washington, d.c. 20433, u.s.a. forging subregional links

Uma SubramanianJohn Arnold

Forging Subregional Linksin Transportation andLogistics in South Asia

Forg

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The World Bank1818 H Street, N.W.Washington, D.C. 20433, U.S.A.

Telephone: 202-477-1234Facsimile: 202-477-6391Internet: www.worldbank.orgE-mail: [email protected]

In the wake of recent liberalization, South Asian countries are seeking to expand trade andinvestment links with regional and global partners. However, inadequate infrastructure combinedwith policy and regulatory constraints imposes significant limitations in opening up one of thepoorest regions in the world.

Forging Subregional Links in Transportation and Logistics in South Asia examines transportationand logistics issues in Bangladesh, Bhutan, eastern India, and Nepal and provides well-researchedcommentary on non-tariff barriers that impede the seamless flow of goods and services toregional and global markets. Besides offering a wealth of information on regional transportationissues, the book offers an innovative analytic framework and a comprehensive analysis of thehidden costs associated with logistics barriers in South Asia. Detailed commodity case studiesprovide a strong quantitative argument that the flows and cost of goods traded within and outsidethe region are adversely affected by physical infrastructure bottlenecks as well as by policyanomalies.

Written for public and private sector professionals in South Asia, the book presents policy optionsthat would enable the subregion to compete in a rapidly changing global environment. While thebook is designed to stimulate informed dialogue among key stakeholders, the unique approachand lessons learned have broad applications of interest to a wider audience.

ISBN 0-8213-4885-X

Forging Subregional Links

in Transportation and

Logistics in South Asia

Uma Subramanian

John Arnold

The World BankWashington, D.C.

Copyright © 2001 The International Bank for Reconstructionand Development / THE WORLD BANK

1818 H Street, N.W.Washington, D.C. 20433, USA

All rights reservedManufactured in the United States of AmericaFirst printing January 20011 2 3 4 03 02 01 00

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Foreword v

Acknowledgments vii

Executive Summary 1Emerging Trends and Implications for the South Asia Subregion 1Linkages with Other Bank Strategies 2Methodology for the Study: Selection of Strategic Commodities

and Routes 3Highlights of the Commodity Flows Study 3Highlights of the Comparative Route Analysis 4Need for Public-Private Partnership 7Preliminary Agenda for Action 7Bank Group Involvement 13The Report’s Audience and Its Structure 14

1 . Connecting a Subregion: A Strategic View 1 5Profile of the South Asia Subregion 16Potential for Growth: The Need for a Shared Vision 26Approach 28Structure of the Report 31

2. Reducing Logistics Costs 3 3Transport Components 35Analysis of Logistics Costs and Times 46Implications of Logistics Constraints and Characteristics of Goods 51

3. Route Selection: Applying a Logistics Viewpoint 5 5Commodities, Modes, and Routes: Selected Case Studies 57Highlights of Case Studies 66Damages, Delays, and Corruption 68Variations in Transport Logistics Performance and Cost 70Conclusions 73

Contents

iii

4. Improving Private-Public Partnerships in South AsianTransport and Logistics 7 5Delegates’ Views of the Private Sector Role 78Expectations about Government Action 78Organizations for Innovative Private-Public Investments 79Organizations for Private Operations of Transport Infrastructure

and Operations 82Future of Private-Public Partnership in the Region 84

5. Setting a Dynamic Process in Motion 8 7Strategic Linkages and Areas for Development 89Policy Reform and Improved Transit Protocols 92Modernization of Transport Networks and Services 93Changes Affecting Future Logistics 97Possible Implications for Bank Group Involvement 99

6. Next: Proposed Change 1 0 3Preliminary Agenda 108Regional Capacity Building 115

Bibliography 1 1 7Background Notes 117Other References 118

Maps: South Asia Intermodal Transportation Network 1 2 11. Key Subregional Routes 1222. Cross Border Points of Interest: India, Nepal, Bhutan,

and Bangladesh 1233. Cross Border Points of Interest: India and Bangladesh 1244. Cross Border Points of Interest: India and Bangladesh 1255. Cross Border Points of Interest: India and Nepal 1266. Transport Logistics Cost Model 1277. South Asia Region 1288. Transport of Carpet from Kathmandu to Europe 1299. Transport of Tea from Karimganj, Assam to United Kingdom 130

10. Transport of Freights of all Kinds from Calcutta to Agartala 13111. Transport of Cement from Calcutta to Agartala 13212. Transport of Agricultural Produce from Kathmandu to Dhaka 133

iv

Foreword

To fight poverty with passion and professionalism for lasting results.” This is the veryessence of the World Bank’s Mission Statement that has a special place in South Asia, aregion that harbors a lion’s share of the world’s poor. Development strategy for povertyalleviation must be rooted in transformation of society by the society. For this, individu-

als in society must be energized with a vision for their own betterment, and through shared knowl-edge, resources and capacity building, be helped to translate the vision into reality. Societies thathave discovered the magic of individual and collective empowerment are the ones that have discov-ered the link between political and economic stability and poverty alleviation.

We are rapidly moving to an era of globalization where countries are increasingly connected bymarkets, trade, finance, resources, transport, information and communication. South Asian countriesface a unique opportunity to participate competitively in this global production and trading system.However, this opportunity will be realized only if they can meet the market demands that call forhigh quality products and services and just-in-time delivery.

This report focuses on a poor sub-region of South Asia covering Bangladesh, Bhutan, Nepal andEastern India. As the South Asian countries are positioning themselves to participate in global andregional markets in light of recent liberalization policies, their efforts and opportunities to findmarkets within and outside the region are severely limited due to serious transportation and logisticsimpediments. These impediments significantly raise the cost of doing business affecting criticaleconomic sectors. In turn, they have an adverse impact on economic growth, low skilled employ-ment and poverty in the sub-region. The landlocked countries or regions are in particular, severelyconstrained by poor access.

The issues involved in efficient regional transport logistics systems are complex and often politicallysensitive. They cut across not only physical infrastructure related bottlenecks, but also policy and

“

v

Mieko NishimizuVice President, South Asia Region

The World Bank

procedural issues in the logistics chains—such as red tape and corruption in customs, highly restric-tive bilateral protocols on cross-border movement of vehicles, delays and pilferage in ports, andpoor modal interfaces. Through the innovative analytic framework that would support more openand rational dialogue among countries and among public and private sector groups in the region,this report would contribute to the process of helping forge partnerships and collaboration in thesub-region, promoting trade, investment, growth and employment.

Let us continue to strive through these and other on-going efforts in the region in our mission tofight poverty.

vi

Acknowledgments

vii

The principal authors for this report are Uma Subramanian (task team leader) and JohnArnold (consultant). Shunso Tsukada (Transport Specialist) and Peter Yee with S.M Matin(consultants) contributed to the analytic framework and logistics cost data. In addition,Peter Yee, Manmohan Parkash and S.M Matin were responsible for several key back-

ground thematic notes that contributed to this report. ALK Associates prepared the logistics costmodel, Geographic Information Systems data and maps. Mohammad Iqbal Karim, Surendra Joshi andHarald Hansen provided important inputs as team members. The team is especially grateful to alliesand friends from the private and public sectors from the South Asia region who generously sharedadvice and inputs.

Peer reviewers that include Frannie Leautier, Colin Gannon, Marc Juhel, Anil Bhandari, ThampilPankaj and T.R. Lakshmanan provided invaluable insights and guidance. We are grateful for guid-ance from Sadiq Ahmed and input from several colleagues including Eva Molnar, Graham Smith, KenGwilliam, Carlos de Castro, Joelle Chassard, Chingboon Lee, Ken Ohashi, Alok Bansal, Stein Lundebye,Guang zhe Chen, Fabio Galli, Mohi Uz Zaman Quazi, Zhi Liu, Uwe Deichmann, Stephan von Klaudy,and Jeffrey Lecksell.

The report was prepared for the South Asia Infrastructure Sector Unit under the management ofVincent Gouarne (Sector Director). Administrative assistance was provided by Gladys Stevens. HalimaSamey, Luis Vasquez, Irene Christy, Johana Thapa, and Razia Sultana helped with various aspects inthe production and distribution of the report.

1

The area of study in the South Asia subregion consists ofBangladesh, Bhutan, Nepal, Eastern India, and the sevenNortheastern Indian states. The states included in East-ern India are West Bengal, Uttar Pradesh, Bihar, and

Orissa. The Northeastern Indian states include Assam, Mizoram,Nagaland, Arunachal Pradesh, Tripura, Meghalaya, and Manipur. (SeeMaps 1 to 5 at the end of the report for the key routes considered andthe important cross-border points of interest). The subregion, hometo half a billion people, is among the poorest regions in the world.

This report synthesizes the work and background reports prepared aspart of the sector work under the Bank’s South Asia Regional Initia-tive on Transport Integration. One of the fundamental objectives ofthis report (in line with the objective of the regional initiative ontransport) is to use an analytic framework to identify key transportand logistics impediments that have left the subregion lagging behindin economic growth. A closely linked objective is to improve theaccess of the landlocked areas in the South Asia subregion, specifi-cally Nepal, Bhutan, and Northeast India, to regional and interna-tional markets. The intention is to share the framework and logisticscost model developed with the countries in order to allow stakehold-ers to continue the process of analysis and dialogue based on up-dated data as markets, trade, and transport services in the subregionand elsewhere change.

EMERGING TRENDS AND IMPLICATIONS FOR THE SOUTH ASIA SUBREGION

Recent trends in globalization that enable decentralization of produc-tion and distribution activities worldwide offer tremendous economicopportunities for employment and growth in poor countries. The abilityof countries to grow rapidly depends on their capacity to link withglobal and regional markets. In turn, this capacity depends signifi-cantly on connectivity, and the efficiency and speed with which goodsand services can be moved from production centers to final markets.Improvements in transport logistics therefore have important implica-tions for poverty alleviation by offering new economic opportunities

ExecutiveSummary

2 Forging Subregional Links in Transportation and Logistics in South Asia

through better market linkages, expanded em-ployment possibilities, easier and cheaper de-velopment of the resource base, and reduceddamages and losses due to inefficient storageand multiple handlings. The rationale for improv-ing transport logistics among countries and withthe outside world can also be applied to internaltrade between the rural areas and urban mar-kets. Improved transport logistics are very im-portant for small and medium industries in ruralareas that must deliver a quality product withinan acceptable time and at a competitive cost.

As in other parts of the world, regional and sub-regional issues are addressed with a great dealof sensitivity in South Asia. Given the sensitivi-ties of regional issues, the Bank study team soughtto promote dialogue among key regional stake-holders and provide for a better understandingof key issues and options by learning from ex-periences in other parts of the world. Its goalswere to create a greater popular awareness ofthe mutual benefits of cooperation and establisha high level of commitment for improved trans-port logistics, both in the government and theprivate sector. The Bank team sought to providetechnical inputs and a framework to evaluatethe broader regional implications of proposalsgenerated by the participants.

The report includes a set of analytic tools thatinclude a geographic information systems (GIS)database for the region and a logistics cost modeldeveloped in collaboration with stakeholders inthe subregion. The report is not aimed at offer-ing a master plan for a regional transportationnetwork, nor is it envisioned to be a regionaltransport sector strategy. The broader objectiveof the report, in line with the objectives of theregional initiative, is to provide an analytic frame-work and a user-friendly decision support toolto address improved regional movement of goodsand services and allow for moving issues from apurely political realm to a more economic and

commercial level (Map 6 at the end of this re-port). We think that the framework would helplead to improved and rational dialogue in keysectors among and within the countries on sub-stantive issues in the area of transport, logistics,and regional connectivity.

LINKAGES WITH OTHER BANK STRATEGIES1

The approach reflects several of the principlesunder the Bank’s Comprehensive DevelopmentFramework, including:

• The interactive approach to Advisory and Ana-lytic Activity adopted through continualsubnational, national, and regional consulta-tions with stakeholders from various sectorsin order to build ownership in the countries.

• Partnership building with and among govern-ments, private sector groups, research institu-tions, and other development organizations.The task team therefore focused on buildingallies as well as creating broad coalitions ofnational stakeholders and development part-ners from the government, private businessgroups (such as chambers of commerce,freight forwarders, exporters, and shippers),and donor and development organizations(such as the United Nations and the AsianDevelopment Bank.)2

• Knowledge sharing and consultations in or-der to help develop a joint vision for the sub-region that will enable the evolution ofnational to regional strategies. Toward this

1. These other strategies include Country Assistance Strate-gies and the Comprehensive Development Framework ofthe World Bank.

2. For more information on the summary proceedings ofthe Private Sector Consultative Workshop Transport andTrade Facilitation in the subregion, see Background Note 1.

Executive Summary 3

objective, a regional technical workshop washeld to offer international experiences on re-gional integration.3

The Regional Initiative on Transport is consis-tent with country assistance strategies (CAS) forthe relevant countries and reflects client interestin the regional dimension for sectoral activities.This was noted in the CAS for India (dated De-cember 19, 1997), the CAS for Nepal (FY98) andBhutan (FY99), and the forthcoming CAS forBangladesh. The results of this study can pro-vide information for transport sector strategyupdates, such as the Bangladesh and India trans-port sector updates. It can also provide poten-tially relevant data for ongoing lending andtechnical assistance projects, including the NepalMultimodal Transport and Transit Facilitationproject and the Bangladesh Export Diversifica-tion project.

METHODOLOGY FOR THE STUDY: SELECTIONOF STRATEGIC COMMODITIES AND ROUTES

The core set of strategic commodities and routesselected for this study were chosen for two rea-sons. First, they provide opportunities for land-locked areas to reach markets and, second, theyare critical commodities that link the subregionto the global market. Accordingly, the study ex-amined Bangladeshi exports of garments to LosAngeles and imports of yarn from India; Nepaliexports of carpets to Europe and imports of woolfrom Australia; fruit and processed products fromBhutan to regional markets; and essential con-sumer commodities to Northeastern India from

the rest of India. The routes included those con-necting Nepal and Bhutan to international andregional markets through Calcutta and other In-dia ports, as well as routes linking Northeast In-dia to the rest of India via Bangladesh and on tointernational markets via Chittagong port.

The analytic framework applied in the evalua-tion of commodity movements on existing andproposed transit routes took into account boththe cost and time associated with the entire lo-gistics chains, including the time and cost forcross-border procedures and moving cargothrough seaports (Map 6 at the end of this re-port). It enabled two types of analysis:

• Identifying critical impediments along alogistics chain. Detailed information onphysical gaps and constraints, policies, pro-cedures, commodity type, and market condi-tions helped determine where improvementsin the short term can bring about significantreturns in terms of efficiency improvements.

• Comparing alternative routes (andmodes) as a means toward the more cost-effective route. Existing routes were com-pared with alternative routes that were eitheralready proposed by the private sector orunder consideration by the relevant govern-ments, or with those that have some potentialfor growth. The comparative analysis not onlyprovides information on the potential savingsif these routes were operationalized, but italso allows for a dynamic analysis of howimprovements in the components of both lo-gistics chains would affect overall benefits androute selection.

HIGHLIGHTS OF THE COMMODITY FLOWS STUDY

None of the routes provided logistics that couldbe considered fast and reliable, though some ofthem were more cost effective than others. This

3. Specifically, the South Asia Regional Technical Workshopon Transportation and Transit Facilitation, held in April 1999in Bangkok. It was sponsored by the World Bank and theUnited Nations’ Economic and Social Commission for Asiaand the Pacific.


is important as the region moves toward moreregional and international trade in higher-value,finished goods. International markets are increas-ingly demanding tighter and more reliable de-liveries. It is clear that improved logistics areessential to remain competitive. Without improve-ments, the region will not only miss out on newmarkets, but it will also suffer a decline in mar-ket share in existing markets.

The most important constraints in the logisticschains include:

• Excessive delays in moving cargo throughthe ports of Calcutta and Chittagong forinternational trade. The problems includecongestion within the port that leads to ineffi-cient handling of the cargo, cumbersome cus-toms procedures, and delays that stem fromwaiting for vessels that cannot operate to afixed day-of-the week schedule because ofthe uncertainty regarding the turnaround timein the port. This adds to the time for oceanshipment of containers because the movementof the feeder vessels cannot be coordinatedwith that of the mother vessels, and contain-ers in Singapore have an average waiting timeof a week.4

• Inefficiencies at land border crossings.Significant time delays and logistics costs aredue to a combination of impediments. Thebasic constraints are the lack of efficient cus-toms operations, which cause unnecessaryqueuing delays for inspection and customsclearance; and a lack of adequate facilitiesfor the transfer of cargo between vehicles andfor the storage of cargo that is consolidated atthe border. Poor physical planning and lack

of coordination in operations cause seriouscongestion at the busier crossings, such asPetrapole (India)–Benapole (Bangladesh). Italso leads to long delays at the less devel-oped crossings where there is no customsoffice or official in residence, such as at theBanglabandh border crossings in Bangladeshfor Nepalese trade cargo.

