So near and yet so far—that's one way to describe a U.S. shipper's relationship with Latin America. Geographically, the region is not distant from the United States. But in terms of culture, export/import regulations, and business practices, Latin America is indeed a different world.

Perhaps "worlds" would be more accurate: The region, which includes nearly three dozen countries and stretches from Mexico to Chile, encompasses many indigenous and European languages and cultures. Great physical barriers such as the Amazon River and the Andes Mountains—not to mention enormous distances between major population centers—also make it impractical to treat Latin America as a single, unified market.

Shippers and third-party logistics companies that conduct business in this part of the world have found that it's important to take all of those factors into account when deciding where to locate distribution centers to serve customers in Latin America. Should there be a central DC in the United States? Should shipments move directly from the manufacturing plant to a DC in the destination country? Can you do both? Here is their advice about what to consider when making that important decision.

One of the priorities when siting a distribution center is availability of reliable, reasonably priced transportation services. Whether you ship large-scale orders on a predictable, regular schedule or replacement parts on a moment's notice, it's critical that your DC be located where the transportation services you need are always accessible.

That's one reason why many companies that ship by air stage their Latin American stocks in the United States. "If you're looking at reaching markets via air freight, then you need to be where the air traffic is heavy and there are frequent flights and good, affordable, competitive service," says Humberto Florez, vice president, Latin America, for third-party logistics provider Exel. A few cities in the United States, such as Miami, Dallas/Fort Worth, New York, Houston, and Los Angeles, offer dozens of daily flights to cities throughout the region, including all-cargo services that serve Latin America exclusively, he reports.

Within Latin America itself, the largest cities have frequent and reliable air connections, but the availability of carriers and flights to secondary cities can be very limited. Some countries limit service in order to give an economic boost to state-owned airlines. Because there's little competition on many lanes, freight costs often are higher than they would be for service from a U.S. hub. U.S. exporters, moreover, may be able to get low rates by providing backhauls for airlines that are carrying imports from South America—for example, fish from Chile or flowers from Colombia. As a result, it may be considerably cheaper to ship products by air from the United States to Latin America, rather than ship air freight within the region.

Fred Stromeyer, vice president-international for USCO Logistics, tells of one client whose parent company is in Taiwan; whose South American headquarters is in Santiago, Chile; and whose materials sources are in Asia and the United States. "It doesn't make sense to ship from Asia to Chile, and then ship from there to the rest of Latin America," he says. Instead, the manufacturer ships everything to Miami, where USCO's warehouse staff picks and packs orders for different destinations. The shipper can obtain access to USCO's information system from Taiwan or Chile to see order and inventory status anywhere in the region.

Although economic ups and downs have led to a consolidation of ocean freight services between the United States and Latin America, there are still plenty of carriers and sailings available. There also are many ocean carriers providing service between Latin American countries, says Guido Herrera, Polaroid's logistics director for Latin America and the Caribbean. Hub cities like Montevideo, Uruguay, for example, offer frequent service to adjacent countries. Polaroid, which flies product to a bonded facility in Montevideo's free trade zone, ships product each week by ocean to Vitoria in southern Brazil.

One reason for choosing ocean transportation, Herrera says, is security. Polaroid uses motor carriers for shipments within Uruguay and to Argentina, but ocean service is safest for shipments to Brazil, he says. And because the majority of Brazil's population lives close to the coast, ocean shipping is an efficient way to reach major population centers.

That's not to discount the use of trucking services in Latin America altogether. If the right precautions are taken, it can be a cost-effective choice. Danzas AEI Intercontinental, for example, works with Cormar, its Costa Rican partner, to run heavily guarded convoys of trucks from plants in Mexico to Central America and Colombia. "Trucking can be an attractive solution, but you have to make sure the proper security [measures are] in place," observes Steve Schwark, vice president, integrated services–America. USCO Logistics takes yet another approach. To maintain as much control as possible, the third-party provider chooses logistics partners that have private fleets or offer transportation-management services, says Stromeyer.

A second important issue that affects where you locate a distribution center is whether a DC in the United States or in the destination country will allow you to meet market demands while maintaining tight cost and inventory control.

That was a top concern for Lucent Technologies, which has collaborated with Danzas AEI to establish an export center in Miami. From there, products and parts are shipped to in-country warehouses in the Caribbean and Latin America, explains Gregory J. Johnston, senior manager, logistics for the Caribbean and Latin American region. "Lucent's logistics strategy is to position materials within our warehouse network based on customer requirements for installation, regardless of where the customer is located," he says. "Transportation is important, but what counts is a flexible distribution network using technology to streamline and improve the flow of inventory and management of the supply chain."

Because Lucent Technologies' customers are in the fast-paced communications business, their needs for the company's software, networking systems, and Internet infrastructure products constantly change. The combination of a main distribution center in Miami and satellite DCs in other countries provides the needed flexibility. Danzas AEI performs some assembly and customization work in the warehouses it manages.

Equally important to maintaining that flexibility is the information system used in the distribution facilities. "Our jointly developed Web-based warehouse management system gets us closer to the customer than we have ever been before," says Johnston. Having the right information system allows his company to choose the best place to pick product quickly—in Miami or throughout the Caribbean and Latin American region—as customer demands change.

For many high-tech companies, that combination of a primary distribution center in the United States and in-country DCs is indeed the way to go. Because most of them outsource manufacturing—often to suppliers in several countries—and also must quickly deliver customized orders, it makes sense for them to use a gateway facility in the United States to collect, assemble, and then ship finished products, sub-assemblies, and individual parts to in-country warehouses, says Florez. Critical to the success of this model is the shipper's and logistics provider's ability to "see" and manage inventory throughout the distribution network.

One alternative, suggests Schwark, is to locate an assembly facility in a free trade zone (FTZ), such as the ones in Bogotá and Cali in Colombia, or the huge zones in Colón, Panama, and Montevideo, Uruguay. These special areas allow users to avoid paying duties and taxes until products actually leave the customs bonded facilities. One of his company's computer customers, for example, holds inventory in the Bogotá FTZ. "That way, we can satisfy the short leadtime requirements ... but at the same time delay duty and tax payments until the company actually has a customer order," he explains.

For other companies, such as manufacturers of consumer goods or auto parts, shipping directly from a plant to a regional warehouse in Latin America may be more economical. Products that are bulky and dense and therefore lend themselves to full containerloads generally are cheaper to ship directly from factory to a warehouse in the destination country. They also tend to move in regular, predictable flows and don't require the additional handling or value-added services that high-tech products often need.

Like just about any logistics decision, deciding where to locate distribution centers serving Latin American customers requires analysis of all of the cost and service tradeoffs. In addition to the issues we've examined here, shippers also must consider the availability of reliable telecommunications services and power sources; how restrictive or supportive a country's import and export regulations are; the cost and availability of technically skilled labor; and the level of economic and political stability in the target country, to name a few. The region's political, cultural, and economic complexity makes that a difficult task, but the potential long-term benefits of doing business in Latin America's growing consumer markets make it well worth the effort.