Logistics, crucial to commerce, are ripe for reform

Competitive trade needs seamless organisation, though regional governments still have a long way to go to simplify administrative procedures

PUBLISHED : Wednesday, 23 July, 2014, 10:45am
UPDATED : Thursday, 24 July, 2014, 1:00am

Logistics is a fertile field for reform that would benefit the trading economies in Asia-Pacific.

Without it, there is no commerce, national or international. Logistics is a process as well as a collection of related products.

The process is a multi-faceted sequence of planning and management actions that enable the movement and delivery of goods and services between locations.

If logistics is not supplied efficiently, competitiveness across the board takes a hit. Three leading sources of inefficiency are poor infrastructure, the abuse of monopolistic market positions, and bad government policy.

Officials from several Asia-Pacific Economic Cooperation (Apec) economies gathered last week in Hong Kong, under the auspices of Australia's Department of Foreign Affairs and Trade, to discuss the impact of policy on logistics efficiency.

Cumbersome, repetitive and time-consuming procedures simply add to costs

The meeting was useful in shedding light on a complex sector. But it was inconclusive on how to prioritise remedial action.

The complexity of the sector resides in the multiplicity of tasks underlying logistics. Core services include cargo handling, warehousing, freight forwarding, transport procurement and customs brokerage. Air, sea, road and rail transport services provide the backbone for the entire logistics edifice.

The efficient and competitive lubrication of commerce requires seamless logistics. The cost of logistics can be raised by a range of anti-competitive practices resulting from government action or, where private monopolies take hold, the lack of it.

Broad categories of cost-raising policies include barriers to competition, restrictions on foreign entry, and procedural obstacles.

In an industry that needs to be well joined up to do well, governments sometimes frustrate competition by requiring separate licensing for different logistics services, thereby breaking vital links.

They may award contracts preferentially or grant exclusive supply rights. They may forbid traders from handling their own consignments, insisting that only licensed agents can provide service.

Restrictions on foreign participation in the market for logistics services include straightforward entry restrictions and constraints on operating rights after entry. Or they may involve discriminatory access to infrastructure.

Procedural obstacles to doing business can take many forms. Cumbersome, repetitive and time-consuming procedures simply add to costs.

Positive trade facilitation actions can make a big difference and are light in terms of using scarce government resources. Simplifying life for business may even save government money.

For an economy as open and trade-oriented as Hong Kong's, it is surprising that import and export procedures have not been simplified to a "single window" for dealing with all administrative requirements.

All necessary dealings with departments responsible for transport, customs, health, trade and industry, and agriculture, fisheries and conservation, for example, must be handled separately. This multiplies documentary and data entry requirements.

The World Bank has constructed a Logistics Performance Index that ranks economies on the basis of performance in relation to six benchmarks. These are customs, infrastructure, ease of arranging shipments, quality of logistics services, tracking and tracing, and timeliness.

Among the Apec economies, Singapore comes in fifth in the global rankings, and Hong Kong 15th, after the United States, Canada and Japan.

Australia, Taiwan, Korea, New Zealand and Malaysia score ahead of China, which is 28th. All the rest of the Apec economies score below China.

This indicator measures the efficiency of customs and border management clearance, suggesting that ready gains would accrue to domestic administrative reform.

In a more sensible world, all market participants would be pressing for improvements that offered collective benefits. They would not be locked in a zero-sum game, fighting over a diminished pie.

And trying to persuade governments to act would be akin to pushing against an open door.

Patrick Low is vice-president of research at the Fung Global Institute