• Limitations on routes for transit cargo,regardless of which country the trucksbelong to. This is a significant problem be-cause it prevents the shippers from taking theroutes that offer the best balance of time andcost and from selecting the port that offersthe least-cost shipping to the overseas destina-tion. This is also true for regional movements.

HIGHLIGHTS OF THE COMPARATIVE ROUTE ANALYSIS

The routes from Nepal, which could use NhavaSheva rather than Calcutta as a gateway port,would require an initial transfer from road to railat Moradabad and, later on, at new inland con-tainer depots (ICDs) located closer to the originor destination of the cargo. The longer land trans-port distance to Nhava Sheva would be morethan compensated for by short sailing times toEurope and the potential for direct shipmentsfrom Nhava Sheva or transshipment along theroute to Europe (instead of backtracking toSingapore, as in the case of Calcutta port).

The shipment of Assam tea on its traditional routethrough Chittagong is not possible under the cur-rent bilateral protocol. Even if there is bilateralagreement on this option, this route offers rela-tively small savings over the long route aroundBangladesh through Siliguri to Calcutta becauseof the delays at the Akhoura-Agartala bordercrossing and at the port itself.

The road route between East India and North-east India through Bangladesh reduces transport

4. Haldia was not included in the selected routes, althoughits role in handling the cargoes studied, such as tea, is in-creasing rapidly.

Executive Summary 5

distance by more than 60 percent in comparisonto the current route around Bangladesh throughSiliguri, but it is not open under current protocol.If access for transit cargo to or from Northeast-ern India were permitted through Bangladesh,the transshipment requirements (the transfer ofcargo from Indian to Bangladeshi trucks, and backto Indian trucks) and the cross-border process-ing delays at the two borders would offset anypotential benefits from the reduced distance.However, if border-crossing procedures weresignificantly reduced and if transit access forIndian vehicles were allowed, there would besignificant savings in time and cost.

The rail route between East India and NortheastIndia through Bangladesh, though also not avail-able under current agreements, may be a fea-sible one in the medium term as the Indian andBangladeshi railway systems are increasingcompatibility and connectivity.

Among the route-specific observations resultingfrom the comparative analysis are:

• Seaports are very important factors in deter-mining route selection because of the largedelays and high costs for transferring cargothrough the ports. The elimination of unnec-essary customs procedures and delays in cargohandling will cause cargo to be routed throughmore efficient seaports.

• Customs clearances lead to unnecessary de-lays and informal payments. However, theydo not have as great an impact as other pro-cedures at border crossings and ports. Theuncertainties associated with the delays andcosts of clearing customs can often be tracedto inadequate preparation of customs docu-ments by the shipper. Customs limitations onworking hours, the low supply of officials atthe border to clear consignments, the limitednumber of gates for receiving cargo, and the

lack of transparency of procedures for inspec-tion all reduce efficiency and create animos-ity. With simplified procedures, standardizeddocuments, and limited inspections, especiallyfor transit cargo, the congestion at the bordercould be substantially reduced or eliminated.

• The constraints at land border crossings wouldbe significantly reduced if protocols were es-tablished for unrestricted movement of cargoacross borders in-bond. Instead, there is aprovision preventing Indian, Nepalese, orBhutanese trucks from moving across theBangladeshi border. India has agreements withBhutan and Nepal that allow trucks to moveacross the border, but their movements withinthe country are restricted. These restrictionsadd to the cost of transport, not only becauseof the labor and losses involved in transfer-ring cargo between vehicles, but also becausethe shipper cannot chose the least-cost pro-vider and the transport companies cannotposition themselves to obtain backhaul cargoother than at the border.

• High-value exports from Nepal to the PacificRim require faster handling at Calcutta,Chittagong, and Haldia, whereas shipmentsto Europe and the east coast of the UnitedStates require direct (intermodal) connectionsto the Jawaharlal Nehru Port Trust (JNPT). Bothtypes of shipments require containerizationof the cargoes at the earliest point in the lo-gistics chain. The ability to ship in containerswill be substantially improved with the opera-tionalization of the three ICDs on the Nepaleseborder. A direct rail link from Birgunj to theJNPT would provide the greatest efficiencygains among the alternatives considered.

• Truck routes via Bangladesh can offer reduc-tions in time and cost for medium-value goodsmoving between East India and Northeast In-dia if the cargo can be moved in-bond and


there is coordination between customs check-points at border crossings on both sides ofBangladesh to significantly reduce delays andeliminate transshipment. The savings to theshippers should be sufficient to support tollsto cover the cost for road maintenance result-ing from the increase in transit traffic.

• For trade in high-value goods between Indiaand Bangladesh, trucks will be the dominant,if not the exclusive, mode. Travel time willbe the major concern and route selection willbe based on reducing door-to-door deliverytime. Significant improvements in rail opera-tions would be needed if this mode were tocapture some of this traffic.

• Intraregional shipments of fruits, vegetables,and other perishables from Bhutan and Nepalto India and Bangladesh require much betterlogistics. This can be achieved by allowingthe cargo to move in a single truck from ori-gin to destination and by ensuring that clear-ance time at the border on both sides doesnot exceed six hours.

• The extension of the broad-gauge network inIndia and the development of a dual-gaugenetwork in Bangladesh will offer much broadercoverage with much fewer delays. If the In-dian and Bangladeshi railways continue tointegrate their systems and extend their broad-gauge networks, they might capture somemedium-value break-bulk cargoes. However,delays will continue at the border unless com-patible rolling stock is introduced and the short-age of locomotives ends. If these capitalinvestments can be combined with more effi-cient operations, as the Indian organizationConcor has achieved, there is the possibilitythat the railroads can provide the quality oflogistics services required by higher-valuegoods. At a minimum, the railways will be ableto maintain market share in their core busi-

ness, the hauling of low-value bulk commodi-ties, because of the higher costs for truckingand the longer transit times for inland water.

• Inland waterways could play a more promi-nent role in the transport of the low-valuebulk cargoes that move between Calcutta andnorth and east Bangladesh, which is not yetserved by broad-gauge rail. The inland watertransport network in Bangladesh is of consid-erable importance for domestic shipments, butit is less relevant for the movement of transittraffic. Very low travel speeds could be com-pensated for by improvements in channelmarkings to allow for nighttime navigation andby improvements in port operations to reduceturnaround time. However, this mode is ex-pected to continue to attract only low-valuecargoes that can afford long delivery times.An exception is the proposed container-on-barge service between the proposed Patengaport and Dhaka that would take advantage ofthe poor rail container service and lack ofefficient road connections for containers onthis major corridor. Another exception wouldbe the countries agreeing to route Numaligarhrefinery (Assam) products through Bangladeshto West Bengal.

• Investments in the transport network are nec-essary to improve the quality of logistics ser-vices, but these were given a lower prioritythan the procedural problems. The lower rank-ing is due in part to the recognition that theseare long-term problems and will require ma-jor capital investment and increased privatesector participation if they are to be solved. Itis also because of expectations that currentefforts to improve the transport network inthe subregion will yield measurable resultsover the next five years.

• Trucking is provided almost entirely by the pri-vate sector. Truckers use older vehicles with

Executive Summary 7

relatively low power-to-weight ratios, suitablefor short-haul traffic but not for the long-haulmovements of bulk and unitized cargoes. Therates for trucking services are competitive, bothwithin the countries and between the coun-tries, although India has the competitive ad-vantage of not needing to import trucks. Therates are held down by an emphasis on lowlabor costs and inexpensive equipment ratherthan by efficient utilization of more expen-sive, higher-capacity equipment. This is un-likely to change until the road network isimproved and regulations regarding truckloads and safety are enforced.

NEED FOR PUBLIC-PRIVATE PARTNERSHIP

The private sector is pursuing improvements intrade relations and transport logistics to ensure asmoother flow of goods and more cost-effectiveservices among the countries in the region. Thechambers of commerce of the four countries haveestablished a joint forum called the EmergingEast Initiative to examine and promote invest-ment, trade, and the economic growth of thesubregion. Participants expressed strong dissat-isfaction with the state of freight transportationfor regional and international markets and thelack of consultation with users in bilateral andmultilateral discussions on cross-country routeand mode choices. In their view, the private sec-tor can plan an increased role in the operationand management of landports and logistics ser-vices facilities; the development of containertransport, container operations, and facilities;cargo-handling facilities and services; and freight-forwarding, customs clearance, financial services,storage, warehousing, general transit, and ship-ping services at seaports and land border cross-ings. The private sector delegates’ proposals forgovernment action in trade facilitation included:

• Harmonizing government trade and transportpolicies and regulations in the subregion;

• Amending transit treaties and protocols to al-low for a freer choice of transport routes andservice providers;

• Instituting a program of modernization for cus-toms and cross-border facilities;

• Increasing the use of container transport byremoving institutional impediments, such asthe protocol between India and Bangladesh;

• Constructing ICDs in the region to encouragecontainer transport outside the main India railtransport corridors; and

• Improving access to credit and financial in-termediation services.

PRELIMINARY AGENDA FOR ACTION

The actions recommended in this report buildupon the general theme of consultation with theprivate and public sectors, and would requireaction at national and regional levels. Table 1summarizes short-term and medium- to long-termactions at the national and regional levels. Thepreliminary agenda focuses on three areas: (a)trade facilitation, (b) coordination of transportsector reform and investment, and (c) develop-ment of business-to-business e-commerce. Sev-eral actions under the agenda would requireaction at national levels. Others, such as tradefacilitation and improved procedures at the landborder crossings, would need a regional mecha-nism to create regional consistency. At the na-tional level, the recently established nationalTransport and Trade Facilitation Technical Com-mittees (TTTCs), which comprise key ministriesand agencies and private sector representatives,could be the nodal point in Bangladesh, Bhutan,and Nepal. A possible coordination mechanismthat has been suggested is a regional technicalforum, which would include not only the


TABLE 1 NATIONAL AND REGIONAL ACTIONS: SHORT TERM AND MEDIUM TO LONG TERM

National Regional

Short Term1. Strengthen the Transport and Trade Facilitation Technical Committees 1. Establish a regional technical working committee to (a) identify

(TTTCs) recently established in Bangladesh, Bhutan, and Nepal that methods for improving logistics for intraregional andare aimed at sustaining interaction between the public agencies and extraregional trade, (b) set priorities and short-term targets forthe private sector. These committees now include representation from achieving the greatest benefits, and (c) develop a forceful andministries or departments of commerce, customs, and transport or sustainable program for improving logistics in the region. Thecommunication, and private sector representation from chambers of committee will include:commerce, transport service providers associations, and trade • Government representatives of the relevant trade, transport,associations. Examine similar institutional options for increased and customs agencies to provide the policy and publiceffective dialogue on transport, logistics, and trade facilitation issues infrastructure perspective.in India in the public and private sectors. • Private sector representatives from shippers, consignees,

chambers of commerce, and logistics providers to bring aprivate sector and commercial perspective.

• Specialists from other countries and academia representativesto provide best practices knowledge of trade facilitation,supply-chain management, and logistics services, as well aspractical limitations on reforms experienced by other regionaltrade blocs.

2. Technical assistance should be provided to assist transport ministries, 2. Regional workshops could be used to share information amongdevelopment banks, planning ministries, freight forwarders, major transport professionals, shippers and consignees, and forwardersshippers, and experts in logistics in the techniques of supply-chain to improve supply-chain logistics in the region. This would beanalysis. The logistics cost model developed would provide an easy particularly helpful for improving regional and internationaland adaptable tool for training stakeholders. Procedures should be trade, particularly for landlocked regions.developed for incorporating supply-chain analysis into decisionsregarding investments in transport infrastructure and changes inprocedures for cross-border movement. Workshops could be used toinform transport professionals, shippers and consignees, andforwarders of the techniques used in supply-chain management.

3. Port reform and modernization for improved performance and 3. Bilateral (and multilateral) dialogue and agreements canlogistics is a priority for development of the countries’ trade in facilitate routing regional cargo through more efficient ports. Forglobal markets. The measures would include: instance, routing cargo through more efficient ports on the• Privatization of port management and operations, western coast of the subcontinent could reduce travel time by• Dedicated private terminal operations to expedite cargo handling, about one week for exports to Europe.• Facilitating routing cargo through more efficient ports, and• Better coordination of movements between feeder and mainline

vessels by improving port performance so the feeder vesselscan operate on a fixed schedule.

Executive Summary 9

National Regional

4. Improve the physical design of land border crossings in high traffic 4. Coordination among relevant countries in effectively improvingcrossings to reduce congestion and delays, with strategic investments the physical design of strategic high-traffic land border crossingsin place of the current practice of ad hoc investments. Support private so that current congestion and delays are reduced dramatically.sector involvement in development of superstructure and operationsat border crossings.

5. Simplification of import and export cargo clearance procedures 5. Harmonization and standardization of cross-border cargowithin the countries, including introduction of Automated Systems clearance procedures across countries.for Customs Data (or compatible) documentation.

6. Improved communication systems and adoption of automated 6. Compatibility of automated systems for effective electronictechnology for electronic transfer of information. interchange of information.

7. Eliminate requirements for transshipment of cargo by trucks at 7. Revisions of bilateral transit protocols to facilitate uninterruptedborder crossings and move toward increased transit access for movement of transit. Important changes include:vehicles from neighboring countries, so that multiple cargo handling • Replacement of the movement of transit cargo in truckand associated costs and delays are avoided. In addition, introduce: convoys to flexible movement against specified time limits• Automatic weighing of vehicles at border points with in-bond goods;• Simplified procedures and risk-assessment strategies to replace • The use of secure seals for rail cars or containers carrying

current cargo inspection practices transit cargo with very few or no inspections of cargo at the• Round-the-clock clearance of cargoes at high-density interchange border, other than checking seals;

points like Petrapole–Benapole and Gede–Darsana. • The Transports Internationaux Routiers (TIR) system for thecarriage of goods approved by customs authorities from thetransport of sealed containers using the TIR carnet; and

• Common vehicle inspection and licensing procedures fortrucks used to transport cargo across borders.

8. Monitoring/tracking systmes for cargo movement. 8. More effective mechanisms for monitoring the movement of thecargo, instead of the existing practice of using fixed routes andtruck convoys. These could include:• Joint checking of cargoes at the origin and destination;• Electronic data interchange (EDI) between customs facilities

within the country and across borders;• Identification numbers, bar codes, or other forms of electronic

identification for trucks and cargo containers;• The use of a freight operation information system for real-

time monitoring of trains, rail cars, and cargo; and• Tracking systems for transit cargo carried by trucks.

(Table continues on the following page.)


National Regional

9. Assignment of liability for the carriage of goods within the country 9. Assignment of liability for the carriage of goods and harmoniza-to encourage more efficient multimodal transport. tion of this liability scheme across regional and international

borders.

10. Development of full rake sidings for rail, night unloading facilities,and terminal facilities at major loading and unloading points.

11. Development of night navigation facilities on selected inland water-ways in Bangladesh and in the waterways linking Northeast Indiaand West Bengal.

12. For Bangladesh, a cohesive plan identifying key bridges thatneed upgrading along high-traffic corridors, taking into accountongoing efforts to strengthen bridges on the Dhaka-Chittagonghighway.

Medium and Long term 1. Investments in road network infrastructure, including widening 1. Investments at border crossings to facilitate easier two-way

roadways and constructing divided highways. Bangladesh would flow of traffic.base this on a review and update of the existing road masterplan. India would incorporate planned and ongoing road projects,including the Golden Quadrilateral and West Bengal north-southhighway, and a medium-term plan for less congested road linksto and among the Northeastern states.

2. Increased movement of containerized goods, particularly high-value 2. Extend the movement of containerized goods, particularly high-commodities. It would be useful to review (a) the Container Corpora- value commodities such as yarn, across national and regionaltion of India (CONCOR) experience and (b) the experience of Nepal borders.ICDs, including efforts to integrate private sector operations andprepare recommendations for making the process more efficient,effective, and transparent.

3. Strengthening and widening bridges where necessary, particularlyalong selected roadways for Bangladesh and Northeast India.

TABLE 1 (continued)

Executive Summary 11

National Regional

4. The TTTCs could oversee a review of the progress and plans for 4. A review of the progress and plans for harmonization of railharmonization of rail networks to determine the likely impact on networks to determine the likely impact on regional traffic flows.national traffic flows. The review should include ways to introduce, expand, and improve

Other items on the rail agenda would include proposing standards block train operations and rail-based ICDs to serve landlockedfor rolling stock, such as the configuration of container rail cars, the areas; scope for private sector operations.identification system for rail cars, and the introduction of air brakesand semi-automatic couplers for the freight cars crossing the borderbetween India and Bangladesh. Finally the review committee wouldlook at increased private sector involvement in unit train operations,especially proposals for shipping lines and other logistic providers tooperate trains for the movement of containers inland.

