LOGISTICS FOR COMPETITIVENESS: IMPACT AND AGENDA Jose Luis Guasch World Bank and Economics...
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Transcript of LOGISTICS FOR COMPETITIVENESS: IMPACT AND AGENDA Jose Luis Guasch World Bank and Economics...
LOGISTICS FOR COMPETITIVENESS:
IMPACT AND AGENDA
Jose Luis GuaschWorld Bank and
Economics Professor, University of California atSan Diego
Mexico City, Mexico, July 2010
Logistics and Competitiveness?
Why?Logistics are one of the five key pillars of
competitiveness
Components of Competitiveness Access to Markets and Trade Policy
Tariff System Free Trade Treaties
Productive/Exportable Supply Quality and Standards Human Capital Innovation; Knowledge and Technology Transfer Value Chains and Clusters
Logistics and Facilitating Trade Hardware: Infrastructure Software: Associated Services and Trade Procedures
Inclusion / Production of SMEs: Knowledge Transfer Coordination CITEs
Investment and Business Climate
Institutions: Competitiveness Council, Agency for Facilitation of Exports, Quality and Innovation
Context I’m a SME, and I want to export. I’ve done my homework: with my market and client identified, I’ve adapted
the appropriate production technology, and my production costs are very competitive.
Now, I need to get my product to my client:
Evaluation of export costs? Through which point can I get my product out? Permits, certificates of origin, quality and phytosanitation? Packaging? Product consolidation? Shipping scale? Bill of landing? Cold chain? Trucking service, timelines? Insurance? Customs agent? Inspections? Export financing? Inventories?
Multimodal Operator? How important is all of this? Will it impact my productivity?
How can Logistics Costs be measured?
Macro approachLogistics costs as a % of GDP
Macro approachLogistics costs as a % of GDP
Micro approachLogistics performance based on firms´ surveys. Costs as a % of product value
Micro approachLogistics performance based on firms´ surveys. Costs as a % of product value
PerceptionRecent Logistics Perception Index
PerceptionRecent Logistics Perception Index
Based on national accounts
Logistics costs as a % of GDP
Demands some assumptions
Quick and easy: Provides overall results
Example: Guasch and Kogan (2002)
Alternative approaches (Michigan State Univ)
Based on national accounts
Logistics costs as a % of GDP
Demands some assumptions
Quick and easy: Provides overall results
Example: Guasch and Kogan (2002)
Alternative approaches (Michigan State Univ)
Based on firms surveys Logistics costs as a %
of sales value Other logistics
performance indicators Needs large samples for
robustness Example: Peru (Guasch
1997), Argentina (1999), LALC Observatory
Corridor approach (USAid’s Fast Path)
Based on firms surveys Logistics costs as a %
of sales value Other logistics
performance indicators Needs large samples for
robustness Example: Peru (Guasch
1997), Argentina (1999), LALC Observatory
Corridor approach (USAid’s Fast Path)
New exercise: World Bank, GFP and Turku
Perception-subjective- from pooled information provided by freight forwarders
Allows for a unique indicator, which can be correlated to others (WEF, WB, etc.)
Other hard data also collected
New exercise: World Bank, GFP and Turku
Perception-subjective- from pooled information provided by freight forwarders
Allows for a unique indicator, which can be correlated to others (WEF, WB, etc.)
Other hard data also collected
“The logistics of international shipments is a complex combination of services and procedures involving many public and private operations and it does not lend itself easily to measurement.”
“There is no statistical indicator that proxies the performance of the entire supply chain, or even a major part of it.”
Source: Measuring Global Connections - Draft
AA
BB
Example of Structure of Logistics Costs: On the average transport costs are between 30% and 35% of total logistics costs.
1/ 36 interviewees responded to the question.
Source: Survey with companies using cargo transport services, 2000 – Consultation Support
Warehousing
19.0%
Inventories (and financial costs)
18.7%
Transport: roads and/or railways
14.0%
Transport: port-related
17.8%
Licenses and procedures
10.1%
Administrative costs and losses
20.5%
Transport Cost = 31.8%
AVERAGE STRUCTURE OF LOGISTIC COSTS 1/
DESCRIPTION OF COSTSDESCRIPTION OF COSTS• Procedures
- Customs, phytosanitation if applicable, etc.
• Administrative costs
- Logistics overhead - Insurance- Security - Spoilage and losses
• Warehousing
- Costs of warehouses used- Costs of deterioration and/or losses generated
in warehouses used
• Inventories (financial costs)
- Costs of maintaining stock- Costs of merchandise in transit
• Transport cost
- Freight- Cost of deterioration and/or losses generated
during transport
The structure and composition of logistics costs vary according to type of product. For mining products, the costs of warehousing and inventories represent over 45% of logistics costs. In the case of agricultural products, transport is the main component, with 36% of the total, and for seafood products, warehousing represents 33% of total costs. For textile products, transport costs represent 35% of the total, and inventories, 24%.
