Grinding Gears in Mercosur.

Shippers hunt for direct trade tracks in Southern Cone.

LOGISTICS MANAGER OSCAR CASTEL-blanco, of Santiago, Chile-based computer parts and accessories maker D-Link, has found that the shortest distance between two cities may not be a straight path, if that path is a highway.

The truck route between Iquique in northern Chile and Santiago takes 12 hours--assuming there are none of the typical traffic backups. But when cargo's stuck in traffic, chances of a hijacking rise. To make matters worse, Castelblanco says, roads are good from Chile to Argentina and from Argentina to Brazil, but not from Chile to Brazil.

Then there's international trade. There might be only one cargo flight per week from Santiago to Brazil, while five flights weekly leave Miami for Brazil. Exasperated, D-Link finally gave up on the roadways. "It was so difficult to move the goods by truck that we decided to locate our warehouse in Miami," says Castelblanco.

Road improvements will be key as Chile joins the almost US$1 trillion-GDP Mercosur trading bloc. Now an associate, Chile will in December upgrade its status to full membership, joining Brazil, Argentina, Uruguay and Paraguay (Bolivia is the other associate) in Mercosur's 220 million person market.

Although Mercosur has grown tremendously since its inception in 1991--it's now No. 3 in size after the European Union and Nafta--its transportation infrastructure remains fragmented. As trade grows among Mercosur nations, transportation headaches are holding back its competitive potential, experts say.

Boca Raton, Florida-based Sunbeam Corp., a manufacturer of household appliances, sees infrastructure problems as an impediment to a competitive trading bloc. Sunbeam ships products over the most heavily traveled roads in Mercosur--from Brazil to Argentina.

Regulations on freight movement within Mercosur are still a problem, says Daniel Zarate, Sunbeam's supply chain director for Latin America. "Duties are coming down, and there has been some improvement, but protectionist barriers still exist," Zarate says. Most bottlenecks on the roads are at non-border checkpoints, although technology has made paperwork faster, and truckers have special licenses that speed up the checkpoint process. Security is far from ideal. Improving roads means companies can move more products, but contraband moves more easily, too. Drivers don't like to stop for checkpoints, for fear of being attacked.

Many complain, too, that Mercosur's transport system has no real cohesion. "Integration is far from reality," says Andre Van Bavel, president of AZB USCO Logistics, in Santiago. Railway tracks from Brazil don't match those of Argentina, for example. Rail systems were built with only the individual countries in mind, to transport their mining and agricultural products from the interior to the ports, not for trade among neighboring countries.

Van Bavel says that infrastructure improvement will follow the political will and changes in trade regulations. Countries are trying to open their borders and standardize regulations, then increase trade volume and density. Only then will investment in infrastructure increase. "What is at the heart of the problem are political issues," he says. "It is slow going in integrating the Mercosur economies."

Although in its infancy infrastructure integration seems destined to continue. As the economies of the Mercosur nations become more closely tied together, and customs barriers continue to break down, more unified investment in infrastructure will take place, creating an even more vital trading region. Privatization already has improved some railroads and ports and is now moving on to highways and airports.

Intermodal operations--where cargo easily moves from air to sea to land--is starting to take root, although most intermodal work in the region are short cargo moves for now. At least one multinational infrastructure firm currently in the works, is ALL--America Latino Logistics, a rail consortium which will operate in Brazil, Argentina and Chile.

Is there hope for Castelblanco and his company's computer parts business? If not, the Chile to Brazil route for D-Link will likely have to keep up a useless and expensive, Miami detour.