creating global value through efficient trade logistics warren h. hausman hau l. lee uma subramanian

Creating Global Value Through Efficient Trade Logistics

Warren H. Hausman

Hau L. Lee

Uma Subramanian

Overview

• Motivation for logistics indicators research

• Methodology for developing logistics indicators

• Cross country comparisons of selected logistics indicators

• Logistics indicators as determinants of bilateral trade

• Supply chain-based logistics index

What Determines Bilateral Trade?

Past Studies on Bilateral Trade

GDP GDPDistance

InstitutionsInfrastructure

Country characteristics



Our Focus

GDP GDPDistance




Country characteristicsLogistics Frictions

(Time and Cost Metrics)

Research Opportunities

• Institutional quality and infrastructure variables have been based on subjective indices or expert assessments.

• Quantifiable and measurable logistics performance indicators have not been used.

• Variables used are not easily translated into operations i.e. not directly actionable.

• Best results without using country-specific dummy variables explain 66% of variability in bilateral trade.

Objectives of Research

• Determine the significance of logistics performance in influencing bilateral trade through the use of measurable and quantifiable logistics indicators.

• Perform a critical assessment of logistics performance of countries globally.

• Develop supply-chain logistics index to guide resource allocation and deployment for improving logistics efficiency.

Snapshot of Methodology

2005 Survey

Focus on containerized

imports & exports

140 Countries

Detailed Questionnaire

SurveySurvey

responses from practitioners/ intermediaries

(Panalpina)

Textiles/Apparel

Coffee, tea, cocoa, spices

Extensive follow-up through

email and phone calls by World

Bank

Global Logistics IndicatorsDimensions of measurement: Examples

Total time for a trade transaction

Document processing time

Customs clearance

Technical control

Vessel turnaround

Vessel waiting time for berth

CSI related time

Time

Total cost for a trade transaction

Port & terminal charges

Document Processing

Customs clearance cost

Inland freight

Cost

Signatures for a trade transaction

Number of documents per transaction

Percent of containers inspected

Level of inspection

Criteria for inspection

Complexity

No. of containers unloaded per berth hour

Port shutdown days

Inland transport speed

Frequency of vessel calls at port

Efficiency

Source: World Bank Global Logistics Indicators Survey

Methodology Framework…

Process 1

Process 14

Process 2Process 3Process 4Process 5

Pre-Arrival or Pre-Shipment Activity

Inland Transportation

Border Clearance

Port & Terminal Handling Activity

Exports

Imports

Methodology: Assumptions

Private, registered limited liability company

Medium size (200 employees or more)

Located in the most populous city

Domestically-owned with no foreign ownership

Subject to commercial laws and regulations

Exports >10% of sales to international markets

Interaction of firm with external parties

All legal procedures required for trade, including those that may be “side-stepped” in exceptional circumstances

Formal costs; no informal payments included in cost figures

Port of entry and exit is a sea-port

Port is the one that serves the most populous city

Manufactured or processed products (SITC 65; 84; 07)*

Medium valued product

Transported in dry cargo 20-ft (FCL)

Not: hazardous product, military equipment

Does not require refrigeration or special envir.

Does not involve any special phyto-sanitary or environmental standards

Firm

ProceduresPort

Product

Germany

United StatesJapan

New ZealandDominican RepublicPhilippines

FranceChileTurkeySenegal

ArgentinaChinaNepal Nicaragua

Nigeria

ZimbabweMongolia

KazakhstanNiger

Burundi Kyrgyz Republic

050

100

150

Day

s fo

r an

Impo

rt T

rans

actio

n

10 20 30 40GDP per capita (thousands of dollars)

Poorer countries take longer to process trade transactions


14

2833

46

36

49

37

49

41

53

4448

58

69

020

4060

80D

ays

OECD EAP LAC MENA SAS ECA AFR


By region

Average Time for a Typical Import Transaction

Germany

SingaporeJapan

United Kingdom

Dominican Republic

Philippines

ChinaIndonesia ArgentinaGuatemalaNicaragua Italy

Sierra Leone TogoColombia

Nigeria

Bangladesh

Austria

Czech Republic

HungaryParaguayNepal

Botswana

Lesotho

ZambiaBurkina Faso

Mongolia

KazakhstanRwanda

Burundi

Uzbekistan

05

01

00

15

0

1 10 20 30 40 1 10 20 30 40

Day

s fo

r an

Imp

ort

Tra

ns

acti

on

GDP per capita (thousands of dollars)

