Foreign Investment is Vital in Building an Efficient Supply Chain

International investment is vital for most economies and particularly important for developing countries. A country may have the labor and natural resources for particular products that are highly demanded by the international community but lack the capital needed to start producing. Likewise, they may lack the infrastructure necessary to transport the product through an efficient supply chain.

Stress has to be put on the benefits brought forth by investments aimed at enhancing road, rail, port, and airport infrastructure. Over the years there have been some major investments in infrastructure that have significantly changed the logistics industry, below are some major examples:

Panama Canal – This is one of the largest infrastructure projects to change the world of maritime trade. The Panama Canal has significantly lessened the distanced traveled by ships since it’s opening in 1914.

Santos Port in Brazil – Brazil’s supply chain is largely based on truck freight and in order to migrate towards a more ship freight market they had to take on several investments, which ultimately led to the introduction of the SAMMAX vessel (Maersk). This increased the berth efficiency of Santos Port by 37% compared to the previous Maersk vessels, ultimately accelerating the port turnaround and redefining the logistics industry in Brazil. This could not have been possible without additional investments in port structure.

Port of Shanghai – Since 2005, the busiest port in the world has had to be developed in different phases due to insufficient water depth at the port’s mainland and now it has a record of over 35 million TEUs handled in 2014. Figure 1 shows a growing series of TEUs handled in the last decade at Shanghai Port as a result of vast investments.

It is important to note that these investments (and others) have had to be accompanied by other investments, that’s to say port (and airport) investments must be followed by improvements in rail and road infrastructures (transportation connectors, gateways, intermodal links) in order to create an effective logistics network that could connect multiple distribution points through central hubs. The above system will surely allow operators to source from more distant suppliers at lower costs and reduce inventory by shifting from bulk shipments to smaller but more regular orders. These kinds of networks should lessen congestion, incidents, and thus reduce delay. Investments need to focus on non-tariff measures as well. The most important ones seem to be around customs clearance requirements and processes, and transport and communications infrastructure services. Investments in technology is essential to efficiently smooth procedures that otherwise lengthen the time for importers and exporters with additional charges (i.e. demurrage, detention, storage fees) to finalize shipments that eventually weaken profitability.

Despite these benefits, governments barely account for supply chain effects in their financial evaluation of freight transportation investments, perhaps because of the lack of knowledge and expertise in cargo movement. Similarly, the lack of coordination amongst several jurisdictions in infrastructure decisions with regards to freight networks leads to regular standstills in improvement.