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Trade and Logistics: Evolution of a Product Line Robin Carruthers TUDTR May 2003 Why logistics? • Increases demand by lowering prices faced by consumers • Raises profits of producers, encourages production, increases demand for labor demand and wages • Encourages price stability by reducing arbitrage of price differentials caused by regional shortages • Increases product variety available to consumers by reducing the number of goods where transport is prohibitively expensive relative to the value shipped • Allows a move up the development chain toward more sophisticated differentiated goods, and higher value commodities. • Facilitates diversification of product mix and expands the set of markets producers can access • Increases competition in world markets Structure of Trade and Logistics review A Regional and national trade patterns B Scope for impact of logistics as trade stimulator C Country diagnoses D Agenda for logistics actions A East Asia trade patterns • For lower income countries, GDP per capita increases with more trade (but who really benefits?) • Little intra regional trade • Countries are moving up the value chain • Some country’s exports are still heavily concentrated on a few high value products • Export oriented trade is concentrated in port cities, perhaps not best way to reduce poverty • Most exports are to US – Japan and EU are distant second and third In East Asia, GDP increases with trade in low-income countries Intra-regional trade is low but growing Countries are moving up the value chain Commodity concentration Country China Thailand Indonesia Korea Malaysia Vietnam Singapore Philippines Top 3 exports 13.8% 20.9% 23.6% 27.3% 39.9% 44.3% 48.4% 59.9% Top 5 exports 21.8% 26.2% 29.7% 38.5% 50.0% 60.3% 60.8% 66.6% Cambodia Mongolia PNG 78.3% 84.5% 64.6% 80.2% 93.4% 74.5% Telecoms equip. Office equip. Gas Transistors Transistors Petroleum Transistors Transistors Products Computer Transistors Petroleum Cars Office equip. Textiles Computers Computers Apparel Fish Veneer Telecom Computers Seafood Petroleum Office equipment Garments Copper Gold Timber Wool Petroleum Rice Hides Copper B Scope for logistics impact • Not much to gain where logistics are already advanced • Not much to gain if economy is still relatively closed • Inaccessible inland areas stand to gain most • Improved information technology will benefit all at relatively low cost Openness and Logistics Cost ratios as an indicator of maritime efficiency • CIF/FOB ratio more than 2.0 • CIF/FOB ratio less than 1.4 – Vietnam – Laos – Cambodia • CIF/FOB ratio between 1.4 and 2.0 – PNG – China – Philippines Low Wage Countries – Malaysia – Singapore – Hong Kong – Thailand – Indonesia – Taiwan High/Medium Wage Countries Smaller ports are growing much faster than larger ports Port 1995 1996 1997 1998 1999 2000 2001 Grow th rate Hong Kong 12,550 13,460 14,567 14,582 16,211 17,800 17,900 6.1% Singapore 11,846 12,944 14,135 15,136 15,945 17,040 15,520 4.6% Shanghai 1,196 1,305 2,527 3,066 4,206 5,613 6,310 31.9% Port Klang 1,134 1,410 1,685 1,820 2,550 3,206 3,759 22.1% Laem Chabang n.a. 729 1,036 1,425 1,756 2,195 2,424 27.1% Qingdao 603 810 1,031 1,213 1,540 2,100 2,639 27.9% Tianjin 702 822 935 1,018 1,302 1,708 2,010 19.2% Gunagzhou 515 558 687 848 1,179 1,430 1,628 21.1% Taichung, Taiw an 447 695 842 880 1,107 1,130 1,069 15.6% Total (East Asia) 54,433 57,836 65,119 68,155 75,155 83,422 94,267 9.6% HK and Singapore % 45% 46% 44% 44% 43% 42% 35% Uneven use of information technology in trade facilitation Country Japan Singapore Korea Thailand Philippines Indonesia Vietnam Laos Cambodia Port Operators MIS X X X X X X Traders in Port EDI System Customs Agency MIS X X X X X X X X X X X X Traders in Customs EDI system X X X X X X All parties electronically linked Electronic trade in transport services X X X X X X Land access costs remain high Transport to the US West Coast of a container from an inland province of China C Country Groups and Studies in East Asia • Group 1: Outward Oriented, highly Accessible (Singapore, HK, Korea, Taiwan) • Group 2A: Outward Oriented, more Accessible (Thailand, Philippines, Malaysia) • Group 2B: Outward Oriented, less Accessible • (Inland China, North-East Thailand) • Group 