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LOGISTICS FOR COMPETITIVENESS: IMPACT AND AGENDA. Jose Luis Guasch World Bank and Economics Professor, University of California at San Diego Mexico City, Mexico, July 2010. Logistics and Competitiveness?. Why? Logistics are one of the five key pillars of competitiveness.

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Logistics for competitiveness impact and agenda

LOGISTICS FOR COMPETITIVENESS: IMPACT AND AGENDA

Jose Luis Guasch

World Bank and

Economics Professor, University of California at

San Diego

Mexico City, Mexico, July 2010


Logistics and competitiveness
Logistics and Competitiveness?

Why?

Logistics are one of the five key pillars of competitiveness


Components of competitiveness
Components of Competitiveness

  • Access to Markets and Trade Policy

    • Tariff System

    • Free Trade Treaties

  • Productive/Exportable Supply

    • Quality and Standards

    • Human Capital

    • Innovation; Knowledge and Technology Transfer

    • Value Chains and Clusters

  • Logistics and Facilitating Trade

    • Hardware: Infrastructure

    • Software: Associated Services and Trade Procedures

  • Inclusion / Production of SMEs: Knowledge Transfer

    • Coordination

    • CITEs

  • Investment and Business Climate

  • Institutions: Competitiveness Council, Agency for Facilitation of Exports, Quality and Innovation


Context
Context

  • I’m a SME, and I want to export.

  • I’ve done my homework: with my market and client identified, I’ve adapted the appropriate production technology, and my production costs are very competitive.

  • Now, I need to get my product to my client:

    • Evaluation of export costs?

    • Through which point can I get my product out?

    • Permits, certificates of origin, quality and phytosanitation?

    • Packaging?

    • Product consolidation? Shipping scale?

    • Bill of landing?

    • Cold chain?

    • Trucking service, timelines?

    • Insurance?

    • Customs agent?

    • Inspections?

    • Export financing?

    • Inventories?

  • Multimodal Operator?

  • How important is all of this? Will it impact my productivity?


How can logistics costs be measured

A

How can Logistics Costs be measured?

B

Macro approach

Logistics costs as

a % of GDP

Micro approach

Logistics performance based

on firms´ surveys. Costs as a % of product value

Perception

Recent Logistics

Perception Index

  • Based on national accounts

  • Logistics costs as a % of GDP

  • Demands some assumptions

  • Quick and easy: Provides overall results

  • Example: Guasch and Kogan (2002)

  • Alternative approaches (Michigan State Univ)

  • Based on firms surveys

  • Logistics costs as a % of sales value

  • Other logistics performance indicators

  • Needs large samples for robustness

  • Example: Peru (Guasch 1997), Argentina (1999), LALC Observatory

  • Corridor approach (USAid’s Fast Path)

  • New exercise: World Bank, GFP and Turku

  • Perception-subjective- from pooled information provided by freight forwarders

  • Allows for a unique indicator, which can be correlated to others (WEF, WB, etc.)

  • Other hard data also collected

“The logistics of international shipments is a complex combination of services and procedures involving many public and private operations and it does not lend itself easily to measurement.”

“There is no statistical indicator that proxies the performance of the entire supply chain, or even a major part of it.”

Source: Measuring Global Connections - Draft


Logistics for competitiveness impact and agenda

Example of Structure of Logistics Costs: On the average transport costs are between 30% and 35% of total logistics costs.

AVERAGE STRUCTURE OF LOGISTIC COSTS 1/

DESCRIPTION OF COSTS

  • Procedures

  • Customs, phytosanitation if applicable, etc.

Administrative costs and losses

Warehousing

  • Administrative costs

20.5%

19.0%

  • Logistics overhead

  • Insurance

  • Security

  • Spoilage and losses

Licenses and procedures

Inventories

(and financial costs)

  • Warehousing

10.1%

  • Costs of warehouses used

  • Costs of deterioration and/or losses generated in warehouses used

18.7%

Transport: port-related

  • Inventories (financial costs)

Transport: roads and/or railways

17.8%

  • Costs of maintaining stock

  • Costs of merchandise in transit

14.0%

  • Transport cost

  • Freight

  • Cost of deterioration and/or losses generated during transport

Transport Cost = 31.8%

1/ 36 interviewees responded to the question.

Source: Survey with companies using cargo transport services, 2000 – Consultation Support


Logistics for competitiveness impact and agenda

28% transport costs are between 30% and 35% of total logistics costs.

The structure and composition of logistics costs vary according to type of product. For mining products, the costs of warehousing and inventories represent over 45% of logistics costs. In the case of agricultural products, transport is the main component, with 36% of the total, and for seafood products, warehousing represents 33% of total costs. For textile products, transport costs represent 35% of the total, and inventories, 24%.

MINING PRODUCTS

AGROINDUSTRY PRODUCTS

Warehousing

Warehousing

Administrative costs

12%

Administrative costs

29%

Inventories (financial costs)

19%

17%

Inventories (financial costs)

27%

Procedures

Procedures

6%

Transport roads and/or railways

Transport: roads and/or railways

9%

Transport:

Port-related

Transport:

Port-related

5%

16%

12%

20%

SEAFOOD PRODUCTS

TEXTILE PRODUCTS

Administrative costs

Administrative costs

Warehousing

17%

Warehousing

23%

19%

33%

Procedures

Procedures

12%

9%

Transport:

Port-related

Transport:

Port-related

Inventories (financial costs)

Inventories (financial costs)

24%

12%

9%

Transport: roads and/or railways

14%

Transport: roads and/or railways

16%

12%

Source: Survey with companies using cargo transport services, 2000 -- Consultation Support.


Logistics costs in latin america
Logistics Costs in Latin America transport costs are between 30% and 35% of total logistics costs.