5. Modern laws and regulations covering clearer assignment of liabilities 5. Harmonization of laws and regulations in the region to enablefor the carriage of cargo, permitting tighter integration of intermodal clear assignment of liabilities for the carriage of cargo and permitmovements and reducing barriers to entry for potential third-party tighter integration of intermodal movements across national andlogistic providers. international borders. (There is considerable international

experience and legal precedence concerning this issue.)

6. Expand e-commerce opportunities more broadly to remote sectors, 6. New systems are needed for improving voice and data transmis-industries, and regions so that small and medium enterprises can sions between customs checkpoints at the border crossings andmarket their products directly to businesses and markets. This would between the checkpoints and central customs offices andinvolve: seaports. Initially this could be accomplished through a value-• Access to assured data communications and Internet services, added network used by customs. This could be expanded to the• Supportive legislation to allow financial transactions over the ICDs and other border crossings that would act as a center of

Internet that are both secure and legally binding, efficient and effective communications for scheduling and• Increased privatization of telecommunications and Internet services, coordinating movements with other activities on the logist ics• Establishment of a public-private partnership to ensure a chain. Ultimately, it should allow the users to input data

competitive environment for e-commerce services, and electronically through multiple ports and, eventually, through• Training for small- and medium-scale businesses for effective use the Internet.

and development of services.

7. In the long term, systematically introduce measures to move toward 7. In the long term, systematically introduce measures to moveoffering shippers door-to-door economical just-in-time delivery toward offering shippers door-to-door economical just-in-timeservice, which is important for the country to gain position in the delivery service, which is important for the region to gainglobal market. position in the global market.

8. Implementation of a smart card system for expediting all thetransactions associated with cross-border movements.


government and private sectors, but also inter-national expertise.

The analytic framework developed in this re-port could be used to evaluate other routes as abasic tool for evaluating investments in trans-port and trade facilitation. The framework shouldbe broadened to consider the impact of deliverytime on the perishability of cargoes and the im-pacts of uncertain delivery times on inventoryrequirements.

There is need for both short- and long-term im-provements. The short-term improvements wouldaddress problems related to:

• The exchange of goods between East andNortheast India;

• Bhutanese and Nepali trade with both inter-national and regional markets (in the case ofthe latter, many commodities have short shelflives); and

• The trade between Bangladesh and neighbor-ing areas, including Northeast India, and stra-tegic improvements for Bangladesh transportand logistics to improve global trade.

These improvements would also have significantimplications for improved logistics in the indi-vidual countries. The long-term improvementswould focus on the region’s capacity to meetthe logistics requirements for trade in highervalue goods.

The priority problems relating to seaports haveto be addressed primarily at a national level. Ef-forts to reform the port sector in India andBangladesh are longstanding but have notachieved much, other than private sector initia-tives in western Indian ports and the proposedPatenga port in Bangladesh. Port reform is criti-cal for the subregion. Inefficiencies associated

with port and ocean transport time can be re-duced by routing cargo through more efficientports and by better coordination between feederand mainline vessels.

The transport sector reforms, including increasedprivate sector participation in the seaports andrailways and the improvements in road capacityand maintenance, are issues that are already un-der consideration by individual governments. TheTTTCs could push for action on these improve-ments by coordinating private sector advocacyof these reforms and by adding international bestpractices and benchmarks to the discussion.

Bilateral transit protocols have not provided ef-ficient mechanisms for handling transit cargo, andthey instead treat them like import or exportcargo. There is a need to end the remaining pro-hibitions on cross-border movements of cargo,both for regional and international trade. Thenext step would be to eliminate the remainingrequirements for transshipment of cargo betweenthe vehicles at the border. Then it would be nec-essary to introduce the various procedures usedin different trading blocs for the efficient move-ment of transit cargo.

Simplification of customs documents and proce-dures and the introduction of electronic data inter-change (EDI) systems for direct input by shippersand logistics providers is another important areato reduce constraints at border crossings. Some ofthe more important reforms that need to be intro-duced to facilitate cross-border movement of transittraffic as well as bilateral trade are:

• Replacing the movements of transit cargo intruck convoys to flexible movements basedon specified time limits.

• The use of secure seals for rail cars or contain-ers carrying transit cargo to eliminate most bor-der inspections, other than checking the seals.

Executive Summary 13

• Common vehicle inspection and licensing pro-cedures for trucks that transport cargo acrossborders.

• Automatic weighing of vehicles at borderpoints.

• The Transports Internationaux Routiers (TIR)system for the carriage of goods approved bycustoms authorities from the transport ofsealed containers using the TIR carnet.

• Simple procedures and risk-assessment strat-egies to replace current cargo inspection prac-tices.

• Round-the-clock clearance of cargoes at high-density interchange points like Petrapole–Benapole and Gede–Darsana.

• Development of full rake sidings, night un-loading facilities, and terminal facilities atmajor loading and unloading points.

• Clearer assignments of liabilities to permittighter integration of intermodal movementsand reduce barriers to entry for potential third-party logistic providers. This also encouragesrailroads and trucking companies to improvequality of service to limit their exposure dueto loss or damage of cargo.

In addition, better mechanisms for monitoringthe movement of the cargo would include:

• Joint checking of cargoes at the origin anddestination;

• EDI between customs facilities within thecountry and across borders;

• Identification numbers, bar codes, or otherforms of electronic identification for trucks andcargo containers;

• The use of freight operation information sys-tem for real-time monitoring of trains, rail cars,and cargo; and

• Tracking systems for transit cargo carried bytrucks.

The committee should evaluate the alternativesand select those that can be implemented in thenext five years. The committee should also lookat the longer-term implementation of a smart cardsystem for expediting all the transactions associ-ated with cross-border movements.

BANK GROUP INVOLVEMENT

A fundamental role for the Bank in the regionaltransport initiative has been that of a convenor,bringing in global knowledge and experienceon regional transport and logistics issues, andhelping to promote more effective dialogueamong the relevant countries and between thepublic and private sectors.

Four elements of an effective transportation andlogistics system for the subregion would be: (a)trade facilitation and logistics improvements, (b)provision of flexible and strategic routes andmodal choices, (c) promotion of greater privatesector participation, and (d) rationalization ofbilateral and regional protocols. For elements (a),(b), and (c), most of the Bank’s instruments arecritical and add value. Some of these issues arebeing addressed through ongoing country op-erations and technical assistance (such as theIndia National Highways project, the NepalMultimodal Transport and Trade FacilitationProject, and the Bangladesh Export Diversifica-tion project). The strategic impact of countryoperations, particularly on poverty, could beenhanced if the regional dimension could bemore effectively and consistently integrated incountry strategies.


Rationalizing regional and bilateral protocol is ahistorically sensitive issue in South Asia, as inother parts of the world. The Bank’s role in thisaspect would naturally be small; but this rolecould be a critical one in providing a more ob-jective and rational basis by bringing in analysesof options and international best practices, andin supporting greater private sector participation.The tools and analysis used in this report couldcontribute toward this purpose.

In meeting the requirements of the four ele-ments, the opportunity exists for strong part-nerships with other development agencies,including the Asian Development Bank, theU.N. Conference on Trade and Development,World Customs Organization, Japanese Inter-national Cooperation Agency, and United Na-tions Economic and Social Commission for Asiaand the Pacific. All are involved in regionaltransport, logistics, and trade facilitation projectsin South Asia.

THE REPORT’S AUDIENCE AND ITS STRUCTURE

This report and the complementary outputs areaimed at several audiences:

• People from both governmental agencies andthe private sector (such as transport opera-tors and service providers, intermediaries, andother private business officials) in the relevantregion, and

• Within the Bank, the individual country workprograms for the South Asia subregion andthe thematic groups concerned with regionaltransport.

The first chapter provides an overview of thesocioeconomic and economic growth profile ofthe subregion, the challenges faced by land-locked regions in accessing regional and inter-national markets, and regional and internationaltrade patterns in light of the transport and lo-gistics constraints. It also presents the rationalefor the Bank team’s role and participatory ap-proach adopted for the sector work. The sec-ond chapter examines specific impediments inthe transport logistics chain of selected strate-gic commodity movement in the context of re-gional and international trade. It focuses onconstraints with line-haul movement and im-pediments at border crossings and at ports. Thethird chapter provides a framework for a com-parative analysis of existing routes with alter-native ones, both for the movement ofcommodities within the region and to interna-tional markets. It takes into account all trans-portation and logistics costs and the availabilityof physical links. It also addresses issues ofmodal choice, based on factors such as timesensitivity of the market and the value and per-ishability of the commodity.

The fourth chapter presents highlights of the con-straints faced by private businesses, freight for-warders, exporters and importers, and shippersin the subregion.

The fifth chapter summarizes the key constraintsand suggests short-term and long-term options.It also attempts to outline the role that the Bankcould play in assisting the subregion to reducethe transportation and logistics constraints.

The sixth and final chapter of the report outlines apreliminary agenda for discussion in the subregion.

15

This report synthesizes the work and background reportsthat were prepared as part of the interactive policy dia-logue under the Bank’s South Asia Regional Initiative onTransport Integration.1 It provides a spatial assessment of

key transport and logistics issues faced in opening up a region that islagging in economic growth. The area of study in the South Asiasubregion consists of Bangladesh, Bhutan, Nepal, and four Easternand seven Northeastern Indian states. The Eastern Indian states areWest Bengal, Uttar Pradesh, Bihar, and Orissa. The Northeastern In-dian states are Assam, Mizoram, Nagaland, Arunachal Pradesh, Tripura,Meghalaya, and Manipur (see Maps 1 and 7 at the back of this report).

The focus of this report is on (a) the costs of doing business withinthe subregion and with international markets that result from trans-portation impediments and other logistical issues; (b) an analytic frame-work to evaluate alternative and cost-effective regional routes; (c) thescope of increased public–private partnerships in the provision, man-agement, and use of transportation services; and (d) identification ofpriorities for improving regional transportation and logistics servicesand related policies in the subregion and a discussion on the possibleuse of World Bank instruments in supporting subregional linkages.

Recent trends in globalization, supported by technological advancesin information, communication, and transportation, facilitate increas-ing decentralization of production, distribution, and supply processes.Outsourcing of component economic activities across multiple coun-tries is becoming more and more common. This process of outsourcingoffers economic opportunities to all countries, particularly develop-ing ones, by allowing them to participate in providing value-addedservices and low-cost raw material or human resource skills. In turn,these countries benefit from improved market access for their ex-ports, acquisition of new technology through international knowledge

Connectinga Subregion:A Strategic View

1

1. See the list of background notes prepared for this report under the South AsiaRegional Initiative on Transport in the bibliography.


transfers, efficiency gains in the economy result-ing from increased competitive pressures ondomestic economic activities, and increasedemployment opportunities.

Globalization thus presents economic opportu-nities. However, the capacity of a country or aregion to participate in the global economy andderive concrete benefits is dependent on nationaland regional policies. Global trade and the asso-ciated economic growth of a country or a regiondepend critically on the efficiency and speed withwhich goods and services can be delivered fromproduction centers to final markets. Since one-third of world trade in the mid 1990s occurredwithin global production networks (World Bank1999),2 the ability of countries in Mercosur, theSouthern African Development Community(SADC), or South Asia to link with these net-works and to be more responsive to demanddepends on developing an efficient transport andlogistics system, which can provide just-in-timeand reliable delivery, and ensure quality of cargo.These are important parameters in the emergingglobal market because market expectations haverisen substantially in the last few years.

Within regions or countries, efficient transportand logistics systems offer increased possibili-ties for linking isolated and landlocked regionsto markets and new economic opportunities. Thesystems also offer easier and cheaper develop-ment of the resource base and increased em-ployment opportunities. By facilitating access toa larger regional market, they can help countriesbenefit from economies of scale. By providingmarket access to rural areas, they enable ruralproducers and small industries to deliver qualityproducts within an acceptable time and at a com-petitive cost. Improved transport logistics sys-tems within the region would encourage growth

in trade—not only international and intraregionaltrade, but also domestic trade between rural andurban areas.

The growth of South Asian trade, both with ex-ternal markets and within the region, is criticallydependent on the time and monetary costs ofgoods movement and cross-border transit ofcargo. As the countries are positioning themselvesto participate in global markets, the transporta-tion and trade logistics costs must be reduced toat least ensure their current position in the worldmarket. Logistics inefficiencies translate intohigher costs of their commodities and, moreimportantly, have serious implications for thecredibility and position of these countries in theinternational market.

PROFILE OF THE SOUTH ASIA SUBREGION

The subregion, consisting of Bangladesh, Bhutan,and Eastern and Northeastern India, is home toalmost a half-billion people. It is among the mostdensely populated regions in the world. Morethan half the population lives on less than US$1a day, and socioeconomic indicators such as in-fant mortality, life expectancy, and adult andfemale literacy are among the poorest in theworld. Over the next 25 years this population isexpected to double, exacerbating problems ofpoverty, social tension, and environmental deg-radation, unless strategies for encouraging fastereconomic growth are conceived and imple-mented. See Table 1.1 and Table 1.2 for socialand economic indicators.

Paradoxically, this region is endowed with abun-dant natural resources—fertile soil, water, miner-als, and energy resources—which are essentiallyuntapped because of poor connectivity and lackof market access. Although the resource poten-tial is large, the interdependencies among thecountries are also significant. Both Nepal andBhutan are landlocked, as are the seven North-2. World Development Indicators 1999, The World Bank.

Connecting a Subregion: A Strategic View 17

eastern Indian states. In fact, the Northeasternregion of India is connected to the rest of thecountry by a land corridor between Bangladeshand Nepal that is as narrow as 22 kilometers.This landlocked region, a natural hinterland toChittagong port, trades with the rest of India andthe world through this congested land corridor,with high transportation costs. For instance, con-sider tea exports from Assam that are shipped to

Europe via Calcutta port. The transportation costincludes a trucking route of more than 1,400 ki-lometers through the land corridor aroundBangladesh to Calcutta port. The traditional tearoute for Assamese tea via Chittagong port wouldcut the distance down by almost 60 percent.Third-country trade for both Nepal and Bhutanis also routed through Calcutta port, with associ-ated delays and costs.

TABLE 1.1 SOCIOECONOMIC INDICATORS

Percentage Percentage Infant Under-5of popula- of popula- mortality mortality Life Adult illiteracy rate,

GNP per tion living tion living rate, per rate, per expectancy % of people

capita on less than on less than 1,000, 1,000, at birth, 15 or above, 1997

Area (1998 US $) US $1/day US $2/day 1997 1997 1997 Males Females

SubregionIndia 430 47 87.5 71 88 63 33 61Bangladesh 350 50.3 86.7 75 104 58 50 73Nepal 210 n.a. n.a. 83 117 57 44 79Bhutan 430 n.a. n.a. 63 n.a. 61 n.a. n.a.

Other CountriesIndonesia 680 7.7 50.4 47 60 65 9 20China 750 22.2 57.8 32 39 70 9 25Argentina 8,970 n.a. n.a. 22 24 73 3 4Brazil 4,570 23.6 43.5 34 44 67 16 16Burkina Faso n.a. n.a. n.a. 99 169 44 n.a. n.a.Namibia n.a. n.a. n.a. 65 101 56 n.a. n.a.

RegionsEast Asia & Pacific 990 n.a. n.a. 37 47 69 9 22Latin America & Caribbean 3,940 n.a. n.a. 32 41 70 12 14Sub-Saharan Africa 480 n.a. n.a. 91 147 51 34 50South Asia 430 n.a. n.a. 77 100 62 36 63

Note: South Asia includes all the countries in South Asia as categorized in the World Development Report.n.a. = Not available.Sources:1999 World Development Indicators, World Bank; World Development Report1999/2000, World Bank.


Historically, South Asian countries have had re-strictive trade policy regimes with stringent bar-riers to cross-border trade, quantitative restrictionsand steep tariffs, restrictions on foreign capitalinvestments, and a predominant role of the pub-lic sector in the direct production of goods andservices and in regulating the private economy.Consequently, the role of trade in the nationalincome of South Asian countries has been his-torically low. Foreign direct investment flows tothe South Asian region have risen in the lastdecade but remain lower than other regions inthe world (Figure 1.1).

Trade among countries in South Asia has beentraditionally low during the decades following

independence. The rate of growth in exportswithin the South Asian Association for RegionalCooperation (SAARC) region as a percentage oftotal exports has been historically low and hasstayed low in comparison with other trading blocssuch as Mercosur and the SADC (Figure 1.2).

