Colombia’s diverse climate, geology and topography not only present a variety of industrial and agricultural opportunities, but also logistical and infrastructural challenges for transporters to take those goods to customers. Half state and half privately owned Almagrario has extensive experience in Colombia’s logistics and transportation sectors. Awarded for its productivity and innovation, the company provides storage, conservation, customs handling, management and distribution services of merchandise of national and foreign origin. Its president, Juan Carlos Mahecha, discusses the advances being made in infrastructure and peace building that will enable Colombia link local and international markets.
As you know, Colombia has been experiencing an average 4% annual economic growth since 2003. According to the World Bank, Colombia is currently the best place in Latin America to do business. The nation is going through a moment of hope and responsibility towards obtaining peace, equity and education. What benefits will the achievement of peace bring in terms of investment and growth?
Good afternoon and thank you for being here in Almagrario. I would like to make two comments regarding your question.
First, Colombia needs peace. It is a process we have been thinking about and organizing for 60 years. Colombia has been slowly growing for the past 60 years.
However, in the last four years we have taken a huge leap, which is generating a real peace process that will have many good aspects.
There will also be people that will oppose it, since they feel at a disadvantage. Nonetheless, there has to be a moment to stop and then go on.
One has to stop and know when to go on again. This is a good time for Colombia.
We have to expand, and expansion was hindered for many years, as we had no way of getting inland.
Colombia has a vast geography, and it is one of the few countries in the world with such a diverse infrastructure. One hour from here, the temperature is 35°C to 40°C.
Two hours from here, the temperature drops to -2°C. There are mountains and deserts. We sometimes have adverse weather, but each climate brings opportunities for agriculture and industry alike.
If all this could be concentrated in storage centers, and if we could integrate this to the logistics chain, we would definitely be more attractive at an international level.
We would get to the ports and then to the final destinations at a faster pace. If we had special six-lane highways that allowed us to get to the port faster, and then to the United States within 24 to 36 hours, we could make products leave the countryside quickly and get to the final consumer.
Colombia is a strategic point because it is the previous stop to any destination: the United States, Mexico, the Antilles, Panama, Honduras, Guatemala, Central American countries.
Everything has to go through this country to get to the rest of the world. We even used to have a strategic canal that connected two seas, but we lost it.
We are only just realizing that this was important in order to generate value for all logistics chains.
With peace, we will have the chance to get the products from the countryside to the ports and then to their final destination in no time. This is key.
You mentioned connectivity and the importance of Colombia’s geographical location. The Colombia Inside-Out event in May was organized by the Colombian Stock Market in New York and London, two of the major financial cities in the world. The purpose of this event was to attract the attention of investors and to reposition Colombia as an attractive investment opportunity. As Juan Pablo Córdoba was telling us, in order to achieve this, the most representative leaders in infrastructure were introduced, with infrastructure being the booming sector in Colombia. What is the importance of fostering and promoting these types of sizable events, such as Colombia Inside-Out, in order for Colombia to be more attractive? How has the private sector benefitted from these initiatives?
These initiatives are not new, they date from long ago, but no one wanted to attempt them as it was a very complicated type of project to apply inland.
This was a social problem, rooted in the people and in the towns. When people are freed from this, as we are about to be now, what could happen?
Everyone has to think about the country opening up, everyone has to be able to go places. People used to not be able to go to a farm that was close to their town, out of fear of being kidnapped.
The fear for the “pesca millonaria” made people feel locked and imprisoned in their own country.
With the new openness, when people want to invest they want to access the potential that is in every town and to be able to go places in a fast and secure way.
The investor who wants to invest has realized that there is openness; there is a peace process that is coming towards its goal.
The openness regarding foreign markets is coming, where prices can be controlled, where we can be like the rest of the world, offering good products of excellent quality, offering qualified yet cheap labor, which can quickly have an impact on any market, with any product.
Colombia has good quality raw resources as well as entrepreneurs. Every time a person starts a business or finds an opportunity, we come up with one or two solutions.
A few countries have people that develop new initiatives, people that innovate and create like here. All we needed was roads and communication, which we have now.
Colombia is one of the few countries that have nationwide internet coverage; it’s one of the first countries with open and fast telecommunications.