Source: Survey with companies using cargo transport services, 2000 -- Consultation Support.
Warehousing
28%
27%
5%
12%
Procedures
9%
19%Administrative costs
Inventories (financial costs)
Transport roads and/or railwaysTransport:
Port-related
MINING PRODUCTS
SEAFOOD PRODUCTS
AGROINDUSTRY PRODUCTS
Warehousing12%
17%
16%20%
Procedures6%
29%Administrative costs
Inventories (financial costs)
Warehousing33%
12%
12%
14%
Procedures
12%
17%
Administrative costs
Inventories (financial costs)
Warehousing19%
16%
9%
Procedures9%
23%
24%
Administrative costs
Inventories (financial costs)
TEXTILE PRODUCTS
Transport: roads and/or railwaysTransport:
Port-related
Transport: roads and/or railways
Transport:Port-related
Transport: roads and/or railways
Transport:Port-related
Logistics Costs in Latin America
On the average, 24% of product’s value
Impact of Logistics on Competitiveness
Reduces Competitiveness/Productivity: GeneratingHigh transport costsDelays in time-financial cost High levels (costs) of inventoriesHigh percentages of deteriorationIncreases in freight-connectivity Eliminates development of new products and
new exports
Elements of Logistics
Distance to destination Inventories
Times Each day is equivalent to 0.8 tariff (Hummels 2001). Each day is equivalent to 1 percent of trade or 70 km,
Djankov, Freund and Pham (2006). Freight
Eliminating market power of shipping companies would increase trade by 5-15% (Hummels, Lugovskyy and Skiba, ).
Insufficient Infrastructure Reduces Competitiveness: translating into high loss rates, high logistics costs,
high inventory levels, 2008
0
5
10
15
20
25
30
Losses to markets.Proportion of goods not
reaching markets (primarysector)
Logistics cost as aproportion of value of
products
Inventory levels
Pro
duct
ivity
gai
n (p
erce
nt)
OECD
LAC
Source: Guasch (2008)
Latin America: Logistics costs are especially high for SMEs
Source: Centro Logístico de Latinoamerica, Bogota, Colombia. Benchmarking 2007: Estado de la Logística en America Latina Anexo, María Rey, Logistic Summit 2008.
29.4
11.36 10.636.9
12.7
6.28 7.3111
0
5
10
15
20
25
30
35
40
45
Less than US$ 5 M US$ 5 M to US$ 50 M US$ 50 M to US$ 500 M More than US$ 500 M
Inventory Management & Warehousing Transport & Distribution
42
18 18 18
Latin America: Companies’ inventory levels in relation to those in the United States (all industries)
Raw Material Inventory Levels: Ratio to U.S. Level by Industry (average of all available data for 2000s)
Chile Venezuela Peru Bolivia Colombia Ecuador Mexico Brazil
Mean 2.17 2.82 4.19 4.20 2.22 5.06 1.58 2.98
Minimum 0.00 0.30 0.10 0.11 0.52 0.86 0.42 0.80
1st quarter 0.36 1.87 1.25 1.39 1.45 2.55 1.06 1.60
Median 1.28 2.61 2.30 2.90 1.80 3.80 1.36 2.00
3rd quarter 2.66 3.12 3.90 4.49 2.52 5.64 2.06 3.10
Maximum 68.92 7.21 31.1 34.97 13.59 20.61 3.26 7.10
Source: Guasch and Kogan, 2001
PRW (Public Refrigerated Warehouse) Capacity, 2008
Source: IARW
Relation between Freight Rates and Connectivity, 2006
Source: Wilmsmeier (2008)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Fre
igh
t ra
te i
nd
ex
Connectivity Index
Furthermore, a study of maritime transport costs in the Caribbean Basin suggests that freight rates are also sensitive to and can be reduced by increases in infrastructure endowment and port efficiency.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
fre
igh
t ra
te in
de
x
Port Infrastructure Index
Freight rate index
Expon. (Freight rate index)
Relationship between Port Infrastructure Endowment and Maritime Freight Rates in the Caribbean
Source: Wilmsmeier (2008)
Price Decomposition
10%
Producer Price
LandTransport
Ocean Transport+ Port CR
Port Miami
Wholesale Consolidated
Cost
Other Costs
OceanTransport + Port SL
Duties
LandTransport & Handling
Land Transport+ Storage
Retail Profits+ Other Costs
8%
35%
17%
15%
15%
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Farm Gate(CR)
CR FAS Ocean toMiami
Miami Port MiamiWarehouse
Miami FOBPrice
Ocean to St.Lucia
St. Lucia Port Wholesale Distribution Retail Price FinalDecomposition
Costa Rica (CR) ------------> --------------> St. Lucia (SL)
US
$/lb
Total Transport -Land Total Transport - Ocean+Port Wholesale -profits, logistics and other costs
Import Duties Retail - profits, logistics and other costs
High-Value Food Imports: Supply Chain Analysis of Pineapples Imported into Saint Lucia
… However, an analysis of productive chains for high-value food imports in Latin America and the Caribbean indicates that the costs associated with logistics processes—in this case, maritime transport—frequently represent the greatest portion of products’ final prices…
Source: Authors, freight forwarder and shipper interviews, and OECS Backward Linkages Study (2008).
