The gap between countries that perform best and worst in trade logistics is still quite large, despite a slow convergence since 2007, according to a new World Bank Group report released Thursday.
“This gap persists because of the complexity of logistics-related reforms and investment in developing countries, and despite the almost universal recognition that poor supply-chain efficiency is the main barrier to trade integration in the modern world,” the Bank explained.
Its report, ‘Connecting to Compete 2014: Trade Logistics in the Global Economy’, ranks 160 countries on a number of dimensions of trade — including customs performance, infrastructure quality, and timeliness of shipments — that have increasingly been recognised as important to development.
The World Bank Group’s International Trade Unit has produced the Logistics Performance Index (LPI) about every two years since 2007.
“The LPI is trying to capture a rather complex reality: attributes of the supply chain,” said Jean-François Arvis, Senior Transport Economist and founder of the LPI project. “In countries with high logistics costs, it is often not the distance between trading partners, but reliability of the supply chain that is the most important contributor to those costs.”
In the 2014 LPI report, Germany recorded the world’s best overall logistics performance while Somalia had the lowest score.
As with previous editions, the 2014 report found that high-income countries dominated the world’s top-ten performers.
Among low-income countries, Malawi, Kenya, and Rwanda showed the highest performance.
In general, the trend across past reports has been that low-performing countries were improving their overall scores faster than high-performing countries.
The 2014 report also found that low-income, middle-income, and high-income countries will need to take different strategies to improve their standings in logistics performance.
In low-income countries, the biggest gains typically come from improvements to infrastructure and basic border management. This might mean reforming a customs agency but, increasingly, it means improving efficiency in other agencies present at the border, including those responsible for sanitary and phyto-sanitary controls.
“You can’t just do infrastructure without addressing border management issues,” Arvis said. “It’s difficult to get everything right. The projects are more complicated, with many stakeholders, and there is no more low-hanging fruit.”
According to the report, middle-income countries, by contrast, usually have fairly well-functioning infrastructure and border control.
“They generally see the biggest gains from improving logistics services, and particularly outsourcing specialised functions, such as transportation, freight-forwarding, and warehousing,” the report said.
“In high-income countries,” it said, “there is a growing awareness of – and a demand for – ‘green logistics’, or logistics services that are environmentally friendly.”
In 2014, about 37 percent of LPI survey respondents’ shipping to Organisation for Economic Cooperation and Development (OECD) countries recognised a demand for environmentally friendly logistics solutions, compared with just 10 percent of those shipping to low-income destinations.
In recent years, as tariffs have dropped globally, logistics and other aspects of trade facilitation have gained profile as an arena for reducing trade costs.
A 2013 study by the World Bank Group and World Economic Forum found that reducing the high transactions costs and unnecessary red tape faced by traders could provide a significant boost to global GDP.
In January, the World Trade Organisation (WTO) finalised a “trade facilitation agreement” that sets standards for faster and more efficient customs procedures and contains provisions for technical assistance and training in this area.
In a broad context, the LPI is increasingly respected by policy makers. The Asia-Pacific Economic Cooperation (APEC) organisation uses the LPI to measure the impact of an initiative to improve supply-chain connectivity.
The European Union Commission has used the LPI in its Transport Scoreboard and in its 2013 evaluation of the EU Customs Union.
“The LPI is a concrete tool for raising awareness and spurring improvements,” said Jeffrey Lewis, Director of the Economic Policy, Debt and Trade Department of the World Bank Group. “It allows us to evaluate constraints across a broad set of countries.”
In 2013, the World Bank Group spent us$5.8 billion on trade facilitation projects, recognising that logistics barriers hampered developing countries’ participation in the international trading system.