Chilean Foreign Trade Logistics Development Agenda Jose Ceroni

Chilean Foreign Trade Logistics Development Agenda Jose Ceroni School of Industrial Engineering Pontificia Universidad Católica de Valparaíso - Chile Pan-American Advanced Studies Institute Santiago – Chile August 15 th, 2013 con el apoyo de:

Agenda The ICT-Logistics project Main problems affecting Chilean foreign trade logistics' efficiency and competitiveness Investigation studies performed Strategic agenda for overcoming the competitiveness gap Conclusions

The ICT-Logistics project

The ICT-Logistics project Articulation workshop, financed by CONICYT-Chile Project developed by the School of Industrial Engineering, Pontificia Universidad Católica de Valparaíso, with operational support by IDEE, from January 2008 to January 2010. The project seeks to improve the Chilean foreign trade logistics competitiveness by articulating: Universities Companies and public organizations ICT supply companies

The ICT-Logistics project: Expected results 1. Generation of a Chilean public-private coordination committee in charge of propose and foster an imrpovement strategy for the sector, based on ICT. 2. To carry out a competitiveness gap diagnostic of the foreign trade logistics sector related to ICT utilization. 3. To propose a strategic agenda containing ICT based initiatives in order to reduce the diagnosed competitiveness gap.

The ICT-Logistics project: The process Seminars – Articulation Workshops 1. ICT Challenges in Chilean and foreign (Germany and Spain) logistic chains stages and systems – Diagnostic by participants on main aspects affecting sector's efficiency and competitiveness. Participants: 50 July 2008 2. Paperless trade initiatives, Chilean and Colombian cases Participants: 42 October 2009 3. Communication of ICT-Logistics project results January 2010

The ICT-Logistics project: The process Public-Private Committee Steering committee: ICT-Logistics project original participants Valparaiso Port Authority Valparaiso Logistics Forum (FOLOVAP) Chilean National Customs Service Chilean ICT Companies Association(ACTI A. G. ) Software and Services of Chile (GECHS) Maritime and Port Chamber School of Industrial Engineering - PUCV CONICYT

The ICT-Logistics project: The process Second stage participants Chilean Logistics Association (ALOG Chile A. G. ), Chilean Transportation and Communication Ministry Chilean Economy Ministry Customs Agents Associations (ANAGENA and Chilean Customs Agents Chamber). 9 sesions

The ICT-Logistics project: The process Investigation studies carried out Diagnostic of ICT applied in the development of the Chilean foreign trade logistic sector Evaluation of economic and logistics impacts generated by electronic document processing standards Design and application of ICT performance metrics in the foreign trade logistics activity (Logistics Observatory) Other activities performed Interviews and meetings with process key participants Processing of diagnostics and ICT initiatives of the COMEX logistics sector Proposal and winning of project COMEX Technological Node

Main aspects affecting the Chilean foreign trade logistics sector's efficiency and competitiviness from the document and information management perspective

Main aspects affecting the Chilean foreign trade logistics sector's efficiency and competitiviness Source: - TICs. Logística Articulation Workshop, 2008 - 2009 COMEX logistics ICT Diagnostics, 2009 - Interview to key process participants, 2009 - Port Expert Report SEP, 2008 - FONDEF project on port chain optimization PUCV, 2005

Main aspects affecting the Chilean foreign trade logistics sector's efficiency and competitiviness 1. Inefficient information management (integration and infraestructure) Interaction of multiple participants Technological difficulties related to company size (specially SME and public organisms) Poor coordination among public organisms. Fuente: FONDEF PUCV, 2005 Low systems interoperability. Inefficient processes (excessive paperwork, redundant control processes, excessive processing times) Fuente: Estudio Diagnóstico TICs, PUCV, 2009

Main aspects affecting the Chilean foreign trade logistics sector's efficiency and competitiviness 2. Cargo Partial Visibility Lack of cargo visibility and traceability in portions of the logistic chain. Security problems, degraded service level to end customer and lack of information for operations planning. Advances in agricultural cargo by means of automated traceability systems up to point of unloading. 3. Inadequate Operations Planning critical points: • Origin, customer's cargo starting point. • Port, receiving port handling, stowage, and dispatching. Public-private coordination problems Inadequate cargo load forecast Inadequate yard management systems Resource utilization without optimization support However: Success cases such as ZEAL