Faster even than Brazil, Peru, Ecuador. I do not mention Venezuela, as that is a special case.
Chile used to grow at a very fast pace, with a 7% to 8% rate. Nowadays, Chile is growing at the same rate as Colombia, not because they are lagging, but because Colombia has caught up.
We have the potential to overtake the growth of all these countries.
There are other countries that could be important for Colombia somehow, but we have the means to get to these countries as well.
We can get to these investors and make them come and bring their money here. And it is not just hot money, which is another issue we are facing in the country.
People would come because of expectations, when the dollar was dropping in the U.S. and Europe, everyone was traveling to Colombia because they found Colombia was yielding higher interest.
Then Colombia started controlling its economy, which made investors leave, but we have always been one of the most important financial markets.
Nowadays, the openness makes things easier, we have every opportunity to grow, and we think this will help Colombia grow up to 3%, 4.5% and even 5%.
Back to the infrastructure boom, since Dr. Vargas Lleras took office and throughout 2014 and 2015, there have been many projects under development, such as fourth generation highways, which have a $47 billion budget, which is something that had never been seen in the country before. And works such as the Magdalena River dredging, the Pumarejo Bridge, the creation of new ports and free trade zones, which have a direct impact on the logistics sector, and of course on trade within the country. What is the benefit that you expect to find in these new projects? How does Colombia’s progress favorably and directly impact on the country’s logistics sector?
I could not even measure the impact in numbers, it is very important to have a 4G road infrastructure.
People think that building roads is simply pouring concrete, and that is not the case – the road has to have connections, telephones, water pipelines, a sewage system, everything.
There was a time when we used to have big light problems, we had to ration light and it was sad to think that a country that has two oceans, five or six important rivers, a vast hydroelectric capacity that stems from the mountains no other country in the world has, could have water and light rationing problems.
With 4G roads, which Dr. Vargas Lleras has been promoting, not only will roads connect but the whole infrastructure as well; this is a boost that will impact on logistics.
Logistics is the sector that brings the gigantic equipment needed for development, the one that enables the development of roads and bridges, the one that allows an operation in a free trade area, or in special equipment’s storage that will later be exported, through customs agencies.
Qualified labor and knowledge make logistics what it is. All that is accomplished through logistics, and when this process is done, then the process of bringing products to port to later export them begins, which is something logistics takes care of as well.
Within this logistics chain not only will Almagrario be there, but also all the companies in the chain that add value to the product.
The companies that have been here for a long time, the ones that have been working in the country, will most likely take off faster than companies that may start on the spot.
This does not mean the latter will have no room, there is room for everyone, but experience does help a lot when it comes to generating added value for the whole chain.
In 2014 Almagrario received an award from Bavaria SABMiller, out of 5,000 active suppliers, for its investment and growth in cross-docking services and in foreign trade in the Buenaventura branch. What consequences does this kind of recognition bring to Almagrario’s operations?
We thought there was no external knowledge of this. Almagrario received awards in the years 2013 and 2014.
We have been awarded prizes for productivity and innovation. In the case you mention, regarding innovation, we were an entity within a mixed economy.
Normally, state-owned companies, or those that have public and private stakes, are considered little developed or successful, as the state is thought to be a good politician when it comes to underwriting the deed but not when it comes to developing.
We, with a mixed economy, believed in the Bavaria project, and set a proposal specifically designed for them.
Buenaventura is an island that has a 100% humidity rate, and where it rains every day around 3 p.m., causing all loading and unloading of vessels to be stopped immediately.
We aimed at creating an operation where we assembled everything in a special spot next to our silos in the port, so that the operation could be completed.
We even set a cold chain so that products such as hops, which are brought by Bavaria, would not lose the cold chain.
This prize has been very important for us, because to be one of the 25 winners among 5,000 suppliers, and being specifically rewarded for innovation, is something of great pride and prestige for Almagrario.
We have done this for many companies, but the novelty is that this was the first time that Bavaria, with many years of rewarding its best suppliers, rewarded an entity with a mixed economy.
Secondly, this is the first time that a state entity has won for its innovation. When everyone thought that state companies did not innovate, we proved that by working with a good team, a capable one, and by giving value to the company, great awards can be won.
This can be done by any state company if they get involved like we did.
