Trade and Logistics: Evolution of a Product Line

Robin Carruthers TUDTR May 2003

Why logistics?
Increases demand by lowering prices faced by consumers Raises profits of producers, encourages production, increases demand for labor demand and wages Encourages price stability by reducing arbitrage of price differentials caused by regional shortages Increases product variety available to consumers by reducing the number of goods where transport is prohibitively expensive relative to the value shipped Allows a move up the development chain toward more sophisticated differentiated goods, and higher value commodities. Facilitates diversification of product mix and expands the set of markets producers can access Increases competition in world markets

Structure of Trade and Logistics review

A Regional and national trade patterns B Scope for impact of logistics as trade stimulator C Country diagnoses D Agenda for logistics actions

A East Asia trade patterns

For lower income countries, GDP per capita increases with more trade (but who really benefits?) Little intra regional trade Countries are moving up the value chain Some countrys exports are still heavily concentrated on a few high value products Export oriented trade is concentrated in port cities, perhaps not best way to reduce poverty Most exports are to US Japan and EU are distant second and third

In East Asia, GDP increases with trade in low-income countries

Intra-regional trade is low but growing

Countries are moving up the value chain

Commodity concentration
Country China Thailand Indonesia Korea Malaysia Vietnam Singapore Philippines Cambodia Mongolia PNG Top 3 exports 13.8% 20.9% 23.6% 27.3% 39.9% 44.3% 48.4% 59.9% 78.3% 84.5% 64.6% Top 5 exports 21.8% 26.2% 29.7% 38.5% 50.0% 60.3% 60.8% 66.6% 80.2% 93.4% 74.5% Products Computer Transistors Petroleum Cars Office equip. Textiles Computers Computers Timber Wool Petroleum

Telecoms equip. Office equip. Gas Transistors Transistors Petroleum Transistors Transistors Garments Copper Gold

Apparel Fish Veneer Telecom Computers Seafood Petroleum Office equipment Rice Hides Copper

B Scope for logistics impact

Not much to gain where logistics are already advanced Not much to gain if economy is still relatively closed Inaccessible inland areas stand to gain most Improved information technology will benefit all at relatively low cost

Openness and Logistics

Cost ratios as an indicator of maritime efficiency

CIF/FOB ratio more than 2.0 CIF/FOB ratio less than 1.4
Vietnam Laos Cambodia Malaysia Singapore Hong Kong Thailand Indonesia Taiwan

CIF/FOB ratio between 1.4 and 2.0

PNG China Philippines Low Wage Countries

High/Medium Wage Countries

Smaller ports are growing much faster than larger ports

Port Hong Kong Singapore Shanghai Port Klang Laem Chabang Qingdao Tianjin Gunagzhou Taichung, Taiw an Total (East Asia) HK and Singapore % 1995 12,550 11,846 1,196 1,134 n.a. 603 702 515 447 54,433 45% 1996 13,460 12,944 1,305 1,410 729 810 822 558 695 57,836 46% 1997 14,567 14,135 2,527 1,685 1,036 1,031 935 687 842 65,119 44% 1998 14,582 15,136 3,066 1,820 1,425 1,213 1,018 848 880 68,155 44% 1999 16,211 15,945 4,206 2,550 1,756 1,540 1,302 1,179 1,107 75,155 43% 2000 17,800 17,040 5,613 3,206 2,195 2,100 1,708 1,430 1,130 83,422 42% 2001 17,900 15,520 6,310 3,759 2,424 2,639 2,010 1,628 1,069 94,267 35% Grow th rate 6.1% 4.6% 31.9% 22.1% 27.1% 27.9% 19.2% 21.1% 15.6% 9.6%

Uneven use of information technology in trade facilitation

Traders in Port EDI System X X X X X X Customs Agency MIS X X X X X X Traders in Customs EDI system X X X X X X All parties electronically linked Electronic trade in transport services X X X

