Poor logistics performance hampers economic growth

For developing nations, logistics may be the key that will unlock the door to prosperity. So says a new study issued by the World Bank, which identifies "trade logistics"—the capacity to connect to international markets to ship goods—as a critical factor in a country's potential for economic growth.

Connecting to Compete: Trade Logistics in the Global Economy reports that connections between supply chain participants are gaining in importance as predictability and reliability become a higher priority than costs for many companies.

"As a main driver of competitiveness, logistics can make you or break you as a country in today's globalized world," said World Bank Trade Director Uri Dadush. "You can have very good customs [procedures], but poor performance in only one or two areas of the supply chain has serious repercussions in the country's economic performance, creating a perception of unreliability."

The study, headed by World Bank economists Jean Francois Arvis and Monica Alina Mustra, includes a first-ever Logistics Performance Index (LPI) covering 150 countries. The index was based on a worldwide survey of 800 logistics professionals working for international freight forwarders and express carriers. It measures performance in such areas as customs procedures, logistics costs, infrastructure quality, ability to track and trace shipments, transit times, and domestic logistics competence.

Not surprisingly, the top performers—led by Singapore—are all wealthy countries. On the other end of the scale are low-income nations in remote areas. Developing countries where trade has been central to their economies perform better than others with similar incomes; examples include South Africa, Chile, Turkey, and Thailand.

The report includes comparisons that illustrate the economic impact of logistics performance. For instance, despite its location, Chile has prospered because good logistics systems make it possible to export fresh fish and fruits to Asia, Europe, and North America. The landlocked country of Chad in Africa, on the other hand, is handicapped by its lack of infrastructure and services. Importing a 20-foot container from Shanghai to N'djamena, Chad's capital, takes about 10 weeks and costs US $6,500. That's far more than the four weeks and less than US $3,000 required to make the same shipment to a landlocked country in Western or Central Europe, the report notes.

Improving logistics performance will depend on many factors, including reforms such as customs modernization and elimination of corruption, the authors write. But those changes must be combined with other supply chain improvements if they are to be effective. Among the areas government and industry should target, according to Arvis and Mustra: border procedures, interagency coordination, telecommunications, information technology, physical infrastructure, trade facilitation, and the competitiveness of private logistics services.

[Source: Connecting to Compete: Trade Logistics in the Global Economy, November 2007, The World Bank, www.worldbank.org/lpi]