creating global value through efficient trade logistics warren h. hausman hau l. lee uma subramanian
TRANSCRIPT
Creating Global Value Through Efficient Trade Logistics
Warren H. Hausman
Hau L. Lee
Uma Subramanian
Overview
• Motivation for logistics indicators research
• Methodology for developing logistics indicators
• Cross country comparisons of selected logistics indicators
• Logistics indicators as determinants of bilateral trade
• Supply chain-based logistics index
What Determines Bilateral Trade?
Past Studies on Bilateral Trade
GDP GDPDistance
InstitutionsInfrastructure
Country characteristics
InstitutionsInfrastructure
Country characteristics
Our Focus
GDP GDPDistance
InstitutionsInfrastructure
Country characteristics
InstitutionsInfrastructure
Country characteristicsLogistics Frictions
(Time and Cost Metrics)
Research Opportunities
• Institutional quality and infrastructure variables have been based on subjective indices or expert assessments.
• Quantifiable and measurable logistics performance indicators have not been used.
• Variables used are not easily translated into operations i.e. not directly actionable.
• Best results without using country-specific dummy variables explain 66% of variability in bilateral trade.
Objectives of Research
• Determine the significance of logistics performance in influencing bilateral trade through the use of measurable and quantifiable logistics indicators.
• Perform a critical assessment of logistics performance of countries globally.
• Develop supply-chain logistics index to guide resource allocation and deployment for improving logistics efficiency.
Snapshot of Methodology
2005 Survey
Focus on containerized
imports & exports
140 Countries
Detailed Questionnaire
SurveySurvey
responses from practitioners/ intermediaries
(Panalpina)
Textiles/Apparel
Coffee, tea, cocoa, spices
Extensive follow-up through
email and phone calls by World
Bank
Global Logistics IndicatorsDimensions of measurement: Examples
Total time for a trade transaction
Document processing time
Customs clearance
Technical control
Vessel turnaround
Vessel waiting time for berth
CSI related time
Time
Total cost for a trade transaction
Port & terminal charges
Document Processing
Customs clearance cost
Inland freight
Cost
Signatures for a trade transaction
Number of documents per transaction
Percent of containers inspected
Level of inspection
Criteria for inspection
Complexity
No. of containers unloaded per berth hour
Port shutdown days
Inland transport speed
Frequency of vessel calls at port
Efficiency
Source: World Bank Global Logistics Indicators Survey
Methodology Framework…
Process 1
Process 14
Process 2Process 3Process 4Process 5
Pre-Arrival or Pre-Shipment Activity
Inland Transportation
Border Clearance
Port & Terminal Handling Activity
Exports
Imports
Methodology: Assumptions
Private, registered limited liability company
Medium size (200 employees or more)
Located in the most populous city
Domestically-owned with no foreign ownership
Subject to commercial laws and regulations
Exports >10% of sales to international markets
Interaction of firm with external parties
All legal procedures required for trade, including those that may be “side-stepped” in exceptional circumstances
Formal costs; no informal payments included in cost figures
Port of entry and exit is a sea-port
Port is the one that serves the most populous city
Manufactured or processed products (SITC 65; 84; 07)*
Medium valued product
Transported in dry cargo 20-ft (FCL)
Not: hazardous product, military equipment
Does not require refrigeration or special envir.