  • On the average, 24% of product’s value


Impact of logistics on competitiveness
Impact of Logistics on Competitiveness transport costs are between 30% and 35% of total logistics costs.

  • Reduces Competitiveness/Productivity: Generating

    • High transport costs

    • Delays in time-financial cost

    • High levels (costs) of inventories

    • High percentages of deterioration

    • Increases in freight-connectivity

    • Eliminates development of new products and new exports


Elements of logistics
Elements of Logistics transport costs are between 30% and 35% of total logistics costs.

  • Distance to destination

  • Inventories

  • Times

    • Each day is equivalent to 0.8 tariff (Hummels 2001).

    • Each day is equivalent to 1 percent of trade or 70 km, Djankov, Freund and Pham (2006).

  • Freight

    • Eliminating market power of shipping companies would increase trade by 5-15% (Hummels, Lugovskyy and Skiba, ).


Logistics for competitiveness impact and agenda
Insufficient Infrastructure Reduces Competitiveness: translating into high loss rates, high logistics costs, high inventory levels, 2008

Source: Guasch (2008)


Latin america logistics costs are especially high for smes
Latin America: Logistics costs are especially high for SMEs translating into high loss rates, high logistics costs, high inventory levels, 2008

Source: Centro Logístico de Latinoamerica, Bogota, Colombia. Benchmarking 2007: Estado de la Logística en America Latina Anexo, María Rey, Logistic Summit 2008.


Logistics for competitiveness impact and agenda

Latin America: Companies’ inventory levels in relation to those in the United States (all industries)Raw Material Inventory Levels: Ratio to U.S. Level by Industry (average of all available data for 2000s)


Logistics for competitiveness impact and agenda

PRW (Public Refrigerated Warehouse) Capacity, 2008 those in the United States

Source: IARW


Relation between freight rates and connectivity 2006
Relation between Freight Rates and Connectivity, 2006 those in the United States

Source: Wilmsmeier (2008)


Logistics for competitiveness impact and agenda

Furthermore, a study of maritime transport costs in the Caribbean Basin suggests that freight rates are also sensitive to and can be reduced by increases in infrastructure endowment and port efficiency.

Relationship between Port Infrastructure Endowment and Maritime Freight Rates in the Caribbean

Source: Wilmsmeier (2008)


Logistics for competitiveness impact and agenda

Caribbean Basin suggests that freight rates are also sensitive to and can be reduced by increases in infrastructure endowment and port efficiency.However, an analysis of productive chains for high-value food imports in Latin America and the Caribbean indicates that the costs associated with logistics processes—in this case, maritime transport—frequently represent the greatest portion of products’ final prices…

High-Value Food Imports: Supply Chain Analysis of Pineapples Imported into Saint Lucia

Source: Authors, freight forwarder and shipper interviews, and OECS Backward Linkages Study (2008).


Logistics for competitiveness impact and agenda

At the same time, essential food products with a low value-to-weight relation are not exempt from high transport and logistics costs. In this case, however, the costs of domestic land transport is relatively more significant.

Cost Contributions to the Average Price of Wheat Flour Sold in Quito and other Ecuadorean Cities

Source: Authors’ calculations, data from Manifiestos, Ecuadorean millers, interviews and Winnipeg Board of Wheat.


Logistics for competitiveness impact and agenda

As demonstrated by the two Intra-Regional Food Imports distribution chains, domestic logistics costs represent as much as 25% of the total costs of domestic shipping, inventory and loadout, as a consequence of inefficiencies, losses, bribery and time delays.

Logistics costs for importing soybeans from Paraguay to Brazil, and chilled meats from Paraguay to Chile: “Over Costs” Due to Inefficiencies, Losses, Time Delays and Bribery


Impact of a 10 percentage point reduction in logistics costs
Impact of a 10 percentage point reduction in logistics costs distribution chains, domestic logistics costs represent as much as 25% of the total costs of domestic shipping, inventory and loadout, as a consequence of inefficiencies, losses, bribery and time delays


Logistics for competitiveness impact and agenda

Increase in household earnings from improving access to markets, by rebuilding rural roads

(in US$ annually)

Source: INEI 2004-2006


What we must attack infrastructure platform and related services
What we must attack: Infrastructure Platform and Related Services

  • Hardware

    • Infrastructure

  • Software

    • Associated services


Logistics for competitiveness impact and agenda

  • Hardware Services

    • Export Corridors: highways, railway, rivers

    • Ports and access to ports-connectivity

    • Regional exit points: ports and airports

    • Networks of logistics terminals

    • Export and/or productive special zones

    • Border crossings


Logistics for competitiveness impact and agenda

  • Software Services

    • Service Centers Network

    • Ventanilla Unica

    • Inspections: Dedicated-perishable lines; priority-by profile lines

    • Customs

    • Warehousing

    • Cold chain

    • Multimodal Law and third party operators

    • Insurance

    • Single bill of landing

    • Transport services: Trucks, railway

    • Quality and phytosanitation certificates

    • Digitalization of Certificates of Origin

    • Exporta Facil

    • Coordination-Scale

    • Institutionality: Logistics Council: Public Private



Exporta facil
Exporta Facil Services

Export by mail

From any part of the country

Avoids all intermediation and logistics costs

Filing one page through internet

Limits in value, up to 5,000 US$

Limits in size, 30 to 50 Kilos

But unlimited sends

Insurance available

Extraordinary impact on micro and SMEs



Results of exporta facil in peru
RESULTS OF EXPORTA FACIL IN PERU Services

2,000 new exporters

40% of provinces

60% of the greater Lima area

20 new countries

Source: Serpost

Developed by: PROMPERU