Exporting logistics knowledge
Georgia Tech, MIT create Panama institutes aimed at helping improve human, infrastructure capacity in Latin America.
Georgia Tech’s Supply Chain and Logistics Institute in early September opened a Logistics Innovation and Research Center in Panama to help the government turn the Central American nation into a top-flight intercontinental trade hub.
Not to be outdone, the Center for Transportation & Logistics (CTL) at the Massachusetts Institute of Technology opened a Center for Latin American Logistics Innovation in Bogota, Colombia in 2008 and has interest in setting up a logistics university in Panama too, school officials say.
Both are considered among the top educational and research institutions in the logistics field.
Panama is in the midst of a $5.25 billion expansion of the Panama Canal that will allow much larger cargo vessels and tankers to transit the narrow isthmus. But the government’s ambitions are to leverage that traffic and its central location to become a regional trade and logistics hub. Panama already has container ports on either end of the canal and the Colon Free Trade Zone, and new ports are on the drawing board, as is expansion of the Panama Pacifico logistics park at the former Howard Air Force Base.
Logistics experts say that despite Panama’s physical assets it lacks the high level of integration necessary for trade-hub status, citing a shortage of logistics services and supporting infrastructure such as public warehousing, temperature controlled facilities, logistics technology, and experienced logisticians.
Panama is ranked 51st in logistics performance by the World Bank, and officials at both universities say they want to put Panama on par with countries such as Singapore, Dubai and the Netherlands that help make shippers’ supply chains more competitive.
director, Center for Transportation & Logistics,
Massachusetts Institute of Technology
|‘You can’t be a world-class logistics cluster without a research center and educational activity because in addition to commercial operations you want to encourage innovation, entrepreneurship and new knowledge creation. So you become not only a commercial hub, but a knowledge hub for the hemisphere.’|
‘They are turning it from a highway that just goes through to a highway with on-and-off ramps,’ CTL Director Yossi Sheffi said during a keynote address to the Council of Supply Chain Management Professionals conference in San Diego on Sept. 28.
Georgia Tech. Georgia Tech’s Logistics Center will gather data on logistics and trade flows, and develop reports showing Panama’s value as a transshipment, consolidation and shipment preparation location. It will offer degree programs for students and executive-level courses for logistics professionals. And it will work to identify new infrastructure needs and logistics services by leading the development of a National Logistics Council and a National Logistics Plan.
Georgia Tech’s presence in Panama is part of a larger push to create a network of logistics research centers throughout Latin America and beyond that can collaborate to improve trade performance.
As part of its international growth strategy, the Supply Chain and Logistics (SCL) Institute established a presence in Central America in 2009 with the opening of its Trade Innovation and Productivity Center in Costa Rica, which works to support increased exports and logistics improvements, as well as other strategic plans in the country.
The SCL Institute plans to open similar logistics learning centers in Chile and Mexico during the first quarter, as well as two satellite locations in Brazil and one in Colombia by late 2011, Managing Director Jaymie Forrest told American Shipper.
The Panama Center will be modeled on The Logistics Institute Asia-Pacific, which Georgia Tech founded in Singapore in 1998 at the request of the government. It helped improve the logistics competence of the country through a masters program in supply chain and logistics, positioning the country as an entranceway for U.S. companies doing business in Asia and increasing the efficiency of its infrastructure. One of its signature projects involved optimizing container scheduling and other terminal operations at the Port of Singapore.
After preparing the past five years to hand back the Asia-Pacific Institute to the government and the National University of Singapore, Georgia Tech settled on Latin America as the next-best opportunity to transfer its logistics knowledge. U.S. trade with Latin America is growing faster than with Asia, even though overall U.S.-Asia trade volume is still greater.
The SCL Institute is particularly focused on food distribution networks because Latin American countries are heavily dependent on produce and other perishable exports. About 60 percent of produce and 90 percent of seafood the United States imports comes from Latin America.
School officials also realized that the SCL Institute had specialized in consumer goods, automotive and other supply chains, but had not done a lot of applied research on perishable food networks, Forrest said. Food safety has also become a top concern of U.S. consumers and lawmakers in recent years following a series of incidents involving recalls of contaminated milk, seafood, vegetables and other products. The new focus led to the creation in May of an Integrated Food Chain Center dedicated to developing processes, technology and infrastructure that can more efficiently coordinate the roles of growers, producers, distributors, retailers and logistics providers.
The top priority of the logistics research centers in Central and South America will be to help agricultural exporters — especially small producers — meet increasingly stringent U.S. food and import safety regulations and maintain their market access.
The Costa Rica center, which is sponsored by the country’s export promotion association Procomer, is working on a food traceability initiative.
Georgia Tech researchers are mapping out the process from harvest to delivery in the United States, documenting all the supply chain and logistics partners, integration points, and steps involved in the preparation and transport of produce, Forrest explained.