Does not involve any special phyto-sanitary or environmental standards
Firm
ProceduresPort
Product
Germany
United StatesJapan
New ZealandDominican RepublicPhilippines
FranceChileTurkeySenegal
ArgentinaChinaNepal Nicaragua
Nigeria
ZimbabweMongolia
KazakhstanNiger
Burundi Kyrgyz Republic
050
100
150
Day
s fo
r an
Impo
rt T
rans
actio
n
10 20 30 40GDP per capita (thousands of dollars)
Poorer countries take longer to process trade transactions
Source: World Bank Global Logistics Indicators Survey
14
2833
46
36
49
37
49
41
53
4448
58
69
020
4060
80D
ays
OECD EAP LAC MENA SAS ECA AFR
Source: World Bank Global Logistics Indicators Survey
By region
Average Time for a Typical Import Transaction
Germany
SingaporeJapan
United Kingdom
Dominican Republic
Philippines
ChinaIndonesia ArgentinaGuatemalaNicaragua Italy
Sierra Leone TogoColombia
Nigeria
Bangladesh
Austria
Czech Republic
HungaryParaguayNepal
Botswana
Lesotho
ZambiaBurkina Faso
Mongolia
KazakhstanRwanda
Burundi
Uzbekistan
05
01
00
15
0
1 10 20 30 40 1 10 20 30 40
Day
s fo
r an
Imp
ort
Tra
ns
acti
on
GDP per capita (thousands of dollars)
Median=30
Median=61
Landlocked Countries face bigger constraints
Italy
Coastal countries Land Locked Countries
Source: World Bank Global Logistics Indicators Survey
Coastal Countries
Port and Terminal Handling
9%
Inland Transportation
24%
Customs and Inspection
15%
Pre-arrival52%
Port and Terminal Handling
12%
Inland Transportation
9%
Customs and Inspection
17%Pre-arrival
62%
Landlocked countries
Of the total time to import a container,
hard infrastructure accounts:
About a fifth About a third
Source: World Bank Global Logistics Indicators Survey
Total Cost for a Typical Import Transaction
501
506
550
700
821
841
1242
1335
1409
1428
1631
1800
2029
2248
4616
5787
0 1000 2000 3000 4000 5000 6000 7000
Thailand
Norway
Sweden
Spain
Ireland
Malaysia
South Africa
Brazil
India
United States
Korea
China
Kazakhstan
Algeria
Zambia
Cameroon
Source: World Bank Global Logistics Indicators SurveyUS $
Regional Variations in Cost for a Typical Import Transaction
983
1120
1130
1277
1370
1677
1983
0 500 1,000 1,500 2,000US Dollars
OECD
MENA
EAP
SAS
ECA
LAC
AFR
73
74
77
104
286
438
0 100 200 300 400Percent (Cost/ Per Capita GDP)
OECD
LAC
MENA
ECA
EAP
SAS
AFR
Source: World Bank Global Logistics Indicators Survey
23333
555
677
815
1721
3940
42
0 10 20 30 40Number of Signatures
Singapore
Finland
France
Indonesia
Korea
Ireland
Italy
United States
Venezuela
China
Colombia
Senegal
Bangladesh
Lao PDR
Mongolia
Nigeria
Azerbaijan
Congo, Dem.Rep.
Number of Signatures for Typical Export Transaction
Source: World Bank Global Logistics Indicators Survey
42
9
5
13
8
29
16
010
2030
Num
ber
of S
igna
ture
s fo
r Im
port
s
High income Upper middle income Lower middle income Low income
Higher Hurdles for Poorer countries
Total For Customs
Source: World Bank Global Logistics Indicators Survey
42
24
3430
24
53
23
64
20
50
15
72
020
4060
80P
erce
nt
EAP ECA MENA AFR LAC SAS
Source: World Bank Global Logistics Indicators Survey
By regionPercent of Import Containers Inspected
Trade/GDP Percent of Containers Inspected
Percentage of Import Containers Inspected
0
20
40
60
80
100
Mal
aysi
a
Germ
any
USAJa
pan
South A
frica
Mex
ico
Jord
an
Bangla
desh
Colum
bia
Domin
ican
Rep
.
Turk
ey
Pakis
tan
Sri Lan
ka
Niger
ia
Source: World Bank Global Logistics Indicators Survey
11
29
44
69
020
4060
80P
erce
nt
High income Upper middle income Lower middle income Low income
Bureaucracy inversely related to income
Percent of Containers Inspected
Source: World Bank Global Logistics Indicators Survey
Criteria for Selection of Containers for Customs Inspection
(Sample countries)
India
Mozambique
Pakistan
Vietnam
Sri Lanka
Nigeria
Kenya
Egypt
Ghana
Honduras
Germany
Sweden
Spain
Australia
France
Thailand
Latvia
Serbia-Montenegro
Slovak Rep
Bosnia & Herzegovina
Routine Inspection of all containers
Containers Selected for InspectionBased on Risk Analysis
Source: World Bank Global Logistics Indicators Survey
Augmented Gravity Model
Basic Attraction
Logistics Indicators
Institutional Quality
• Exporter GDP• Importer GDP• Distance
Bilateral Trade• Time
• Cost• Variability
• Exporter’s corruption index• Importer’s corruption index• Regional trade agreement dummy
Critical Global Logistics Indicators
Time
Cost
Variability
• Exporter’s average time for all procedures• Importer’s average time for all procedures
• Total costs for import-related procedures
• Exporter’s Max Time – Average Time for all procedures
• Importer’s Max Time – Average time for all procedures
Augmented Gravity Model Results
Log GDP exporterLog GDP importer
Log distanceLog Exporter’s Avg Time for ProceduresLog Importer’s Avg Time for Procedures
Log of Importer’s Total Cost for ProceduresLog Exporter’s Max Time – Avg TimeLog Importer’s Max Time – Avg Time
Exporter’s Corruption Perception IndexImporter’s Corruption Perception Index
Regional Trade Agreement DummyAdjusted R-Squared
ObservationsF-Statistic
1.265 0.956 -1.390 -0.373 0.171 -0.492 -0.236 0.090 0.188 0.134 0.343
Coefficient
75.57 54.17 -39.02 -5.24 2.13-10.68 -4.28 1.18 10.82 6.27 4.73
t-Statistic
0.7165149
1287.0
Observations
• Measurable and quantifiable logistics indicators improve explanatory power of gravity model for bilateral trade.
