WASHINGTON, March 20, 2014 ¨C The gap between the countries that perform best and worst in trade logistics is still quite large, despite a slow convergence since 2007, according to a new ÐÓ°ÉÂÛ̳ Group report released today. This gap persists because of the complexity of logistics-related reforms and investment in developing countries, and despite the almost universal recognition that poor supply-chain efficiency is the main barrier to trade integration in the modern world.
The report, Connecting to Compete 2014: Trade Logistics in the Global Economy, ranks 160 countries on a number of dimensions of trade -- including customs performance, infrastructure quality, and timeliness of shipments -- that have increasingly been recognized as important to development. The data comes from a survey of more than 1,000 logistics professionals. ÐÓ°ÉÂÛ̳ Group¡¯s International Trade Unit has produced the Logistics Performance Index (LPI) about every two years since 2007.
¡°The LPI is trying to capture a rather complex reality: attributes of the supply chain,¡± said Jean-Fran?ois Arvis, Senior Transport Economist and the founder of the LPI project. ¡°In countries with high logistics costs, it is often not the distance between trading partners, but reliability of the supply chain that is the most important contributor to those costs.¡±
In the 2014 LPI report, Germany showed the world¡¯s best overall logistics performance. Somalia had the lowest score. As with previous editions, the 2014 report finds that high-income countries dominate the world¡¯s top-ten performers. Among low-income countries, Malawi, Kenya, and Rwanda showed the highest performance. In general, the trend across past reports has been that countries are improving and low-performing countries are improving their overall scores faster than high-performing countries.
The 2014 report finds that low-income, middle-income, and high-income countries will need to take different strategies to improve their standings in logistics performance. In low-income countries, the biggest gains typically come from improvements to infrastructure and basic border management. This might mean reforming a customs agency, but, increasingly, it means improving efficiency in other agencies present at the border, including those responsible for sanitary and phyto-sanitary controls. Often, multiple approaches are required.
¡°You can¡¯t just do infrastructure without addressing border management issues,¡± Arvis said. ¡°It¡¯s difficult to get everything right. The projects are more complicated, with many stakeholders, and there is no more low-hanging fruit.¡±
Middle-income countries, by contrast, usually have fairly well-functioning infrastructure and border control. They generally see the biggest gains from improving logistics services, and particularly outsourcing specialized functions, such as transportation, freight-forwarding, and warehousing.
In high-income countries, there is a growing awareness of ¨C and a demand for ¨C ¡°green logistics,¡± or logistics services that are environmentally friendly. In 2014, about 37 percent of LPI survey respondents shipping to OECD countries recognized a demand for environmentally friendly logistics solutions, compared with just 10 percent of those shipping to low-income destinations.
In recent years, as tariffs have dropped globally, logistics and other aspects of trade facilitation have gained profile as an arena for reducing trade costs. A 2013 study by the ÐÓ°ÉÂÛ̳ Group and World Economic Forum found that reducing the high transactions costs and unnecessary red tape faced by traders could provide a significant boost to global GDP. In January, the World Trade Organization (WTO) finalized a ¡°trade facilitation agreement¡± that sets standards for faster and more efficient customs procedures and contains provisions for technical assistance and training in this area. ÐÓ°ÉÂÛ̳ and six other multilateral finance institutions supported the WTO¡¯s efforts in a unified statement in October.
In this broad context, the LPI is increasingly respected by policy makers. In Indonesia, for example, the index is formally used to measure the trade ministry¡¯s performance. The Asia-Pacific Economic Cooperation (APEC) organization uses the LPI to measure the impact of an initiative to improve supply-chain connectivity. The EU Commission has used the LPI in its Transport Scoreboard and in its 2013 evaluation of the EU Customs Union.
¡°The LPI is a concrete tool for raising awareness and spurring improvements,¡± said Jeffrey Lewis, Director of the Economic Policy, Debt and Trade Department. ¡°It allows us to evaluate constraints across a broad set of countries.¡±
ÐÓ°ÉÂÛ̳ Group¡¯s support for trade facilitation improvements among its client countries has been substantial. ÐÓ°ÉÂÛ̳ Group spent $5.8 billion in 2013 on trade facilitation projects, recognizing that logistics barriers hamper developing countries¡¯ participation in the international trading system.
Caveats: The LPI can provide a reference point, but it should not be considered an exhaustive diagnostic tool. The LPI is sometimes compared to the Doing Business ranking ¨C and has some topical overlaps ¨C but it differs in a number of ways. While Doing Business uses data on regulations that are ¡°on the books,¡± the LPI uses survey data from logistics professionals who answer questions about their experiences in various countries. This approach is an effort to more accurately capture the day-to-day reality faced by the private sector.