This pattern is reflected within the subregion,with intraregional trade accounting for only afraction of total third-country trade in each ofthe countries (Figures 1.3 to 1.6). Trade amongthe four countries is concentrated in a few keycommodities and has not demonstrated muchdiversification in the last few years. Table 1.3presents the top 10 commodities traded amongBangladesh, Bhutan, India, and Nepal.

TABLE 1.2 ECONOMIC GROWTH INDICATORS

Indicators India Bangladesh Nepal Bhutan

Area (thousand sq. km) 3,288 144 147 47Population (million)

1980 687 87 14 n.a.1998 980 126 23 0.8

Average annual growth rate (percent) 1997–98 2.0 2.1 2.5 n.a.GNP ($USBillion)

1998 427.4 44.2 4.9 0.4Average annual growth rate (percent) 1997–98 6.2 5.9 2.7 8.2GNP per capita ($US)

1998 440 350 210 470Average annual growth rate (percent) 1997–98 4.3 3.2 0.3 6.8GNP per capita at PPP (percent $US) 2,071 1,330 1,079 1,446Trade as percentage of GNP

1970 8.0 17.0 13.0 n.a.1998 25.0 33.0 58.0 n.a.

PPP = Purchasing power parity.n.a. = Not available.Source: World Development Indicators, World Bank, 1999.


The low official trade figures should also be ex-amined in the context of significant informal tradeamong the countries concerned. It is estimatedthat unofficial exports from India to Bangladeshare approximately equal to official exports. Thecomposition of unofficial trade flows is gener-ally complementary to, but markedly differentfrom, official flows. A large portion of the unof-ficial exports (85 percent) that take place throughWest Bengal are comprised of food items, liveanimals (cattle), and consumer goods. The un-official flow from Bangladesh into India is domi-nated by a few major products, includingsynthetic yarn, electronic goods, and spices. Asizeable portion (44 percent) of the unofficialimports consists of gold and Bangladesh currencyto pay for Indian goods that are then smuggledinto Bangladesh. There is also an unofficial flowof consumer items, such as ready-made garments,from Bangladesh to Tripura. By some estimatesthis flow is eight to ten times higher than theofficial f low. The borders between India andNepal are also porous. According to one esti-mate, the informal trade between the two coun-tries during the late 1970s and early 1980s couldhave been eight to ten times higher than theofficially recorded trade.

As in other regional trading blocs, such as theones established by the North America Free TradeAgreement (NAFTA) and Mercosur, regional col-laboration in South Asia is complicated by dis-trust among countries, political agendas that focuson domestic issues, bureaucratic inertia and in-stability, and infrastructure and logistics con-straints. The low levels of mutual trust arereflected in the transport and transit arrangementsamong the countries in the region.

For example, no foreign vehicle is allowed onBangladeshi roads. As a result, all products trans-ported by road to Bangladesh from the neigh-boring countries are transferred onto Bangladeshitrucks at the border, adding to the transportation

FIGURE 1.1 FOREIGN DIRECT INVESTMENT, 1990 AND 1997

Source: World Bank, World Development Indicators, 1999.

East Asia& Pacific

Sub-Saharan

Africa

Europe &Central

Asia

19901997

SouthAsia

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0Latin

AmericaMiddle East

& NorthAfrica

US$ millions

Regional bloc

FIGURE 1.2 EXPORTS WITHIN REGIONAL TRADE BLOCSAS A PERCENTAGE OF TOTAL EXPORTS, 1980–97

Source: World Bank, World Development Indicators, 1999.

1985 1994 19971980

80

70

60

50

40

30

20

10

01990 1995

Percent

1996

APEC

EU

NAFTA

MercosurASEAN

SADCSAARC

Year


costs and delays at the border crossings. Com-modities between the Northeastern Indian statesand the rest of India get routed aroundBangladesh through India’s narrow land corri-dor (referred to as the “chicken’s neck” in thesubregion). Nepalese trucks are allowed accessonly on dedicated routes within India, and In-dian trucks that enter Nepal must depart within72 hours. By one estimate, it takes 45 days totransport a container from Delhi to Dhaka,Bangladesh, because the container moves toTughlakabad, then to Mumbai, India, andSingapore. From Singapore, the container isshipped to Chittagong port, and then to Dhaka.The distance of 2,000 kilometers between Dhakaand Delhi could be covered in two to three daysby rail, according to estimates. But this does nothappen because India and Bangladesh lack aproper agreement to move container traffic.These delays illustrate the inefficiencies in thesubregional trade system that result from inad-equate or nonexistent bilateral and regionalagreements.

Inefficiencies at border crossings, which resultfrom a combination of factors, pose another majorsource of constraints in the subregion. The keyborder crossing point between Bangladesh andIndia at Benapole, Bangladesh–Petrapole, India,for instance, through which more than 80 per-cent of trade gets routed, is severely congested.There are long lines of trucks on both sides ofthe border (up to 1,500) and waiting times ofone to five days. The delays are caused not onlyby protocol requirements requiring transshipmentat the border, but also because of two other im-portant factors: procedural inefficiencies for cus-toms clearances and physical infrastructureconstraints (such as poorly designed warehousesand narrow access roads) that do not supportefficient utilization of existing capacity.

Ports in the subregion pose a serious constraintto international trade, affecting both national and

FIGURE 1.3 BANGLADESH: TRADE WITH INDIA, NEPAL,AND BHUTAN, 1998

Source: International Monetary Fund (1999). “Direction of Trade Statistics” and “InternationalFinancial Statistics Yearbook,” Washington, D.C.

India Nepal Bhutan

Export

Import

0

200

400

600

800

1,000

1,200

US$ millions

Country

FIGURE 1.4 INDIA: TRADE WITH BANGLADESH, NEPAL,AND BHUTAN, 1998


Bangladesh Nepal Bhutan

Export

Import

0

200

400

600

800

1,000

1,200

US$ millions

Country


regional economies. Exporters from South Asiacannot guarantee just-in-time deliveries in theglobal market. Carpet exports from Kathmanduto Germany, for instance, take almost 50 days toreach a European port. Similarly, the averagetime to move time-sensitive ready-made garmentsfrom Dhaka to Los Angeles is about four to fiveweeks. In both cases, the delays at the port playa predominant role. Improving port performancewould bring direct benefits not only for regionalcommodity movements but, more importantly,for national economic development. The criticalimportance of an efficient gateway port forBangladesh is obvious. The performances ofCalcutta and Haldia ports have strong implica-tions for the revitalization of Calcutta and WestBengal.

Perhaps more problematic than the total time isthe uncertainty of the actual time of the ship-ments due to the unreliability of the system.Effective infrastructure links that offer conve-nient access to markets, supported by rationaltransport and transit procedures across bordersand progressive trade facilitation policies, wouldoffer significant options for this region to de-velop and enhance intraregional and third coun-try trade.

Impediments to transport and trade facilitationin the South Asian region can be classified asfollows:

• Documentation and procedural inefficiencies.The procedures involved in customs inspec-tions, excessive documentation requirements,multiple signatures, lack of transparency, andinformal payments lower the efficiency ofgoods movement and set back regional com-petitiveness.

• Impediments caused by protocol. These in-clude the various restrictions on cross-bordertravel of trucks and route choice.

FIGURE 1.5 NEPAL: TRADE WITH INDIA, BANGLADESH,AND BHUTAN, 1998


India Bangladesh Bhutan

ExportImport

US$ millions

0

100

200

300

400

500

Country

FIGURE 1.6 BHUTAN: TRADE WITH INDIA, BANGLADESH,AND NEPAL, 1997


India Bangladesh Nepal

ExportImport

US$ millions

0

2

4

6

8

10

12

Country


• Knowledge and institutional inefficiencies.Because efficient trade facilitation and customsmanagement practices are knowledge- andhuman capital-intensive, the acquisition of suchcrucial competency in the workforce is a ma-jor challenge for the member countries.

• Physical infrastructure gaps or inefficiencies.These include poor, inadequate, or incompat-ible physical transportation links; a lack of

such physical facilities as warehouses, park-ing, and storage at border crossings and ports;and a lack of terminal facilities.

RECENT DEVELOPMENTS IN THE SUBREGION

Since the late 1980s, and especially since theearly 1990s, there has been a clear shift from theprotective trade regime. Most South Asian coun-

TABLE 1.3 KEY COMMODITIES TRADED IN THE SOUTH ASIA SUBREGION

1996 1997 1998

Commodities Percent Commodities Percent Commodities Percent

India export to BangladeshTotal trade 100.0 Total trade 100.0 Total trade 100.0Textile yarn 31.4 Textile yarn 27.3 Textile yarn 27.3Cotton fabrics, woven 7.2 Rice 12.3 Rice 12.3Rice 4.7 Cotton fabrics, woven 7.7 Cotton fabrics, woven 7.7Motor vehicle parts and accessories 4.6 Lime, cement, building products 4.7 Lime, cement, building products 4.7Iron, steel, plate, sheet 3.4 Iron, steel, plate, sheet 2.8 Iron, steel, plate, sheet 2.8Lime, cement, building products 3.3 Coal, lignite, and peat 2.4 Coal, lignite, and peat 2.4Stone, sand, and gravel 2.7 Motor vehicle parts and accessories 2.1 Motor vehicle parts and accessories 2.1Cycles, etc. motorized or not 2.5 Rubber tyres, tubes, etc. 2.0 Rubber tyres, tubes, etc 2.0Rubber tyres, tubes, etc. 2.2 Textile, leather machinery 2.0 Textile, leather machinery 2.0Aluminium 2.0 Feeding stuff for animals 1.9 Feeding stuff for animals 1.9

Bangladesh Export to IndiaTotal trade 100.0 Total trade 100.0 Total trade 100.0Fertilizers, manufactured 92.0 Fertilizers, manufactured 92.7 Inorganic elements, oxides, etc. 44.0Articles of plastic 7.1 Petroleum products 3.8 Fertilizers, manufactured 38.2Tea 0.2 Tea 1.2 Tea 5.6Alcohols, phenols, etc. 0.1 Alcohols, phenols, etc. 0.9 Iron, steel, plate, sheet 2.7Fish, fresh, chilled, frozen 0.1 Metal tanks, boxes, etc. 0.5 Leather 1.7Other machinery for special industry 0.1 Leather 0.2 Metal tanks, boxes, etc. 1.6Under garments not knit 0.1 Textile articles 0.2 Mens outerwear not knit 1.2Leather 0.1 Articles of plastic 0.1 Under garments not knit 0.8Metal tanks, boxes, etc. 0.0 Special transactions 0.1 Petroleum products 0.8Petroleum products 0.0 Floor coverings, etc. 0.1 Womens outerwear nonknit 0.5

Source: UN COMTRADE data, 1998.


tries have adopted policy reforms that have madetheir economies more open to the rest of theworld, and they have promoted greater interestin intraregional trade. India, Pakistan, Bangladesh,Sri Lanka, Maldives, Nepal, and Bhutan estab-lished SAARC in 1985. The agreement began withthe SAARC Preferential Trading Arrangement(SAPTA). The countries now are pursuing initia-tives to establish the South Asia Free Trade Area(SAFTA).3

At both the regional and subregional levels, therehas been further interest in the last decade inimproving links among the countries. Relationshave begun to thaw both because of the politi-cal leadership of the respective countries andbecause of SAARC and the planned creation ofSAFTA in the near future.

As in other parts of the world, this drive towardregional cooperation in South Asia is occurringin the context of major changes in the economicinstitutions in these countries—growing liberal-ization, deregulation and decontrol of industriesand markets, reduction in the economic role ofthe state, and an expanding role for the privatesector. Although these processes are still nascent,there has been a steady increase in the share oftrade to GDP, and a growing economic dyna-mism that is reflected by the robust incomegrowth in the last decade, which is second onlyto that of East Asia (World Bank 2000).4 The shareof trade to GDP is 25 percent. Figures 1.7 to 1.9show the improvement in export performanceconsequent to trade reforms, with Bangladesh’sexport growth particularly impressive. The shareof manufactured exports as a proportion of totalgoods exports also shows rapid growth.

3. A proposed World Bank study is examining regional inte-gration in trade.

4. World Development Report 2000, the World Bank.


Though intraregional trade is only a fraction oftotal trade, and the growth rate of intraregionaltrade as percentage of total trade has been slow,in terms of absolute value there has been amultifold increase in intraregional trade in thelast decade (Figures 1.10 to 1.12). Between 1988and 1998, India’s exports to Bangladesh increasedin value terms by over six times, while exportsfrom Bangladesh to India increased four to fivetimes. A similar pattern has emerged for Nepal–India trade. Trade between Bangladesh and Nepaland Bangladesh and Bhutan has also begun torise, though not so steeply.

With economic liberalization, there is slowlymounting domestic and international private sec-tor interest in the region. The Indo–U.S. JointCouncil Summit in December 1997 in Calcuttabrought prominent private sector groups fromthe United States and South Asia to examineopportunities for investment.5 On January 15,1998, the prime ministers of Bangladesh, Paki-stan, and India, accompanied by business del-egations from each of the countries, met at abusiness summit in Dhaka to discuss issues re-lated to the establishment of regional energygrids, as well as improvements in trade rela-tions and transport logistics to ensure a smootherflow of goods and services among the coun-tries. Local business communities are pursuingimprovements in trade and transport logisticsto improve the flow of goods and services andenhance communications among the countriesin the subcontinent.

In the area of transport and trade facilitation inparticular, there have been several importantdevelopments in the last two or three years thatclearly indicate the beginnings of change. Thefollowing need to be supported:

5. The World Bank was represented by the India countrymanagement team member.

FIGURE 1.9 RATIO OF TOTAL TRADE TO GDP,1975–79 AND 1990–94

Source: Bandara and McGillivray (1998).

OECD LatinAmerica

South Asia

1975–791990–94

World

60

50

40

30

20

10

0Developing

countriesEast Asia

Percent

Region

FIGURE 1.10 NEPAL EXPORTS TO INDIA, BANGLADESH, AND BHUTAN, 1988–98


1990 1994 1998

IndiaBangladeshBhutan

1988 1992 1996

US$ millions

0

30

60

90

120

150

19971989 199519931991

Year


• The Emerging East Initiative is a key privatesector development within the subregion topromote economic growth, developmentthrough improved investments, trade, andtransportation in the subregion. In 1998, thechambers of commerce of Bangladesh,Bhutan, India, and Nepal signed a joint memo-randum of understanding to this effect.

• A “subregional quadrangle” consisting ofBangladesh, Bhutan, India, and Nepal wasformed in 1998 under the auspices of SAARCto examine development opportunities in sev-eral sectors.

• India and Bangladesh renewed the InlandWaterways Transit Treaty in October 1999.They removed some of the anomalies thathave existed for the last few decades, allow-ing for a more equitable transit opportunitythat should benefit both countries.6

• Bangladesh and India launched a direct busservice between Dhaka and Calcutta in March1999.

• Transshipment for Indian cargo throughBangladesh is being debated in Bangladesh.If well conceived and regulated, this effortcould benefit the eastern and northeasternparts of India and Bangladesh. This debatehas been ongoing since fall 1999.7

• India and Bangladesh are engaged in sustainedefforts to integrate their railway systems. Bothrailways have completed the work for open-

FIGURE 1.12 BANGLADESH EXPORTS TO BHUTAN, INDIA,AND NEPAL, 1988–98


1990 1994 1998

India

Nepal

Bhutan

1988 1992 1996

US$ millions

19971989 1995199319910

10

20

30

40

50

60

Year

FIGURE 1.11 INDIA EXPORTS TO BANGLADESH, BHUTAN,AND NEPAL, 1988–98


1990 1994 1998

Bangladesh

Nepal

Bhutan

1988 1992 1996

US$ millions

19971989 1995199319910

200

400

600

800

1,000

1,200

Year

6. The Numaligarh refinery in Assam is already examiningoptions to move refinery products via Bangladesh inlandwaterway route to Calcutta.

7. The Bangladeshi government has commissioned a studyto examine transshipment options under the Bank’s ExportDiversification Project.


ing the entry through the Petrapole–Benapoleborder crossing, in addition to the three exist-ing crossings on the western side of Bangladesh.On the eastern side of Bangladesh, plans toconnect rail links between Akhoura, Bangla-desh, and Agartala, India, have already beenagreed to by the two countries.

• The governments of Bangladesh, Nepal, andIndia signed the Phulbari treaty in 1998 toallow Nepalese goods access to Bangladeshimarkets.

• Bangladesh introduced preshipment inspec-tion on a mandatory basis in the spring of2000.