In 2014, Almagrario had $79,472 billion revenue, a 1% reduction regarding 2013, when the income was $80,331 billion. Aiming to reach the development and leadership of logistics services and the loyalty of your clients through the optimization and integration of processes, the development of human resources and the simplification of processes, what are the expectations and challenges for the remainder of the year 2015? How will you recover that 1% and surpass it?
First, when it comes to precise numbers, that was the revenue, there is no denying it. The reduction did not stem from a loss of market and much less from a loss of the company’s value.
Let us remember that most of our clients date from more than 15, 18, 20 years ago. These are clients we have gone along with throughout their history.
We have supported our clients through lean times, even when it went against our revenue.
In 2013, the economy contracted, there were big and hard difficulties in the whole industry, which fell more than 11.2%.
We did not display a slowdown, but we helped our clients in their needs by not increasing our prices regarding storage and other operations.
This meant that we maintained the same level of revenue as the year before. There were some specific cases, with the DIAN (national tax and customs agency), where we conduct the seizures and confiscations of all merchandise that is smuggled into the country.
That year in particular, there were not many confiscations or seizures because there was a very strict policy on contraband, and the smugglers themselves held back during this process.
This yielded less revenue than usual in terms of storage for these types of products. Otherwise, we showed recoveries in several of our business units, and we have changed our strategy for the year 2015.
We started changing our strategy in 2014, and implementing it in 2015. We started working with hotels, and multimodal transportation.
We started revising what is going on in reaching the port, the strategy of entry into port, how to reduce port traffic, looking for the shipping companies to have fewer delays by not spending so much time when anchoring.
We have the opportunity of a new port in the country, which is in Barranquilla, and the expansion of the Cartagena port.
We found many variables we feel we can use and, moving into a big issue, the alliance we have with Redservi, which is a bulk-load transportation operator.
This is what will generate the value needed in order to recover that one percentage, and redouble our operations.
Nowadays, even though we presented an $87 billion budget to the board, we are getting ready for a new increment and to reach revenue of between $125-$135 billion, because of the strategy we have changed and that we are already implementing in order to obtain new resources.
We will grow fast, we have great expectations, we have the market, a great salesman and great teamwork in order to reach that big goal.
The Sol highway is one of the most important and representative road corridors in the country, since it connects the country’s inland with port areas, such as the Caribbean Region and cities like Cartagena de Indias, Barranquilla, and Santa Marta. The government is currently looking to repatriate wealth and to de-centralize not only through the construction of the Sol route, but also by key connections in the commercial logistics chain, and by giving different cities an opportunity, not only Bogota, to position themselves through their new projects, such as Buenaventura, Cartagena, Barranquilla, which are also starting to become attractive. Do you think the government is betting on these cities? What opportunities are really being given to the country?
First, in the same line as the government, we are not only present in all those big capitals, but we also have a nationwide infrastructure.
We have presence in cities such as Riohacha, Maicao, Santa Marta, Valledupar, and Ipiales, which is on the border next to Ecuador, as well as Buenaventura, the whole Coffee Belt, etc. Our geography is very diverse, and Almagrario is everywhere in the country betting on the same as the government is.
And now with our strategic ally Redservi, which has a different supply, with presence in places like Leticia and Casanare, we are aiming at Almagrario having presence in the big capital, medium and small-sized cities.
We are currently all over the country; we are only missing Cúcuta, despite having been there in the past we will reopen our branch there because we consider it to be important.
Almagrario and Redservi will be in the whole country with this alliance, which will surely bring benefits for our clients and workers, as these companies are job-creators.
We work with people from each region, people who live for Almagrario, who are and will be in Almagrario for many years to come.
Since you mentioned the recently created strategic alliance and your great friend Mr. Guerrero, founder of Servientrega, Redservi and Almagrario, you said Almagrario will be the country’s first fourth-party logistics (4PL) provider. When are you planning to consolidate such an operation? What benefits will it bring for Almagrario and for the sector?
We are anticipating two things. First, consolidating our Almagrario-Redservi strategy. In 2015, we will be merging two entities into one administrative structure, each going on with its business, and in 2016 we will be launching together into the big market.
Of course, we are positioning Almagrario in every town and country where Redservi is, in Venezuela, the Dominican Republic, Miami, Canada, etc.