The work expands on a similar supply chain analysis the SCL Institute began three years ago for southern hemisphere wine producers. Researchers are collecting data on transit times, location, and in-transit temperatures for ocean freight (wine and produce) from Chile, Argentina, Australia, New Zealand and South Africa to the United States, she said. The resulting database is being used to study the variation in temperature profiles, cycle times and transit times from different countries, and determine why there are differences. The analysis is also being used to assess the value of improved insulation and alternative routing of containers.
Georgia Tech Supply Chain and Logistics Institute
|‘For us, you can’t really do international supply chain research unless you have feet on the ground. These centers allow us to work with local officials and the private sector so we can get that data.’|
‘For us, you can’t really do international supply chain research unless you have feet on the ground. These centers allow us to work with local officials and the private sector so we can get that data,’ Forrest said.
Meanwhile, the Integrated Food Chain Research Center is collecting other food distribution and storage data from retailers in the United States.
The Costa Rica project has caught the attention of the U.S. State Department, which selected it for the Pathways to Prosperity program designed to spread best practices for economic growth and justice among democracies in the Western hemisphere. It is one of a dozen projects eligible for grants under the program.
A study by management consulting firm McKinsey & Co. identified banking, tourism, agriculture and logistics as the primary growth sectors of the Panamanian economy. Logistics in Panama is a very fragmented industry, in part because it is the only sector that doesn’t have a government ministry overseeing its progress, Forrest said.
‘Panama has more trade routes than Singapore, but it’s just a transit point right now. Trade just flows through the canal. They’re not taking advantage of it,’ she said. ‘So we have a competitiveness agenda to help them develop a value-added logistics network.’
One of Panama’s deficiencies is in the area of perishable handling practices and cold storage. The country doesn’t sell food commodities overseas because what is produced is consumed domestically or lost to spoilage.
‘But we think we can put in a new strategy and design for their cold chain where they will be able to start exporting’ in the future, Forrest said.
Part of that effort will involve reforming a grossly inefficient logistics system in which middlemen make most of the profit and logistics represent a high percentage of a product’s overall cost. Tomatoes, for example, sell in the grocery store for about $1.30 per pound, but producers only are paid 8 cents to 10 cents a pound, she said. Up to half Latin American crops are wasted due to poor supply chain and customs processes, lack of temperature control, and improper storage and handling.
The solution involves building cold transfer and storage facilities, and redesigning the distribution strategy to reduce handling between parties and associated product damage.
The government’s desire to fix the situation is underscored by the fact that Panama is the only country Georgia Tech officials are aware of that has a cold chain secretary.
‘This is one big, global food chain, from our perspective,’ Forrest said. ‘So now we can share lessons across these centers.’
The data repository that is being established will track trade volumes among various countries by commodity to identify logistics bottlenecks.
The SCL Institute will also act as a single point of access for small to medium-size U.S. companies seeking export opportunities in Latin America. Smaller companies typically don’t have the resources to maintain industry and government connections necessary to do business in countries with small markets. And U.S. trade assistance programs tend to focus on trying to get foreign duties lowered or matching buyers and sellers, without addressing logistics needs, transportation, value-added product support and other services required to successfully complete international transactions.
The opening of the Panama Center dovetails with President Barack Obama’s initiative to double exports within the next five years. Georgia Tech officials say having a regional trade resource would allow U.S. firms to take advantage of Panama’s distribution advantages and the proliferation of trade agreements in Latin America. Their vision is for U.S. companies to use Panama as a place to consolidate shipments and then distribute them to Latin America.
Institute officials briefed the U.S. Commerce Department at the end of September on how the logistics center could facilitate the administration’s National Export Initiative.
‘If we’re going to increase exports, which everyone believes is a good idea, then we have to make it so that exporting to a number of small countries is the same as exporting to one large country,’ Donald Ratliff, the SCL Institute’s executive director, in a July 28 announcement posted online.
The Logistics Innovation and Research Center is funded through a $1.4 million, five-year grant from Panama’s National Secretariat for Science, Technology and Innovation, with annual renewal options. The government has also created a $500,000 logistics scholarship program.
Dario Solis, a former research director and professor of mechanical and electrical engineering at the Technological University of Panama, has been named the center’s managing director. Much of his previous work focused on improving Panama’s transportation and telecommunications infrastructure, according to the SCL Institute.
Solis is hiring engineers to conduct research and searching for a permanent facility location. He said the first step on the research front is to obtain a baseline of how logistics and transportation infrastructure is performing and then try to figure out improvements.
Students at the Technological University and Latina University are able to enroll in a supply chain engineering masters program. They are taught by local faculty using a syllabus and books developed by Georgia Tech. They can then apply to transfer to Georgia Tech’s main campus in Atlanta for the spring semester, where they will work on joint logistics projects with students from around the world.
Georgia Tech faculty members are traveling to Panama to provide supplemental instruction and students also take video lessons. They will also monitor the projects undertaken by Solis’ team.