Median=30

Median=61

Landlocked Countries face bigger constraints

Italy

Coastal countries Land Locked Countries


Coastal Countries

Port and Terminal Handling

9%


24%

Customs and Inspection

15%

Pre-arrival52%

Port and Terminal Handling

12%


9%

Customs and Inspection

17%Pre-arrival

62%

Landlocked countries

Of the total time to import a container,

hard infrastructure accounts:

About a fifth About a third


Total Cost for a Typical Import Transaction

501

506

550

700

821

841

1242

1335

1409

1428

1631

1800

2029

2248

4616

5787

0 1000 2000 3000 4000 5000 6000 7000

Thailand

Norway

Sweden

Spain

Ireland

Malaysia

South Africa

Brazil

India

United States

Korea

China

Kazakhstan

Algeria

Zambia

Cameroon

Source: World Bank Global Logistics Indicators SurveyUS $

Regional Variations in Cost for a Typical Import Transaction

983

1120

1130

1277

1370

1677

1983

0 500 1,000 1,500 2,000US Dollars

OECD

MENA

EAP

SAS

ECA

LAC

AFR

73

74

77

104

286

438

0 100 200 300 400Percent (Cost/ Per Capita GDP)

OECD

LAC

MENA

ECA

EAP

SAS

AFR


23333

555

677

815

1721

3940

42

0 10 20 30 40Number of Signatures

Singapore

Finland

France

Indonesia

Korea

Ireland

Italy

United States

Venezuela

China

Colombia

Senegal

Bangladesh

Lao PDR

Mongolia

Nigeria

Azerbaijan

Congo, Dem.Rep.

Number of Signatures for Typical Export Transaction


42

9

5

13

8

29

16

010

2030

Num

ber

of S

igna

ture

s fo

r Im

port

s

High income Upper middle income Lower middle income Low income

Higher Hurdles for Poorer countries

Total For Customs


42

24

3430

24

53

23

64

20

50

15

72

020

4060

80P

erce

nt

EAP ECA MENA AFR LAC SAS


By regionPercent of Import Containers Inspected

Trade/GDP Percent of Containers Inspected

Percentage of Import Containers Inspected

0

20

40

60

80

100

Mal

aysi

a

Germ

any

USAJa

pan

South A

frica

Mex

ico

Jord

an

Bangla

desh

Colum

bia

Domin

ican

Rep

.

Turk

ey

Pakis

tan

Sri Lan

ka

Niger

ia


11

29

44

69

020

4060

80P

erce

nt

High income Upper middle income Lower middle income Low income

Bureaucracy inversely related to income

Percent of Containers Inspected


Criteria for Selection of Containers for Customs Inspection

(Sample countries)

India

Mozambique

Pakistan

Vietnam

Sri Lanka

Nigeria

Kenya

Egypt

Ghana

Honduras

Germany

Sweden

Spain

Australia

France

Thailand

Latvia

Serbia-Montenegro

Slovak Rep

Bosnia & Herzegovina

Routine Inspection of all containers

Containers Selected for InspectionBased on Risk Analysis


Augmented Gravity Model

Basic Attraction

Logistics Indicators

Institutional Quality

• Exporter GDP• Importer GDP• Distance

Bilateral Trade• Time

• Cost• Variability

• Exporter’s corruption index• Importer’s corruption index• Regional trade agreement dummy

Critical Global Logistics Indicators

Time

Cost

Variability

• Exporter’s average time for all procedures• Importer’s average time for all procedures

• Total costs for import-related procedures

• Exporter’s Max Time – Average Time for all procedures

• Importer’s Max Time – Average time for all procedures

Augmented Gravity Model Results

Log GDP exporterLog GDP importer

Log distanceLog Exporter’s Avg Time for ProceduresLog Importer’s Avg Time for Procedures

Log of Importer’s Total Cost for ProceduresLog Exporter’s Max Time – Avg TimeLog Importer’s Max Time – Avg Time

Exporter’s Corruption Perception IndexImporter’s Corruption Perception Index

Regional Trade Agreement DummyAdjusted R-Squared

ObservationsF-Statistic

1.265 0.956 -1.390 -0.373 0.171 -0.492 -0.236 0.090 0.188 0.134 0.343

Coefficient

75.57 54.17 -39.02 -5.24 2.13-10.68 -4.28 1.18 10.82 6.27 4.73

t-Statistic

0.7165149

1287.0

Observations

• Measurable and quantifiable logistics indicators improve explanatory power of gravity model for bilateral trade.

