Open Season.

Major transportation companies have found a new sport: hunting independent logistics companies.

CUSTOM BROKERS, FREIGHT FORWARDERS AND OTHER third-party logistics companies plying the Latin American trade lanes should be enjoying boom times. The region's trade with the world is growing. The U.S. government's decision to offer preferential tariff treatment for textiles from the Caribbean and Central America promises expanded commerce. More and more global corporations are contracting outside companies to handle their trade-related services.

Third-party logistics companies, however, aren't toasting Latin American operations with copious quantities of tequila and cachaca. That's because major transportation companies have found a new sport: hunting independent trade-service providers.

United Parcel Service, the US$27 billion (sales) package delivery and logistics giant, recently caught and consumed worldwide freight forwarder Fritz Companies in a $450 million stock swap. In combination with Big Brown's earlier acquisition of all-freight airline Challenge Air Cargo, UPS will now heft larger boxes faster and deeper into Latin America than ever before. "This [deal] will give us greater ability to get packages cleared into customers' hands very quickly," says John Menna, Latin America marketing chief at UPS.

Fritz Companies Chairman and CEO Lynn C. Fritz characterized the takeover as a win-win development. "We have grown into an industry force over the past 67 years, but we can do even more with UPS'S backing, strength and vision of enabling global commerce," Fritz told reporters following the UPS takeover. "This union will offer compelling advantages to all Fritz customers."

Jovita Carranza, the new UPS senior vice president of Latin America and the Caribbean, says her company is also looking for local partners on the ground in several Latin American countries. "We want to expand in Brazil, the Dominican Republic and Argentina," she explains, adding that Venezuela and Costa Rica are also high on the wish list.

The Challenge Air Cargo deal, which brought coveted landing rights, gave UPS a strategic foothold in the region. But air cargo represents only a small, albeit lucrative, portion of the region's overall freight business.

Massive consolidation is also underway among shipping lines, which are pushing logistics subsidiaries of their own. Denmark's Maersk Line took over Sea-Land to become 3-million-ton gorilla Maersk Sealand. It operates Maersk Logistics, a sprawling company with 160 offices in 55 countries. Germany's Hamburg-Sud, which in the last two years bought U.S.-based Crowley American Transport's East Coast South American Service, Brazilian lines Transroll and Alianca, has created HSAV Logistics to provide centralized operations for its massive North American network.

In addition to spawning mammoth new competitors, shipping-line mergers are rerouting and reducing service offerings in the traditional trade lanes in Latin America, forcing independent third-party logistics suppliers to scramble for cargo space.

"The big issue now is how to keep up the service," says Philip Schwab who, from his Miami office, handles Eastman Kodak shipments for international logistics company Panalpina. Tight cargo space. The operations of Panalpina, with 312 branches in 65 countries and more than 11,000 employees worldwide, reflect the growing challenges for independent trade-service suppliers. The Swiss company provides logistics for major multinationals in the automotive, telecommunications and energy industries, so it controls a lot of cargo. But it doesn't own much so-called hardware, like ships or planes. Its strategy has been to ally with airlines and shipping lines to secure cargo space. "We've partnered with Swissair," Schwab says. "And we're doing some things with LanChile."

While these partnerships offer hope to independent logistics companies, they will be hard-pressed to make large amounts of cargo space available. Thanks to mergers among the shipping lines, for example, it has become difficult to find space for the independent companies' sea-faring cargo bound for Latin America, even from major gateways like Miami. "It's been tough ever since the consolidations," says Jerry Castillo, one of the cargo managers for Abba Shipping of Miami.

Cargo space may be the least of Latin American logistics companies' worries. According to a recent survey of 82 Fortune 500 companies--by logistics experts Robert Lieb of Northeastern University in Boston and John Miller of consulting firm Accenture--69% of these global corporations contract third-party logistics companies for their international operations. They are most likely to seek warehousing management (56%), followed by transportation services (49%), freight forwarding (44%), shipment consolidation (43%) and customs brokerage (43%).

The rub? The same researchers' separate survey of 19 CEOs from top third-party logistics companies indicates that less than 3% of revenues come from Latin America. And they don't expect that figure to change much over the next three years. These same executives say the push will be to implement online services to shorten the supply chain.

"The Internet is the great enabler," says John Urban, who helped found Tradiant.com, a Web-based company that brings shippers and shipping lines together to move sea-borne cargo. Tradiant and Inttra.com are two new major online shipping exchanges that seek to create alliances using the Internet. The dot-com dream would be easy to disregard if not for the fact that the exchanges have partnered with global shipping lines.

Tradiant draws support from APL; CP Ships, the container shipping business of Canadian Pacific Ltd., which includes ANZDL, Canada Maritime, Cast, Contship Containerlines, Lykes Lines and TMM Lines; Hanjin; Hyundai; K Line; Mitsui OSK Lines; Senator Lines; Yang Ming and Zim Israel Navigation Co. Key-punching trade. Inttra has gained the backing of Maersk Sealand, P&O Nedlloyd, Hamburg-Sud, Mediterranean Shipping Co. and CMA CGM. They have reportedly invested a total of between $70 million and $100 million in the company.

These initiatives could well spell more trouble for third-party logistics suppliers. The average international container transaction involves 21 parties, including consignees, shippers, carriers, truckers, forwarders, third-party logistics providers and customs brokers, according to Mark From-Poulsen, interim president and CEO of Inttra. "More than 70% of the people in the supply chain are used for manually re-keying information," he recently told specialized publication Traffic World. "There are so many disconnects in this chain of events, the benefit of automation is huge." As automation progresses, some companies will inevitably get cut.

To be sure, not all is doom-and-gloom for independent logistics providers in Latin America. Month after month, the region's trade with the world is growing. In November 2000 alone, total trade of the eight largest economies grew 12%, to $56 billion, compared to the same month a year ago.

Ironically, despite improvements in customs administrations, technology and port facilities, moving cargo in and out of the region still requires expert knowledge. "They've got all kinds of fast-track programs for clearing cargo these days," Panalpina's Schwab says. "But if the documents are not perfect--forget about it."

Deregulation is also opening opportunities in major countries. Last year, for example, Brazil passed legislation allowing true logistics companies to operate there, making it possible for businesses to move a piece of cargo among different modes, such as ship to train or airplane to truck. Before, each move required a different entity and a whole pile of paperwork.

The country's port privatizations have already sparked positive results. Santos, Rio de Janeiro and other major marine gateways now offer better services at lower rates. Even secondary ports like Salvador in the northeastern state of Bahia are getting into the act. Brazilian transport company Wilson Sons recently won the port concession there. "We've already moved offices right to the docks," says Wilson Sons Manager Demir Lourenco. "We've done quite a bit already to improve operations here."

But the same deregulation that opens the way for independent logistics companies will also provide new opportunities for the world's largest transportation companies. And that means the giants will push their tentacles even deeper into Latin America. In this bruising competition, many trade-service providers will find selling out to the owners of ships, planes and trucks is the logical next step to their evolution.

                           Outsourcing Logistics
             Executives from 82 Fortune 500 companies indicate
               their use of third party logistics services.
Warehouse management          56%
Direct transportation         49
Freight forwarding            44
Shipment consolidation        43
Freight payment               43
Customs brokerage             40
Consulting services           30
Carrier selection             29
Rate negotiation              29
Logistics information systems 27
Order fulfillment             24
Product returns               21
Fleet Mngt./operations        21
Relabeling/repackaging        21
Contract manufacturing        16
Inventory replenishment       10
Assembly/installation          8
Order processing               5
Customer spare parts           2