One of the advantages Latin America should have over Asia is that it is closer to both the US and Europe and therefore should be able to ship manufactured goods into these markets more quickly than the Chinese can. This is not happening, however, for a variety of reasons ranging for the use of containerisation to the sorts of goods the two regions are exporting. 

About half of the world's trade is between countries that are less than 3,000km apart. Economists have even come up with a formula that shows that in normal circumstances, doubling a distance between a producer and a market halves trade. The big exception to this tendency is China's booming trade with the US: Guangdong is 11,700km from Los Angeles on the US west coast. This distance is considerably further than between Miami, the main entry point for Latin America goods that travel to the US by sea, and the southernmost tip of Tierra del Fuego. These two points are 8,800km apart.

Latin America's problem is that its comparative proximity to the US has not protected it against competition from China. Although its takes on average 6.4 days to ship goods from Central America and the Caribbean to US, there is little time difference between shipping goods from South America or China to the US. Shipping goods from South America takes 21 days, on average, while shipping them from China takes 24 days. 

The reason why it takes almost as long to ship goods from South America to the US as it does to move them across the Pacific is that the South-North trade is smaller. This means that ships going north tend to stop off at intermediate points on their journey to load and unload cargoes. This is the only way that the shipping companies can make the route profitable. The trans-pacific trade on the other hand is non-stop.

Time is important for some goods, particularly textiles. Zara, the Spanish textile chain, has built its whole business model on the speed with which it can exploit changes in consumer taste. Unlike its rivals it does not place big bets on what the fashion will be in a particular season, but gets its store managers to report back to its designers regularly about what people are buying. The designers and manufacturers use this information to produce short runs of popular garments: the idea is to get goods from an idea to the rail in about three weeks. The company reckons that this model means that it ends up having less unsellable stock to mark down than other retailers. Zara's expansion has mostly been in Europe but it is about to move into the US. The decision on where it chooses to do its manufacturing will be watched closely. 

Academic studies, notably Evans and Harrigan who produced a paper Distance Time and Specialization for the US Federal Reserve Board in May 2003 suggest that clothing retailers in the US, so perhaps Zara, which have a high replenishment rate strategy, tend to use apparel manufacturers in Latin America rather than in China. This looks obvious. Economists reckon that for every day goods have to travel by sea from a country to a market, the probability of that country producing manufactured goods for that market falls by 1%. 

The question for Latin America is why these advantages have not proved decisive in warding off the competitive threat from China. Despite the advantages, US protectionists became steamed up about the threat posed by Chinese, not Latin American textiles, forcing China to announce voluntary quotas on exports to the US. 

There are several technical reasons why Central America has not been able to exploit its proximity to the US. The most important is containerisation. The Inter American Development Bank, which has just (March 2005) published a study entitled The Emergence of China: Opportunities and Challenges for Latin America and the Caribbean, points out that in 2001, 95% of China's seaborne exports to the US (in terms of value) were containerised. Containerisation speeds up both the loading and unloading of ships. In 1991 only 51% of China's seaborne exports to the US were containerised.

Containerisation is important for textiles. Retailers like to be able to take goods, priced and sized, from the delivery truck to the rail without having to muck about with them in the stock-room. By having virtually all the stock on display, managers can see very easily what is selling and what is not. 

Latin America's seaborne exports to the US are becoming more containerised but in 2001 only 48% of Central America's and 39% of South Americas were. To be fair, this is partly a function of what Latin America ships to the US. Although bananas can be containerised they are mostly shipped in specialist refrigerated boats. Coffee could be containerised but generally is not. Only the relatively higher value items such as textiles and electronic goods, of which China is the predominant exporter, lend themselves readily to containerisation. 

This brings out another anomaly: as China is shipping higher-value added goods and invariably lighter goods to the US, shipping costs are much less of a factor in the final selling price of those goods. Shipping costs are calculated per tonne. This encourages US retailers, such as Wal-mart, to source their products from China. 

What should be worrying for Latin America is that as China moves to producing higher-quality (and higher-priced) goods the cost of shipping becomes even less of a factor. As the IDB points out, if the cost of shipping a bottle of wine is US$8, it makes more business sense to ship US$160 bottles of wine than US$16 ones. 

The big difference
Containerisation is an issue. But the big difference is still in what Latin America exports to the US and the EU. Its trade is heavily weighted towards commodities, both soft and hard, and also energy. Some of the commodities, such as flowers and out of season vegetables, are valuable (and light enough) enough to be flown from Latin America to their markets. 

The bulk of Latin America's seaborne trade, however, is heavy and low value. Grains, iron ore, other metals, meat and a range of semi-processed agricultural commodities from soya and cellulose. Latin America's exports of (increasingly fine) wine are growing in value terms but they are not yet significant in volume terms. This means that shipping costs, relative to the value of the cargo, are comparatively high. As these goods are sometimes perishable or hard to containerise, they often need specialised shipping to handle them. 