POTENTIAL FOR GROWTH:THE NEED FOR A SHARED VISION

As illustrated by such developments as the es-tablishment of the subregional quadrangle, thestakeholders in the subregion clearly see thatdevelopment would be effectively realized by:

• A long term vision in which the economiesare more closely integrated, and are charac-terized by global and intraregional transport,trade, and investment activities;

• New economic opportunities that provideemployment, attract domestic and foreign in-vestment, and provide the essential basis formore rapid economic growth;

• Optimal development and management of therich natural resources of the region; and

• Private sector-led growth in an enabling policyenvironment.

The realization of these goals is related to theability of the countries to grow rapidly. In turn,this ability is dependent upon the countries be-

ing well linked to global and regional markets,and upon the efficiency and speed with whichthe countries are able to move goods and ser-vices from production centers to final markets.Improvement of transportation networks andlogistics not only facilitates these links to globaland regional markets, but it also increases thepotential for cross-border integration of manu-facturing and service activities and the potentialfor exploiting the economies of scale in a largerregional market. These changes would have sig-nificant implications for opening up one of thepoorest regions in the world.

An example of expanding to regional markets isthat of Bhutanese fruit and fruit products findingmarkets in Bangladesh and India. Nepal is alsotrying to expand its market for agricultural prod-ucts (such as jhumla apples) to Bangladesh andIndia.8 The Northeastern Indian states have goodpotential to find markets in Bangladesh for hor-ticultural products that are currently confined tolocal markets or informally traded across bor-ders for low prices. Similarly, the Northeasternstates could obtain fish from Bangladesh insteadof having it transported from Andhra Pradesh,Bihar, West Bengal, and Uttar Pradesh. It is esti-mated that the Northeastern states get 90,000 tonsof fish per year from these other states.9 Accord-ing to the report of the Committee on ClauseSeven of the Assam Accord (1990), Assam wasspending almost as much to transport essentialcommodities such as grains, fish, and edible oilsfrom “mainland” India as for the commodities

8. The Phulbari treaty that allows Nepalese cargo access toBangladesh via a new route through Banglabandh was sup-posed to facilitate this trade. Though there are physical andlogistical constraints that impede free flows, Nepal is keento extend the treaty.

9. The estimate comes from B.G. Verghese’s 1996 book,India’s Northeast Resur gent: Ethnicity, Insur gency, Gover-nance, and Development, published by the Centre for PolicyStudies, New Delhi, India.


themselves.10 The Indian-Bangladeshi tradegroups, as well as policy research groups in thecountries, have identified a number of possibili-ties for collaborative ventures in such areas asfertilizer, cement, and gas-based industries.11 Forboth Nepal and Bangladesh, ready-made gar-ments are the top export commodity for interna-tional markets.

In discussing regional transport and logistics sys-tems, a fundamental question that is often askedis: To what extent does the economy of the tran-sit country benefit from improvements in trans-port and logistics systems? The country providingthe transport infrastructure could, in principle,recover its investment through appropriatecharges to the transit vehicles and cargo whilederiving added value from complementary ser-vices provided to these transport activities. Thevalue added is greatest when the transit countryprovides an efficient international seaport gate-way and some of the trucking or rail servicesused in the logistics chain.

A more critical question that is of direct relevanceto our work in South Asia is: To what extent dotransport logistics improvements benefit thepoorer members of society? The more immedi-ate benefits would be better access to domesticand foreign markets for local products and in-creased employment associated with upgradingthe transport infrastructure. The medium- and long-term benefits are the continuity and even expan-sion of employment in economic activities orindustries that, without better logistics, would ei-ther not have been established or would have

rapidly lost market share. The extent and alloca-tion of benefits would, of course, be affected by:

• How well the isolated or landlocked regionsare served;

• The extent to which the new economic ac-tivities are labor-intensive;

• How the charges are structured (who paysand who benefits); and

• How efficient are the logistics systems thatwill help minimize cost to the economy.

The experiences of countries in other regionaltrade blocs such as Mercosur, NAFTA, and SADCcould provide insights to South Asia, becausethe region is looking increasingly toward bothglobal markets and greater trade and investmentrelationships within the region.12 An example forSouth Asia is that of Rotterdam port, which hasmaintained its position as one of the world’s larg-est ports for four decades. There are clear les-sons in Rotterdam’s experience for managers ofports and airports in developing countries as theyorganize their trade and transport chains.Rotterdam has retained its prominent position inthe global transportation networks by:

• Acquiring the knowledge and competencynecessary to offer its customers and industrialtenants state-of-the-art trade and transportchain services; and

• Engaging in strategic scanning of the largereconomic and transportation environment,identifying adaptive future paths in the con-text of emerging change trends, and keepingup to date by implementing the relevant physi-cal, human, and institutional investments.

10. Ibid.

11. The possibilities were discussed at the 1995 meeting,Indo-Bangladesh Dialogue: Economic and Trade Coopera-tion. The Center for Policy Dialogue, India, and the Centerfor Policy Dialogue, Bangladesh, hosted the meeting as partof an ongoing dialogue between nongovernmental and re-search groups.

12. For a more detailed discussion of global case studies onregional integration, please see publication, Integration ofTransport and Trade Facilitation, 2001, World Bank.


APPROACH

As this chapter mentioned earlier, the countriesin the subregion are only slowly beginning toopen up to each other and to external markets.As in other parts of the world, regional and sub-regional issues are still addressed with sensitiv-ity. Given the political sensitivities of regionalissues, the study team did not adopt the stan-dard models in sector work or project prepara-tion for the work under the Regional Initiativeon Transport. Instead the approach adopted un-der the Regional Initiative on Transport soughtto build confidence among key regional stake-holders, support increased dialogue, provide fora better understanding of key issues and optionsby learning from experiences in other parts ofthe world (such as NAFTA, the European Union,Mercosur, and the SADC), create a greater popu-lar awareness of the mutual benefits of coopera-tion, and establish a high level of commitmentin both the government and private sectors.

The approach reflects several of the principlesof the Bank’s Comprehensive DevelopmentFramework:

• The interactive approach to advisory and ana-lytic activity adopted through continualsubnational, national, and regional consulta-tions with stakeholders from various sectorsin order to build ownership in the countries.

• Knowledge sharing and consultations in or-der to help develop a joint vision for the sub-region that will enable moving out of nationalstrategies to regional strategies. To move to-ward this objective, a regional technical work-shop on transport and transit facilitation washeld in Bangkok in April 1999.13 Regional

stakeholders from the government and pri-vate sector were able to draw lessons for SouthAsia from international experts on global re-gional integration cases. The proceedings andthe recommendations that emerged from in-tensive discussions among the delegates atthe regional workshop were discussed in na-tional consultative meetings in the countriesto determine priorities for the countries.14

• Partnership building with and among govern-ments, private sector organizations, researchinstitutions, and other development organiza-tions. The task team therefore focused onbuilding allies as well as broad coalitions ofnational stakeholders and development part-ners from the government, private businessgroups (such as chambers of commerce,freight forwarders, exports, and shippers),donor and development organizations (suchas United Nations agencies and the AsianDevelopment Bank). Private sector represen-tatives of the four relevant countries were in-vited to participate in a consultative workshopat a regional meeting in Kathmandu to dis-cuss the principal constraints they face in theiroperations and examine options for improv-ing transport links and trade in the subregion.15

• An integrated and cross-sectoral approach thattakes a comprehensive view while identify-ing specific short- and medium-term solutionsfor a region that could well be one of theworld’s poorest pockets.

13. The April 1999 Bangkok workshop was called the SouthAsia Regional Technical Workshop on Transportation andTransit Facilitation. The World Bank and the United NationsEconomic and Social Commission for Asia and the Pacificsponsored it.

14. Proceedings of the Regional Technical Workshop onTransportation and Transit Facilitation can be found on theWorld Bank website at: http://www.worldbank.org/html/fpd/transport/publicat/twu-34.pdf. The presentations areavailable in pdf format at: http://www.worldbank.org/html/fpd/transport/tr_facil/present.htm.

15. Please see Background Note 1 for a summary of discus-sions at the regional private sector meeting in Kathmandu.


In its country operations, the Bank and the coun-tries themselves are confronting developmentissues that have regional implications. The Re-gional Initiative on Transport is consistent withCAS for the relevant countries and reflects clientinterest in the regional dimension for sectoralactivities as noted in the CAS for India (datedDecember 19, 1997), Nepal (1998 fiscal year),and Bhutan (1999 fiscal year) and the forthcom-ing CAS for Bangladesh. There is significant syn-ergy with the transport sector strategies, such asthe Bangladesh Transport Sector update and theforthcoming India Transport Sector update, aswell as with relevant ongoing lending and tech-nical assistance projects (such as the NepalMultimodal Transport and Transit Facilitationproject and the Bangladesh Export Diversifica-tion project). The work has strong synergy withthe transport and trade facilitation work per-formed by other development agencies, includ-ing the Asian Development Bank, United NationsConference on Trade and Development, andUnited Nations Economic and Social Commis-sion for Asia and the Pacific.

This report contains a set of analytic tools thatinclude a Geographic Information Systems data-base for the region and a logistics cost modeldeveloped by the Bank study team in collabora-tion with stakeholders in the subregion (Map 7at the end of this report).16 Together they pro-vide a strategic framework for identifying keyimpediments ranging from physical infrastruc-ture gaps, gaps and inefficiencies in services attransshipment points and border crossings, con-straints at border crossings and ports, an analy-sis of alternative routes for moving strategic

commodities for regional and international trade,and, more importantly, a transparent and user-friendly analytic instrument that will allow im-proved and more information-based dialogueamong countries and between the public andprivate sectors on regional and bilateral trade,transit, and transport protocol.

Consistent with the overall approach of the re-gional initiative, this report does not purport tooffer a master plan for a regional transportationnetwork, nor is it envisioned to be a regionaltransport sector strategy. The broader objectiveof the report, in line with the objectives of theRegional Initiative, is to provide a strategic frame-work for improved and rational dialogue amongthe countries, as well as among key sectors inthe countries, on substantive issues in transport,logistics, and regional connectivity. Instead ofsingle solutions, it offers an analytic frameworkand a user-friendly decision support system toaddress improved regional movement of goodsand services, allowing for moving issues from apurely political realm to a more economic andcommercial level. As the countries are privatiz-ing and reaching out to global markets, it isbecoming more apparent that intrinsic depen-dencies and comparative advantages must be ex-ploited so that the subregion can open itself tonew economic activities. The analysis starts withthe premise that strengthening the linkagesamong the countries is not a zero-sum game.

This report and the complementary outputs areaimed at several audiences:

• People in both government agencies and pri-vate sector organizations (including transportoperators and service providers, intermediar-ies, and private business officials) in the rel-evant countries and regions.

• Within the Bank, the report complements theindividual country work program. At the net-work and thematic groups level, the work and

16. In addition, a report that compiles international casestudies of transport and trade facilitation arrangements inselected regional trading blocs is also available. Please seepublication, Lakshmanan, T. R., U. Subramanian, B. P.Anderson, F. A. Leautier (eds.). Integration of Transportand Trade Facilitation: Selected Regional Case Studies. TheWorld Bank, 2001.


the analytic approach and tools developedadd to the knowledge management base,contributing to the regional transport workbeing done in other regions of the Bank.

For the analytic framework we took a microeco-nomic, practical hands-on approach that evolvedwith close work with the private sector in thesubregion. The analytic approach helped us notonly determine distance and transportation costs,but also time, reliability, and cargo safety, includ-ing market and commodity characteristics.

In order to understand how well the marketsand transportation of commodities work, wechose strategic routes and commodities. Becauseour larger objective was to open up a subregionthat had been lagging, the selection of the stra-tegic routes and commodities took into accountthe regional development aspect as well. Fromthe sample route and commodities studies, weget an in-depth understanding of impedimentsin transportation and other logistics in movingcommodities on existing routes to regional andinternational markets.

We then looked at promising route linkages tounderstand what makes some routes more cost-effective than others, whether they could be fur-ther improved, and why the more cost-effectiveroutes were not being used. The results of theanalysis allow us to point to specific problemsregarding specific commodities and routes, aswell as to more general problems affecting thesubregion:

• Border crossings that include ports are a criti-cal cause of delays and logistics costs.

• There is a need for greater flexibility in trans-porting cargo between routes and betweenmodes of transportation, not only because ofthe characteristics of markets and commodi-ties, but also because of fundamental changesoccurring in international trade and logistics.

The report does not attempt to define specificinvestment projects, nor does it attempt to quan-tify the larger benefits to the economy from im-proved regional transport and logistics. Theanalysis provides insights into cost savings tothe private sector for specific routes and com-modities through transport and logistics efficiencyimprovements and different route choices. Thesavings from improved transport logistics sys-tems can produce significant cost savings to theprivate exporter, importer, and shipper. How-ever, as a percentage of the costs of deliveredgoods in the final market, the logistics costs inthe studies in this report—although higher thaninternational standards—are not outrageouslyhigher. The reason, of course, is that transportlogistics costs are a small part of the overall de-livered costs of goods, except for very low-valuegoods (such as cement and limestone). The im-portant point to note here is the underlying andmore dynamic implications of poor logistics andhigher associated transport costs. The real ben-efit of improved transport logistics are reduceddelivery times, more reliable deliveries, and in-creased cargo security, all of which are criticalparameters in the emerging global market inwhich market expectations have risen substan-tially in the last few years.

Though the countries in the region (to varyingextents) have started to liberalize trade, maketheir industrial sectors more efficient, reducegovernment involvement in commercial activi-ties, and improve transportation networks andinstitutions, they have not been as assiduous inimproving the logistics systems to the same ex-tent. Failure to address logistics inefficiencies notonly compromises the extent and depth of otherreforms, but it also threatens loss in market shareand could weaken the current competitive edgeof these countries in providing low-wage workforces. Examining the garment sector alone, theimplications include (a) fold: loss of employmentto a large unskilled and semiskilled workforce,and (b) denial of the same workforce opportu-


nities to upgrade skills and income as the mar-ket dictates higher-grade products.

STRUCTURE OF THE REPORT

This first chapter has provided an overview ofthe socioeconomic and growth profile of thesubregion. It examined regional and internationaltrade patterns in light of the transport and logis-tics constraints. The second chapter examinesspecific impediments in the transport logisticschain of commodity movement in the context ofregional and international trade, focusing onconstraints with line-haul movement and on im-pediments at border crossings and ports. Theanalysis draws heavily on origin-to-destinationstudies of selected strategic commodities for eachof the concerned countries.

The third chapter provides a framework to ex-amine alternative routes for the movement ofcommodities, either within the region or to in-ternational markets. It takes into account all costsof transportation and logistics and the availabil-ity of physical links. Issues of modal choice basedon factors such as time sensitivity of market,commodity value, and commodity perishability,are also addressed. Although the chapter pre-sents the key constraints and opportunities inthe subregion in terms of strategic linkages andareas for priority attention, it does not advocateone physical route over another. We believe thatinternational routings are best determined by theconcerned stakeholders that include govern-ments, network users, and service providers.

What we have attempted to do is provide a ra-tional framework under which such decisionscan be made in a participatory transparent man-ner, in which those who will be affected canmove beyond purely political considerations tocommercial and economic considerations.

The fourth chapter highlights the constraints facedby private businesses, freight forwarders, export-ers and importers, and shippers in the subre-gion. The constraints and options that we presentreflect the views of the private sector partici-pants from the subregion at the regional consul-tative meeting hosted by the Bank in February1999 in Kathmandu, which we mentioned ear-lier.17 In addition, the chapter also presents someinnovative private sector initiatives in the subre-gion in the area of transport.

The fifth chapter of the report summarizes thekey constraints in transportation and logistics. Itdiscusses the broad set of options for consider-ation in the countries. It also attempts to outlinethe role that the Bank could play in assisting thesubregion reduce its transportation and logisticsconstraints.

The sixth and final chapter outlines the next stepsthat would be important to consider for nationaland regional action in the short and long terms.

17. Summary proceedings of the Consultative WorkshopTransport and Trade Facilitation in the subregion. Pleasesee Background Note 1.

33

Efforts to facilitate trade among India, Nepal, Bhutan, and

Bangladesh, and between these countries and the rest of

the world, must look beyond improvements in the trans-

port network to a general strengthening of entire logistics

chains.1 These chains include the complete set of services needed to

move cargo from its point of production to points of sale or consump-

tion. An effective trade regime requires a full range of efficient logis-

tics services with tight integration between them. Each link of a logistics

chain must have sufficient capacity and a simple and effective inter-

face with the preceding and following links. The type of logistics

services required for cross-border trade varies depending on the goods

that are being transported and the markets for these goods. High-

value, time-sensitive goods require more sophisticated logistics so

that they can be delivered to the market in good condition as quickly

as possible. Low-value, time-insensitive goods require simple logis-

tics that reduce the overall cost of transport and provide reliable con-

sistent service. In both cases, the objective is to reduce transaction

costs as much as possible—which involves a balancing of the cost,

time, safety, and reliability of delivery.

