The high price of terrestrial freight transport is making Colombia’s automotive industry less competitive said industry experts.
This lack of competitiveness could cause the downfall of the automotive sector when cheaper imports start to enter the market as the result of a recently signed free trade agreement with South Korea.
Luis Fernando Pelaez, president of Colombia’s second largest vehicle assembler Renault-Sofasa, told Colombia Reports that logistics and parts are the biggest impediments to reducing costs. He added that lower costs are necessary for Colombia-made vehicles to be able to compete with those arriving from abroad.
Parts arriving from foreign countries are expensive due to the high cost of road transport in the mountainous country, Oliveiro Garcia, president of Colombia’s association of automotive vehicles (Andemos), explained to Colombia Reports.
“In Colombia, diesel fuel is expensive; the equipment with which they transport is expensive. They have paid full tariff rate because [the freight trucks] are not produced in Colombia. They also have to make an extra payment to be able to register them. All of this makes logistical transport in Colombia very expensive,” said the association president.
Furthermore Colombia has very steep terrain, due to three large mountain ranges that divide the South American nation. The railway network is extremely limited so industry relies on trucks to transport goods.
Garcia gave the example of GM-Colmotores, Colombia’s biggest vehicle assembler which imports vehicle parts from South Korea.
“[The parts] come in a boat to the [Pacific] port of Buenaventura and from there you have to bring them to Bogota. This terrestrial freight [cost] of bringing it from Buenaventura to Bogota is a great deal higher than the maritime freight [cost] of bringing it from Korea to the port.”
Renault-Sofasa, faces a similar problem getting parts from Europe to its assembly plant. Pelaez said it costs $1,000 to transport a container of goods from Europe to the Caribbean port city of Cartagena while it costs $1,600 to transport the same container from Cartagena to its plant in Medellin, Antioquia, some 400 miles south.
The imported cars and parts with reduced tariffs will not arrive immediately. One of the conditions of the free trade agreement signed by Colombia and South Korea in February is that tariffs on Korean car parts and vehicles will be reduced in increments over 10 years.
MORE: Colombia signs free trade agreement with South Korea
This is worrying for Colombian producers because according to Pelaez, national vehicles made up 70% of Colombian car sales three years ago whereas now the figure stands at 30%. When the cheaper Korean cars arrive, this figure could fall even further.
Garcia said that in order to reduce costs and remain competitive, the national automotive industry should relocate from the major cities of Bogota and Medellin to the port cities of Cartagena, Barranquilla, Santa Marta or Buenaventura.
Pelaez, on the other hand, is calling on the government to improve transport and logistics so that the industry can remain competitive while remaining in place.
Without drastic improvement in logistical transport, the future for the Colombian automotive sector looks bleak in the eyes of the Andemos director.
According to Garcia if the vehicle production industry cannot adjust and compete it will be “killed off” and Colombia’s auto trade will simply rely on buying and selling imported vehicles.