Commercial and logistics cold from Asia spreads to companies in Costa Rica | The financial

A formalized purchase in China had become a common practice and a competitive advantage for businesses in all the countries of the Americas, including Costa Rica. But the pandemic came to complicate the process and went from reasonable —and reliable— waiting to a scenario of uncertainty that even compromises the continuity of small businesses.

For firms such as Tiendas Ekono or El Rey stores, it was necessary to strengthen access to suppliers from other areas. But in cases like that of the Tire Kingdom chain, which specializes in wheels and tires, the options are fewer.

[ Almacenes El Rey, Tire Kingdom and Zorollo SA suffer different impacts due to container crisis in El Salvador ]

In addition, the three firms are part of the group of Costa Rican merchants affected by a problem of containers held in El Salvador since September, due to a transport steamer accident, in which part of the cargo was lost.

The Salvadoran authorities keep the departure of the motor ship and its more than 300 containers bound for Caldera port conditional on the payment of a bond of $5 million for environmental damage.

[ Containers seized in El Salvador put Costa Rican companies in trouble ]

Meanwhile, the operations of the main port on the Pacific coast of Costa Rica are also impacted by changes in trade from Asia, with an emphasis on China, due to saturation, which generates peaks and bottlenecks in their daily activities. And companies like Grupo Tical, dedicated to the international transport and logistics service between Mexico and Central America, are another example of the new challenges linked to transport across the Atlantic.

Federico Amador, commercial director of Grupo Tical, explained that before the pandemic, the processes were based on schedules under itineraries, which made it possible to plan and establish the critical route, at the lowest possible price: the supplier indicated the expected collection date, From there, the transport options and their frequency were programmed to determine arrival at destination and start the process of nationalization, storage, ready and dispatch. After this, the order was placed at the end point.

“The process changed in the sense of the availability of the means of transportation, be it sea, air and land, and the associated costs. Currently, large companies monopolize the available capacity to guarantee the shipment of their products, while medium-sized companies or SMEs are relegated to limited availability to fulfill their shipments to destination. Likewise, at a global level, there are more attractive markets for commercial movement, so the Central American area may be relegated,” Amador warned.

The transformation began with the closure of manufacturing plants in the supplier countries during the first quarter of 2020. This situation caused a wave of adverse effects that include overpricing, competition for space in ports and transport, and now also the inability to accurately project an appropriate date of arrival of products or raw materials.

Closing and price escalation

With the start of the COVID-19 pandemic in China in January 2020, the global logistics chain received its first blow: the closure of manufacturing plants and changes in projected production volumes. However, the impact of this first stage was felt little in Costa Rica and other parts of the world, as it was accompanied by a contraction in consumption.

Allan Cedeño, president of Ekono, explained that the chain kept its orders in production and assumed the delay without operating damages. But they did have to apply other adjustments to their offer.

“We had to buy other categories such as groceries, consumption and others such as home, appliances, pajamas and underwear; as well as other categories tend to decline because they did not have consumption occasions such as formal clothing, dress, makeup and accessories, "said Cedeño.

In the process, the supply chain was transformed, but the executive described the process as manageable, at least during 2020.

"Obviously by incorporating new categories and not stopping the production we had at the time, inventories increased as an adverse effect, but the balance was positive, it was adapting to demand," he explained.

In El Rey stores, the situation was also kept under control in the first stage of shortages, but Ashly Serracín Varela, purchasing manager of the chain, assured that the corporate measure was to modify the origins of its supply.

“China is one of our main suppliers, however, we deal with suppliers from different origins and it has helped us maintain supplies in our stores. We have migrated many of the products from China to other suppliers,” said Serracín.

This foresight allowed them to reduce the impact of what was to come later.

Saturation at output ports

Once production was reactivated in China and the rest of Asia, countries like Costa Rica entered into direct competition with the giants of consumption from around the world, whose accumulated demand became a priority both in manufacturing plants and in ports and transport.

For Alejandro Martín, owner of the Tire Kingdom chain, the problems began because there were no spaces in the shipping companies.

“Everyone was loading products for the peak season. There is also an element of speculation to keep the cost of transport high, which is very difficult to quantify. At some point there were certain restrictions due to COVID-19 and some ports were not operating at 100%, but mostly it was a lack of containers,” Martín recalled.

