Transportation Logistics and Supply Chain

By: Derek Stone
As globalization accelerates, driven by pressures to reduce cost and ensuring access to international markets, the challenges of integration and collaboration across complex transportation and supply chain networks become increasingly important. Not only is a well orchestrated supply chain vital to the success of businesses, it can be the difference as to how well a jurisdiction is able to attract
new investment, compete globally, forge sustained economic development and achieve balanced trade.

Simply defined, the supply chain consists of a system of organizations, people, technology, activities, information and resources that are involved in moving a product or service from a supplier to customer. In other words, the supply chain can be described as the network of manufacturers, retailers, distributors, transporters, storage facilities and suppliers that participate in the production, delivery and sale of a particular product. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer.

In a recent survey, the management consulting and global supply chain firm PRTM identified a number of supply chain trends. Among those, the following stand out: the need to ensure efficient product flow and on-time delivery; a move to “green” supply chains as a result from government regulations and customer requirements;
customer service and product quality will drive supply chain strategy.

How do you turn a supply chain into a competitive advantage? To accomplish that, we need to look at each component of the supply chain and identify opportunities and trends. Logistics is such an area
of opportunity. A component of the supply chain, the management of logistics is concerned with planning, implementing and controlling the efficient flow (both forward and reverse) of goods, services and related information between the point of origin and the point of consumption.

The importance of efficient logistics for trade and economic growth cannot be underestimated. An analysis based on the World Bank’s Logistics Performance Index shows that better logistics performance
is associated with trade expansion, export diversification ability to attract foreign direct investments, and economic growth. “In other
words, trade logistics matter,” state the authors of the World Bank
report “Connecting to Compete: Trade Logistics in the Global Economy.”

Looking at these future trends in globalization and supply chains, Puerto Rico has a tremendous opportunity to position itself and become a significant global logistics and supply chain player, by leveraging its strategic geographic location as well as its long history of manufacturing expertise that in turn has helped the island develop its own highly sophisticated transportation and logistics network.

One of the best things that Puerto Rico has going for it, now and into the future, in terms of economic development and trade are the benefits of Foreign Trade Zone #7, the largest non-contiguous foreign trade zone in the United States, says Edmundo Rodriguez, president of Nestor Reyes Inc., Puerto Rico’s top customs brokerage and freight forwarding firm.

The foreign trade zone (FTZ) system allows companies to obtain significant financial savings, since raw material, components and packaging can be transported tax-free through these zones. Also, items shipped abroad after processing are exempt from U.S. taxes. The benefits of the FTZ in Puerto Rico include the deferment of federal customs duties; deferment of Puerto Rico excise tax; no payment of Municipal License Taxes on exports outside the United States; no duty paid on damaged, scraped and obsolete merchandise; U.S. customs duties are not owed on labor, overhead and profit attributed to production operations in a FTZ; and the fact that less time and effort are required in the FTZ activation process. and sold in the U.S. and abroad, a FTZ, in conjunction with Law 73 (Industrial Incentives for Puerto Rico Act), gives you the most competitive advantage.” Act 73 provides economic incentives to those multinational companies that buy and utilize services of local industry as key suppliers. It also provides incentives for assembly in Puerto Rico. Under Law 73, a manufacturer can choose to make parts of a product or perform the final assembly in the island. “In other words, [we can make] the parts that make the most sense in the
supply chain. Let everybody do what they do best and let Puerto Rico become part of it,” declares Luis Cintrón, one of the founding
members of the Latin American Supply Chain Group Alliance.

Foreign Trade Zone #7 is operated by the Puerto Rico Industrial Development Company (PRIDCO), and it includes five subzones covering 138 industrial parks throughout the island for a total of 19.5
million square feet of industrial space. Last December, PRIDCO signed a Memorandum of Understanding (MOU) with the Puerto Rico Manufacturers Association (PRMA), where they mapped out a joint
strategy to continue to maximize the economic potential the supply chain. “By promoting the supply chain, we are promoting the local businesses that are a part of it, providing an added benefit to the multinationals, as they gain efficiencies through local purchase of supplies,” states Javier Vazquez Morales, executive director of PRIDCO. “Any way you slice it; we are talking about a more competitive Puerto Rico.” The Memorandum of Understanding (MOU)
is, according to Vázquez, a way to establish a collaborative relationship to support specific projects and initiatives to strategically
develop the supply chain.

An initiative that gives priority to companies that are part of the supply chain is the Immediate Plan for the Strategic Development
of Properties (PIDEP by its Spanish initials), which was announced
in April 2009. This initiative promotes the strategic use of vacant,
abandoned and underutilized PRIDCO properties for economic development purposes. “For this initiative, 54 properties that are vacant or have not been in use for five years or more have been identified in 30 municipalities.” As of November 2009, PRIDCO had 23 leases for these types of properties in process, for a total of 42 percent of the total goal. ■

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