The following analysis of the shipments within the region divides

logistics into the following three basic services:

• Line-haul transport. This may be by road, rail, inland water and

ocean, and it may include intermodal transfers.2

ReducingLogistics Costs

2

1. Over the last 50 years, the scope of analysis of transport services has been expand-

ing. In the 1950s and 1960s, engineering analysis was used to examine specific com-ponents of a transport system, such as a port, a road link, or an airport, or such

subcomponents as a berth, intersection or runway. In the 1970s, systems analysis was

used to evaluate the interaction between the links and modes of transport networks.The emergence of multimodal transport in the 1980’s extended this analysis to

multimodal routes and intermodal interchanges. Toward the end of the century, the

growing emphasis on door-to-door movements and just-in-time shipments shiftedattention to logistics and to market analysis.

2. Air transport was not included in this analysis although it is of increasing impor-

tance in the movement of high-value goods.


• Border crossings. These are at seaports andland borders.

• Complementary services. These include bothphysical services, such as storage, consolida-tion and repackaging, and commercial ser-vices, such as trade finance and insurance,customs clearance, transfer of shipping docu-ments, and interbusiness communications.

The analysis is supported by a detailed exami-nation of the logistics components for the com-modity-route combinations listed in Table 2.1.The routes were selected because they includestrategic commodities, emphasize cross-bordermovements, and serve landlocked countries andisolated areas such as Northeast India. Using thelogistics cost model developed by the Bank teamin close consultation with private sector groups

in the region, the study team conducted inten-sive interviews with freight forwarders, clearingand forwarding agents, shippers, and truckers toobtain data on charges for logistics services, timeto complete different activities, and specific im-pediments on each of the routes for selectedcommodities.

The routes are divided into domestic routes thatare restricted to a single country, regional routesthat involve cross-border movements among thefour countries, and third-country routes that in-volve ocean shipping to countries outside theregion. The first group has an advantage becauseit does not face any cross-border delays.3 Thesecond group has problems associated with cross-

3. We have not included constraints in crossing state or prov-

ince borders within countries.

TABLE 2.1 CHARACTERISTICS OF SELECTED ROUTES

No. Route links Mode on land Commodity

Domestic1 Calcutta-Gauhati-Agartala Indian rail Cement2 Calcutta-Siliguri-Agartala Indian truck General freight

Regional3 Calcutta-Narayanganj-Ashuganj-Agartala Indian-Bangladeshi barge/truck Cement4 Kathmandu-Phulbari-Dhaka Nepalese-Bangladeshi truck Agricultural produce5 Thimpu-Burimari-Dhaka Bhutanese -Bangladeshi truck Limestone6 Calcutta-Benapole-Dhaka Indian-Bangladeshi truck Yarn

Third country7 New Zealand-Calcutta-Rauxal-Kathmandu Indian-Nepalese truck Wool8 Karimganj-Calcutta-United Kingdom Indian truck Tea9 Kathmandu-Rauxal-Calcutta-Germany Nepalese-Indian truck Carpet10 Singapore-Calcutta-Jaigaon-Thimphu Indian truck Polypropylene11 Dhaka-Chittagong-United States Bangladeshi truck Cotton garment

Source: Logistics cost study data, World Bank.

Reducing Logistics Costs 35

border movements and transshipment betweenthe vehicles of two countries. The third grouphas the additional problem of moving cargothrough the seaports. Maps 1–5 at the end ofthis report present some of the routes and theborder crossing points.

TRANSPORT COMPONENTS

Line-Haul Transport

Because most of these routes involve cross-bordermovements, and half involve shipments to coun-tries outside the region, it is essential to look atthe modal interface. This requires an understand-ing of the capacity and performance of individualmodes within a country and their compatibilitywith bordering countries. India and Bangladeshhave all four modes of transport, whereas Bhutanand Nepal have only road transport.

Road Transport

The primary mode for freight movements is roadtransport. Medium-size trucks (seven to ten tonpayload) operate over two lane asphalt roads(5.5 meters wide in Bangladesh, 5.5 to 7 metersin India) at relatively low average speeds. Table2.2 shows the characteristics of road transport.Only small portions of the major corridors aredual carriageways, and few of these are outsidethe large cities. Only recently has India begun toupgrade its four major intercity roads to dualcarriage ways (Box 2.1). Many of the major roadsare poorly maintained and congested. The re-sult is relatively low average travel speeds, inthe range of 200 to 400 kilometers per day. Themovement of containers4 on the Indian roadways

is limited not only by the design and conditionof the roads and traffic congestion but also bynonphysical barriers to moving containers outof the port. Tractor-trailers are also rare becauseof their cost, as well as road conditions, conges-tion, and weight limits. In Bangladesh, the weightlimits on the bridges between Chittagong andDhaka, the main corridor for containerizablegoods, prevent the use of tractor-trailers.

Most of the trucks used in cross-border move-ments are two- to three-axle (six- or ten-wheel)trucks carrying payloads up to 18 tons. Truckscarrying bulk cargoes are generally overloaded,

4. These containers adhere to standards set by the Interna-

tional Organization for Standardization, which is based in

Switzerland.

TABLE 2.2 CHARACTERISTICS OF LINE-HAUL TRANSPORT

National roads India Bangladesh Nepal

Max. axle load (ton) 10 8.2 n.a.Typical truck GVW (ton) 15 11 12Typical truck payload 10 7 9

Railroad E India NE India BangladeshRail gauge Broad (BG/MG)a (BG/MG)a

Typical engine (BHP) 2,600 2,600/1,350 2,000–2,300/1,350–1,650

Max. axle load (ton) 20.3 20.3/ 12.7 22.5/13.0*Car payload (ton) 58.8 58.8 40.0Typical train length (feet) 2,200 2,200 1,800Typical train length (car) 40 bogie 40/35 bogie 35 bogieAvg. travel speed (kph) 23.7 23.7/18.1 11.0/12.3Max.travel speed (kph) 100 100/65 80/72Train control Block telecom Block telecom Tokenless block

a. Broad gauge/meter gauge.* Limit due to Jamuna Bridge 18.0.n.a. = Not available.Source: Consultant estimates.


causing additional damage to the road. Thosecarrying containers, garments, or other high-cube(low-density) cargoes have payloads of 10 tonsor less.

The load limit for Indian roads is 10 tons peraxle. Bhutan and Nepal have similar limits.Bangladesh currently applies a limit of 8.2 tonsper axle, but this is expected to increase to 10tons. The size of vehicles is limited by the ca-pacity of the bridges, many of which are old,narrow, and in need of strengthening. The limitson total gross vehicle weight vary among thecountries, but are below the level required forefficient operation of larger trucks and tractor-trailers. The combination of weight limits androad conditions make it expensive to move bulkcommodities long distances by road unless thetrucks are overloaded.

For-hire trucking services in all four countriesare provided almost entirely by the private sec-tor. Most of the trucking companies are relativelysmall, with fewer than 10 trucks. Strong compe-tition produces relatively low freight rates. Theserates and the lack of strict inspection standardsdiscourage the use of new trucks. As a result,the average age of the fleet in Bangladesh is 15years. The fleets in India and Nepal are slightlyyounger, with long-distance trucks less than fiveyears old, on average. Most of the trucks aremanufactured in India or Japan and have rela-tively low power-to-weight ratios. The combi-nation of the age and condition of the vehicles,market conditions, slow travel speeds, and shorttravel distances creates relatively low averagetruck utilization—about 50 thousand loaded ki-lometers per year.

As Table 2.3 shows, the cost of road transportper kilometer is relatively low because of a com-bination of low labor costs and less expensivevehicles (in terms of capital rather than mainte-nance). However the lack of backhaul cargoesand the small payloads of the trucks increaseoperating costs. The capital costs for Indian truck-ing are significantly lower than for neighboringcountries because the trucks are locally produced.However, as Table 2.3 indicates, the neighbor-

BOX 2.1 INDIA’S “GOLDEN QUADRILATERAL” ROAD NETWORK

The National Highways Authority of India has given priority to the development ofa divided highway connecting the major cities of Mumbai, Delhi, Calcutta, andChennai. The Golden Quadrilateral has a total length of almost 6,000 kilometers, ofwhich about one-fifth is either completed or under construction, and another two-fifths is in the planning stage. Most of the project will consist of widening theexisting two-lane roads. A recently negotiated World Bank loan will support theconstruction of the link between Delhi and Calcutta.

In addition to the quadrilateral, the authority is planning 7,300 kilometers ofnorth-south and east-west dual carriage highways. About one-tenth is eithercompleted or under contract. This project is scheduled for completion in 2009.

The estimated cost of Rs.54 billion for these projects will be financed through avariety of mechanisms, including fuel taxes, external borrowing, and tolls. About10 percent will be funded through private concessions.

When completed, these roads are expected to reduce the travel times betweenthe major cities and to allow for a dramatic increase in movement of containers byroad. This assumes that the port regulations limiting full container loadsmovements are eliminated. These roads will greatly improve the access of Nepal,Northeast India, and Bhutan to the major ports of India.

TABLE 2.3 ESTIMATED TRUCK OPERATINGCOSTS

Country Per km Per ton-km a

India – 15 ton $.0.33 $0.044India –12 ton $0.33 $0.049Bangladesh –11 ton $0.27 $0.048Nepal – 10 ton $0.31 $0.046

a. Assuming 50 percent backhaul.Source: Background Note 2.


ing countries are able to compete on routes withintheir own countries.

Despite the differences in road dimensions andnational limits on gross vehicle weight, there areno physical hindrances on the movement oftrucks between the countries. Any constraints oncross-border movements are caused by insuffi-cient capacity on the roads approaching the bor-der, inadequate waiting area and customscheckpoints, and the lack of effective transit pro-tocols. For example, Bangladesh does not allowtrucks from other countries to travel on its roads.India reciprocates but does allow trucks fromNepal and Bhutan to operate on designated transitroutes. Indian trucks are allowed into Nepal andare given a limit of 72 hours to carry cargo andreturn to India. Additional data on truck trans-port is provided in Background Note 2.

Rail Transport

The rail networks in India and Bangladesh are amix of broad (1.68 meters) and meter gauge(Table 2.2). In India about one-third of the sys-tem is double tracked, whereas in Bangladeshthe percentage is much smaller. India has madea concerted effort to convert its network to broadgauge and Bangladesh has undertaken someconversions to dual gauge. The network in East-ern India is mainly broad gauge. However, theconnecting links with Nepal are meter-gauge railwith the exception of Birgunj (which is a broad-gauge link). The rail link between Radhikapurand Birol is also a meter-gauge line. The net-work in Northeast India is meter-gauge, exceptfor a broad-gauge line extending to Lumding.The next section to Kumarghat is currently be-ing converted to broad gauge. The section ex-tending from Kumarghat to Agartala is beingconstructed as a broad-gauge alignment.

The network in eastern Bangladesh is metergauge whereas the western part of the country

has predominantly broad gauge. The construc-tion of the rail link across the Jamuna Bridgeand the extension of dual-gauge operations toDhaka are expected to be completed next year,substantially improving the coverage of thebroad-gauge system. Several other harmoniza-tions are either underway or being planned whichwill provide additional linkages between thewestern and eastern parts of the country.5 Inaddition, the planned introduction of dual-gaugetrack between Chittagong, Akhaura, and Tongiwill provide a direct link between Chittagongand both Nepal and northeast India. Althoughthe strength of the track and type of sleepersdiffers between the two countries, this does notprevent the movement of rail cars across theborder.

The Indian and Bangladesh railways are pub-licly operated. Despite recent efforts to improveperformance, they continue to suffer from over-staffing, poor maintenance, and old rolling stock.Bangladesh Railways also suffers from poor uti-lization of equipment (Table 2.4A and B). InBangladesh there is also a significant problemwith track maintenance, especially in areas proneto flooding. Although rail is the second mostimportant mode of transport in both countries, ithas suffered a declining market share due tooperational problems. Rail traffic has been de-clining in both relative and absolute terms. InBangladesh, the tonnage declined by about 40percent over 25 years while market share de-creased to 7 percent of total tonnage. The mar-ket share is continuing to decline but the traffictonnage has flattened out. Rail share in India,

5. Two other projects under consideration are the linking of

Akhaura and Agartala, which the Indian and Bangladesh

Railways are undertaking, and a proposal to link Tongi andAkhaura utilizing German funds. A link between Dhaka and

Joydepur is expected to be completed next year with dual-

gauge connections between Joydepur and Parbatipur.


the operations. The principal rail cargoes are bulkcargoes, both liquid and dry.

In India, the movement of containers by rail-road has increased substantially following theformation of Container Corporation of India andthe procurement of a large fleet of cars for trans-porting standardized boxes. In Bangladesh, thetransport of containers is limited by the lack ofcars and the operating commitment of the rail-road. There are some block train movementsbetween Chittagong and the Dhaka ICD, butthese account for a very small portion of thecontainers handled at Chittagong (BackgroundNotes 3 and 4). Problems with rail services,charges, and port regulations limit the amountof boxes that are moved between the port ofChittagong and the Dhaka ICD to about 15 per-cent of the total volume moved throughChittagong. At least 40 percent of containersgoing from Dhaka to Chittagong are empty (seeBox 2.2).

For a number of commodity routes, such as bulkcargoes between India and Bangladesh and tran-sit cargo from Nepal, rail has a competitive ad-vantage. The establishment of a dual-gauge raillink across the Jamuna Bridge is expected toprovide a significant increase in containers oncethe broad-gauge connection is extended toDhaka. The principal rail routes under consider-

after being above 50 percent in the early 1980sin terms of ton-kilometers, dropped below 40percent by 1992 and continued to decline there-after, although tonnage has recently increased.6

The factors leading to the loss in market shareinclude low operating speeds (15 kilometers perhour or less), shortages of equipment, especiallylocomotives, poor track conditions, and long andunpredictable delays. Rail transport is also rela-tively expensive because of the inefficiency of

TABLE 2.4A RAILWAY PERFORMANCE INDICES,1969–70 TO 1997–98

Bangladesh railways Indian railways

BGa MGb BGa MGb

Car kms/day 20.9 16.6 169.1 38.2Engine kms/day 149 170 396 331

Bangladesh 1969–70 1996–97 1997–98 1998–99

Route kms 2,858 2,706 2,733 2,733No. of locomotives 486 284 275 279Freight cars in FWUs 19,616 15,917 15,073 14,247Tons carried (in millions) 4.88 2.94 3.04 3.42Ton-kms (in millions) 1,265 782 804 896

India 1970–71 1996–97 1997–98 1997–98

Route kms 59,790 62,725 62,495 62,809No. of locomotives 11,158 6,975 7,206 7,429Freight cars in FWUs 383,990 272,144 263,981 253,186Tons carried (in millions) 167.9 409.0 429.4 420.3Ton-kms (in millions) 235,785 277,567 284,249 281,513

a. Broad gaugeb. Meter gaugeSource: Bangladesh Integrated Transport Sector Study, 1998; see also Background Note 3.

TABLE 2.4B MODAL SHARE OF TRAFFICIN BANGLADESH

Bangladesh(modal share) 1974/75 1984/85 1996/97

Road 35 48 63Rail 28 17 7Water 37 35 30

6. India Transport Sector Report 13192-N, World Bank, 1995.


ation are the broad-gauge routes connecting EastIndia with west Bangladesh (at the Benapole-Petrapole, Darshan-Gede, and Radhikapur-Birolborder crossings) from Tripura through Maishassanto Shahbajpur and on to Sylhet. A more com-plete discussion of Bangladesh Railways and linkswith Indian Railways is provided in BackgroundNote 3.

A protocol exists for the interchange of rail wag-ons across the India-Bangladesh border. It setsout the charges for the exchange of wagons andestablishes a target wagon balance. Rail trackdoes not appear to create a physical constraintfor the movement of trains across the border,but Indian and Bangladeshi wagons have differ-ent coupling and braking systems that restrictoperating speeds for Indian trains haulingBangladeshi cars. The freight trains in India aretypically 40 wagons in length, whereas those inBangladesh are 35 wagons long. The Indian trainsmust be broken into two sections, with the sec-ond section waiting for up to a week for anotherlocomotive. Since the rakes traveling fromBangladesh to India usually carry consignmentsfor a variety of locations, the wagons must bereassigned to other trains shortly after passinginto India. About 2,000 Indian wagons in transitthrough Bangladesh have been “lost” over thelast decade.

