Land freight transport in Central America: challenges to overcome

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Companies that are engaged in land freight transport in Central America recognize that carrying out a cargo movement operation can be a challenge in terms of time, cost, and efficiency when it comes to delivering products to end customers in the region.  It is critically important to consider that this modality is the main means by which to transport freight to national and cross-border markets. 

Land freight transport in Central America is the conveyance that is closest to the region’s subsystems of production, distribution, and sustainable development.  It is one of the most important means to execute national and international merchandise distribution logistics.

According to the World Bank, the countries that make up the Central American region, “are small markets, and, therefore, must have open economies to be optimally productive and competitive”. 

This scenario, however, is largely impacted by deficits in the quality of the region’s education systems, limited road infrastructure, and certain customs processes that may result in non-tariff barriers to trade. 

These circumstances can create delays and increase costs and congestion on roads and at Central American port terminals.  Such barriers can hinder the logistics process at the country level.  Because of this, companies that are reliant on land freight transport in Central America must choose a partner that is experienced in moving goods throughout the region.

Why is land freight transport in Central America costly?

One of the factors affecting the elevated costs that are related to the land transport of goods in Central America is access to a limited number of service providers.

Additionally, the World Bank identifies five other reasons that impact the cost of land freight transportation in Central America.  These are:

• High fuel prices
• Costs related to security
• The transfer of empty containers
• Extended travel times
• Limited investment and access to credits (to maintain and renew fleets)

Fuel expenses for companies providing land freight service in Central America can make up between 40% – 50% of their variable costs.  This compares with roughly 20% in both the United States and Canada. 

Security services represent between 3%-4% of Central American transportation companies’ costs, while the return of empty containers also has a significant effect on the cost of shipping by land in the region. 

In essence, the first part of a trip is more expensive because freight transporters must compensate for an empty return trip.  This issue affects both large and small companies in Central America.  Because of these circumstances, it is important to seek a land freight transport service provider in the region that is best positioned to mitigate this concern.

Organizations such as the Panamanian Cargo Association (APAC) is making efforts to study the issues related to the land transport of freight in Central America in order to make the service increasingly cost-competitive.  Among the variables that APAC has identified that affect prices paid by customers are the distance between collection points and the points of delivery of cargo, as well as time delays related to cross-border passage.   The latter of these two considerations has, in some instances, been improved by countries in the region that have invested in the use of technological systems such as one-stop shops that minimize the times of border loading procedures.  Saving time in such operations results in the lowering of costs. 

Additionally, countries that share common borders such as El Salvador and Guatemala have managed to reduce customs processing times, resulting in further cost savings.  These two neighboring nations have made considerably more progress in this area than other countries in the Central American region.

Other factors that affect the cost of land freight transport in Central America include the unwillingness of some countries to pursue regional integration and an elevated operating cost of vehicles that is a result of high capital costs.