We also want to grow in other cities and countries in Latin America, where we will be known as the Almagrario-Redservi alliance.
We are also looking to strengthen the logistics chain, to attend to every opportunity of growth a client may have within that chain. That is to say, door-to-door services, urban, messaging and packaging operations.
Together with Redservi we have the opportunity to carry letters and packages. We can make money wirings, online transactions, and offer that to Almagrario’s clients, which in turn has the storage and overall logistics capacity.
The idea is to be able to do this in any city in the country. We have even thought of going further, by achieving productivity in each of these regions by providing money wiring, letters, delivery and, of course, anything relating to storage.
Between January 2013 and August 2014, 17 new free trade areas were formed within the country, which will help in creating jobs and in making commercial activities easier. How does the creation of free trade areas impact on the sector? What does this imply in terms of attracting foreign investment into the country?
We see free trade areas as old news, because we already had them in areas such as Palmira, Bogotá, Barranquilla, among others, where we have operation sites.
We conduct operations that can be done with our own machinery, maquila machinery, export operations on whatever is needed.
These are offshore entities for the country, and we deliver a service in accordance with current regulations.
We would like to have more free trade areas in which to operate, but we have to carefully study the market in order to avoid operating in sites where we have neither the leadership nor the operation capacity.
Almagrario reaffirms its commitment to developing activities under an environment that fosters economic development in different regions, such as Buenaventura, generating not only job opportunities but also personal and professional growth in each of them. What developments or plans has Almagrario been implementing for the sake of complying with this statement?
Every day it is our goal to work for the team that is in each city. Every day we look for new businesses in these cities, we actively participate in each region with the town halls, the governors, the companies that are in the same sector, in the same area.
Our work team is always looking for new alternatives that will provide value addition for each region. This is not new, this happens every day.
When it comes to your commercial policies, the commercial area focuses its efforts on providing a comprehensive portfolio in storage products, so that your clients receive the largest number of services in the different branches. What does the government’s plan represent for a company like this, which is to provide the country with the opportunity to competitively position itself as an intermodal Colombia? What benefits will this bring for your customers?
According to what is coming in terms of government policies, we are along the same lines. When it comes to the creation of new products, we are within what the market is looking for.
We support each and every one of the regions. We have new products we are specifically launching for one region; we are looking for an alternative since Buenaventura has no roads, and because of this we are looking for other mechanisms that will allow the client who is importing or exporting to have it get to its destination faster.
This will allow for more value from when the product comes off the ship until it gets to another type of transport to get to its final destination.
This is specific for one region. We are analyzing the rest of them depending on their necessities.
The free trade agreements (FTAs) look to ratify Colombia’s commercial and political relationships with other countries, allowing the entrance of new markets with much more competitive tariffs that also increase the competitive position of Colombian products abroad. How can Colombia get the most out of the active FTAs? How can it become the proper platform for Latin America?
FTAs are a must for Colombia. From the moment the agreements began and the first were signed, we have been part of the operation.
It is clear these agreements will result in a general benefit for the country.
Almagrario has been working under the agreements, even in the last one that was signed with South Korea.
We already have businesses in South Korea, through a supplier of vehicles.
For the new products, we are analyzing each agenda, through embassies and consulates, at the international level, we have been mailing our services’ portfolios.
We have made contact with clients, and we have actively participated in business roundtables with great benefits and new contacts.
A new contact is a new business that may not be immediate; it develops step by step, provided we have the technology, provided we can deliver.
Every customer always analyzes a country like Colombia, to see the way they can get in, how they will do it, whether we will deliver, whether we are serious enough, until they get to know us and we show them what we can do. Nowadays, our clients of many years give excellent references on our behalf, and the new ones that have gotten here through the FTA want to work with us.
We have clients that were only bringing one product at first and are now bringing many.
Almagrario has participated in and encouraged bilateral negotiations with some countries. As you know, the U.S. is currently one of Colombia’s main economic partners, and Miami is the usual gateway into the U.S. for Latin American people, in the same way Colombia is their gateway to Latin America. Balancing the commercial relationship between the U.S. and Colombia, which do you think are the biggest business opportunities for these two countries?
All, by far. Through this first alliance, Almagrario-Redservi, the issue is strengthening the U.S. market. That is key.
