Bangladesh's trade logistic cost highest among peers: WB report

FHM HUMAYAN KABIR | Sunday, 18 April 2021

Country's logistic cost for trades is the highest among its competing countries, resulting in a lower trade-GDP ratio compared to that of average rate of the low- and middle-income nations, the World Bank has said.

The country's trade to GDP ratio in 2019 was 15 per cent, which is lowest compared to the average of low-and middle-income countries and much lower than its main competitor Vietnam, said the global lender.

The trade (export) to GDP (Gross Domestic Product) ratio for the low-and middle-income countries is 25 per cent and for Vietnam it is 106 per cent, Washington-based lender said in its Bangladesh Development Update report released recently.

The ratio of both goods and services trade-to-GDP for Bangladesh were both below the benchmark for a country at its level of economic development, the WB added.

It said Bangladesh's exports could be boosted by 19 per cent if its logistics cost could be reduced by 26 per cent.

"Reducing dwell times at the Chittagong Port by one day, increasing the minimum speed along the national highways to 40km/hour, and implementing policies to tackle the low quality of logistics services, facilitation payments, and other inefficiencies, Bangladesh could reduce logistics costs by 26 per cent," the Bank said.

The WB in its Logistic Performance Index showed that Bangladesh was on the lowest level compared to its competitor economies.

According to the WB, Bangladesh scored 2.6 out of 5.0 while its competitor Cambodia bagged 2.6, Philippines 2.9, India 3.2, Vietnam 3.3 and China 3.6.

When asked, senior economist and trade analyst Dr Zaidi Sattar told the FE that absence of trade openness and higher trade infrastructure (logistic) costs were the key reasons for the Bangladesh's trade-GDP ratio remaining low.

"It is interesting that although the country's trade has a growth of nearly 11 per cent on an average over the last few years, but its trade-GDP ratio is not increasing at an expected rate. The above hurdles are creating setback to improve the ratio," he added.

Dr Sattar said Vietnam was the best example of trade openness as only its export volume (US$265 billion) is higher

than its total size of GDP ($260 billion).

The economist said that when Bangladesh's nominal GDP grows at 13-14 per cent, how the trade growth could be less than 11 per cent. "It shows our poor capacity in making the country a trade competitive nation."

According to the WB development update, transport represents the largest share of direct logistics costs, and road transport is the dominant transport mode in Bangladesh.

Road transport rates in Bangladesh, which range from $0.06 for a 16-tonne truck to $0.12 for a trailer (in per tonne, per kilometre terms), are higher than that of most countries, a primary constraint to exporting, the report added.

The bank said: "Logistics costs in Bangladesh are high in most sectors. Costs range from 4.5 per cent of sales for leather footwear to 47.9 per cent of sales for horticulture. Inventory carrying costs 21 per cent (in per tonne, per kilometre terms), are higher than in most countries."

Inventory carrying costs represent 17 to 56 per cent of logistics costs, exceeding 30 per cent of logistics costs in most industries, it added.

The WB said that if the road congestion was eliminated, logistics costs would be lowered by at least 7 to 35 per cent, depending on the sector.

"Beyond logistics costs, congestion accounts for almost 60 per cent of the annual carbon dioxide (CO2) emissions from inter-district road freight transport, the social costs of which are estimated to be 1.2 per cent of GDP."

"High dwell times (the amount of time which cargo or ships spend within a port), add to the high logistics costs. At the Chittagong Port, for example, average dwell times are 4 days for an export container and 11 days for an import container," the Washington-based lender said.

Identifying Bangladesh's logistics system fragmented in terms of both infrastructure and services, the WB said a fragmented, ineffective, and outdated framework of governance over trade logistics has led to inefficiencies and a lack of coordination in the sector.

"Logistics service markets in Bangladesh are not competitive. The logistics sector suffers from outdated policies and regulations."

The Washington-based lender has underlined the need for improved logistics performance for strengthening the post-Covid recovery through enhanced international competitiveness.

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