Next year, when the program is fully established, students will have to go through the regular Georgia Tech admissions process. Georgia Tech faculty are also scoping out additional projects, and plan to add an executive education certificate, a technology showcase and a logistics innovation entrepreneurship program.
In late November, the SCL Institute will begin an executive education series called the Lean Supply Chain Professional Development Program.
‘We had to start with something concrete that we could move quickly,’ Forrest said. ‘We’re really trying to hit the ground running and make an impact.’
The National Logistics Council first met in early October. It is intended to function as a working committee of representatives from government and the private sector, including trade associations, the chamber of commerce, shippers, freight service providers, users of the Colon Free Trade Zone, and multinational companies that will provide input into the National Logistics Plan being developed by the government, under Georgia Tech’s guidance.
Such a master plan is needed to define priorities at a time when Tocumen International Airport and the ports need more space, according to experts not affiliated with the U.S. universities. Some key facilities and real estate on the Howard AFB footprint, for example, have been allocated to businesses with no requirements for air cargo service and decisions need to be made about whether to expand the two ports on the Pacific entrance into the sea rather than on scarce land.
As part of the school’s strategy for global expansion, Georgia Tech offers degree programs in China and France (with its own campus), and has alliances with universities in South Africa, Australia and Chile. Those educational activities do not involve initiatives to reform the logistics industry as in Panama and other countries.
MIT. In an interview, Sheffi said the Center for Transportation & Logistics is eager to develop a logistics university for the Panamanian government that would be somewhat similar to one it established in 2003 along with the University of Zaragoza and the government of Aragon in Spain. The Zaragoza Logistics Center sits in the middle of PLAZA — Europe’s largest logistics park — giving students access to a working laboratory to try out new logistics processes, technologies and concepts along with other academic institutions and companies.
Whether MIT sets up a logistics campus in the Central American nation still is an open question after both sides decided to slow down initial talks until more preconditions for an agreement are in place, CTL Executive Director Chris Caplice said.
The Panama logistics center likely will offer masters and doctoral programs, as well as executive-level education courses leading to certificates in various logistics-related disciplines modeled on MIT’s own coursework. It will also actively engage with corporations on logistics projects.
The CTL wants to cooperate with the Panama Canal Authority, Copa Airlines, the nation’s two major logistics parks, marine terminal operators and other entities in Panama, Sheffi said.
‘Our feeling is that you can’t be a world-class logistics cluster without a research center and educational activity because in addition to commercial operations you want to encourage innovation, entrepreneurship and new knowledge creation.
‘So you become not only a commercial hub, but a knowledge hub for the hemisphere,’ he said.
The primary difference with Georgia Tech’s program is that MIT would create an indigenous Panamanian institution and a PhD program, not an MIT offshoot, instead of a masters program that caters to Panamanian students and sends students to the United States for a semester.
Under the Georgia Tech model ‘the knowledge doesn’t stay in Panama. The students come and many of them will never return to Panama. We’re trying to create a center where people from all over the world will come to study in Panama and stay in Panama. And even if they don’t stay in Panama, they’ll always be tied to Panama,’ Sheffi said.
‘We want to create the reverse brain drain,’ he added, pointing to the number of Panamanians that study abroad.
Building a whole logistics university from scratch takes longer than partnering with existing schools. But once a deal is struck there will be seminars, conferences and executive courses that are not tied to the academic year until classes start.
The CTL will bring prospective professors to MIT for training and provide a lot of the content, but the degree will come from the university in Panama, he added.
The plan is for MIT to shepherd the logistics center for 10 years and then turn it over to Panama, leaving behind a peer to the CTL.
Malaysia. Meanwhile, MIT officials have signed a contract with the Malaysian government to establish a logistics university in Kuala Lumpur.
This learning center will more closely resemble the Zaragoza model, with a full program of education, corporate outreach and research. A Panamanian university, by contrast, will focus on education and corporate partnerships. A University of Zaragoza masters degree is the equivalent of one from MIT, but in Colombia and Panama students get a certificate that can be used for credit at partner universities.
Together the spinoff institutions comprise what CTL officials call the Global Supply Chain and Logistics Excellence (SCALE) Network.
The arrangement allows faculty, researchers, students and affiliated companies to pool their expertise and collaborate on joint research, education and consulting.
Students from overseas branches come to MIT for three weeks and then all go to Zaragoza for one week to participate in mixed team simulations, interactive leadership sessions and exercises designed to expose them to different types of people and cultures they will deal with in their professional life, Caplice said.
‘We’re finding that the multinationals are very interested in this for both recruiting and for research,’ he said.
One of the projects CTL is working on in Latin America is to create a logistics application for the Android phone because smart phones act as low-cost computers and emerging countries have such strong cellular networks, he added.
CTL officials eventually plan to expand the SCALE network to Africa, India, Europe and China.