Main aspects affecting the Chilean foreign trade logistics sector's efficiency and competitiviness 4. Regulation not aligned with sector objectives and requirements It is vital to have laws and regulations contributing to the facilitation process updating and continuous improvement. “Automatization of current processes is not enough” Some minor advacements in: Multi-modal operator regulation, port and maritime policies 5. Insufficient Human Resource Training Strategic level, focus on professional and decision making level personnel. Lack of skill development on logistics systems planning, network mangement, and collaborative systems perspectives. Operational level, focus on technical and operative personnel of SMEs in the logistics sector. Case of success: COMEX Technological Node (supported by CORFO)

Main aspects affecting the Chilean foreign trade logistics sector's efficiency and competitiviness 6. Organizational culture relentless to collaborate “Lack of system vision: Agents interacting along the logistic chain do not interact and assume a selfish attitude” Lack of a general country logistic vision. ¿Who owns each part of the process? ¿Who coordinates public organisms and private companies? Advancement of the Maritime and Port Consulting Committee, Port Communities (FOLOVAP, Arica Port), Bío-Bío Logístics Platform (supported by regional goverment). 7. Absence and defficiency of logistics performance metrics Productivity measurement is absolutely necessary since it identifies improvement opportunities and rank operations regarding national and international standards. “The Transportation and Telecommunications Ministry must generate information and performance metrics that would allow to evaluate the Chilean logistic chains’ peformance and correct them if necessary” (Port Expert Panel Report)

Investigation Studies Developed

Investigation Studies Developed Diagnostic of ICT applications in the development of the Foreign Trade Logistics Sector in Chile Economic and logistic impact in foreign trade processes of electronic document processing standards Design and application of ICT metrics in foreign trade logistic activity (logistics observatory)

Economic Impact Study: Objectives To evaluate the logistic and financial impact from implementing electronic document processing in Chilean foreign trade logistic processes Logistic impact (Transaction time and cost) Financial impact (COMEX competitiveness) Coverage/assumptions: Study of impacts for value added goods export. Transactional redesign based on UN electronic document processing standard.

Methodology of Impact on Export Study Context analysis • Benchmark • Analysis of Customs Operations • Exports goods and cost analysis Criteria and assumption s • Benefits and cost drivers • Base case • Scenarios Impacts on COMEX chains • Impacts on dry food chains • Impacts on refrigerated chains Conclusio ns • Benefits characterization

Context/Benchmark Analysis Doing Business measures the impact of regulations on business performance Foreign trade metrics are based on the Trading on Time methodology Chile lost 9 positions in the 2010 Doing Business ranking (49), and it is 56 th in freign trade. With similar number of documents as Australia, processing times are double of those for Australia. Chile was 4 times less competitive than Hong Kong or Singapur. Acording to Doing Business, Chile's main disadvantage is document processing time. The most troublesome variable is document preparation. GREATER DOCUMENT PROCESSING TIME MEANS: (+) VARIABILITY (+) INDIRECT COST (-) CREDIBILITY (-) COMPETITIVENESS

Context analysis/Customs Operations Chile generated in 2008 comex income of US$ 132 billion, with 2 million of transactions. Chilean Custums Service handled 4 million documents, a third of them electronically. Chilean sea ports contribute with 24% of total number of Customs Service transactions with 82% of value (FOB+CIF) Chilean sea ports generated 382 thousand importing transactions and 293 thousand of exporting transactions

Context analysis/Exports and Logistic Cost Analysis focused on main container export chains, representing 33% of exported weigth and 55% of Customs Service transactions. A 2008 study of the Chilean Central Bank was considered baseline for maritime transport cost as well data from Doing Business on land logistics costs. Fuente: Cámara Maritima y Portuaria A. G. Banco Central. Logistic cost ranges from 9%, to 41% of total cost. In average, container export logistic cost is 18, 1% of total cost. According to the Chilean Central Bank, transportation cost per ton for refrigerated container cargo is US$293 and US$158 for dry cargo. Factors affecting the total logistics cost are product value, destination, transport mode, and exporter company size.

Criteria and Assumptions/Benchmark used • According to Djankov et al. empirical evidence shows that a reduction of 1 day in foreign trade inland operations results in an increase of 1% in value of exporting of dry cargo and up to a 7% in refrigerated cargo. • Studies of the Asian Bank for the Development in 2009, the payback time for implementations a single window initiatives are between 4. 5 and 5. 5 years. • Management cost of document processing may increase during the payback time due to the adjustment of participants in the process. • Past the payback time, along with business ot gvernment initatives, significant savings for companies start to being generated.