• Logistics indicators results show efficient logistics in time and cost can contribute to increased trade.

• Variability matters – higher variability in processing time can be a deterrent to bilateral trade.

Supply-Chain Based Logistics Index

• A single metric to evaluate and measure logistics efficiencies

• Weights of each variable in the Logistics Index show relative benefits

• Use weights to guide resource allocation and deployment of logistics improvements

• A single measure enables quick and easy benchmarking

Supply Chain-Based Logistics IndexDistance

Total Cost of Processing

Total Time (Freight + Ports)

Shipping Cost

Trade-Related Costs

Inventory Cost(In-Transit)

Total Landed

Cost

Coefficient of Variation of Total

Time

Inventory Cost(Safety Stock)

Product Cost

Three-Stage Logistic Index Estimation

• Log Exporter GDP• Log Importer GDP• Exporter’s Corruption Perception Index• Importer’s Corruption Perception Index• Regional Trade Agreement Dummy

Stage 1

Stage 2

Bilateral Trade

• Stage 1 variables plus• Logistics Index

Stage 3

Bilateral Trade

Residual from Stage 1

• Log Distance• Log Total Processing Cost• Total Time• Coeff of Variation of Total Time

LogisticsIndex

Stage 1 Logistics Index Model Results

Log GDP exporter

Log GDP importer

Exporter’s Corruption Perception Index

Importer’s Corruption Perception Index

Regional Trade Agreement Dummy

Adjusted R-Squared

Observations

F-Statistic

1.200

0.888

0.298

0.252

1.005

Coefficient

61.67

46.04

24.09

17.85

11.5

t-Statistic

0.620

5149

1710.0


Log Distance

Log of Total Trade Related Costs

Total Trade Related Time

Coeff of Var for Total Time

Adjusted R-Squared

Observations

F-Statistic

-1.307

-0.232

-0.007

-0.947

Coefficient

-34.61

-6.02

-3.74

-4.56

t-Statistic

0.225

5149

385.0


Log GDP exporter

Log GDP importer

Exporter’s Corruption Perception Index

Importer’s Corruption Perception Index

Regional Trade Agreement Dummy

Logistics Index

Adjusted R-Squared

Observations

F-Statistic

1.285

0.925

0.253

0.164

0.346

1.083

Coefficient

76.1

55.55

22.86

12.5

4.87

41.13

t-Statistic

0.713

5149

2317.0

Model Comparisons

Number of Variables

Adjusted R-Squared

F-Statistic

11

0.716

1287.0

6

0.713

2317.0

Augmented Gravity Model

Logistics Index Model

Implications for Logistics Improvements*

“Distance” (surrogate for shipping cost)

Trade-related cost

Trade related time (average)

Standard deviation of proc. time

1.415%

0.251%

0.143%**

0.308%**

A one percent reduction in:

* Based on Stage Two and Three Regression Results** Calculations based on exports from Brazil, China and Pakistan to US and UK

Results in this % increasein trade:

Logistics Index Observations

• It is possible to derive a single logistics index that captures all the explanatory power of all the logistics indicators.

• The logistics index is a significant determinant of bilateral trade.

• The logistics index is derived from distance, time, cost and variability measures.

Summary

• Logistics indicators are a significant determinant of bilateral trade.

• A single Logistics Index has equal explanatory power to the set of logistics indicators.

• Private enterprises and government agencies should collaborate to improve logistics performance and reduce logistics friction in order to foster trade.

• The Logistics Index can be used to guide resource allocation and deployment for such improvement projects.

creating global value through efficient trade logistics warren h. hausman hau l. lee uma subramanian

Documents

logistics efficiency

supplychain logistics

world bank slide

infrastructure variables

methodology framework

lee uma subramanian

examples total time

survey focus