Creating Global Value Through Efficient Trade Logistics

1
Creating Global Value Through Efficient Trade
Logistics
Warren H. Hausman Hau L. Lee Uma Subramanian
2
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

3
What Determines Bilateral Trade?
4
Past Studies on Bilateral Trade
GDP
GDP
Distance
Institutions Infrastructure Country
characteristics
Institutions Infrastructure Country
characteristics
5
Our Focus
GDP
GDP
Distance
Institutions Infrastructure Country
characteristics
Institutions Infrastructure Country
characteristics
Logistics Frictions (Time and Cost Metrics)
6
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.

7
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.

8
Snapshot of Methodology
Focus on containerized imports exports
Textiles/ Apparel Coffee, tea, cocoa, spices

• 140 Countries

2005 Survey

• Detailed Questionnaire Survey

• Extensive follow-up through email and phone
  calls by World Bank

• Survey
• responses from practitioners/ intermediaries
  (Panalpina)

9
Global Logistics IndicatorsDimensions of
measurement Examples
Time
Cost
Complexity
Efficiency

• Total time for a trade transaction
• Document processing time
• Customs clearance
• Technical control
• Vessel turnaround
• Vessel waiting time for berth
• CSI related time

Total cost for a trade transaction Port
terminal charges Document Processing Customs
clearance cost Inland freight

• Signatures for a trade transaction
• Number of documents per transaction
• Percent of containers inspected
• Level of inspection
• Criteria for inspection

No. of containers unloaded per berth hour Port
shutdown days Inland transport speed Frequency
of vessel calls at port
Source World Bank Global Logistics Indicators
Survey
10
Methodology Framework
11
Methodology Assumptions
Firm
Product
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
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 gt10 of sales to
international markets
Procedures
Port
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
12
Poorer countries take longer to process trade
transactions
150
Kyrgyz Republic
Burundi
100
Niger
Kazakhstan
Days for an Import Transaction
Mongolia
Zimbabwe
Nigeria
50
Nepal
Nicaragua
Argentina
China
Senegal
Turkey
Chile
France
Japan
Philippines
New Zealand
Dominican Republic
United States
0
Germany
10
20
30
40
GDP per capita (thousands of dollars)
Source World Bank Global Logistics Indicators
Survey
13
Average Time for a Typical Import Transaction
By region
80
69
60
58
53
49
49
48
46
Days
44
40
41
37
36
33
28
20
14
0
OECD
EAP
LAC
MENA
SAS
ECA
AFR
Source World Bank Global Logistics Indicators
Survey
14
Landlocked Countries face bigger constraints
Coastal countries
Land Locked Countries
150
Uzbekistan
Burundi
100
Rwanda
Kazakhstan
Median61
Mongolia
Days for an Import Transaction
Burkina Faso
Bangladesh
Zambia
Nigeria
Median30
Lesotho
50
Colombia
Sierra Leone
Togo
Botswana
Nicaragua
Italy
Nepal
Italy
Guatemala
Paraguay
China
Indonesia
Argentina
Hungary
Philippines
United Kingdom
Czech Republic
Dominican Republic
Japan
Austria
Singapore
Germany
0
1
10
20
30
40
1
10
20
30
40
GDP per capita (thousands of dollars)
Source World Bank Global Logistics Indicators
Survey
15
Coastal Countries
Of the total time to import a container, hard
infrastructure accounts
About a third
About a fifth
Port and Terminal
Port and Terminal
Handling
Handling
9
12
Inland
Inland
Transportation
Transportation
9
24
Pre-arrival
52
Customs and
Pre-arrival
Inspection
62
17
Customs and
Inspection
Landlocked countries
15

Source World Bank Global Logistics Indicators
Survey
16
Total Cost for a Typical Import Transaction
5787
Cameroon
4616
Zambia
2248
Algeria
2029
Kazakhstan
1800
China
1631
Korea
1428
United States
1409
India
1335
Brazil
1242
South Africa
841
Malaysia
821
Ireland
700
Spain
550
Sweden
506
Norway
501
Thailand
0
1000
2000
3000
4000
5000
6000
7000
US
Source World Bank Global Logistics Indicators
Survey
17
Regional Variations in Cost for a Typical Import
Transaction
AFR
AFR
1983
438
LAC
SAS
1677
286
ECA
EAP
1370
104
SAS
ECA
1277
77
EAP
MENA
1130
74
MENA
LAC
1120
73
OECD
OECD
983
0
500
1,000
1,500
2,000
0
100
200
300
400
US Dollars
Percent (Cost/ Per Capita GDP)
Source World Bank Global Logistics Indicators
Survey
18
Number of Signatures for Typical Export
Transaction
Congo, Dem.Rep.
42
Azerbaijan
40
39
Nigeria
21
Mongolia
Lao PDR
17
15
Bangladesh
8
Senegal
7
Colombia
7
China
6
Venezuela
United States
5
5
Italy
5
Ireland
Korea
3
3
Indonesia
3
France
Finland
3
2
Singapore
0
10
20
30
40
Number of Signatures
Source World Bank Global Logistics Indicators
Survey
19
Higher Hurdles for Poorer countries
30
29
Number of Signatures for Imports
20
16
13
10
9
8
5
4
2
0
High income
Upper middle income
Lower middle income
Low income
Total
For Customs
Source World Bank Global Logistics Indicators
Survey
20
Percent of Import Containers Inspected
By region
80
72
64
60
53
50
Percent
40
42
34
30
24
24
20
23
20
15
0
EAP
ECA
MENA
AFR
LAC
SAS
Trade/GDP
Percent of Containers Inspected
Source World Bank Global Logistics Indicators
Survey
21
Percentage of Import Containers Inspected
100
80
60
40
20
0
Jordan
Mexico
Turkey
Japan
Columbia
Pakistan
Nigeria
USA
Malaysia
Germany
Bangladesh
Sri Lanka
South Africa
Dominican Rep.
Source World Bank Global Logistics Indicators
Survey
22
Bureaucracy inversely related to income
80
69
60
Percent
44
40
29
20
11
0
High income
Upper middle income
Lower middle income
Low income
Percent of Containers Inspected
Source World Bank Global Logistics Indicators
Survey
23
Criteria for Selection of Containers for Customs
Inspection (Sample countries)
Routine Inspection of all containers
Containers Selected for Inspection Based on Risk
Analysis
India Mozambique Pakistan Vietnam Sri
Lanka Nigeria Kenya Egypt Ghana Honduras
Germany Sweden Spain Australia France Thailand Lat
via Serbia-Montenegro Slovak Rep Bosnia
Herzegovina
Source World Bank Global Logistics Indicators
Survey
24
Augmented Gravity Model
Basic Attraction