Criteria and Assumptions/2008 Base case scenario • US$ 15 billion in value • 5, 8 million ton • US$ 2, 460 /Ton • 73% utilization of container • US$ 2. 8 bilion in value • 1. 6 million ton • US$ 1, 781 /Ton • 77, 4% utilization of container

Criteria and Assumptions/Goals • A) Goal 1: To reduce in 5 days the time required by operations for exporting container cargo. • Mecanism/Change: Single window/ Foreign trade • Annual rate of reduction: 1 day/year. • B) Goal 2: To reach the standard of comex technology country after 10 years after stage 1. • Mecanism/Change: Alignment to international standards in procedures and documents • Annual rate of reduction: 0. 2 day/year. • BENEFITS (in terms of days) • Container dry cargo: 1 day of reduction = 1% increase in export value • Container refrigerated cargo: 1 day of reduction = 3% increase in value of exports. • SAVINGS (from less documents) • Beginning with stage 2, less documents reduce the cost preparation process. • COSTS (from less documents) • For accomplishing goal 1 (5 years), document preparation transactional cost increases. • Standard: Increase in countries experiencing the technology transition, i. e. : Australia.

Impact on Export Chains/Dry cargo Benefits Costs Annual saving in stage 2: US$ 6 Million

Impact on Export Chains/Refrigerated Benefits Costs Annual savings in stage 2: US$ 1. 5 Million

Impact on Export Chains/Summary Stage 1 Refrigerated cargo acounts for a 62% of highers benefits than dry cargo Cellulose excels since it is a cargo with low utilization of container for exporting Grape will report important benefits as long as its container utilization increases for incoming years.

Conclusions/Reccommendations from the study Initiatives aligned with the trade facilitation concepts and proposals are urgent. It is prioritary for the Chilean foreign trade system to commit to projects such as the single window and risk management in the Chilean Customs Service due to the impact they show on export compeitiveness. These initiatives must be developed under the political and technical regulations that will legitimate them. Creation of technical knowledge at govenrment level is hih priority for facing future service infrastructure concesions. A master plan of the initiatives is key for implementing a Logistics National Council.

Conclusions/Exports Each year container cargo weight will be more important since copper, grape and cellulose are still far from optimal utilization of containers. These type of export transactions must be the baseline for improving processes in regulation, commercial, transportation, and financial operations. Annual impact from operation time reduction mut be studied carefully using a cluster analysis of exports goods. Additional operational costs for users of the single window during the implementation phase must be carefully controlled. An adequate concesion schema could absorb great par of the additional costs without worsening customer service level. Benfits for importing goods must be generated by savings in the operational cost, achievable when stage 1 reaches steady state.

Developed Studies: ICT performance metrics Objective To design and apply a methodology for monitoring ICT utilization metrics in COMEX activities (ICTs logistics observatory) Initial focus: ICTs and sea port sector (6 participants) To propose development strategies and financing alternatives for the ICT observatory for its sustainability and expansion to other areas (costs, tariffs, etc. ) Problem / opportunity Management of essential information for maintaining the competitive position in industry sector and measure ICT utilization Lack of performance metrics does not allow to measure and compare efficiency among sea ports, logistic chains, or COMEX system.

Developed Studies: ICT performance metrics Methodology Data recollection and preliminary metric database Sea port logisitic chain process characterization Success variables definition Performance metrics and data gathering method Observatory project profile (Sustainability)

Developed Studies: ICT performance metrics Results ICT performance metrics description: • ICT performance metrics for CEA countries • Key ICT performance metrics Description of observatories developed elsewhere for sea port systems: • PICASO Program (Port of Barcelona) • Productivity metrics for the sea port industry

Developed Studies: ICT performance metrics Results Proposed methodology for specifying performance metrics Current state Individual metrics Metrics among actors

Developed Studies: ICT performance metrics Current state characterization Metrics for measuring utilization of ICT from public data at each sea port. Comparison with Peru, Spain, and Singapore.

Developed Studies: ICT performance metrics Critical factors for defining metrics Cost Critical factors Safety Time Efficiency Objectives

Developed Studies: ICT performance metrics Factores Críticos Documents Objetivos ICTs utilization Cargo handling Costs

Developed Studies: ICT performance metrics Metrics for individual actors and among actors Based on critical factors, the following metrics are defined: ICTs Utilization / Information and document transmission cost ICTs Utilization / Cargo transportation cost Penetración TICs / Information and document transmission processing time ICTs Utilization / Cargo moved ICTs Utilization / Amount of documents moved

Developed Studies: ICT performance metrics Current state and next steps Information on selected actors in foreign trade process were obtained with a mix of web surveys and personal interviews. Final report was delivered including methodology and preliminary results (metrics). An integral logistics observatory, for ICTs and other interest areas of COMEX, was planned for later stage.

