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Trade and Logistics: Evolution

of a Product Line

Robin CarruthersTUDTR

May 2003

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Why logistics?

Increases demand by lowering prices faced by consumers

Raises profits of producers, encourages production,increases demand for labor demand and wages

Encourages price stability by reducing arbitrage of price

differentials caused by regional shortages Increases product variety available to consumers by

reducing the number of goods where transport isprohibitively expensive relative to the value shipped

Allows a move up the development chain toward moresophisticated differentiated goods, and higher valuecommodities.

Facilitates diversification of product mix and expands theset of markets producers can access

Increases competition in world markets

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Structure of Trade and Logistics review

A Regional and national trade patterns

B Scope for impact of logistics as tradestimulator

C Country diagnoses

D Agenda for logistics actions

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A East Asia trade patterns

For lower income countries, GDP per capitaincreases with more trade (but who really

benefits?) Little intra regional trade

Countries are moving up the value chain

Some countrys exports are still heavily

concentrated on a few high value products Export oriented trade is concentrated in port cities,

perhaps not best way to reduce poverty

Most exports are to USJapan and EU are distantsecond and third

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In East Asia, GDP increases with trade

in low-income countries

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Intra-regional trade is low but growing

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Countries are moving up the value

chain

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Commodity concentration

Country

Top 3

exports

Top 5

exports Products

China 13.8% 21.8% Telecoms equip. Computer Apparel

Thailand 20.9% 26.2% Office equip. Transistors Fish

Indonesia 23.6% 29.7% Gas Petroleum Veneer

Korea 27.3% 38.5% Transistors Cars Telecom

Malaysia 39.9% 50.0% Transistors Office equip. Computers

Vietnam 44.3% 60.3% Petroleum Textiles Seafood

Singapore 48.4% 60.8% Transistors Computers Petroleum

Philippines 59.9% 66.6% Transistors Computers Office equipment

Cambodia 78.3% 80.2% Garments Timber Rice

Mongolia 84.5% 93.4% Copper Wool Hides

PNG 64.6% 74.5% Gold Petroleum Copper

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B Scope for logistics impact

Not much to gain where logistics are

already advanced

Not much to gain if economy is still

relatively closed

Inaccessible inland areas stand to gain most

Improved information technology will

benefit all at relatively low cost

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Openness and Logistics

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Cost ratios as an indicator of maritime

efficiency CIF/FOB ratio more than 2.0

Vietnam

Laos

Cambodia CIF/FOB ratio between 1.4

and 2.0

PNG

China

Philippines

Low Wage Countries

CIF/FOB ratio less than 1.4

Malaysia

Singapore

Hong Kong

Thailand

Indonesia

Taiwan

High/Medium Wage Countries

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Smaller ports are growing much faster than

larger portsPort 1995 1996 1997 1998 1999 2000 2001 Grow th rate

Hong Kong 12,550 13,460 14,567 14,582 16,211 17,800 17,900 6.1%

Singapore 11,846 12,944 14,135 15,136 15,945 17,040 15,520 4.6%

Shanghai 1,196 1,305 2,527 3,066 4,206 5,613 6,310 31.9%

Port Klang 1,134 1,410 1,685 1,820 2,550 3,206 3,759 22.1%

Laem Chabang n.a. 729 1,036 1,425 1,756 2,195 2,424 27.1%

Qingdao 603 810 1,031 1,213 1,540 2,100 2,639 27.9%

Tianjin 702 822 935 1,018 1,302 1,708 2,010 19.2%Gunagzhou 515 558 687 848 1,179 1,430 1,628 21.1%

Taichung, Taiw an 447 695 842 880 1,107 1,130 1,069 15.6%

Total (East Asia) 54,433 57,836 65,119 68,155 75,155 83,422 94,267 9.6%

HK and Singapore % 45% 46% 44% 44% 43% 42% 35%

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Uneven use of information technology in

trade facilitation

Country Port

OperatorsMIS

Traders in

Port EDI

System

Customs

Agency

MIS

Traders in

Customs

EDIsystem

All parties

electronically

linked

Electronic

trade in

transportservices

Japan X X X X

Singapore X X X X X X

Korea X X X X X X

Thailand X X X X X X

Philippines X X X XIndonesia X X X X

Vietnam

Laos

Cambodia

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Land access costs remain high

