It is a known fact that the US-China trade war is impacting companies in China. What may be lesser known are the benefits that this geopolitical landscape is having on the Caribbean island nation of the Dominican Republic.
Recently, the Dominican Republic government has been encouraging increased production on the island through the development of free trade zones that could enjoy tax benefits. This has resulted in increased interest from manufacturers to relocate in the island. US president Donald J. Trump’s stance on China has propelled more to do so.
Consider Swiffer products made by Procter & Gamble. The US-China trade war and Trump’s decision to pull out of the Trans-Pacific Partnership (TPP) is driving Swiffer – and companies like it – to other nearshore destinations
“The cancellation of the TPP could have given manufacturers an advantage in China, but companies are finding cost and lead time advantages by being here,” said Luis Pellerano Soto, commercial director at Las Americas Free Trade Zones, an industrial park located close to the Port of Caucedo on the country’s southern coast.
He added that its location also allows products to be made available in the United States within “three to five days, versus 25-plus days from China.”
“When Trump canceled the TPP partnership, he gave us the advantages of a more level playing field,” said Carlos Flaquer, general manager of DP World’s Caucedo Logistics Center. “Now with increased tariffs on many products produced in China, companies are being forced to move some production lines to the Dominican Republic, a move that is only reinforcing the decision some years ago to move some here.”
China still has advantages by having dense clusters of suppliers. It’s a segment much needed to support manufacturing. But some of clusters those are now also coming to the Domincan Republic, he added.
Aside from nearshore benefits, the country itself is home to nearly 12 million consumers. While the Caribbean island nation is famous for its world-class resorts and white, sandy beaches, today over 90% of its GDP comes from manufacturing, thanks to the government’s push to establish the country with the region’s most efficient logistics platform.
Today the Dominican Republic is regarded as the most important manufacturing hub in the Caribbean and Central America. “This is mostly because of its free zone sector,” said Jose Manuel Torres, executive vice president of the Dominican Free Zones Association (ADOZONA). “The DR receives 63% of all investment in the Caribbean. Today 705 companies operate in DR free zones.”
One of the Dominican Republic’s biggest advantages is its geographic position, which gives companies access to 900 million consumers. Manufacturers operating in the country today export to 132 countries; in 2018, they exported 1,849 different products. In addition, the Dominican Republic has trade agreements with 48 countries, including the US. The International Monetary Fund reported that last year the DR’s GDP grew nearly 7%, the highest growth in the entire continent. Its GDP has increased by 102% in the past 10 years.
The island has so far attracted a host of big-name manufacturers, some of which, such as Timberland and Hanes, have made long-term commitments. Timberland, which merged with VF Corp., has been on the island for 40 years. Hanes has been there for 45 years and is expanding.
Currently, the largest growing segments in the Dominican Republic are electrical products, components and auto parts. Textiles, which used to be the largest segment and once employed basic manufacturing, has graduated to higher-end processes that CZFS’s operations director Fernando Garcia describes as “converting white fabric into what customers want.”
The industrial zones offer a wide range of world-class services. Some have third-party supply chain providers like Las Americas Free Trade Zone, a purpose-built industrial park with 29 companies and 15,000 employees.
Value-added logistics services for functions like consolidations, deconsolidation, storage, packing, repackaging, labeling, relabeling and distribution are incentivized. The island’s two major seaports, Rio Haina Port and the Port of Caucedo, are constructing and expanding zones for these purposes.
Ship calls are made weekly to 40 ports worldwide from Haina. “We have nine sailings (general container) to the US per week. Most DR trade with the United States happens via Haina,” said HIT CEO Erik Alma.
At Caucedo, which is owned and operated by DP World, the strategy is to make the port and its free zone the most efficient logistics platform in the region.
“Ours is the first logistics park inside a port in the region,” said Flaquer.
Given the port’s proximity to Santo Domingo International Airport, DP World executives are also eyeing sea-air logistics opportunities, particularly for companies like Amazon and Alibaba.
Flaquer noted that increased manufacturing in the Dominican Republic helps fill containers that would otherwise be shipped back empty. “Empties are a major reason it is so costly to ship into the Caribbean,” he explains. “By filling the containers, shippers can negotiate lower freight rates.”
The Port of Caucedo is the DR’s crown jewel for international trade. In 2018, it handled around 1.3 million TEUs. Currently, 14% of container moves come from DR free trade zones and 50% from transhipment.
“Caucedo is the most productive port in the region and offers the best maritime connectivity in the region,” added Flaquer. “Only the port at Cartagena, Colombia, offers equal capability. Last year we grew 30%, the most of all ports in the Americas.”
Today the port is undergoing a US$200 million upgrade that includes a main berth expansion to 400 meters with a 17-meter depth, four super post-Panamax cranes capable of handling up to 25,000 TEUs, eight additional RTGS to bring its total to 31, and an expansion of the port’s container yard. Completion is scheduled for early 2020.
A big advantage to Caucedo is its being the first and last call to Europe. The port also has direct service to the Port of New Orleans. “Next month we will begin new direct service to Miami,” Flaquer said.
By Karen E. Thuermer
Correspondent | Washington