Academic economists and negotiators at the World Trade Organisation like to emphasize the importance of removing formal trade barriers like tariffs, subsidies, quotas and regulations.  Over the past five decades or so, such trade barriers have indeed been massively reduced. 

In today’s world, deficiencies in logistics systems constitute the factor holding back trade competitiveness.  A country’s performance is only as good as its weakest link. 

Through the second half of the 20th century, trade barriers were dramatically reduced through: rounds of trade negotiation under the GATT/WTO; regional economic arrangements like the EU, NAFTA and the ASEAN Free Trade Agreement; and unilateral liberalization by countries like China who could see that free trade makes a positive contribution to their economic development.  As the Doha trade talks have been bogged down for almost a decade now, free trade agreements have been negotiated with almost gay abandon among all sorts of countries, especially in East Asia.

Today, trade barriers are very low in most advanced countries, except for a few thorny issues like agriculture.  While emerging and developing countries have also been liberalizing, trade barriers remain generally much higher in these countries.

According to World Bank calculations, there is much more to be gained in improving trade performance by improving logistics than by further trade liberalization, even though further trade liberalization would certainly be beneficial.  What are logistics, after all?  Logistics encompasses the array of essential activities to move goods across borders, things like transport, warehousing, cargo consolidation, border clearance, distribution and payments systems.  A competitive network of global logistics is the backbone of international trade.

Which countries are winning the global logistics race?  The top 10 countries are perhaps not surprising – Germany, Singapore, Sweden, Netherlands, Luxembourg, Switzerland, Japan, United Kingdom, Belgium and Norway.  All top performers have developed and maintained: a long tradition of strong public-private partnership and dialogue; good cooperation between policy makers, practitioners, administration and academia; a comprehensive approach in the development of services, infrastructure and efficient logistics; and consistent policies in transport and logistics.  The bottom 10, from the bottom up, are -- Somalia, Eritrea, Sierra Leone, Namibia, Rwanda, Cuba, Guinea-Bissau, Iraq, Nepal, and Sudan.  Again, not very surprising.   

The Asia-Pacific has been the most dynamic area for global trade in recent times.  Moreover, global production chains, a key feature of the Asia-Pacific regional economy, also depend on a robust logistics sector.  Coordinating the various stages of product development, component production, and final assembly requires the ability to move goods across borders quickly, reliably, and at low cost. 

So who does logistics best in the region?  The list goes down from top to bottom like this: Singapore, Japan, Hong Kong, Canada, US, Australia, Taiwan, New Zealand, Korea, China, Malaysia, Thailand, Philippines, Chile, Mexico, Vietnam, Peru, Indonesia, Russia, Laos, Papua New Guinea, Cambodia, and Myanmar. 

It is understandable in a way that poorer countries should have weaker logistics systems.  But they seem to be slipping further behind.  Many developing countries have not yet benefited from the productivity gains of logistics modernization and internationalization implemented over the past 20 years by advanced countries.

Who is responsible for our logistics systems?  Obviously, important parts of our logistics systems are in the hands of the private sector.  At the same time, government is also responsible for important critical elements.  Getting goods cleared through customs is one of the biggest hassles in many low performing countries.  And liberalizing logistics services markets in areas such as trucking and customs brokerage can increase quality and price competitively.  The evidence is clear, where government has invested effectively in logistics infrastructure, and cooperated effectively with the private sector, trade and economic performance has been stronger. 

What are the priority areas for improving logistics?  Except in advanced countries, the availability and quality of trade-related infrastructure is a major constraint on performance, especially in the area of ports, roads, and rail services.  Efficient border management and coordination across various agencies involved in border clearance is increasingly important. 

What’s the main message? 

Trade logistics matter!  The lowest performing countries need to make substantial improvements in their logistics competence, processes, and business practices to benefit from an increasingly open global trading system.  The challenge is compounded by the fact that many of these countries are landlocked and often depend on transit countries that have low logistics performance themselves. 

Logistics even matter to the great United States, whose President has set a goal of doubling America's exports.  He understands this very well as he seeks to invest in his nation’s infrastructure (and education and research capacities).  But unless the stingy Republican Congress members take a more sensible approach, the US will remain at number 15 in the world for logistics.  This is not good enough for such a great nation!       

References:

Connecting to Compete, Trade Logistics in the Global Economy, 2010

www.worldbank.org/trade

www.worldbank.org/tradefacilitation 

www.worldbank.org/tradelogistics 

www.worldbank.org/lpi