Bad logistics cause nightmares for international traders. The trade policy community thinks of this in terms of “trade facilitation” – such things as the efficiency of customs clearance, application of nuisance taxes on imports or exports, or even the impact of corruption on the docks (or elsewhere). The World Bank takes a broader view and adds the physical problems of infrastructure to the mix, as well as payment systems, ease of communications or anything else that can slow down a supply chain. The World Bank’s economists came up with a Logistics Performance Index in 2007 to try to objectively measure how different countries are doing in their ease of moving goods. They issue the Index every couple of years and the 2014 version was recently published as Connecting To Compete 2014: Trade Logistics In The Global Economy.
I am not going to go into how the World Bank constructs the Logistics Performance Index (LPI). Suffice it to say that I haven’t seen formulas like that since I was a grad student. It is the conclusions I want to get to. Spoiler: Germany is #1 and Somalia is #160. There are some surprises in between.
The World Bank uses the LPI to develop policies for what projects seem suitable to help countries at different levels of development. While high-income countries are growing increasingly concerned about making logistics as “green” as possible, middle-income countries may be more focused on improving the efficiency of logistics services through, for example, outsourcing of warehousing, transportation or freight-forwarding services. The Bank is in the thick of supply chain improvements in low-income countries, requiring considerable investment in management and organization to go with massive infrastructure improvement.
In low-income countries, the biggest gains typically come from improvements to infrastructure, such as roads, bridges, or rail lines, and basic border management, including port reform. But we should caution that this is even more difficult than it sounds. Border management should not stop with reforming a customs agency, as customs agencies often get better marks from our survey respondents than other agencies at the border. Indeed, effective border management reform often requires improving efficiency in other agencies, including those responsible for sanitary and phyto-sanitary controls, and improving coordination between customs and those other agencies.
In addition, low-income countries hoping to improve their logistics performance will need to tackle the problems from multiple angles. Filling potholes and building bridges will not make a supply chain work better if an important border is still slow in processing goods in transit. Increasingly, governments in developing countries are facing a need to execute complicated, multi-pronged projects with varied interest groups and stakeholders.
The World Bank report concludes that global logistics has improved, but slowly, from 2007. The biggest gains have been in improved infrastructure in the developing world. Logistics services, and customs and border management, have not improved at the same pace. Supply chain gaps have narrowed the most in communications and electronic automation of port and clearance procedures. At the opposite extreme, almost any supply chain that incorporates rail transport is going to find problems somewhere. Road transport infrastructure can also be dismal, especially in poorer countries, while air and sea transport are generally better. All that said, there is incredible variation in the quality of both infrastructure and associated logistics services.
Both the Bank and the World Trade Organization have been leaning on customs agencies to improve their efficiency at borders, and the Bank now says that customs offices are usually the most efficient at any given border crossing. They (and the WTO) are turning to how other agencies impact trade flows, seeking better performance, say, from sanitary, phyto-sanitary and product standards agencies. The goal is to set up “single windows for trade” to make border crossings as easy and quick as possible.
So who are this year’s winners? The Top 10 (drum roll, please) are Germany, Netherlands, Belgium, United Kingdom, Singapore, Sweden, Norway, Luxembourg, United States and Japan. I was surprised to see Singapore (#5) and Hong Kong (#15) not doing better. But I was also surprised to see the United States as high as it scored (#9). The size of the United States greatly complicates internal movements – and there is room for improvement. America was marked down for efficiency of international shipments (#26), customs clearance (#16) and timeliness of deliveries (#14). Still, pretty good for a big complex country.
I was pleased to see China at #28 (out of 160). China has put a premium on moving international shipments (#22) and on building infrastructure (#23). Work needs to be done on efficiency of customs clearance (#38) and overall timeliness (#36).
The sad ten at the bottom of the rankings? Somalia ranks worst, followed by the Democratic Republic of the Congo, Afghanistan, the Republic of the Congo, Eritrea, Syria, Djibouti, Sudan, Cuba and Yemen.