Martín has three containers held in El Salvador and affirmed that this case is extreme but it is the result of conditions that are repeated as a result of the pandemic, with cumulative delays in each port of passage.

“The saturation of the ports of redestination (intermediate), in the case of cargo destined for Costa Rica, is due to the fact that many shipping companies share these feeder ships (with cargo consolidated by different intermediaries) and have too many containers to mobilize. This causes the containers to stay for more than a month in said port of redestination when it should not take more than a week. This is not so unusual at this time of year, but the delays have been much more marked than in other years. Again, there is also a matter of speculation, because even knowing that transportation was becoming tremendously complicated and that the ports were going to be loaded, the shipping companies did not take corrective action to include more ships. Said delays were also aggravated in mother ports of Asia”, lamented the businessman.

The slowness in the process can add up to two months to transportation, which before the pandemic averaged 45 days, with the consequent losses and financial complications for the affected companies.

Juan Ramón Rivera, executive president of the Costa Rican Institute of Pacific Ports (Incop), explained that this phenomenon is global but is more evident for Costa Rica, since the country lacks sufficient commercial weight to receive priority treatment in the countries of origin of the logistics chain from Asia.

"Let's remember that Costa Rica is not even an ant on a par with importers and cargo handlers in the world," Rivera pointed out.

In 2020, Puerto Caldera experienced an initial drop of up to 15% in the volume of its operations, which directly affected its finances. Now, the panorama is different and they have even had to apply fines of $10,000 to each ship that misses its port arrival window, an incident that used to be unusual and is now present every week.

Data from Incop show that while 1,986,980.82 containers were received at the Caldera terminal in 2019, 2020 closed with 2,037,859.11 received.

Currently, the arrival of cargo ships is concentrating on weekends, because by losing their initial entry option (the window agreed with the port), these transports remain in the last place of priorities, behind cargo ships. passengers or bulk carriers, which take the available spaces during the week. During Saturdays and Sundays the internal logistics management companies are out of service.

With this scenario, Caldera accumulates 2,000 containers for dispatch every Monday, which puts pressure on internal processes, causes slowness and increases the negative effect of delayed delivery.

Rivera stressed that the levels of congestion could be worse, since in the main ports for receiving Asian merchandise to Costa Rica (Manzanillo in Mexico and Balboa in Panama) the saturation is far from what is experienced on the Pacific coast of the United States, where there are up to 60 boats waiting in line.

Uncertain future

Although the return to delivery times similar to those of 2019 is uncertain, what is foreseeable is that local companies will continue to depend on Chinese suppliers even in the medium term.

Allan Cedeño, from Ekono, explained that they have eliminated intermediation to develop direct relationships with factories in the East, where their main supply poles by 90% are China and India, in that order, and with lesser weight other countries such as Korea, Turkey , Viet Nam.

“We do want to reduce dependence on China a little bit, however, it will still be the largest producer in the next 10 to 15 years; and meanwhile it will be necessary to diversify production in other countries such as Turkey, Bangladesh, Vietnam and continue deepening with India”, Cedeño accepted.

This reality drives the phenomenon of nearshoring in other industries, that is, the mobilization of operations to locations closer to the final markets and that reduce uncertainty. But that option is almost nonexistent for volume- and price-based retail businesses.

Asian tires, decoration, textiles, footwear, raw materials and similar categories that make it difficult to transfer costs to the final price, will continue to assume risks whose projection could be reckless. Even the Chinese government issued an alert to its population on November 3, so that they take preventive measures against the risk of shortages in the remainder of the year.

“If someone loaded now at the beginning of October and thinks that in a month, which is normal, the product will arrive, this will be highly unlikely. To reduce our time in transit we have had to 'cut' a transshipment port out of the way. Basically all our products are arriving in Panama as the final maritime destination and then they are transferred from two 40-foot containers to a van that transports them to our facilities in Costa Rica. This is saving us an average of more than a month,” said Martín.

Federico Amador, from Grupo Tical, emphasized that the stabilization of the logistics chain could be projected from 2023 onwards, in the most optimistic scenario of vaccination and normalization of global services.

“In general, and not only for the high season, inputs and final products will suffer an increase in their value, which will impact consumption for the remainder of the year and the next. The reinvention of logistics chains will be necessary to maintain competitive prices for the market and the advancement of transport reservations to guarantee future availability, with planning of three to six months, it is recommended to obtain competitive costs and certainty in the programming of the supply chain,” advised Amador.