DMR A2011-000288 TP300611 TD_EGM1_2011_6E

TD/EGM.1/2011/6

Distr.: For participants only 29 June 2011

English only

Economic and Social Commission for Asia and the Pacific

Expert Group Meeting on Preparations for the Ministerial Conference on Transport

Bangkok, 14 and 15 July 2011 Item 3 (d) of the provisional agenda Emerging issues in transport: Transport logistics

Transport logistics

Note by the secretariat∗

Summary

Transport logistics plays a crucial role in supporting economic and trade growth and enhancing competitiveness. Many countries in the region, however, are still at a nascent stage of developing logistics systems and often face challenges of high costs and poor performance.

The present document reviews some key components for developing an efficient logistics system, namely, transport logistics policy, regulatory and institutional framework for enhancing professionalism, experience sharing and partnerships within the region and capacity building.

The Meeting may wish to comment on the views expressed in the document and to consider the proposed elements to be included into the Regional Action Programme for Transport Development in Asia and the Pacific, phase II (2012-2016).

∗ The present document has been issued without formal editing.

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Contents

Page

I. Introduction ............................................................................................. 2

II. Issues and challenges for developing an efficient logistics system ............ 3

A. Transport logistics policy ............................................................. 3

B. Regulatory and institutional framework for enhancing professionalism............................................................................. 5

C. Experience sharing and partnerships within the Region ................. 6

D. Capacity building.......................................................................... 6

III. Issues for consideration............................................................................ 7

I. Introduction

1. The importance of developing an efficient logistics system has been acknowledged by governments of ESCAP member States on a number of occasions. In 2006, the Busan Declaration on Transport Development in Asia and the Pacific stressed the crucial role of transport and logistics in supporting economic and trade growth and competitiveness of the region, and called for the development of an international integrated intermodal transport and logistics system. Subsequently, in 2009, the Bangkok Declaration on Transport Development in Asia further highlighted the important role of logistics in promoting development of regional cooperation, production and distribution networks and international trade.

2. Most developing countries in the region are still at the nascent stage of developing their logistics systems and face challenges of high logistics costs and poor logistics performance.

3. In many member countries, logistics costs form a large proportion of total output. For example, in Indonesia, logistics costs comprise 14 per cent of total production costs, compared with 5 per cent in Japan;1and 10.2 per cent of gross domestic product (GDP) in the United States.2,3 In China, logistics costs accounted for 18.1 per cent of total GDP in 2008;4 and in Thailand, they ran as high as 18.9 per cent of GDP in 2007.5

1 JETRO (2007), ASEAN Logistics Network Map, (Tokyo, Japan External Trade

Organization). 2 Source: http://www.joc.com/logistics-economy/logistics-costs-outstripped-gdp-

growth-2010. 3 It is essential to note that in many cases, statistical data for logistics services are not

comparable because different countries often have different criteria for data collection and calculation. Thus data mentioned in this document can only be used as cursory indicators.

4 Available from http://www.un188.com/zixun/zixun60.htm. 5 Available from http://enews.mcot.net/view.php?id=8782.

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4. There also exist logistics development gaps among countries in the region. According to the World Bank’s logistics performance index (LPI)6 while many developing countries in the region were ranked within the top 50 out of 155 countries on the index in 2010, most of the least developed countries (LDC), landlocked developing countries (LLDC) and small island developing states (SIDS) were among those with relatively poor performance.

5. In view of the high logistics costs and poor logistics performance of many countries of the region there is clearly a need to identify and address the issues and challenges that they are facing at both the national and international levels. At the national level, the key issues and challenges include developing logistics infrastructure (transport modes and intermodal logistics facilities as well as information and communications technology (ICT)), establishing suitable regulatory regimes and institutional arrangements, and enhancing the professionalism and competence of logistics service providers.

6. At the international level, transport and trade facilitation (including facilitation of border crossing) form an important component for an efficient logistics system. In this case, logistics is not just confined within national borders or markets. Customs and other agencies entrusted with border control functions have direct impacts on border crossing time and costs therefore determine the level of efficiency of the logistics system.

7. Issues in transport infrastructure (including road, railway, dry port and logistics centres) and transport facilitation are addressed in separate documents on Transport infrastructure (TD/EGM.1/2011/4) and Transport facilitation (TD/EGM.1/2011/5). The present document reviews other key policy and capacity building issues and challenges in developing an efficient transport and logistics system and proposes regional approaches to addressing the issues through the creation of an enabling and supportive environment for the development of logistics service providers.

II. Issues, challenges and proposals for developing an efficient logistics system

A. Transport logistics policy

8. Logistics has been defined as “the process of planning, implementing, and controlling procedures for the efficient and effective transportation and storage of goods including services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements.”7. As such, logistics is clearly a complex process that requires the interaction of four main interdependent elements: “shippers, traders, and consignees; public and private sector logistics and transport service providers; transport and

6 See World Bank, Logistics Performance Index, Global LPI Ranking, Washington 2010. 7 Council of Supply Chain Management Professionals, Glossary, available from

http://cscmp.org/digital/glossary/document.pdf.