Inland Water Transport

Bangladesh has an extensive inland water net-work that links with West Bengal on its west andAssam and Northeast India on the east. The ClassI routes operate throughout the year with a mini-mum draft of 12 feet. However, shifting rivers,increasing levels of siltation, and a lowering ofgroundwater due to pumping have made it diffi-cult to maintain the depths on the secondaryroutes. Furthermore, the old and inefficient dredg-ing fleet and limited hydrographic survey pre-vent the routes from being properly maintained.

So far, the government has not been able to dedi-cate the resources necessary to maintain either acomplete network of primary and secondaryroutes or the navigational markers needed to al-low nighttime operations on all the primary routes.

India and Bangladesh have well-developed pri-vate sector barge operations. The barge fleetsinclude both self-propelled and dumb barges thatare 10 to 15 years old. The capacity ranges from150 tons for self-propelled and up to 1,200 tonsfor dumb barges (see Background Note 5). Thereis a significant overcapacity, which has led to

BOX 2.2 CONTAINER TRAFFIC MOVEMENT BETWEENCHITTAGONG AND DHAKA

Chittagong port handles 95 percent of the total containers received in Bangladesh,and 85 to 90 percent of these are bound for Dhaka. However, only 10 to 12 percent(less than 40,000 ton equivalent units are moved by rail to an inland containerdepot (ICD). Dhaka has a capacity of 100,000 ton equivalent units. The remainingcontainer traffic (90 percent) is unpacked at Chittagong and moved in break bulkby small trucks. There is no container movement by road due to axle loadlimitation on bridges. The reason for this anomaly is the rail charges andregulations between Chittagong and Dhaka. A shipper who books a container fordelivery to Dhaka ICD has to pay the shipping line an extra US$350 for a 20-footcontainer or US$550 for a 40-foot container for Chittagong-Dhaka movement byrail. Of this, Bangladesh Railway charges only US$120 to US$180 for a 20-footcontainer, depending on the quantity of cargo, and US$200 for a 40-foot container.Bangladesh Railway does not guarantee the safety of goods on this route, and theshipping line justifies this extra charge as coverage for damage. The truckers,however, charge US$80 to US$100 for an amount of break-bulk cargo equivalent toa 20-foot container load. Since the difference is substantial, the shippers andexporters prefer to move goods in break bulk and unload or load at Chittagongport. This causes congestion at the port as well as on the Dhaka-Chittagong road.Also, this is not the safest way of handling the container cargo. If BangladeshRailway were to provide cargo insurance as part of its tariff, substantial containertraffic could get diverted to rail. This would benefit the shipper as well as the portand railway. The congestion at the port would be reduced, the turnaround wouldimprove, and there would be better utilization of available space at Dhaka ICD.


strong competition and low freight rates but lim-ited consolidation. Most operators continue toown a single barge or a small fleet. The inlandwater transport has the lowest charges per ton-kilometer freight transport for cargoes with ori-gins and destinations near the rivers. It loses costadvantage when trucks are required to movecargo to and from the rivers.

Bangladesh and India signed an Inland WaterTransport transit protocol in 1980. The protocolallowed Indian barges to transit Bangladesh be-tween West Bengal and Northeast India, but itprohibited transshipment of Bangladeshi cargoen route. In October 1999, a revised protocolwas introduced that allows Indian barges to trans-port cargo between the two countries, providedthat both countries share the transportation ofcross-border trade and transit cargo on an equaltonnage basis. Despite low costs and the absenceof cross-border transshipment requirements, in-land waterway transport is at a competitive dis-advantage because of its low travel speeds, whichaverage less than 50 kilometers per day due tothe limitations on night navigation and physicalconstraints on routes. Despite these limitations,the Bangladeshi private sector is seeking to cap-ture additional regional traffic, including the pe-troleum products shipped from the Numaligarh

refinery in Assam to markets in Bangladesh andWest Bengal.

International Shipping

The fourth mode of transport is ocean shippingthrough Calcutta and Chittagong ports. Theseports are positioned well north of the main ship-ping lines and handle relatively small volumesof cargo. As a result they attract relatively oldand inefficient vessels. The container vessels arefeeder ships of up to 750 TEU (20 foot equiva-lent unit) and bulk vessels of 25,000 dead weighttonnage (dwt) or less.

Containers are transshipped via Singapore orColombo. Feeder services are provided by inde-pendent operators that transport boxes for sev-eral large container lines. The time required forthe feeder movement and transshipment is abouteight days—three days of sailing time and fivedays in the transshipment port waiting for themother vessel. Table 2.5 shows typical containerfreight rates and shipping times for the sampleof routes under study.

The situation for noncontainerized general cargois somewhat different. The amount and frequencyof general cargo liner services has been declin-ing steadily. These have been replaced by con-tainer liner services and by chartered vesselscarrying neo-bulk cargo. For large shipments ofneo-bulk cargoes, the cost of ocean transport isdependent on the size of the vessel. This is de-termined by the depth of the port as well as thesize of typical consignments. The draft limita-tions at Calcutta, Haldia, Chittagong, and Monglaare 7.5, 8.4, 9, and 4 (7.5 at anchorage) meters,respectively. The routing of neo-bulk cargoes isgenerally determined by the availability of rail-road and inland water access to the port havingadequate depth.

The protocols for handling transit cargo fromother countries appear to be well established for

TABLE 2.5 SAMPLE OCEAN FREIGHT CHARACTERISTICS

Route Cargo Rate/TEUa (US$) Days

New Zealand-Calcutta Wool 1,200 24Calcutta-WCUS Garments 3,100 35Chittagong/Calcutta-U.K. Tea 1,250 23.5Singapore-Chittagong/Calcutta Polypropylene 975 10Calcutta-Germany Carpets 1,200 22

a. 20 foot equivalent unit.Source: Logistics cost study team, World Bank.


these ports. The principal barriers to efficienttransfer are the slow handling rates, restrictivelabor practices, poor operational controls, andcumbersome customs procedures. Bangladesh iscurrently implementing a preshipment inspec-tion and valuation for selected imports at theirport of origin in order to reduce the time re-quired for customs inspection. Although thisshould improve transparency and reduce infor-mal payments, it will not significantly reduce thetime required for customs clearance becausemany of the delays are associated with the prepa-ration of customs documents and inspections.

Border Crossings

There are three types of border crossings: road,rail, and seaports (Table 2.6). The road cross-ings consist of a customs checkpoint for vehiclesmoving across the border, a truck waiting area,and an area for cargo inspection. Where cargomust be transshipped, additional space must beprovided for storing cargo and for unloading andloading trucks. The rail crossings consist of sid-ings or rail yards where locomotives are ex-changed from those of one country to those ofthe next. No storage is required because the cargoremains in the rail cars rather than being trans-ferred. The seaports provide a full range of ser-vices, including loading and unloading facilities,vehicle fleeting areas, and cargo storage andconsolidation, as well as transfer to and fromocean transport.

Currently the transit protocols limit not only theborder crossings but also the number of routesthat can be used for transporting cargo. Some ofthe protocols require that the cargo be trans-shipped from the vehicles of one country to thoseof another, which increases not only the timeand cost for transport but also the damage to thecargo and the variance in travel time. These prob-lems could be reduced if cargo were allowed tomove in-bond (meaning that the containerized

cargoes could remain in the sealed container boxeven when the cargo has to be transshipped)with ICDs and other facilities established at theborder to expedite movement across the border.The regional border crossings vary in their levelof development. The crossing at Benapole is themost developed. It has warehousing, parkingareas, and a well-developed market with logis-tics services. Despite all these facilities, Benapole

TABLE 2.6 MAJOR BORDER CROSSINGS

Border Crossing Points Modes

Nepal/India Birgunj/Raxaul Road, Raila

Biratnagar/Jogbani RoadBhairahawa/Nautanwa RoadKakarvitta/Phulbari RoadNepalganj Road

Bhutan/India Phutsoling-Jaigaon RoadBangladesh/India Benapole/Petrapole Road, Raila

Darshana/Gede Rail BGb

Rohanpur/Singhebad Rail BGb

Birol/Radihkapur Rail MGc

Shahbajpur/Mahishasan Rail MGc

Banglbandha /Phulbari RoadChilhati/Haldibari Rail (potential)Burimari/Changra bandha RoadHili/ Balurghat RoadTamabil/Daukii RoadKarimganj/Zakiganj RoadSonamasjid/ RoadAkhaura/ Agartala Road, Raild

India/ Calcutta OceanHaldia Ocean

Bangladesh Chittagong Ocean

a. Operational by 2001.b. Broad gauge.c. Meter gauge.d.Planned.Source: Background Notes 3 and 6.


suffers from severe congestion, and cargo mustbe diverted to other crossings (see Box 2.3).

The facilities at the Birol, Hili, SonamasjidRohanpur, and Burimari border crossings aremuch simpler. The crossings have customs fa-cilities and roadside parking, but they lack truck

unloading ramps, warehouses, telecommunica-tions, and other logistics services. Among theleast-developed crossings is the Phulbari corri-dor linking Kakariatha, Nepal via India toBanglabandh, Bangladesh. The Banglabandhcrossing lacks even basic customs facilities. Table2.7 provides information on problems at majorborder crossings.

For transit cargo between India and Nepal, threeborder point ICDs are being constructed to ex-pedite handling and storage.7 These are intendedto provide efficient transfer of containers ontrucks or, in the case of Birgunj, on rail cars. TheBirgunj ICD will be equipped with reach stackersto allow efficient transshipment of cargo betweentrucks and between rail and truck.

As Table 2.8 shows, customs clearance proce-dures can add significant costs and delays eventhough they represent a relatively small part ofthe logistics chain. The existing procedures areboth cumbersome and time-consuming, and theyreflect the conservative trade policies that havecharacterized the region for decades. Poorly de-fined or complex procedures and documentsreduce transparency, especially where a largenumber of people are required to give approvals.

Table 2.9 shows the documents that are submit-ted to customs at the border crossings. Many arethe same as those commonly required at otherinternational borders, such as invoices, packinglists, certificates of origin, letters of credit, andquarantine forms for plants and foods. Some ofthe documents, such as import licenses, exportpermits, and various certificates, are less com-mon. These are intended to meet local require-ments. They supply information that shouldalready be available to the customs officials and

BOX 2.3 BENAPOLE: BOTTLENECK AT THE INDIAN-BANGLADESH BORDER

Benapole is the principal border crossing between India and Bangladesh. Thefacility is called a land port: its functions are limited to providing a customscheckpoint and bonded warehouses. It has a large number of clearing agents whomaintain offices on the site, and there are adequate telecommunication services.Import traffic for Bangladesh is transferred from Indian trucks to bonded facilitieswithin Bangladesh while export traffic is transshipped into warehouses 500meters inside the Indian border. The average daily traffic exceeds 200 trucksloaded with cargo for Bangladesh and 50 trucks with cargo for India, as well as2,000 passengers. Throughput is constrained by a single customs lane in eachdirection for clearing vehicles and emigrants. As a result, there is severe congestionwith lines of up to 1,500 trucks and waiting times of one to five days. The area hasa large complex of warehouses and markets, but it is constrained by a narrow roadleading to the border and a lack of parking spaces. The area in Benapole fortransshipping goods from Indian trucks to Bangladeshi trucks can accommodateonly 250 to 300 trucks. Customs procedures are largely to blame for the delays,with normal customs working hours limited to 9 a.m. to 6 p.m. The congestion hasreached such a level that traffic has been diverted to more remote border crossingswhere there is less rigorous enforcement of customs inspections.

The facility also has operational problems. The 30-plus warehouses provided bythe Mongla Port Authority have adequate capacity (about 15,000 tons), but thereis low utilization due to poor maintenance, difficult access, inadequate security,and no running water or sanitary facilities. The facility lacks adequate cargohandling equipment. Cranes are in poor condition. There are no inland containerdepots and no provision for receiving and delivering cargo to shipping lines.

In order to reduce congestion, a new truck terminal has been constructed inBenapole, in addition to a bypass road leading to the crossing. On the Indian side, aparking area for 400 to 500 trucks is being constructed, in addition to new privatewarehousing. However, the more important issues related to simplifying customsprocedures, eliminating the need for transshipment, and increasing private sectorinvolvement in operations have yet to be addressed. 7. The World Bank assisted “Nepal Multimodal Transport

and Trade Facilitation Project.”


not submitted with each shipment. Other docu-ments, such as equipment interchange certificatesfor containers and railway cars and registrationforms for vehicles and drivers moving across theborder, are required because simplified proce-dures for in-bond movements and modern regu-lations for the carriage of goods have yet to bedeveloped.

The basic customs documents, such as transit,export, and import declarations, create problemsbecause they vary from country to country andmust be prepared separately for each side of theborder and submitted in multiple copies. A stan-dardized format would not only reduce the paper-work but also encourage more consistentprocedures and greater coordination betweencustoms officials on either side of the border. Theproblem of standardization has been hamperedby India’s decision to develop a separate tradeclassification system while its neighbors adoptedthe ASYCUDA automated systems format.

The document problem is not limited to the num-ber of documents that must be submitted, butalso includes the procedures used for verifyingand approving documents. The number of cop-ies that must be submitted and, more importantly,the number of signatures required, add consid-erably to the cost. Although the requirementsfor the Nepal–India movements have been re-duced in the last few years, considerable im-provements are still needed.

Ports

The ports represent the critical border crossingin terms of costs and time. The time the cargospends in port is determined by four factors: thecomplexity of the customs clearance procedures,the frequency of vessel arrivals, the efficiency ofthe cargo handling and storage operations, andthe efficiency of the shippers and consignees.The latter depends on the level of coordination

TABLE 2.7 CHARACTERISTICS OF MAJOR BORDER CROSSINGS

Border crossing Mode Problems

Chittagong Water Inefficient management and operations,lack of equipment, excessive delays and costs

Calcutta Water Inefficient management and operations,lack of equipment, excessive delays and costs

Benapole/Petrapol Road CongestionBirgunj/Rauxal Rail ICD not yet operationalBhairahwa/Notanawa Road ICD not yet operationalBiratnagar/ Jogbani Road ICD not yet operationalDarsana/Gede Rail Long processing timesKakarbhitta-Panitanki Road Poor facilities on both borders, no customs

office at BanglabandBurimari-Changrabaandh Road Insufficient infrastructure, lack of customs

office, bad road access

Source: Background Notes 6, 7, 8, and 9.

TABLE 2.8 COSTS AND TIME FOR CUSTOMS INSPECTIONAND CLEARANCE

Mode Commodity US$/ton Time (hrs)

RegionalBarge Cement 0.07 24Truck Agricultural produce 16.24 30Truck Limestone 6.05 32.5Truck/ferry Yarn 6.55 205

InternationalTruck Wool 8.94 63Truck Tea 14.29 12Truck Carpet 27.00 20Truck Polypropylene 6.54 55Truck Cotton garment 5.94 36

Source: Logistics cost study, World Bank.


in processing shipping documents and the abil-ity of the shipper and consignee to time ship-ments so as not to use the port for storinginventory to be sold. There are significant prob-lems with all four components that cause therelatively long time delays for cargo in port.

For import and export cargoes, the effectivenessof a route is very much dependent on the port

services. The time and cost for oceanborne trans-port generally exceeds the time for land trans-port even where the latter involves a longdistance. In many situations the longer land routeis preferable because it provides access to alarger, more efficient port that has better con-nections to foreign origins and destinations. TheSouth Asia ports can be grouped into three lev-els of service. At the highest level are major trans-

TABLE 2.9 BORDER CROSSING DOCUMENTATION

Cargo routes Documents required

India to Bangladesh For Indian customs—Customs export declaration, bill of lading, invoice, packing list,Import Cargo letter of credit.

For Bangladeshi customs—Import permit, bill of lading, packing list, letter of credit, con-signment insurance cover, certificate of registration (value-added tax), importer pass book.For goods entering the export-process zone—Bonded warehouse licenses, value-bondedform, risk and duty bond.

Nepal to India For Nepali customs —Customs transit declaration, customs export declaration, dutyTransit Cargo insurance certificate, invoice, packing list, certificate of origin, certificates of registration

(income tax, value-added tax, company), letter of credit.For Indian customs—Customs transit document, duty insurance, invoice, packing list, letterof credit, certificate of origin.

Bangladesh to Nepal For Bangladeshi customs—Export registration certificate, invoice, letter of credit, packinglist, certificate of origin, truck receipt.For Nepali customs—Customs import declaration, invoice, packing list, certificate of origin,import license, letter of credit, health/quarantine certificate, equipment interchangereceipt, and duty insurance coverage for containers.

Bangladesh Ports Exports—Export bill of entry, invoice, packing list, export permit, undertaking by exportcompany, outpass statement, export permit, risk bond.

India Ports Imports—Customs transit declaration, bill of lading, invoice, packing list, certificate oforigin , import license, letter of credit, health/quarantine certificate , equipment inter-change receipt and duty insurance coverage for containers.

