Trade Logistics in the Caribbean

Ankur HuriaInvestment Climate Advisory Services

World Bank GroupPort-au-Prince, Haiti

OCTOBER 22 2009

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency2

Why improve trade logistics services in the Caribbean?

Governments need to be energized to improve trade logistics services

Overarching rationaleGlobalization and the desire to be part of global networks

Attracting private investment is a key objective for the Caribbean countries

Improved export potential and in some cases, to become trading hubs

Faster, leaner & responsive supply chains are essential for improving export/trade performance

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency3

What does it mean for Businesses?

Poor trade logistics creates tremendous costs for businesses including inventory, transportation….

Direct cost of transportation

Lost days due to lack of daily vessel runs

Cost of financing investment in inventory (interest paid or opportunity cost of capital)

Taxes

Insurance

Financial Risk Storage and Handling

Market share

Spoilage

Shrinkage

Obsolescence

Warehousing and storage especially when large inventories require additional space

Handling and transportation in general and to overflow facilities

Cost Categories

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Impact on client countries will vary by typology: Poor countries not integrated with world financial systems and

commodity markets (many sub-Saharan countries); Mineral rich countries (Angola, Nigeria) Emerging economies integrated with world markets (China) Middle income countries (South Africa, Brazil, Mexico) Island nations (Caribbean)

Variation between primary importers (most Caribbean islands) versus primary exporters (China).

Higher protectionism in major markets, at least in the short term. Will have direct implications for regional/ preferential trade agreements and the pressures to shape up.

Lower bilateral donor funding .

How does the current financial crisis affect demand for trade logistics services?

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency5

Pressure to become much more competitive; it becomes even more important for countries to reduce costs to trade.

Reducing supply chain costs to improve performance will be seen as a key element of firm level strategy (i.e. cost cutting on inventories) in a credit scarce market.

Rebuilding confidence in global markets would necessitate a larger role for improved trade logistics services.

Can be seen as time for emerging economies to prepare groundwork.

How does the current environment affect demand for trade related services?

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency

Doing Business: Trading Across Borders 2010

Indicator Grenada St Kitts St Lucia DominicaLatin

America & OECD  2010 2010 2010 2010 Caribbean Average             

Documents to export (number) 6 6 5 7 7 4

Time to export (days) 14 12 14 13 19 11

Cost to export (US$ per container) 1226 850 1600 1297 1244 1090

Documents to import (number) 5 6 8 8 7 5

Time to import (days) 19 13 18 15 21 11

Cost to import (US$ per container) 2479 2138 2645 1310 1481 1146

             

Source: Doing Business 2010

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency7

Import time: 50% - 60 % due to software…

Nature of Trade Procedures

Dominica (No. of days) %

Grenada (No. of days) %

St Kitts (No. of days) %

St Lucia (No. of days) %

               

Inland transport 1 7 2 11 1 8 2 11Terminal Handling 4 53 6 32 5 38 6 33Customs

Clearance 3 20 4 21 2 15 1 6Document Assembly 7 47 7 37 5 38 9 50

   Total days to

import 15 19 13 18

Source: Doing Business 2010

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency8

Geography – Small island nations tend to import significant amounts of foodstuff and other basic goods which are not produced locally, with high transaction costs.

Technology - Modern technology offers a number of benefits that could promote trade facilitation. While one of the key reasons for poor technology usage is lack of adequate financing, it is also clear that many customs administrations/ports do not have a strategy for effectively deploying technology.

Key Challenges for the Caribbean

Legislation - Trade related legislation is often outdated, for instance electronic commerce legislation is still not in place in most countries.

Conflicting Interests – Customs revenues are a key component of government revenue. As a result the facilitation function has played a secondary role to the revenue collection function for Customs administrations in the region.

Specific challenges that governments need to consider while making trade logistics improvements

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency9

Selected Policy Issues

Lack of coordination between border control agencies i.e. Customs and Port authorities in some islands. Also many countries don’t seem to have a forum i.e. a national body to discuss trade facilitation issues in a joint-coordinated manner.

Risk management implementation is at a nascent stage in most islands.

Low levels of automation and electronic processing. Reasons include lack of financing, electronic commerce laws, and lack of implementation capacity among others.

Policy and Infrastructure issues

Selected Infrastructural Issues

Poor warehousing facilities causing delivery inefficiencies, increasing inventory costs

Lack of a regular feeder cargo service that serves the ports of the Caribbean

Inefficiencies in port/terminal services that cause inordinate delays or costs

Governments in the Caribbean islands face a range of policy and infrastructural issues that need to be overcome to improve trade logistics!

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency10

Three Focus Areas of the Trade Logistics Program

Simplification and harmonization of procedures including documentation;

Technical support to introduce risk-based management systems for inspections

Automation of trade clearance procedures/ Single Window System

Focus on reform implementation

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency11

Trade Logistics Advisory Program: Delivery Models

Systemic Reform

Regional Solutions

Rapid Response

IFC World Bank

Group

Donors: CIDA DFID NTF NIPP

Development Agencies: WCO IMF OECS

Private Sector

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency12

Questions and Comments

tradelogistics@ifc.org