Country

Japan Singapore Korea Thailand Philippines Indonesia Vietnam Laos Cambodia

Port Operators MIS X X X X X X

X X X

Land access costs remain high

Transport to the US West Coast of a container from an inland province of China

C Country Groups and Studies in East Asia

Group 1: Outward Oriented, highly Accessible (Singapore, HK, Korea, Taiwan) Group 2A: Outward Oriented, more Accessible (Thailand, Philippines, Malaysia) Group 2B: Outward Oriented, less Accessible (Inland China, North-East Thailand) Group 3: Less Open and Accessible (Vietnam, Cambodia) Group 4: Land Locked and Pacific Island (Laos, Mongolia, Samoa, PNG..)

Main conclusions of Country Studies

Non-transport logistics cost impose much higher trade penalty than transport costs Regional trade is suppressed by poor logistics more than by tariffs Domestic marketing arrangements impede international trade Cross border arrangements impose on all small countries, not only land-locked Most trade-related industry is in port cities. Trade related growth has not reached inland regions Port related activities contribute significantly to congestion and pollution

Poor logistics influence prices and marketing patterns

In Laos price of rice varies +/- 25% due to poor transport affecting market integration In Mindanao, Philippines, farm gate prices vary significantly, northern farmers receive better prices due to good road access Most Mongolian export cashmere is sold to Chinese merchants as accessibility to China is better than within Mongolia In Vietnam, coffee production in otherwise productive highlands is constrained by poor accessibility

Logistics limit diversification of exports

Limited number of markets and shipment scale
Reduced trans-pacific shipping costs have stimulated East Asias trade to US, while poor local logistics have inhibited growth of intraregional trade

Small export base increases vulnerability

For three countries, more than 2/3 of export value derives from three products

Ports, regional growth and the urban context

In larger Eat Asian countries, most FDI is concentrated in port cities, so the benefits of increased trade are not spread throughout the country Many East Asian ports are in downtown areas, and they and their associated activities contribute significantly to congestion and pollution. These locations are often unsuitable for new generations of container ships that need deeper draughts that can only be achieved with expensive and environmentally risky dredging

D Logistics strategy depends on stage of economic development

For already open and accessible economies, increasing international trade competitiveness is logistics priority For less open economies, improved logistics will first help make domestic trade more competitive and efficient For these countries, opening of economy is a higher priority for international trade growth than improving logistics Open but inaccessible countries will benefit most from improved logistics

Logistics Development Agenda

Domestic Integration: A high priority in Groups 3 and 4 Improved infrastructure priority for Groups 3 and 4 but not sufficient better services are also important Logistics evolution - Advanced in Group 1 and some Group 2, needs stimulating environment in other Groups Regulatory Environment Transport, Urban Management, Standardization, Cross-border facilities Regional Cooperation between governments and logistics suppliers will do more to stimulate trade than reductions in trade tariffs

Priority logistics actions

Group 2A Outward Oriented Accessible
Improve urban access to ports and upgrade transport services Relocation non-maritime activities away from port, and consider relocation of maritime activities out of downtown areas Restructure MoT to facilitate multimodal transport

Group 2B Outward Oriented, less Accessible

Promote inland ICDs Improve road, rail and waterway access to ports and upgrade logistics services

Group 3 Less Open and Accessible

Improve road, rail and waterway access to ports and upgrade transport services Legalize and deregulate freight forwarders

Group 4 Land Locked and Pacific Island

Simplify land border crossings, negotiate land access rights in neighboring countries, Upgrade express logistics services for high unit value goods (eg flowers, exotic plants, seafood, fashion textiles)

Second Stage Studies

Use standard indicators to measure trade competitiveness and openness of economy Assess trade potential products and countries Use standard indicators and interviews with exporters and logistics operators to establish potential sources of logistics improvement Undertake country surveys for Facilitation Audit Discuss and develop logistics development agenda with exporters and government