An interview – and real-life examples!
We have covered free trade zones in this blog before. This time, we are going straight to the point: we ask Rodolfo Faccini (*) in Uruguay about the real benefits of using these zones and we ask him for real-life examples of how companies from all over the world (including, maybe, your competitors?) use free trade zones, particularly in Uruguay, to their advantage…
1- Can you give us three real-life examples of overseas clients that have used a free trade zone in Uruguay and how they have benefited?
We are actually covering many different types of products including wine, electronics, spare parts, garments, food and pharmaceuticals.
All these companies found that working in our HUB helps them to improve their presence in their key markets, since they can fulfill customer orders from customers throughout the region. Our HUB is a gateway to the regional markets: Argentina, Brazil, Chile and Paraguay, mainly.
2- We are a UK manufacturer of consumer goods, what can your free trade zone operation do for us? How does it work and how much does it cost?
For starters, shipping to one place will help to improve distribution costs, since our company can receive and store inventory. Then we can process orders and ship to final customers in different countries in the region.
This also increases product availability and shortens total order cycle time, since delivering from our HUB takes less than shipments from origin. Because everything in Latin America is so last-minute, delivery times can make or break a deal.
No taxes nor duties are to be paid while products are in our warehouse in the free trade zone, since inventory is considered to be “In Transit”. All taxes and duties will be paid at destination, as a regular import procedure.
The cost is related to the array of services needed for each operation, so it will depend on what goods we’re talking about, their value/weight/volume, the amount you want to have in-stock and in-transit, the frequency of deliveries, the destination country and so on. We can give you a quote anytime.
3- We would like to sell spare parts in the Mercosur region, why would we use a free trade zone in Uruguay?
I would say that spare parts are particularly critical for any operation. High levels of availability and fast order fulfillment are key to keeping customers happy. Having stock in a free trade zone in the region rather than back at home means having the right product near the operations where spare parts can be needed anytime.
4- In order to be competitive in countries like Brazil or Argentina, we need to be able to ship at least one container every two months. Sending smaller orders to local distributors will make us too expensive. Can we send a container to a free trade zone in Uruguay and then send these products onto Argentina and Brazil? How does it work and why is it a good idea to consider it?
Indeed! We can take care of finished goods in our HUB and then pick-up orders, customize, and then ship smaller orders to distributors in destination countries such as Brazil, which is famous for its importation barriers, or Argentina, even Paraguay and Chile.
You can also choose different services, some more complex than others, depending on your needs and those of your distributors and end clients: storage, basic assembly, transport, etc.
The whole HUB idea is to help foreign companies help strengthen their Southern Cone operations. The idea is to outsource the logistics so that you can focus on production and sales.
5- Import duties in Brazil are very high, the customs office is now always straightforward to understand and delays at Brazilian ports can be massive. How can a free trade zone operation in Uruguay help this? Does it make a difference whether we then send the goods to Brazil via sea freight or airfreight?
That’s right. Uruguay has been long working to become the gateway to Mercosur (Brazil, Argentina, Uruguay, Paraguay) countries. We have an excellent seaport In Montevideo which is very efficient: containers are released within 48 hours after carrier release, while in Brazil this can take around 10 to 14 days. It’s faster to send goods via Montevideo and then cross-dock to a truck and ship it to Sao Paulo, or even Rio de Janeiro, than receiving them directly in Santos or Rio seaports. The same happens with Carrasco International airport in Montevideo. Both operations work under Free Port Law. This Law is part of the legal frame that places Uruguay as a HUB to the region. Sending product by air or by sea, will be determined by the kind of product the company wants to distribute.
So it often makes sense to ship your goods to Uruguay and then cross the land border to Brazil. You still have to pay the same import duty but the process will be much quicker and smoother, saving you time and therefore money (and stress!).
6- What is temporary admission and how does that benefit us for using Uruguay as a logistics hub for Argentina, Brazil and maybe even Paraguay?
This is a special Customs regime, known in each country under different names. Basically this regime allows a company to import goods to a given country, without paying taxes and duties. Temporary Admission runs for a determined period, once this period is reached, goods have to leave the country.
Let me give you a real example: a UK company has machinery based in a free trade zone in Uruguay and it rents out these machines to customers in Paraguay, the South of Brazil, Argentina. When the rental contract is over, the machine returns to its base at the free trade zone in Uruguay. Makes a lot of sense!
7- We thought that Uruguay could be good for dealing with countries like Argentina and Brazil, but you told us that from your hub in Uruguay your European clients have sent goods to countries as far away as Panama (about 8- hour flight away). Why is this a good idea?
I would say that the “natural markets” to cover from Uruguay would be the Southern Cone of Latin America, but the truth is that, depending on the product, a company can cover even the Far East from Uruguay! We have seen this with, for example, pharmaceuticals and soft drinks.
8- Can you change the goods in a free trade zone? Like the labelling, for example? How much customisation can you do?
Yes: not only customisation is permitted by law, but also manufacturing and assembly.
(*) Rodolfo is the Commercial Manager at TransCargo, who provide logistics solutions with and within free trade zones in Uruguay.