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communications infrastructure; and national and provincial institutions, policies, and rules (the institutional framework).”8

9. Currently in many countries in the region however, the “logistics industry” consists of a fragmented collection of infrastructure, services, actors, rules and regulations that are administered or managed by independent ministries, departments, agencies, organizations and companies, each operating in their own “silos”.

10. Even transportation alone, as one of the key activities in logistics, encompasses various subsectors or modes including road, rail, sea, air and waterways. In general, responsibility for each of these subsectors falls under the jurisdiction of separate agencies. Consequently, investment and development decisions are based primarily on the needs of the subsector with little coordination between the different modes. To the extent that there is an overall transport policy debate, it largely revolves around the question of how much budget to allocate to each individual transport subsector and tends not to view the transport sector as an integrated intermodal system.

11. Information and communications technology (ICT) infrastructure and software are also crucial elements in the development of the logistics industry as they can, amongst others, provide information on the location of goods and inventories, increase efficiency and reduce transactions costs. While individual companies and transport subsectors in some developed countries have established tracking and tracing systems, no standardized systems are in place that cover all subsectors, countries and users. In view of the modal silo systems that have evolved, it is unlikely that standardization of transport and logistics information systems will be achieved without policy interventions.

12. Because the subsectors have grown-up in isolation, they have developed their own standards; rules and regulations; operating practices and procedures; and documentation. As a result technical interoperability between subsectors is limited, loading units (containers) have different sizes and specifications, different documents and procedures are required by each mode, and different liability regimes apply. Consequently, transactions costs of intermodal transport are high.

13. In some countries, a number of issues related to logistics fall under the jurisdiction of state or provincial governments. Policy measures can include regulation of warehousing and distribution, toll gates at state borders to collect local taxes, and regulation of farm-to-market supply chains. These practices impact directly on incomes of farmers, increase losses in the supply chain, impair the quality of produce and increases the prices paid by consumers.

14. The demands of efficient logistics systems extend beyond physical infrastructure, regulations and operating practices. In many cases, existing logistics service providers are too small to realize the full benefits of a well functioning logistics system. It is unlikely that investments by these private operators will move the industry toward the provision of more specialized service and facilities, technology, and expertise. Consequently,

8 Asian Development Bank, “Logistics Development Study of the GMS North–South

Economic Corridor”, 2008, available from http://www.adb.org/GMS/Economic-Corridors/NSEC-Logistics-Devt-Study-Summary.pdf.

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there is a need to consider policy interventions in the area of competition policy, and foreign direct investment or joint ventures with foreign firms which could encourage transfer of technology, expertise and financial resources to develop the industry. Without proper policy intervention in this area, the development of the logistics industry will be severely constrained.

15. While infrastructure and logistics service providers are the elements that link the supply side of the logistics industry, institutional arrangement can play a significant role in stimulating the demand side. In the Republic of Korea, for example, where physical infrastructure and working capital seems to be less of an issue compared to other countries of the region, it is recognized that the demand for logistics services can be further stimulated. According to a 2006 survey by the Korea International Trade Association, small- and medium-sized businesses have a very low level of awareness, knowledge and information about third-party logistics service provider. 20.9 per cent of survey respondents cited “lack of knowledge and information about 3PL” for their reason of not acquiring services.9

16. Some countries in the region have started to take initiatives to put in place policies to guide and support the development of efficient logistics. The Government of Thailand adopted a strategy on logistics (2007-2011). In recent years the National Development and Reform Commission of China has been leading the development of national logistics policy with participation of seven ministries and authorities as well as the private sector. In Japan, the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure and Transport jointly formulated a “Comprehensive Program of Logistics Policies (2005-2009)”. In the Republic of Korea, many initiatives have been taken by the Government to promote the development of logistics. For example, in 1995, the Logistics Facilitation Act was revised and the Distribution Centre Development Act was passed in order to provide financial incentives to developers.

17. The challenges of a sound transport logistics policy lie in its ability to create an environment which reinforces and facilitates smooth and efficient operation of the logistics system. As a cross-sectoral issue relevant to many stakeholders including government, industry and the users of the logistics service, the solution to development of effective policies to improve logistics often proves complex and requires the involvement of different stakeholders from both the public and private sectors. Consequently, for many countries in the region, it remains a real challenge to bring all stakeholders together to develop and implement logistics policies in a coordinated and consistent manner.

18. Compilation and dissemination of good practices and production of guidelines for developing transport logistics policies would provide a useful tool to assist countries in the region in their endeavours to improve logistics.

