Countries with high logistics costs are missing global trade opportunities.
800 worldwide shippers contributed to the index.
Study will help lagging countries and donors make needed improvements.
November 5, 2007 - A new World Bank study ranking 150 countries pinpoints the places where it’s easy or difficult to ship goods across countries, into and out of ports, and over borders.
The Logistics Performance Index (LPI) and accompanying study, Connecting to Compete: Trade Logistics in the Global Economy, find that the countries with the most predictable, efficient, and best-run transportation routes and trade procedures are also the most likely to take advantage of technological advances, economic liberalization, and access to international markets.
Countries with “higher overall logistics costs are more likely to miss the opportunities of globalization,” say the study’s lead authors Jean Francois Arvis and Monica Alina Mustra of the Bank’s Poverty Reduction and Economic Management (PREM) group.
“The biggest source of costs is not really transportation cost (such as freight costs), port and handling charges, procedural fees (such as bonds), or even agent fees, and side payments, it is the predictability, the reliability, and the quality of services that are much more important than the cost,” says Arvis.
“What matters most is reliability of the supply chain – whether the goods can be delivered on time,” adds Mustra.
Like the World Bank Group’s Doing Business report and the World Economic Forum’s Global Competitiveness Index, the Logistics Performance Index provides a set of indicators to gauge international competitiveness.
LPI measures the performance of the supply chain in international trade, “something that is not naturally captured by statistics,” says Arvis.
He adds the ability to benchmark the “logistical friendliness” of countries will help inform national policy makers, and development organizations looking for solutions to problems affecting a country’s ability to connect to global markets and foster economic growth.
800 International Logistics Professionals Surveyed
Some 800 freight-forwarders and express carriers working in the international logistics business in 100 countries rated countries in a web-based survey on such things as whether customs brokers or rail transport service providers were competent, export shipments were cleared and shipped as scheduled, and criminal activities occurred or information payments (bribes) were sought.
The index ranks the major transport hub of Singapore first, and land-locked Afghanistan last.
Developed, high-income countries, such as the G-7, are all top performers, while the performance of developing countries, even those with similar income levels, varied considerably.
China, for instance, was 30th out of 150, while some higher-income oil exporters, such as Algeria (140th) performed below their potential logistically, according to the study.
Countries with good shipping logistics tend to attract export-oriented foreign direct investment—seen, along with trade, as a way to access knowledge and technology.
Countries at the bottom of the index are “typically trapped in a vicious circle of overregulation, poor quality services, and underinvestment,” the study adds.
Earlier this year, the Bank’s Global Development Finance noted that while net private capital flows to developing countries reached a record US$647 billion in 2006, that money did not go to the poorest countries. In fact, 82 percent of the private capital flows to developing countries in recent years have gone to just 20 of the 135 included in the GDF’s analysis.
“In this highly competitive world, the quality of logistics can have a major bearing on a firm’s decisions about which country to locate in, which suppliers to buy from, and which consumer markets to enter,” the study points out.
An unreliable supply chain may mean having to carry higher inventories of supplies or finished products, or force shippers to use a more expensive form of transportation, such as air, to meet a deadline, it says.
Unpredictability is also a major constraint for companies and countries trying to diversify into higher value production. In global production chains, countries face a double challenge of maintaining an efficient chain not just for exports but also for imported inputs and components.
“The large difference between countries’ performance can be explained by the fact that the overall performance of a country is largely influenced by the weakest link in its supply chain,” says Arvis.
“For the most severely constrained countries—typically landlocked countries in Africa and Central Asia—innovative solutions may need to be found, and international donors will play an important role.”
The Bank’s web-based logistics survey was distributed by large international logistics companies to operational staff in the field “handling trade first hand,” says Mustra.
The survey was translated into English, French, Spanish, and Chinese and produced more than 5,000 evaluations. A follow-up survey likely to be conducted in early 2008 will also be available in Russian and Portuguese.
The survey asked respondents to evaluate the ease of shipping from their country of work to eight trading partners in seven categories:
Respondents were also asked to evaluate the shipping experience in terms of logistics performance, environment and institutions in support of logistics operations in the country where they were working in six categories:
Efficiency of the clearance process by customs and other border agencies
Quality of transport and IT infrastructure for logistics
Ease and affordability of arranging international shipments
Competence of the local logistics industry
Traceability and trackability of international shipments
Domestic logistics (transportation) costs
Timeliness of shipments in reaching destination
Direct freight cost
Quality of transport and IT infrastructure
Competence in the delivery of input services logistics operators need
Performance of the clearance process for exports and imports
Extent of practices that can affect logistics performance