Strategic Agenda Prioritized Initiatives

Strategic Agenda: Prioritized Initiatives 1. Publico – Private Steering Committee Participation of: Valparaiso Logistic Forum Valparaiso Port Authority Chilean Martime and Port Chamber Chilean Customs Service ACTI GECHS School of Industrial Engineering – PUCV CONICYT ALOG Chilean Ministry of Transportation and Telecommunication Chilean Ministry of Economy Customs Agents Associations (ANAGENA and Customs Chamber)

Strategic Agenda: Prioritized Initiatives Objectives ➢ To propose and foster the strategic development agenda proposed in the project. ➢ To support relevant initiatives from government or other actors to contribute to the strength of the COMEX logistics sector. Problem / opportunity Public-private collaboration instances for the advancement in planning and formalization of a National Logistics Strategy with focus in ICTs.

Strategic Agenda: Prioritized Initiatives 2. Design and implementation of a logistics observatory for COMEX activities Objective: Design and implement an observatory that would allow to generate and to distribute information and metrics for the diverse areas of COMEX logistics: tariffs, costs, time, infrastructure, etc. The observatory would also generate information on utilization and impact of ICTs in foreign trade logistic activities, based on the methodology proposed. Problem / opportunity: Lack of performance metrics for measuring and comparing COMEX logistics activities efficiency and support decision making processes. Project duration: 2 to 3 years Collaborating Institution: Chilean Ministry of Transportation and Tecommunications Funding alternatives: CORFO.

Strategic Agenda: Prioritized Initiatives 3. Sea Port Document Management Pilot System Objective: To implement an on-line pilot service for the information and document management for users of a sea port community system. The system would facilitate transactions, electronic data exchange, control of port activities, and cargo visibility. Problem / opportunity: Inefficient information management, problems with cargo visibility and operations planning affecting efficiency and competitiveness of the sector and its actors. Project duration: 6 to 10 months Collaborating institution: Valparaiso Port Authority Funding alternatives: - Privates/PUCV; - CONICYT

Strategic Agenda: Prioritized Initiatives 4. Development of a data dictionary for document transaction processing in foreign trade logistics Objective: To define and characterize the data used in foreign trade logistics for defining a data dictionary agreed by all participating actors. Problem / opportunity: Inefficient information management that affect the sector and participating actors efficiency and competitiveness. Project duration: 6 months Collaborating Institutions: Digital Strategy Program from the Chilean Ministry of Economy Funding alternatives: Chilean Ministry of Economy

Strategic Agenda: Prioritized Initiatives 5. Collaboration with Technology Node Project (Cargo transportation) Objective: Collaborative project for spreading out new technologies and good practices to transportation companies for reducing efficiency and productivity gaps and achieve organizational improvement. Problem / opportunity: Insufficient human resource development / inefficient technologies (SMEs). Project duration: 24 months Collaborating Institution: CODESSER – Logistic Node Funding alternatives: CORFO stic

Conclusions

Conclusions Regarding the problem: Opportunity for contributing, from the academia, to the betterment of the Chilean foreign trade logistics sector. Chilean's open economy forces to a development strategy oriented toward internationalization of the economy for improving competitiveness and inhabitants quality of life. Economical and logistics impacts are very high at country level (billions of dollars annually) “…creation of a logistics chain every day more efficient and sustainable is what give us or takes away our competitive advantage in the world” (Cortazar, former Chilean Minister of Transportation and Telecommunication, May 2009) ICTs: key aspect for strenghten the foreign trade logistics sector. The diagnostic from the project is clear and agreed upon (same result as studies carried out at MTT, SEP, CNIC)

Conclusions It can be concluded that improvement of lacking observed aspects, will result on the foreign trade logistics sector efficiency and contributing potential improvement: Resources utilization Transaction time and cost Creation of value added business opportunities Future tasks are complex: actors diversity, interests and priorities, lack of coordination and controlling entity Some advances rolling out slowly Agenda with first prioritized initiatives Creation of public-private steering committee on ICTs for supporting a Chilean vision and strategy in foreign trade logistics

Regarding articulation (a. k. a collaboration) ➢ Funding difficulties and collaborating among universities ➢ Complexity of government change and regional priorities ➢ Somebody loss it is always somebody else winning ➢ Changes in educational system favoring collaboration

Additional Information: Pontificia Universidad Católica de Valparaíso School of Industrial Engineering 2241 Brasil Ave. , Valparaiso Telephone: (32) 2273701 Fax: (32) 227 3806 E-mail: jceroni@ucv. cl Webpage: www. ticslogistica. cl