Almagrario is a mixed entity, but we needed private capital that would allow us to be more competitive and launch new products.
When I formed the alliance with Don Jesús Guerrero Hernández’s Redservi, one of the main issues was that we had to open a market in the U.S.
They needed to transport, and we could provide the storage and the foreign trade operations; we could unite those efforts in order to be a 4PL operator.
But besides that, we want to be the most important e-commerce company in Latin America.
Anyone can do e-commerce, it is just a web page, but the hardest part is building credibility, and when such important companies unite, we will deliver.
That is why customer service is key. The first thing we look for is that the client is satisfied, and then that through website-based e-commerce, the client can access the world, through Miami which is the fastest route, and we can be the vehicle that unites Miami and Colombia, since Miami is 1:20 hours away from Barranquilla and 2:30 hours away from Bogotá.
A couple of days ago we were with Dr. Mauricio Cárdenas, the Minister of Finance, who mentioned the importance of offsetting the economic impact that the drop in the price of crude oil has had on Colombia. Dr. Cárdenas seeks to double non-traditional exports to the U.S., for the sake of counterbalancing this impact. What do you think are the biggest challenges when it comes to achieving this goal? How will Almagrario, being one of the role models in terms of foreign trade and logistics, be part of this achievement?
As you well say, and as the Minister said and I agree with him completely, we used to count on coffee and other products in terms of exports, but we have missed exports of several kinds of fruits, vegetables, flowers, that can be a basic necessity in many countries.
If we quickly make fast access routes to the ports, if we make packaging easy and perishable goods get to destinations quickly, the process the Minister mentions will come instantaneously, there need not be much investment.
We already have the first investment, which is the roads. We have great transportation teams; there are many people who know transportation, so the business will work with just a few tweaks, which are easy to implement, as people need work and we will be providing it.
Almagrario is creating with the Minister of Culture other ideas that we have discussed with the Minister, who is very interested in promoting them, as Almagrario is the vehicle.
We are not doing them a favor; we are providing a service of the same quality and commitment, with a lower cost and in less time, by being more efficient.
The government has already realized that it does not have to do it with state entities, that it can do it with private ones.
Don Jesús Guerrero comes from the countryside, he is a person who knows this, who knows everything this beautiful country grows, who wants to even export arepas, and we can do it.
We can export many traditional products from our country, what is needed is that two or three people decide to go in the same direction.
All of a sudden, with a law on this, with a tax reduction, this will happen.
We need to produce in order to sell, and foreign markets have to receive high-quality products; we will take care of them getting to their final destination.
But in order to deliver we need support. In Colombia, there are departments, Tolima, Córdoba, Casanare, where we can produce better quality rice than the one we import, but we need to import it because the production capacity is not enough to provide for the whole Colombian market, or because we have no storage space.
Some agricultural companies have shut down that cycle, not allowing us to get to foreign markets.
Last year, you were Finance Director, which is not an easy role; it is complicated and it implies high responsibilities. In 2015, you became president of Almagrario and Redservi. When we come back in 10 years and find out you have become Minister of Transport or something of the sort, and we ask the people in Almagrario whether they remember you, what would you like them to remember about you?
I would answer more if we mentioned all the entities in which I have been, which have had an impact on my professional life.
When I go to visit these companies because of work-related issues or other reasons, and I meet the people who still work there, I always get a big and affectionate hug, and people remember me for the drive, the urge, the love for work, love for dedication, and something that I always tell people: one needs only a few seconds to say ‘I am honest’ but an entire life to prove it.
All I have is my name, what I have been able to harvest during these 53 years, and my honesty, that is why many state entities do not last throughout time, because there are no good administrators, or if there are they somehow get personal benefits in these public entities.
I myself found a professional benefit by giving the state more benefits.
No one used to believe in Almagrario because it was state-owned, it had no credibility; nowadays we have awards, people believe in the company, because when you work with honesty and love everything works.
If I am ever in that Ministry people will say that an honest and transparent person has arrived, one who is not afraid of any challenges and who makes decisions that may be harsh or energetic but are always looking out for the general profit.
Personal profits should not exist in state-owned companies. I think this is what people would say, as it is what they say now already, when I meet the people I used to work with 10 or 15 years ago.