At the same time, essential food products with a low value-to-weight relation are not exempt from high transport and logistics costs. In this case, however, the costs of domestic land transport is relatively more significant.
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
Wheat
Rail, Canada
Port,
VancouverInsurance
Ocean Port Manta
Land to MillStorage
Extr. Losses
MillingPacking
Other
Mill's Profit
Price in Huaquillas
Price in Tulcan
Price in
Ambato
Land to Quito
Farmgate, SaskatchewanCanada
Ecuador Mill Customer
US
$ c
ents
per
kg
of
Wh
eat
Flo
ur
Wheat
MillingLosses &
Profits Costs
55%
17%
28%
Transport &Logistics
60%
17%
23%
CanadaT&L
FOBT&L
EcuadorT&L
Source: Authors’ calculations, data from Manifiestos, Ecuadorean millers, interviews and Winnipeg Board of Wheat.
Cost Contributions to the Average Price of Wheat Flour Sold in Quito and other Ecuadorean Cities
As demonstrated by the two Intra-Regional Food Imports distribution chains, domestic logistics costs represent as much as 25% of the total costs of domestic shipping, inventory and loadout, as a consequence of inefficiencies, losses, bribery and time delays.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Soybean - Paraguay to Brazil by truck Chilled Meat - Paraguay to Chile by truck
over costs from inefficiencies: Payments
over costs from inefficiencies: Customs
over costs from inefficiencies: Road transport
over costs from inefficiencies: Pre-shipment
Payments
Customs
Road transport
Pre-shipment
Pre-shipment
Road Transport
Customs
Payments
Over costs
Roads Customs
Pre-shpmt
CustomsBribes
Soybeans
To Brazil from Paraguay
by Truck
Chilled Meats
To Chile from Paraguay
by Truck
Logistics costs for importing soybeans from Paraguay to Brazil, and chilled meats from Paraguay to Chile: “Over Costs” Due to Inefficiencies, Losses, Time Delays and Bribery
Impact of a 10 percentage point reduction in logistics costs
Sector Increase in Demand
Increase in Employment
Agro-Industry
9% 5%
Wood and Furniture
10% 12%
Textiles 6% 7%Leather and Footwear
12% 10%
Mining 7% 2%
347.9
469.7
0
100
200
300
400
500
Without roads With roads
An
nu
al E
arn
ing
s p
er C
apit
a
Increase in household earnings from improving access to markets, by rebuilding rural roads
(in US$ annually)
Source: INEI 2004-2006
What we must attack: Infrastructure Platform and Related Services
HardwareInfrastructure
SoftwareAssociated services
HardwareExport Corridors: highways, railway,
riversPorts and access to ports-connectivityRegional exit points: ports and airportsNetworks of logistics terminalsExport and/or productive special zonesBorder crossings
Software Service Centers Network Ventanilla Unica Inspections: Dedicated-perishable lines; priority-by
profile lines Customs Warehousing Cold chain Multimodal Law and third party operators Insurance Single bill of landing Transport services: Trucks, railway Quality and phytosanitation certificates Digitalization of Certificates of Origin Exporta Facil Coordination-Scale Institutionality: Logistics Council: Public Private
… and we must not forget to support the smaller ones!
Exporta Facil
Export by mail From any part of the country Avoids all intermediation and logistics costs Filing one page through internet Limits in value, up to 5,000 US$ Limits in size, 30 to 50 Kilos But unlimited sends Insurance available Extraordinary impact on micro and SMEs
2007 2008 2009 -
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
0
1,000
2,000
3,000
4,000
5,000
6,000V
alo
r F
OB
Ex
po
rta
cio
ne
s
# E
xp
ort
ac
ion
es
Performance Easy Export
RESULTS OF EXPORTA FACIL IN PERU
Source: Serpost
Developed by: PROMPERU
2,000 new exporters
40% of provinces
60% of the greater Lima area
20 new countries