Hong Kong of the Americas?

Panama is trying to become the region's premier logistics center. But it is still missing an important piece of the puzzle.

GLOBALIZATION HAS PUSHED LATIN American companies to find different ways of delivering their goods. Reduced tariff barriers have brought more opportunities for U.S., European and Asian companies to sell into Latin America from abroad rather than maintain a network of small plants in various countries. If these companies can sort out the logistics of delivery, they can potentially gain big economies of scale from consolidating production. Panama would like to help.

"A lot of companies are trying to globalize and gain economies of scale by concentrating production at a few sites throughout Latin America," says Daniel Beuchat, logistics director at the Latin American headquarters of Danzas, a Swiss logistics company. "I strongly believe Panama will have an important role to play."

Indeed, Panama is similarly convinced it can ride this trend to become the region's premier logistics center--the Hong Kong of the Americas, if you will.

It's well on its way in terms of shipping. Over the past five years, it has attracted hundreds of millions of dollars of investment in its maritime sector. Three big companies--Stevedoring Services of America, Evergreen of Taiwan and Hutchison Port Holdings of Hong Kong-have moved in to develop some of Latin America's best-equipped container ports.

Business at the ports grew an astonishing 24.2% in 1998--and investment is continuing. Last year, Panama's ports handled more than 1 million units, twice as many as in 1996, making the country one of the most important port centers in Latin America. Significantly, moving cargo from one ship to another, known as transshipment, is now the biggest piece of that action, proving that Panama is becoming established as a hub for onward supply or distribution.

The Panama Canal is obviously a big asset. But perhaps as important, Panama already has a lot of distribution experience: Its Colon Free Zone has grown into the biggest free zone in the Western Hemisphere and the second largest in the world after Hong Kong.

Established in 1948, the zone has 50 years of cargo handling under its belt. Officials have been busy promoting this logistics and warehousing know-how to attract new business at a time when the zone's traditional wholesale trade is thought to be threatened by falling customs barriers across the continent.

Ocean-to-ocean rail. Another key element of Panama's transport strategy is an ocean-to-ocean railroad now being redeveloped by Kansas City Southern Railways. In two years' time, officials hope the railroad will carry containers between ports at either end of the canal and the Colon Free Zone.

But Panama is still missing a big piece of the logistics puzzle--air transport links.

Surse Pierpoint, vice president of the zone's users association, believes sea-to-air distribution would help cut delivery lead times significantly. "Draw a circle around Panama showing everywhere within two-and-a-half hours flying time, [and] we cover Mexico down to Peru," he says. "Companies could bring their goods in by sea and fly them out over the shorter legs of the journey."

But Panama has no in-built advantages in air transport. And advocates like Pierpoint are finding it tough to persuade others of the need to make improvements.

At press time, Panama's only international airport of any size--Tocumen near Panama City--was set to be privatized. But Alfredo Macia, who coordinated the sale of the concession, says the idea of turning Tocumen into a sizable cargo hub was "not at all" part of the reason for bringing in a foreign investor. "Tocumen only handles 67,000 tons of cargo, growing at 5% or 7% a year--not a hot item," he says.

Another site often talked about as a potential cargo hub is Howard Air Force Base, which the United States is handing over to Panama along with the canal at the turn of the century.

But Pierpoint says Howard, near Panama City, is poorly located for links to the ports and the Col6n Free Zone. His own preference is to develop France Field, the small commuter airfield next to the zone. But France Field is so unprofitable, it wasn't even offered as part of the Tocumen concession.

While U.S-based airborne shipper DHL and Panamanian airline Copa have recently upgraded their cargo facilities, the major cargo airlines have not muscled into Panama yet. Pierpoint says most cargo capacity is still with passenger airlines.

"We need to shift to more all-cargo airlines," he says. "But they will not come until they see an opportunity."

Until they do, Panama will probably have to hold off on calling itself the Hong Kong of the Americas.