A look at logistics within Belt and Road economies

Businesses of all sizes know that the key to growth is getting more products into the hands of consumers. Savvy business owners also know that strong logistics can make this possible. Without a reliable way to transport goods across borders, warehouse inventory, deliver shipments from airports and terminals, or manage customs clearance, customers never get what they purchased, and businesses never get their profits.

There is a lot to gain from improving logistics networks so that they are more reliable and affordable. A lack of logistics infrastructure can cause companies to abstain from investing in emerging and developing countries. Increasing the logistics performance of a low-income country so that it rivals that of a middle-income country can increase trade by 15% or more. Overall, a country’s logistics performance is key to a country’s productivity.

Given the importance of logistics in fostering trade, our team wanted to find out how logistics were impacting trade and connectivity among Belt and Road Initiative economies. For BRI economies, are logistics a help or a hindrance? Using data from the World Bank Group’s Logistics Performance Index , our research helped highlight areas where logistics are working well and where they can be improved.

A key finding was that there are substantial gaps in trade- and transport-related infrastructure among BRI economies, and also a great deal of variance among countries and regions. For instance, the perceived quality of trade- and transport-related infrastructure in China (score of 3.75 out of 5) and Hong Kong (China) (3.97) are almost on par with global best performers, and Singapore (4.06) ranks even above the G7 average. At the same time, the BRI also includes countries whose logistics performance falls toward the bottom of the scale, such as Afghanistan (score of 1.81 out of 5), Bhutan (1.91), Myanmar (1.99), Moldova (2.02), Iraq (2.03), Mongolia (2.1) and Yemen (2.12). When it comes to international trade, networks are only as strong as their weakest link.
 

When examined by region, BRI countries in South Asia exhibit the weakest infrastructure performance, while BRI economies in East Asia Pacific and in high income countries exhibit the strongest. China in particular faces a unique challenge: its own logistics performance is strong, but it is surrounded by several economies with high perceived infrastructure gaps - Afghanistan, Kazakhstan, Mongolia, Myanmar, and Pakistan. This leads to difficulties in land-based transit trade.

Additional findings include:

• Across BRI economies, logistics professionals perceive gaps in rail infrastructure as more prevalent than gaps in road infrastructure, with port and airport infrastructure receiving higher marks for perceived quality.
• The share of logistics professionals rating the quality of trade- and transport related infrastructure in their country of operation as having “improved” or “much improved” between 2015 and 2017 is higher than the share rating infrastructure quality as “worsened” or “much worsened”. The same goes for ICT infrastructure.
• The competence and quality of rail service providers is rated as lower than the competence and quality of service provided by road, maritime, and air transport providers. Warehousing, transloading and distribution services are rated comparatively highly as well.

Figure 1: The Quality of trade- and transport-related infrastructure of BRI economies

BRI countries with large gaps in trade- and transport-related infrastructure suffer from constraints to their productivity, high costs of doing business, and reduced attractiveness to outside investors. As gains from improving logistics performance are especially high in poorer countries, improving trade- and transport-related infrastructure (along with logistics performance overall) in developing countries that are part of the BRI could increase trade as well as enhance international and domestic market integration. The BRI economies which would benefit most from infrastructure investments (based on their 2018 LPI infrastructure score) are Afghanistan, Bhutan, Myanmar, Moldova, Iraq, Mongolia, Yemen, Cambodia, Tajikistan, Nepal, Pakistan, and Ukraine. Improving logistics performance in those countries could help lower logistics costs and enable countries to become part of international procurement networks.

Coordinating the various stages of product development, component production, and final assembly requires the ability to move goods across borders quickly, reliably, and at low cost. In most BRI countries, perceived infrastructure gaps are highest in rail transport, followed by road transport. Infrastructure investments in these transport modes seem sensible as road transport is the dominant transport mode in most countries, and rail transport – along with maritime shipping – has the lowest environmental footprint among transport modes.