• Exporter GDP
• Importer GDP
• Distance

Bilateral Trade

• Time
• Cost
• Variability

Logistics Indicators
Institutional Quality

• Exporters corruption index
• Importers corruption index
• Regional trade agreement dummy

25
Critical Global Logistics Indicators
Time

• Exporters average time for all procedures
• Importers average time for all procedures

Cost

• Total costs for import-related procedures

• Exporters Max Time Average Time for all
  procedures
• Importers Max Time Average time for all
  procedures

Variability
26
Augmented Gravity Model Results
Coefficient
t-Statistic
Log GDP exporter Log GDP importer Log
distance Log Exporters Avg Time for
Procedures Log Importers Avg Time for
Procedures Log of Importers Total Cost for
Procedures Log Exporters Max Time Avg Time Log
Importers Max Time Avg Time Exporters
Corruption Perception Index Importers Corruption
Perception Index Regional Trade Agreement
Dummy Adjusted R-Squared Observations F-Statistic
1.265 0.956 -1.390 -0.373 0.171 -0.492
-0.236 0.090 0.188 0.134 0.343
75.57 54.17 -39.02 -5.24 2.13 -10.68
-4.28 1.18 10.82 6.27 4.73
0.716 5149 1287.0
27
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.

28
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

29
Supply Chain-Based Logistics Index
Distance
Shipping Cost
Total Cost of Processing
Trade-Related Costs
Total Landed Cost
Total Time (Freight Ports)
Inventory Cost (In-Transit)
Coefficient of Variation of Total Time
Inventory Cost (Safety Stock)
Product Cost
30
Three-Stage Logistic Index Estimation

• Log Exporter GDP
• Log Importer GDP
• Exporters Corruption Perception Index
• Importers Corruption Perception Index
• Regional Trade Agreement Dummy

Bilateral Trade
Stage 1

• Log Distance
• Log Total Processing Cost
• Total Time
• Coeff of Variation of Total Time

Logistics Index
Residual from Stage 1
Stage 2

• Stage 1 variables plus
• Logistics Index

Bilateral Trade
Stage 3
31
Stage 1 Logistics Index Model Results
Coefficient
t-Statistic
1.200 0.888 0.298 0.252 1.005
61.67 46.04 24.09 17.85 11.5
Log GDP exporter Log GDP importer Exporters
Corruption Perception Index Importers Corruption
Perception Index Regional Trade Agreement
Dummy Adjusted R-Squared Observations F-Statistic
0.620 5149 1710.0
32
Stage 2 Logistics Index Model Results
Coefficient
t-Statistic
Log Distance Log of Total Trade Related
Costs Total Trade Related Time Coeff of Var for
Total Time Adjusted R-Squared Observations F-Stati
stic
-1.307 -0.232 -0.007 -0.947
-34.61 -6.02 -3.74 -4.56
0.225 5149 385.0
33
Stage 3 Logistics Index Model Results
Coefficient
t-Statistic
1.285 0.925 0.253 0.164 0.346 1.083
76.1 55.55 22.86 12.5 4.87 41.13
Log GDP exporter Log GDP importer Exporters
Corruption Perception Index Importers Corruption
Perception Index Regional Trade Agreement
Dummy Logistics Index Adjusted R-Squared Observati
ons F-Statistic
0.713 5149 2317.0
34
Model Comparisons
Augmented Gravity Model
Logistics Index Model
Number of Variables Adjusted R-Squared F-Statistic
11 0.716 1287.0
6 0.713 2317.0
35
Implications for Logistics Improvements
A one percent reduction in
Results in this increase in trade
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
Based on Stage Two and Three Regression
Results Calculations based on exports from
Brazil, China and Pakistan to US and UK
36
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.

37
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.