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Connected to Compete? Not as Much as We Could Be

Otaviano Canuto's picture

Trade logistics, or the capacity of countries and companies to ship goods to international markets, is a key ingredient for economic competitiveness, growth, and poverty reduction. Poor logistics performance creates a deadweight loss for producers and consumers alike, and results in a net waste of resources. Improved trade logistics, on the other hand, would give a welcome boost to the economy at a time of fragile recovery from the global recession. Unfortunately, reality has not bared this out.

The World Bank’s latest survey on trade logistics released today, Connecting to Compete 2012: Trade Logistics in the Global Economy, shows that a gap between the performance of rich and poor countries continues. And not only that--the convergence trend experienced between 2007 and 2010 slowed down over the last two years as the global recession and the European debt crisis shifted attention away from logistics reform.

With Singapore as the top performer among the 155 economies included in the Logistics Performance Indicators (LPI), which are part of the report, high income economies dominate the top rankings. The worst logistics performers are the poorest ones. Nevertheless, there were many countries that increased their ability to ship goods, both developed and developing, like Chile, China, India, Morocco, South Africa, and Turkey. For its part as well, the U.S. managed to improve its ranking from 15th in 2010 to 9th this year.

In fact, our study, based on a comprehensive world survey of international freight forwarders and express carriers, shows how logistics performance is not simply determined by the level of per capita income but by the right policies, as many countries across different income groups have done better than their peers. South Africa and China, for instance, have above average performance compared to countries in the same income category level. But so have very poor ones like Benin, Malawi and Madagascar.

Given the tough economic times we live in, improving trade logistics should be everybody’s business. Logistics are needed for the economy and the population to flourish –even to survive. For instance, transport and logistics directly affect the price and local availability of food. In developing countries, particularly in landlocked and poor ones, transport and logistics account for 20-60 percent of delivered food prices. They make up 48 percent of the cost of U.S. corn imported by Nicaragua, and 40 percent of the cost of U.S. wheat imported from Honduras. So at a time of high food prices, it would be in everyone’s interest to improve trade logistics.

More competitive products would also be the result of reducing the time and costs of shipping goods. The time cargo spends within ports in Sub-Saharan Africa, for instance, is more than two weeks on average, compared to under a week in large ports in Asia, Europe and Latin America, as shown in “Why Cargo Dwell Time Matters in Trade,” the latest of the Economic Premise note series. Decreasing dwell times and improving logistics as a whole, though, is easier said than done. It is not only a question of increasing investment in infrastructure, but also of undertaking a series of reforms that address the “software,” such as border agencies and the often present collusion of interests between port authorities, private operators, and shippers. The benefits of taking them to task, though, far outnumber the complications.

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