Improving global trade logistics

The capacity for countries to move goods and connect manufacturers and consumers with international markets is improving around the world, according to a new World Bank Group survey on trade logistics, but much more progress is needed to encourage economic growth and help firms benefit from trade recovery.

Germany was named top performer among the 155 economies ranked in the Logistics Performance Indicators (LPI), which are included in the report 'Connecting to compete 2010: trade logistics in the global economy'.

The UK was eighth, ahead of the US, but behind Luxembourg. World Bank Group president Robert Zoellick, said: "Economic competitiveness is relentlessly driving countries to strengthen performance, and improving trade logistics is a smart way to deliver more efficiencies, lower costs and added economic growth.

"Streamlining the connections among markets, manufacturers, farmers and consumers offers tremendous growth and investment opportunities and should be a top focus for developing country growth strategies."

According to the LPI, high income economies dominate the top logistics rankings, with most occupying important places in global and regional supply chains. By contrast, the 10 lowest performing countries are almost all from lower income groups.

Although the study shows a substantial 'logistics gap' between rich countries and most developing countries, it finds positive trends in some areas essential to logistics performance and trade. Some of them include the modernisation of customs, use of IT, and development of private logistics services.

"Following our first survey in 2007, many developing countries have improved their capacity to connect to international markets, which is a key ingredient for competitiveness and economic growth," added Otaviano Canuto, World Bank vice-president for poverty reduction and economic management.

"But if developing countries want to come out of the crisis in a stronger and more competitive position, they need to invest in better trade logistics."

Bernard Hoekman, World Bank trade department director, said: "Countries with better logistics performance can grow faster, become more competitive and increase their level of investment.

"Our research shows that increasing logistics performance in low-income countries to the middle-income average could boost trade by around 15 per cent and benefit all firms and consumers through lower prices and better quality services."

Many countries perform better than their income level suggested. The 10 most significant over-performers include China, India, Uganda, Vietnam, Thailand, the Philippines, and South Africa. Similarly, the countries with significant improvement in performance between the two surveys are often those which implemented comprehensive logistics and trade facilitation reforms, such as Colombia, Brazil, and Tunisia.

In terms of how developing countries are doing per region, South Africa is the top performer from Africa; China from East Asia; Poland from central and eastern Europe; Brazil from Latin America; Lebanon from the Middle East; and India from south Asia.

According to the study, logistics performance is heavily influenced by the quality of public sector institutions and the effective co-ordination of border clearance processes among all border management agencies.

In this area, customs performs better than many other agencies, pointing to the need for border management reforms. In low-performing countries, on average, half of the containers are physically inspected and one container out of seven at least twice.

Other areas for improvement include better transport policies, increasing competition in trade-related services such as trucking, freight forwarding and railways, and better trade-related infrastructure.

For many low-income countries the most binding constraints are often in logistics services and international transit systems.

Given they perform better on many other indicators, improving trade infrastructure is often reported to be a priority for middle-income countries.

The World Bank Group has a number of projects designed to improve trade logistics in developing countries, including the $250 million East Africa Trade and Transport Facilitation project, which improved the corridor infrastructure and upgraded the main border crossing between Uganda and Kenya at Malaba, reducing border crossing times from three days to three hours.

And in Tunisia, a $250 million operation is improving competitiveness by reducing trade costs and streamlining border clearance procedures. In Afghanistan, the bank is providing funding for a $31.2 million project to modernise and computerise four major border crossings, increasing customs revenues from $50 million when the project started in 2004 to over $399 million in 2008.

Mr Borg is a chartered trainer and consultant in logistics and supply chain management. He is also managing director of SSM Group Ltd.