• Logistics indicators results show efficient logistics in time and cost can contribute to increased trade.
• Variability matters – higher variability in processing time can be a deterrent to bilateral trade.
Supply-Chain Based Logistics Index
• A single metric to evaluate and measure logistics efficiencies
• Weights of each variable in the Logistics Index show relative benefits
• Use weights to guide resource allocation and deployment of logistics improvements
• A single measure enables quick and easy benchmarking
Supply Chain-Based Logistics IndexDistance
Total Cost of Processing
Total Time (Freight + Ports)
Shipping Cost
Trade-Related Costs
Inventory Cost(In-Transit)
Total Landed
Cost
Coefficient of Variation of Total
Time
Inventory Cost(Safety Stock)
Product Cost
Three-Stage Logistic Index Estimation
• Log Exporter GDP• Log Importer GDP• Exporter’s Corruption Perception Index• Importer’s Corruption Perception Index• Regional Trade Agreement Dummy
Stage 1
Stage 2
Bilateral Trade
• Stage 1 variables plus• Logistics Index
Stage 3
Bilateral Trade
Residual from Stage 1
• Log Distance• Log Total Processing Cost• Total Time• Coeff of Variation of Total Time
LogisticsIndex
Stage 1 Logistics Index Model Results
Log GDP exporter
Log GDP importer
Exporter’s Corruption Perception Index
Importer’s Corruption Perception Index
Regional Trade Agreement Dummy
Adjusted R-Squared
Observations
F-Statistic
1.200
0.888
0.298
0.252
1.005
Coefficient
61.67
46.04
24.09
17.85
11.5
t-Statistic
0.620
5149
1710.0
Stage 2 Logistics Index Model Results
Log Distance
Log of Total Trade Related Costs
Total Trade Related Time
Coeff of Var for Total Time
Adjusted R-Squared
Observations
F-Statistic
-1.307
-0.232
-0.007
-0.947
Coefficient
-34.61
-6.02
-3.74
-4.56
t-Statistic
0.225
5149
385.0
Stage 3 Logistics Index Model Results
Log GDP exporter
Log GDP importer
Exporter’s Corruption Perception Index
Importer’s Corruption Perception Index
Regional Trade Agreement Dummy
Logistics Index
Adjusted R-Squared
Observations
F-Statistic
1.285
0.925
0.253
0.164
0.346
1.083
Coefficient
76.1
55.55
22.86
12.5
4.87
41.13
t-Statistic
0.713
5149
2317.0
Model Comparisons
Number of Variables
Adjusted R-Squared
F-Statistic
11
0.716
1287.0
6
0.713
2317.0
Augmented Gravity Model
Logistics Index Model
Implications for Logistics Improvements*
“Distance” (surrogate for shipping cost)
Trade-related cost
Trade related time (average)
Standard deviation of proc. time
1.415%
0.251%
0.143%**
0.308%**
A one percent reduction in:
* Based on Stage Two and Three Regression Results** Calculations based on exports from Brazil, China and Pakistan to US and UK
Results in this % increasein trade:
Logistics Index Observations
• It is possible to derive a single logistics index that captures all the explanatory power of all the logistics indicators.
• The logistics index is a significant determinant of bilateral trade.
• The logistics index is derived from distance, time, cost and variability measures.
Summary
• Logistics indicators are a significant determinant of bilateral trade.
• A single Logistics Index has equal explanatory power to the set of logistics indicators.
• Private enterprises and government agencies should collaborate to improve logistics performance and reduce logistics friction in order to foster trade.
• The Logistics Index can be used to guide resource allocation and deployment for such improvement projects.