3: Less Open and Accessible (Vietnam, Cambodia) • Group 4: Land Locked and Pacific Island (Laos, Mongolia, Samoa, PNG..) Main conclusions of Country Studies • Non-transport logistics cost impose much higher trade penalty than transport costs • Regional trade is suppressed by poor logistics more than by tariffs • Domestic marketing arrangements impede international trade • Cross border arrangements impose on all small countries, not only land-locked • Most trade-related industry is in port cities. Trade related growth has not reached inland regions • Port related activities contribute significantly to congestion and pollution Poor logistics influence prices and marketing patterns • In Laos price of rice varies +/- 25% due to poor transport affecting market integration • In Mindanao, Philippines, farm gate prices vary significantly, northern farmers receive better prices due to good road access • Most Mongolian export cashmere is sold to Chinese merchants as accessibility to China is better than within Mongolia • In Vietnam, coffee production in otherwise productive highlands is constrained by poor accessibility Logistics limit diversification of exports • Limited number of markets and shipment scale – Reduced trans-pacific shipping costs have stimulated East Asia’s trade to US, while poor local logistics have inhibited growth of intraregional trade • Small export base increases vulnerability – For three countries, more than 2/3 of export value derives from three products Ports, regional growth and the urban context • In larger Eat Asian countries, most FDI is concentrated in port cities, so the benefits of increased trade are not spread throughout the country • Many East Asian ports are in downtown areas, and they and their associated activities contribute significantly to congestion and pollution. These locations are often unsuitable for new generations of container ships that need deeper draughts that can only be achieved with expensive and environmentally risky dredging D Logistics strategy depends on stage of economic development • For already open and accessible economies, increasing international trade competitiveness is logistics priority • For less open economies, improved logistics will first help make domestic trade more competitive and efficient • For these countries, opening of economy is a higher priority for international trade growth than improving logistics • Open but inaccessible countries will benefit most from improved logistics Logistics Development Agenda • Domestic Integration: A high priority in Groups 3 and 4 • Improved infrastructure priority for Groups 3 and 4 but not sufficient – better services are also important • Logistics evolution - Advanced in Group 1 and some Group 2, needs stimulating environment in other Groups • Regulatory Environment – Transport, Urban Management, Standardization, Cross-border facilities • Regional Cooperation between governments and logistics suppliers will do more to stimulate trade than reductions in trade tariffs Priority logistics actions • Group 2A Outward Oriented Accessible Improve urban access to ports and upgrade transport services Relocation non-maritime activities away from port, and consider relocation of maritime activities out of downtown areas Restructure MoT to facilitate multimodal transport • Group 2B Outward Oriented, less Accessible Promote inland ICDs Improve road, rail and waterway access to ports and upgrade logistics services • Group 3 Less Open and Accessible Improve road, rail and waterway access to ports and upgrade transport services Legalize and deregulate freight forwarders • Group 4 Land Locked and Pacific Island Simplify land border crossings, negotiate land access rights in neighboring countries, Upgrade express logistics services for high unit value goods (eg flowers, exotic plants, seafood, fashion textiles) Second Stage Studies • Use standard indicators to measure trade competitiveness and openness of economy • Assess trade potential – products and countries • Use standard indicators and interviews with exporters and logistics operators to establish potential sources of logistics improvement • Undertake country surveys for Facilitation Audit • Discuss and develop logistics development agenda with exporters and government