Disruptions are the new normal in our lives and in global supply chain it’s no different if you consider all the challenges occurring in the manufacturing/tech sector. Out of the box thinking is the new normal. Increasing tensions between the world’s largest manufacturing country and the world’s biggest market have created a never before seen manufacturing capacity challenge for countries that have been in some way supporting these giants. In countries like Vietnam, Bangladesh, Malaysia, Cambodia there is a limited production capacity to replace China as was mentioned recently by one of the biggest sourcing and manufacturing providers for fashion and apparel Li & Fung Ltd. Group CEO Spencer Fung recently in a Bloomberg. Interview. An important manufacturing volume that started moving TO China 20 years ago is now moving out.
In a recent keynote at the Panama Supply Chain Forum 2019 by Terry Esper, Ph.D. Associate Professor of Logistics at The Ohio State University Fisher College of Business, explained the “I want it now” effect created by Amazon’s entry into the market. High tech product manufacturing is becoming commoditized (low margins, scaling consumption levels and permanent innovation/changes) and will therefore be less inclined to pay high transportation costs associated with airfreight and/or express shipments. Additionally, long lead times and slow transit times associated with ocean freight from Asia to Latin America, would seem to put Brazil and Mexico out of the picture due to the challenges of just supplying their local markets. Can you have a new place for manufacturing for the rest of the region excluding these two large markets? There is an urgent need but the question is where?
Due to local historical restrictions and unique market requirements, companies that wanted to do business in Brazil, one of the biggest markets in Latin America, had to establish operations and manufacturing plants in Brazil, thereby becoming an almost self-sufficient country in terms of the sourcing for goods. This has created a very unique market that has developed its own ecosystem for manufacturing as well as technology and innovation creation. Brazil therefore has the three main elements for this kind of a market: the manufacturing capacity, the technology and most importantly, the domestic market. We learned more details recently during an outstanding presentation made by Leandro Santos, General Manager and Operations Vice President for Flex Brazil. During the Panama Supply Chain Forum 2019 in Panama City, Panama this past August, Santos explained that an innovation and manufacturing giant like Flex is always looking for opportunities to add value for their global customers by satisfying productions and innovation demand, reducing costs, looking for efficiencies, shortening the time from a manufacturing order to delivery of the product to the end customer and being a responsible steward of the environment through a circular economy concept, executing as a new way of doing business. We also learned that Flex is looking to develop cutting edge strategies such as that of using a new breed of regional manufacturing plants that incorporate: robotics, 3D printing and AI supported systems in a regional hub which will make a significant difference by accomplishing their organization’s and customers business goals.
Here is where Panama becomes a focus for Flex. In October 2018 Flex strategically established a partnership with the fastest growing 3PL in the Latin American region, Logistics Services Panama (LSP). The strategic partnership is designed to provide value added services and customization of Hi-Tech products for one of their global clients that is also an existing LSP client. Flex quickly learned that by operating through their partners in the Colon Free Trade Zone Flex could access an agile, flexible, secure and reliable in Latin America regional distribution hub while also exploring how efficient this hub can be for sourcing components and raw material from suppliers all over the world. The answer to their requirement was obvious: for countries that are not self-sufficient in Hi Tech manufacturing in Latin America mainly Brazil or Mexico, Panama can be the place to move this 4.0 version of manufacturing thereby solving a series of challenges in a single move.
Chinese tech giant Huawei has also setup a final customization and configuration center for their network infrastructure goods in Panama’s Colon Free Trade Zone. Huawei’s orders for a cell phone network project in the region is configured in Panama using the combination of theirs as well as their vendors’ products so the project is customized for installation before leaving Panama to final destination. Who knows with the global tensions and 5G getting closer and closer maybe Huawei’s the next step could be also doing some manufacturing in Panama as well? Let’s see.
Panama has logistics in its DNA if you consider that over 30% of its GDP comes from logistics related activities as well as having the busiest ports in Latin America as measured by TEUs. The Panama Canal, The Hub of the Americas at the Tocumen International Airport, the Colon Free Trade Zone and other special economic zones add ingredients to the mix. Aided by the shortest distance between the Atlantic and Pacific ocean in the Western Hemisphere, and with least cargo security incidents in the region due to the short distance and the speed of movements due to 65+ years of experience moving high volumes of cargo with the shortest customs and government processes in the region for years, Panama is the best place for regional distribution and value-added services for Latin America but now with the very high probabilities that it could also become a manufacturing hub.
Panama’s new government has adopted the right approach with a view to supporting the growth of Panama’s logistics hub as was stated by the Minister for Private Investment Jose Alejandro Rojas during his opening talk at the Panama Supply Chain Forum. There are still tasks to accomplish the vision but a strong alliance between the public and private sectors as well as the inclusion of forward-looking multinationals who are streamlining their distribution and manufacturing regional hubs will be the key to realizing the vision in these turbulent times.
Demostenes Perez Castillero, General Manager
Demostenes (Demo) Perez is the General Manager and a member of the company’s board of directors since 2005. He joined the company in 1998 coming from the express parcel industry introducing his know how on that area to the group to support its growing strategy.
His main role today is business development and global strategic alliances creation, facilitating businesses activity in warehousing, value added services like order fulfillment and order management, light assembly and manufacturing, support customers sales and marketing strategies for the Latin American region and is recognized as a reference personality of the Panama ́s and Latin American logistics industry.
“Panama, Latin American Supply Chain Capital”