Transport to the US West Coast of a container

from an inland province of China

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C Country Groups and Studies in East Asia

Group 1: Outward Oriented, highly Accessible(Singapore, HK, Korea, Taiwan)

Group 2A: Outward Oriented, more Accessible(Thailand, Philippines, Malaysia)

Group 2B: Outward Oriented, less Accessible

(Inland China, North-East Thailand)

Group 3: Less Open and Accessible (Vietnam,Cambodia)

Group 4: Land Locked and Pacific Island(Laos, Mongolia, Samoa, PNG..)

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Main conclusions of Country Studies

Non-transport logistics cost impose much highertrade penalty than transport costs

Regional trade is suppressed by poor logistics

more than by tariffs Domestic marketing arrangements impede

international trade

Cross border arrangements impose on all small

countries, not only land-locked Most trade-related industry is in port cities. Trade

related growth has not reached inland regions

Port related activities contribute significantly to

congestion and pollution

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Poor logistics influence prices and

marketing patterns In Laos price of rice varies +/- 25% due to poor

transport affecting market integration

In Mindanao, Philippines, farm gate prices varysignificantly, northern farmers receive better prices

due to good road access

Most Mongolian export cashmere is sold to Chinese

merchants as accessibility to China is better thanwithin Mongolia

In Vietnam, coffee production in otherwise productive

highlands is constrained by poor accessibility

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Logistics limit diversification of exports

Limited number of markets and shipment

scale

Reduced trans-pacific shipping costs have

stimulated East Asias trade to US, while poor

local logistics have inhibited growth of intra-

regional trade

Small export base increases vulnerability For three countries, more than 2/3 of export

value derives from three products

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Ports, regional growth and the urban

context

In larger Eat Asian countries, most FDI isconcentrated in port cities, so the benefits ofincreased trade are not spread throughout the

country Many East Asian ports are in downtown areas, and

they and their associated activities contributesignificantly to congestion and pollution. These

locations are often unsuitable for new generationsof container ships that need deeper draughts thatcan only be achieved with expensiveandenvironmentally risky dredging

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D Logistics strategy depends on stage

of economic development For already open and accessible economies,

increasing international trade competitivenessis logistics priority

For less open economies, improved logistics willfirst help make domestic trade morecompetitive and efficient

For these countries, opening of economy is ahigher priority for international trade growththan improving logistics

Open but inaccessible countries will benefit

most from improved logistics

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Logistics Development Agenda

Domestic Integration: A high priority in Groups 3 and 4

Improved infrastructurepriority for Groups 3 and 4 but

not sufficientbetter services are also important Logistics evolution - Advanced in Group 1 and someGroup 2, needs stimulating environment in other Groups

Regulatory EnvironmentTransport, Urban

Management, Standardization, Cross-border facilities Regional Cooperation between governments and

logistics suppliers will do more to stimulate trade thanreductions in trade tariffs

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Priority logistics actions Group 2A Outward Oriented Accessible

Improve urban access to ports and upgrade transport servicesRelocation non-maritime activities away from port, and consider relocation ofmaritime activities out of downtown areas

Restructure MoT to facilitate multimodal transport

Group 2B Outward Oriented, less Accessible

Promote inland ICDsImprove road, rail and waterway access to ports and upgrade logistics services

Group 3 Less Open and AccessibleImprove road, rail and waterway access to ports and upgrade transportservices

Legalize and deregulate freight forwarders

Group 4 Land Locked and Pacific IslandSimplify land border crossings, negotiate land access rights in neighboringcountries,

Upgrade express logistics services for high unit value goods (eg flowers, exoticplants, seafood, fashion textiles)

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Second Stage Studies

Use standard indicators to measure tradecompetitiveness and openness of economy

Assess trade potentialproducts and countries Use standard indicators and interviews withexporters and logistics operators to establish

potential sources of logistics improvement

Undertake country surveys for Facilitation Audit Discuss and develop logistics development agenda

with exporters and government