Getting the goods: with economic slowdown and heightened security concerns, there are winners and losers among logistics companies.

Every minute wasted, every precaution taken and every overlooked regulation when crossing the U.S.-border leads to higher costs for companies on all levels of operation, including increased warehousing space, lost customers who have come to rely on prompt service, the loss of perishable goods and exhaustive and costly research.

And things just got more complicated. The events of Sept. 11 left U.S. officials struggling to find ways to prevent potential terrorists from walking into the United States. This is no small task. In cargo terms, 11.2 million trucks and 2.2 million rail cars cross into the United States every year, while 7,500 foreign-flag ships make 51,000 calls in U.S. ports.

Mexican logistics companies are waiting to see how U.S. border policy affects their transport, warehousing and inventory plans. The immediate effects of the Sept. 11 attacks has caused massive slowdown of all traffic at U.S. borders, forcing time-sensitive cargo companies to rent extra warehouse space to keep goods moving fluidly. However, this drastic slowdown of border traffic only lasted a few days, and has lessened further with time. Companies are now waiting to see what permanent changes will be made to border operations in order to develop new strategies to maximize efficiency.

LATERAL THINKING 

"Whereas historically you might have been looking at travel time or travel costs, now you have a huge cost associated with safety or risk," Amherst's Isenberg School of Management Professor Anna Nagurney told business newsletter Mexico Watch. "It's a huge shock to the system. It's a permanent change in the way we're going to do business: selecting shippers, selecting routes, knowing whom we trade with and so forth. It's going to really increase the cost of transportation."

In the wake of Sept. 11, the U.S. Customs Service published a new set of safety guidelines for importers to adhere to. The guidelines are "voluntary," although companies that do not adhere to the rules are likely to be leaned on when it comes down to just whose trucks get checked at the border. The introduction to the guidelines begins with the suggestion, "Develop and implement a sound plan to enhance security procedures throughout your supply chain. Where an importer does not control a facility, conveyance or process subject to these recommendations, the importer agrees to make every reasonable effort to secure compliance by the responsible party."

The guideline's text can be found at the U.S. Customs website, www.customs.ustreas.gov/.

Customs Service Commissioner Robert Bonner told the Wall Street Journal, "I certainly would contemplate that we would have expedited processing or no processing whatsoever at the border point for companies enrolled in the partnership against terrorism."

Increased security has come at a cost for both shippers and the Customs Service itself. Detailed revision of cargo is more commonplace than before the attacks, especially for the smaller shipping agents that are less known than multinational companies.

"The majority of our clients now face more exhaustive revision than before, though not all by any means," said Eduardo Reyes Diaz, general director of international trade consulting company Bufete Internacional de Intercambio. "The larger, better known companies, seem not to be so effected."

What this means for smaller companies that outsource transborder cargo shipments is that, if they absolutely need to keep shipping times to a minimum, they may have to start looking at who they are shipping with. A company with a good reputation can guarantee fast-track shipping without increased border delays, but this luxury comes at a cost.

The success or failure of such companies depends entirely on how they absorb such extra costs.

Tony Benavente, founder of Innovative Logistics, a consulting company based in Mexico City, says that any changes that arise over border crossings can be absorbed with minimal losses as long as companies are willing to be flexible and open to new strategies.

"There are various areas that need to be considered with changes such as these. First is operational planning. This is thrown out of the window because you can't really plan if you don't know what changes are coming. The second is your levels of service, your ABC of costs, and the changes that will effect these. This in turn affects strategic sourcing, which deals with all your purchasing. You can no longer plan what you are going to buy as a raw material because of the optional planning and the possibility of changes. You have to take another look at your inventories. Then you've got see what you have and what you need to have to provide the same service to your clients," says Benavente.

He adds that the effect on the production and transportation chain can be affected by just a single shift in time spent at the border or extra security costs accrued.

Due to increased time, warehousing space must increase to store the accumulated goods. This affects not only finished goods that are ready to go but storage and demand of raw materials, and how and when to package goods.

SOME You WIN...

The immediate beneficiaries in the face of these changes are shipping companies that can offer secure door-to-door transport. Cargo shippers that already have a good and established relationship with U.S. Customs, including smaller companies such as Consolidated Freightways, Celadon, Roadway Express and Yellow Freight Mexico, and the larger multinationals such as Transportacion Maritima Mexicana (TMM) and APL Logistics de Mexico, have already been through exhaustive security procedures in the last few years in the fight against drug trafficking.

"The infrastructure built up along the main points of entry between Mexico and the United States has been so extensive for major transport companies such as TMM that it would be very difficult to increase security measures any further," says Humberto Uribe director of operations for TMM's logistic division. "Increased border security may well affect the smaller truck companies, but TMM wagon trains go through state-of-the-art x-ray wagon checking equipment, specially designed to maximize efficiency and minimize checking times. Such equipment was put in place against illegal immigration, and trafficking of drugs and arms, all of which could be construed as having terrorist connections."

Bufete Internacional de Intercambio's Reyes Diaz says he can't see the current higher security at the border lasting much more than a couple more months.

"It's just too expensive for users, and with increased border guards, and in some areas the armed forces, it is also costly for the governments themselves," he says.

The Bush administration will propose a border security budget of a massive US$11 billion for 2003, increasing border inspectors by 800 and improving detection technology.

At the end of the day, Mexico has always had a logistical advantage over many countries that export en masse to the United States-proximity. When the threat of terrorist attacks is considered, Mexico could actually benefit over its rivals in the export business since, as TMM pointed out, many security measures are already in place. However, things still needs to move a little faster, and the widely accepted solution to this has been dubbed the "Smart Border."

The concept involves the use of the latest in technology and logistics systems. The new initiative will be based upon a 22-point action plan already being developed between Canada and the United States. The plan is wide ranging and covers areas such as the introduction of ID cards for non-registered immigrants, the development of integrated customs bases that will be accessible at any U.S. entry point, the introduction of inspection and security clearance areas away from the border itself, and the integration of intelligence on every vehicle and individual that wishes to enter the United States in a permanent database.

Such a plan is massive in scale and no small project for the governments involved.

Businesses are convinced that the plan is the only way forward if legitimate commerce is to continue to flow freely.

"The 'Smart Border' is an excellent idea for everyone as it will succeed in reducing costs and make moving through the border easier," says Eduardo Reyes.

TMM agrees that even though they, as a large carrier, already have much of the infrastructure for the new system in place, the plan will help things run more smoothly.

"In place of hand inspection, which continues to happen despite the x-ray machines, the infrastructure for computer scanning will be an important step in improving conditions for legal transit and help to crack down on the illegal trade," says Gerardo Primo, director of TMM Logistic Division.

Paul Day is Mexico City-based writer and correspondent for a London-based news wire service.