B. Regulatory and institutional framework for enhancing professionalism

19. The operational capacities of logistics service providers have direct impacts on logistics performance in a country. Freight forwarders,

9 Direction for Korean Logistics Industry’s Development, KOREA FOCUS.

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multimodal transport operators and logistics service providers in the region are still small in size and the industry is fragmented. In many countries the transport logistics industry consists of many small operators with no single company commanding a substantial market share to enjoy economies of scale. This results in intense price competition which leads to a downward spiral in efficiency and quality of transport logistics services.

20. The general lack of common standards in the region impedes progress of the industry in development of the operational capacities. It is necessary to enhance the professionalism and competitiveness of the logistics service providers through, among other things, establishment of minimum standards and codes of conduct for participation in the industry.

21. In this respect, the development of minimum standards and codes of conduct for freight forwarders, multimodal transport operators and logistics service providers was included in the Regional Action Programme for Transport Development in Asia and the Pacific, phase I (2007-2011) and was considered as a critical factor in upgrading skills and professionalism for the industry by the first session of the Forum of Asian Ministers of Transport, held in Bangkok from 14 to 18 December 2009.

22. In response, the secretariat undertook a study and organized a workshop on minimum standards and codes of conduct in Bangkok in May 2011. The preliminary findings and recommendations were discussed at the regional forum of freight forwarders, multimodal transport operators and logistics service providers, held in Bangkok in June 2011. It is expected that the guidelines for minimum standards and a code of conduct for freight forwarders, non-vessel operating common carriers and multimodal transport operators will be completed in September 2011.

23. In view of complex nature of logistics services, further study and consultation with the industry and governments are required to prepare similar guidelines for logistics service providers in the next phase of the Regional Action Programme.

C. Experience sharing and partnerships within the region

24. Networking is an effective tool to promote cooperation and communication among all stakeholders to exchange information and experience and to discuss common challenges and possible solutions. Given the cross-sectoral nature of the logistics industry, it also provides an opportunity for policy makers to understand the industry’s needs and to take measures and initiatives to support the industry.

25. To promote development of partnerships and establishment of a regional platform for sharing best practices and know-how, the secretariat organized a series of self-funded regional forums and meetings of chief executives of national associations for freight forwarders, multimodal transport operators and logistics service providers in Bangkok in 2007, 2009 and 2011, in New Delhi in 2008, and in Bali, Indonesia in 2010 respectively. Totally the events have been attended by over 500 participants from the industry, governments, international organizations and academia.

26. This unique regional platform for the industry and governments needs to be maintained to build sustainable partnerships among the service

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providers and between the service providers and governments, and promote good practices in the region.

D. Capacity building

27. One of the most difficult problems of logistics in the ESCAP region is the lack of skilled professional manpower. Manpower deficiencies can be observed with all stakeholders and at all levels of operations and managerial decision making. There is therefore a need to develop training programmes that enhance logistics knowledge in order to upgrade logistics skills and practices.

28. However, many countries in the region, in particular the least developed and island developing countries, have not developed effective capacity building programmes. The secretariat has been assisting member countries in developing training programmes and training capacity for freight forwarders, multimodal transport operators and logistics services providers. Training-of-trainer workshops conducted by the secretariat in some countries have helped create a pool of local trainers and establish a basis for sustainable training programme. Further technical assistance and support are needed for other developing countries to establish the same training programmes and train their trainers.

III. Issues for consideration

29. Many countries in the region are still at a nascent stage in developing their logistics industries and face challenges of high logistics costs and low logistics performance. To develop an efficient logistics system, all relevant issues need to be comprehensively addressed. In this respect, an enabling environment including a policy and regulatory framework needs to be put in place in a country. Transport logistics policy is a very important component of overall logistics policy and its development can act as an entry point and contribute to wider logistics policy goals. Other measures for enhancing the professionalism and competence of logistics service providers include the establishment of minimum standards and codes of conduct for logistics service providers at the national level, sharing of knowledge and experiences among logistics service providers in the region, and establishment of sustainable training and capacity building programmes at the national, subregional and regional levels.

30. The Meeting is invited to comment on the views expressed in the present document and to consider the following elements in the Regional Action Programme for Transport Development in Asia and the Pacific, phase II (2012-2016).

Immediate objective: to assist countries in developing transport logistics policies and in enhancing the professionalism and competence of logistics service providers

Outputs:

1. Guidelines for the development of transport logistics policies

2. Guidelines for the establishment of minimum standards and codes of conduct for logistics service providers

3. Regional meetings of freight forwarders, multimodal

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transport operators and logistics service providers and their national associations

4. Technical assistance and support to the industry and governments for a sustainable training programme

Indicators of achievement:

1. Aspects of the guidelines for transport logistics policies incorporated into national logistics policies by countries.

2. Aspects of the guidelines for logistics service providers incorporated into national legislation and/or industry regulations by countries.

3. Exchange of experience and best practices documented, partnerships created and issues of common interest identified in order to be brought to the attention of governments for consideration

4. Sustainable training programmes on freight forwarding, multimodal transport and logistics established by countries.

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