Latin-America's trade with Asia
China has become a major importer of Latin America's commodity exports, notably, iron ore and soya. What is interesting is that the index for charter rates for the biggest bulk carriers, the Pacific Capesize, has fallen by 33% since hitting it 2005 high of in mid April. Some economists argue that these charter rates are the best leading indicator for the Chinese economy. They say that the fall in rates (and now in international steel prices) points to a slowdown in the Chinese economy). 

In mid May, shipping costs for bulk commodities such as iron ore and coals fell to their lowest price for almost a year. The fear among ship brokers is that prices will start to fall further. The industry had geared up, by commissioning new ships, to meet the increased demand from China. Shipyards had a record US$51bn in orders for tankers and dry bulk carriers, a London based shipbroker, Clarkson, reported. Big shipping companies such as AP Moeller-Maersk and Nippon Yusen KK are leading the industry's biggest ever peace time expansion. AP Moeller, the world's biggest shipping company, has more than 40 tankers currently on order at shipyards around the world. Yusen expects to increase its fleet by almost 300 vessels in the next six years to 880 container and commodity carriers. 

The Baltic Exchange's Capesize Index, which plots charter rates for vessels with a deadweight capacity of between 120,000 and 140,000 t, hit a two year low in mid June. This was almost entirely a result of lower Chinese demand for iron ore. Iron ore traders said that unless the market recovered soon, the index would lose more ground. They reported that spot orders for iron ore from China had virtually dried up. Some China traders said that Chinese steel mills could be facing financial problems because of the slide in steel prices: this is because of government controls on building which have curtailed the demand from the construction industry for steel. 

Brazil is still the world's biggest exporter of iron ore, ahead of Australia. Brazil's iron exports stood at 209m t and Australia's at 187m t. China imported 148.2m t of iron ore in 2003. China is the world's biggest importer of iron ore, followed by Japan, which imported 132m t in 2003. There are persistent reports that the Chinese are threatening to renegotiate the increases in iron ore prices they agreed for 2005. BHP Billiton, for example, managed to secure a 72% increase in iron ore prices at the beginning of the year. Chinese officials denied that they were seeking to renegotiate prices, now that they have weakened. 

The Chinese did something similar in 2004, when they were wrong footed by the soya market: they bought at the top of the market and tried to renegotiate with Brazilian suppliers before halting Brazilian imports of soyabeans in April, claiming that they had unacceptably high levels of pesticide residues. 

China has a 20% stake in a new major iron ore mine in Brazil. This is the Fabrica Nova mine in Minas Gerais which only started production in April 2005. China already buys some iron ore from Brazil's main iron ore mine, at Carajas, in Pará. Both mines are run by the Companhia Vale do Rio Doce, which is increasing its exports to China. According to the long-term contracts in force, CVRD's iron ore sales, excluding those of Caemi, to the Chinese market should increase from 25.7m t in 2003 to approximately 55m t in 2008. 

In 2004 China produced 258m t of steel. This was equivalent to a third of the world's total output. This year the steel market was expecting China to produce 350m t. In the first five months of 2005, total crude steel production in China was 136m t. This represents a rise of 27.4% on the same period in 2004. China's biggest steelmaker, Shanghai Baosteel Group, was set up in 1978 and now has one of the most modern mills in the world on the banks of the Yangtse. The company is reckoned to provide over half the steel for the domestic car industry and almost 40% of the steel used by white goods manufacturers. It is also a major provider of steel for the oil industry. 

Bulk Ports: The biggest dry bulk port in the world is Qinhuangdao. This is the main coal importing and exporting port for northern China. It handled 154m t of cargo in 2004. Brazil's main iron ore terminals, Tubarao and Itaqui handed 96m t and 79m t of exports. 

Qingdao, China is the largest importing iron ore port in the world: it handled 41m t in 2004. Other major Chinese ports for bulk goods are Dalian and Ningbo. Chinese officials say that the current capacity of Chinese ports is well below current demand. 

Container ports: All six of the world's largest container ports are in Asia. Many of the top port-operating companies are linked to shipping companies. Evergreen (Taiwan), COSCO (China), and Hanjin (South Korea) are the three largest Asian port-operating companies. Hong Kong appears to be losing market share to the three principal ports of the Shenzhen Special Economic Zone: Chiwan, Shekou, and Yantian. However, these ports are, collectively, still much smaller than Hong Kong. 

China's shippers: COSCO and China Shipping (China's top two shipping companies, which are respectively the ninth- and tenth-largest worldwide) presently have a global market share in terms of TEU capacity of around 5.9%. By this measure, if combined they are the same size as Taiwan's Evergreen. Both are among the fastest growing in terms of TEU capacity that they have ordered from shipbuilders relative to existing capacity. Current orders will boost COSCO's capacity by 56% and China Shipping's by 110%.