disasters; and country is heavily damaged by crime, which discourages (g) global warming and climate change. new domestic investment and makes the country less attractive to foreign investors. With this phenomenon in mind, the objective of this bulletin is to quantify the seriousness of the problem and Logistics security also has a major regional component. The promote improvements in regionally coordinated national growing interdependence of logistics networks reinforces public policies to tackle this problem without driving up the need to coordinate specific actions at the regional logistics costs or compromising economic competitiveness. level to deal with organized crime and international terrorism. This is especially true for the member countries I. Impact of security on efficiency of the Mesoamerica Project, since, thanks to progress and competitiveness made under this initiative, it is increasingly the case that overland export logistics chains traverse several Security in the logistics chain requires a coordinated national borders before the destination is reached, so approach between the public and the private sector. The security problems in one area jeopardize the entire bloc. government is responsible for providing the infrastructure Accordingly, viewing foreign trade logistics chains as and services needed to ensure an acceptable level of regional public goods is an important step in the search physical security (security) as well as guaranteeing the for comprehensive, coordinated solutions to this problem. proper functioning of transport infrastructure services In addition to the foregoing, the contamination of legal (safety) under normal conditions as well as in the event cargo with drugs by traffickers is another aspect that of a natural disaster. Meanwhile, the private sector affects regional logistics, so much so that one United is responsible for implementing the internal security Nations agency has indicated that crime is the factor measures and support needed to ensure adequate risk with the greatest impact on the stability and economic management and functioning of its processes. Private development of Central America, particularly trade in solutions to the problem of lack of security, such as escorts, these countries.1 checkpoints, or armed guards in transport, among other unilaterally implemented alternatives, have proven to be Worldwide, estimated losses due to crimes against logistics inefficient precisely because of the unilateral nature of chains equaled approximately 5% of global trade in the approach, often getting in the way of other initiatives 2007, and the International Cargo Security Council (ICSC) and contributing to higher logistics costs, with adverse puts estimated losses at about US$ 15 billion per year in social and economic effects on the region’s inhabitants, Europe alone. However, a large portion of the losses from who are the ones who ultimately bear the cost of the cargo theft goes unreported. The National Cargo Security service inefficiencies. Council (NCSC) estimates that losses from unreported theft and related indirect costs come to between US$ 20 Thus, an integrated approach to logistics chains should be billion and US$ 60 billion per year in the United States.2 taken in the framework of a long-term government policy The NCSC and the Federal Bureau of Investigation (FBI) to prevent the dispersion and isolation of investment report that the areas most vulnerable to theft are cargo initiatives and promote collaboration between foreign 2 terminals, transfer facilities and cargo consolidation areas. trade agencies and transport operators and trade agents, According to the NCSC, 85% of cargo theft is associated in order to achieve integral solutions that benefit national with overland auto transport.3 competitiveness and national welfare. In this context, the Central American Security Strategy may provide the right In Latin America, the lack of comparable, regular statistical framework for this purpose, as discussed below. data on the sector makes it hard to adopt effective mitigation and eradication strategies. However, according to estimates Logistics security is directly related to the competitiveness by the Mexican Association of Insurance Companies, over of an economy, since in addition to direct losses from 10,000 trucks are hijacked annually, in most cases for items crimes, there are costs related to dealing with the incidents that are easily sold, such as clothing, food, cigarettes, shoes, (attorney fees, delays in collecting insurance, to name only a few), as well as significant national productivity 1 Eduardo Praselj, “La seguridad y su impacto en la logística [Security and its impact on losses, which end up making exports more expensive, to logistics],” Forum on Security in the Logistics Chain, Venezuela, 2007. 2 “Using Technology to Stop Cargo Theft in its Tracks,” The Source-Newsletters, 2009. the detriment of the competitiveness of the economy. 3 David Cullen, “Shining a Light on Cargo Theft,” Fleet Owner Magazine, 2006. INFRASTRUCTURE SERVICES UNIT Natural Resources and Infrastructure Division, UNECLAC alcoholic beverages, household items, and pharmaceutical Logistics security and competitiveness products, with losses of this last item equivalent to 2% of annual sales. For its part, the National Private Transport The GCI is an annual measurement taken by the World Association (ANTP), also in Mexico, estimates that between Economic Forum’s Centre for Global Competitiveness 4 15% and 20% of the money that companies spend on and Performance, based on an analysis of 139 countries. logistics is for investments in security, but these investments Among the items analysed by this instrument, Institutions, often fail to produce visible improvements. In the case of in the category of Basic Requirements, looks at the legal Brazil, the transport industry is believed to lose an average and
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