Source: Background Notes 8 and 9.


shipment hubs that have frequent sailings by largeshipping lines offering scheduled services to dif-ferent regions of the world. These services typi-cally operate on a day-of-the-week schedule sothat importers and exporters can time their ship-ments to minimize the time in port. The onlymajor transshipment hub in the immediate re-gion is Colombo. It has obtained this status byvirtue of its proximity to the major markets ofSouth Asia, its location along the equatorial rout-ing of the larger liner services, and its efficiencyrelative to the ports in southern India. The othertransshipment ports serving the region areSingapore, which handles most of the feederservices to Chittagong and Calcutta, and Dubai/Aden, which serves the west coast of India.

The second level of ports are regional hub portssuch as Nhava Sheva and Port Kelang. Althoughlocated away from the major shipping routes,they have day-of-the-week calls by major ship-ping lines that have a portion of their voyagescall at these ports.8 The number of regional hubswill increase with the growth in traffic. The Thaiport of Laem Chabang is approaching hub sta-tus, and there is likely to be a regional hub onthe east coast of India during this decade.

The third category of ports are regional seaportssuch as Calcutta, Chittagong, and Haldia. Theseattract feeder services from the major transship-ment hubs that operate on a flexible schedule,so it is difficult to schedule cargo movements toconnect with major shipping lines. This intro-duces delays at both the feeder port and thetransshipment port. It also creates an additionalcost for a second handling. The smaller feedervessels have higher operating costs per unit ofcargo, but this additional cost is lower than the

cost of the larger vessels calling at the port totransfer relatively small cargo loads. Economi-cally, they are able to provide more frequentservice to the transshipment hubs.

The status of Chittagong, Calcutta, and Haldia asfeeder ports is unlikely to change because oflimitations on the volume of cargoes, their dis-tance from the main shipping routes, and theirlow cargo handling productivity. Chittagong hasno container gantry cranes. This, together withlabor problems, reduces the handling productiv-ity below five containers per vessel-hour. In ad-dition, vessels are forced to wait for berths fortwo to seven days. Total turnaround time canrange from five to thirteen days for an activitythat would require less than one day in mostports. The performance in Calcutta and Haldia isnot much better.9 If a new, privately operatedport were developed in Patenga, Bangladesh, oralong the east coast of India, it should be able todivert substantial traffic from existing public portsand generate some additional traffic—which hashappened at the Jawaharlal Nehru Port Trust onthe west coast of India.10 However, it would beunlikely to achieve regional port status becauseof the limited import-export traffic generated bythe region.

Improvements in port performance through faster,more reliable equipment and better managementof labor will increase berth productivity and re-duce delays to vessels. If this were combinedwith guaranteed availability of berth space, day-of-the-week sailings could be introduced. At

8. Large container shipping lines and alliances serving ma-

jor routes increasingly operate with variations of their main

route called strings. Each voyage or string will call at a cer-

tain number of secondary ports as well as the main ports.

9. For additional discussion of impediments to port effi-

ciency, see Background Notes 8 and 9.

10. The success of private port operations in improving pro-

ductivity, diverting traffic from public ports, and attracting

new traffic is well documented. Examples include LaemChabang in Thailand, Giao Tauro in Italy, Manzanillo in

Panama, and Nhava Sheva in India.


present, any attempt to introduce a fixed sched-ule would require excessive slack time in thesailing schedule because of the uncertainties inport performance and would result in inefficientuse of vessels. This is a common problem inregions with underdeveloped ports, such asSoutheast Asia and the east coast of SouthAmerica, but there are attempts to overcome thisproblem through investments in modern cargo-handling equipment and privatization of portoperations. The results have been a significantreduction in port costs, freight rates, and timesfor ocean shipment.

ANALYSIS OF LOGISTICS COSTS AND TIMES

The times and costs for moving cargo along the11 routes listed in Table 2.1 were estimated frominformation provided by cargo owners and for-warders based on typical shipments. We ana-lyzed the information to determine the relativecontributions of the various logistics activities asfollows:

• Loading at the origin and unloading at thedestination,

• Line-haul movements,

• Intermediate handling at the border crossingsand ports, and

• Customs inspections.

The analysis included the land movement andthe transfer across the border through the sea-port, but it did not include ocean transport.

Table 2.10 summarizes the costs for the indi-vidual activities. The costs for initial loading andfinal unloading and the intermediate cargo han-dling were computed per ton of cargo handled,and the line-haul transport was computed per

ton-kilometer to take account of differences invehicle size and mode. For truck transport, anadditional calculation was made for the chargesper kilometer. For loading the cargo at its originand unloading at its destination, the costs differfrom less than US$1 per ton to over US$25.11

The higher costs were due to the packaging re-quirements of higher value cargoes, specificallytextiles, tea, and freight of all kinds (FAK). Sincewool and polypropylene are imports, the pack-aging was performed at foreign origins (NewZealand and Singapore), and these charges arenot included in the table.

The cost for the line-haul movement dependson the mode. The rates for rail and barge trans-port were lower than for trucking when calcu-lated on a per ton-kilometer basis. For trucking,the rates range from US$0.029–US$0.058 per ton-kilometer, depending on the size of the ship-ments and whether the trip is short distance orlong distance. Limestone, tea, and FAK werecarried in eight-ton loads, whereas the other car-goes have consignments about twice that size.The rate per truck-kilometer was relatively con-sistent, between US$0.45 and US$0.50, exceptfor agricultural products, which had an excep-tionally low rate for movement to the bordercrossing at Kakarbhitta. These rates are signifi-cantly higher than the estimated trucking costspresented in Table 2.3. This is because of fewer-than-expected backhauls, increased delays enroute, and the informal costs paid at variouspolice checkpoints.

Intermediate handling occurs where there is trans-shipment between vehicles, a change in cargoform, or a transfer of cargo to and from storageand from one mode to another. The amountspaid ranged from US$1.6 per ton to over US$31.

11. These costs do not include the cost of time.


These amounts were less a function of the valueof the cargo and more a function of the numberand type of border crossings involved.

Customs clearance procedures, exclusive of du-ties, accounted for less than 0.5 percent of thecargo value for most of the routes. The percent-

ages varied inversely with the value of the cargo,indicating that a significant part of these costsare related less to the value of the cargo than tothe volume of cargo. The major exceptions arethe agricultural products, which incur an ex-tremely high cost for the customs procedures atPhulbari (Map 3).

TABLE 2.10 UNIT COSTS FOR MOVEMENT OF CARGO BY ROUTE AND COMMODIT Y

Initial load Inter-and final mediate Customsunload Line haula

handlingb proceduresc

Origin/destination Mode Cargo (US$/ton) (US$/ ton-km) (US$/km) (US$/ton) (% value)

Domestic1 Calcutta-Argatala Rail Cement 0.46 0.016 n.a. n.a. n.a.2 Calcutta-Siliguri-Argatala Truck Freight, all kinds 34.75 0.059 0.47 n.a. n.a.

Regional3 Calcutta-Sheikhbaria-Argatala Barge Cement 0.46 0.022 n.a. 1.60 0.114 Kathmandu-Kakarbhitta-Dhaka Truck Ag. produce 3.88 0.033 0.28 4.24 4.605 Thimpu-Jaigon-Burimari-Dhaka Truck Limestone 3.33 0.058 0.43 4.80 12.116 Calcutta-Benapole-Dhaka Truck/ferry Yarn 35.47 0.097 n.a. 5.41 0.26

International7 NewZealand -Calcutta-Raxaul-

Kathmandu Truck Wool 2.35 0.044 0.37b 25.82 0.458 Karimganj-Siliguri-Calcutta-

Liverpool Truck Tea 28.57 0.053 0.45 27.38 0.609 Kathmandu-Raxaul-Calcutta-

Bremen Truck/rail Carpet 18.33 0.031 0.47 16.40 0.4510 Singapore-Calcutta-Jaigon-

Thimpu Truck Polypropylene 1.56 0.031 0.50 31.31 1.2811 Dhaka-Chittagong-west coast

of the United States Truck Cotton garments 20.56 0.029 0.46 10.38 0.20

a. Charges for movements by truck, rail, or barge.b. Transshipment of cargo at border crossings, packing and unpacking of containers, and other handling of cargo in port.c. Formal and informal charges for cargo clearance and inspection.d. Assumes that two trucks are required for 17 tons because of high volume.n.a. = Not available.Source: Logistics costs study, World Bank.


The costs for these different components werecompared as a proportion of the total costs forthe different logistics activities (see Figures 2.1and 2.2). This comparison does not include thecharges for handling at the origin and destinationbecause these are imputed costs based on thetime spent by regular employees in the produc-tion process.13 When this cost is excluded, theline-haul costs should account for at least 85percent of the total for regional shipments andat least 75 percent for foreign shipments withthe exception of short distances. For the first threeroutes (regional routes 3 to 5), the cost for line-haul transport was dominant. However, for theshipment of agricultural products, the other costswere more than one-third of the total because ofthe relatively high costs for customs clearance incrossing from the Nepali and Bangladeshiborders.12

For the international routes, (Routes 7 to 11 inTable 2.10), the costs other than line haul ac-count for 40 to 60 percent. Customs procedureswere significant in both Calcutta and Chittagongports because of inefficiencies and informal pay-ments. The costs for intermediate handling wereabout 20 to 25 percent of total costs becausethey included all handling costs in port otherthan loading and unloading the vessel. Thesenumbers are reasonable except in the case ofpolypropylene offloaded in Calcutta, which in-curred exceptionally high costs for handling andstorage.

Customs clearance procedures add a relativelysmall amount to the logistics costs with the ex-ception of agricultural products, which incurredhigh costs at Phulbari customs, and carpets,which experienced high formal and informalfees at Raxaul and Calcutta. The costs for cus-

toms procedures are not significant when com-pared to the value of the cargo, as shown inTable 2.10. The exceptions are agricultural pro-duce, as mentioned above, and limestone, whichhas a very low product value. Overall the cus-toms procedures had a greater impact on de-lays than on costs.

The time spent on individual components of thelogistics chain is influenced by a number of fac-tors. For example, the time spent loading at thepoint of production is more dependent on pro-duction schedules than on the productivity ofthe physical handling. Figure 2.1, which excludesthis component, shows the relative importanceof the remaining logistics activities. With reason-ably efficient operations, it should be expectedthat line-haul movements would account for 80to 90 percent of the time for regional movementsand 75 to 80 percent of the total time for inter-national movements for all but the shortest routes.In fact the percentages are much lower due toinefficiencies at the border crossings.

For the regional routes, the line haul accountsfor 57 to 65 percent of the logistics time, exclu-sive of loading and unloading at the origin anddestination. Customs procedures account formost of the additional time on the routes fromBhutan and Nepal to Dhaka. These routes re-quire two border crossings and one transship-ment, with the majority of the time lost inclearing the cargo through customs. The move-ment of cement by barge does not involve sig-nificant border checks, but it does requiretransfers to trucks at both ends, which adds asignificant amount of time.

The international routes require a lot of time inport. This includes time spent clearing customs,but it is primarily the time spent waiting to en-ter the port, loading and unloading the vessel,and in storage waiting for the vessel. The pro-portion is greatest for Route 11 because of the

12. There are also significant costs for damages that have

not been included.


short travel time between Chittagong and Dhaka.Although the movement of polypropylene ismuch longer, the exceptionally long delay inthe port of Calcutta accounts for a large part ofthe logistics costs.

The last route, the domestic shipment of yarnfrom Calcutta to Dhaka, highlights the extremelylong waiting times for customs at Benapole. Table2.7 shows the times associated with customs pro-cessing on both sides of the border. The delaysat crossings other than Benapole appear to be, ifnot justifiable, at least manageable.

As Table 2.11 shows, overall route performancecan be compared using two performance mea-sures: average speed and unit cost. The averagespeed of the journey compares the land routedistance and travel time for the line-haul move-ment. The unit cost for the journey is equal tothe logistics costs for the land movement dividedby the product of the route distance and con-signment size (for example, $/ton-kilometer).

The average speed was less than 400 kilometersper day because of the congestion on the roadsand the delays en route for the railway. Thespeeds are higher in Bangladesh because thereis less traffic congestion. The cost per ton-kilometer is lowest for all-rail and all-barge ship-ments and highest for short-distance truckmovements.

Four general conclusions can be drawn from thisroute comparison. The first is that the overalllogistics costs, although significant for some com-modities, is not all that great when measured asa percentage of cargo value. The inefficienciesof the transport services are offset by low laborcosts and older, fully depreciated transport equip-ment. As a result these percentages are compa-rable with those experienced elsewhere. Theproblem is not the cost but rather the time, reli-ability, and safety of the logistics services.

FIGURE 2.1 COMPARISON OF LOGISTICS COSTS BY ROUTE


5 103 8 6

Percent

4 1197

100

80

60

40

20

0

Line haul Intermediate Customs

Route no.

FIGURE 2.2 COMPARISON OF LOGISTICS TIME BY ROUTE


5 103 8 6

Percent

4 1197

100

80

60

40

20

0

Line haul Intermediate Customs

Route no.

3 Cement Calcutta-Argatala4 Agricultural produce Kathmandu-Dhaka5 Limestone Thimpu-Dhaka6 Yarn Calcutta-Dhaka7 Wool New Zealand-Calcutta-Kathmandu

8 Tea Karimganj-Calcutta-Liverpool9 Carpet Kathmandu-Calcutta-Bremen

10 Polypropelene Singapore-Calcutta-Thimpu11 Garment Dhaka-Chittagong-United States


The second conclusion is that the border cross-ings are a major cause of higher costs and longerdelivery times. The critical bottlenecks are theseaports, the Benapole crossing, and the Nepalborder crossings. The problems at the crossingsare being addressed through the provision ofadditional infrastructure. They are also beingaddressed through changes at procedures at theNepal border crossings.

The third is that the customs clearance proce-dures are a problem in terms of unnecessarydelays and unofficial costs. However, they donot have as great an impact as other proceduresat the border crossings and ports. Customs canand should be more efficient, but the protocolsare the major source of inefficiency. Customslimitation on working hours, supply of officialsat the crossing, the number of gates for receiv-ing cargo, and the transparency of proceduresfor inspection and valuation not only reduce ef-ficiency but also generate animosity. More im-

portantly, they create uncertainty concerning thedelivery time for and condition of the cargo.

The fourth conclusion is that the priority shouldbe given to improving procedures in the shortterm and infrastructure in the medium term.

The border crossings can add considerable un-certainty to the time involved and damage in-curred in transporting the cargo; especially whereborder-crossing procedures are complex or re-quire frequent inspections. Manufactured prod-ucts are increasingly sensitive to this problembecause tighter logistics are required in moderncommerce. The inability to guarantee deliveryschedules requires the recipient of the cargo tomaintain extra inventory to prevent a shortfalldue to late deliveries. The inability to guaranteethe condition of the cargo adds to the cost forinsurance and makes it more difficult to sell theproduct. Variances in the costs for crossing theborder place the profitability of shipments in jeop-

TABLE 2.11 BASIC COMPARATIVE PERFORMANCE MEASURES

Route Mode Cargo Km/day US$/ton-km

Calcutta-Agartala Rail Cement 818 0.02Calcutta-Agartala Truck Freight, all kinds 216 0.08Calcutta-Agartala Barge Cement 154 0.02Kathmandu-Dhaka Truck Agricultural produce 415 0.05Thimpu-Dhaka Truck Limestone 401 0.08New Zealand-Calcutta-Kathmandu Truck Wool 228 0.07Karimganj-Calcutta-Liverpool Truck Tea 197 0.10Kathmandu-Calcutta-Bremen Truck/rail Carpet 211 0.09Singapore-Calcutta-Thimpu Truck Polypropylene 158 0.08Dhaka-Chittagong-United States Truck Cotton garments 281 0.16Calcutta-Dhaka Truck Yarn 506 0.23

Source: Consultant study team estimates.


ardy. The product price must be increased totake into account the upper range of costs.

IMPLICATIONS OF LOGISTICS CONSTRAINTSAND CHARACTERISTICS OF GOODS

The efficiency and effectiveness of differentroutes depend on both the characteristics of theroute and the nature of the cargo being moved.Cargo is typically characterized as break bulk,unitized, neo-bulk, or bulk. Each requires spe-cialized handling systems if the goods have tocompete effectively for market share. The typeof cargo and the markets in which it is sold de-termine the type of logistics services required tocompete effectively for market share. The im-portant cargo characteristics include:

• The value of the cargo per unit volume orweight,

• The susceptibility of the cargo to damage whilein transit and when handled, and

• The physical and commercial life of the cargo.

The third item has both physical and commer-cial dimensions, as Chapter 1 discussed. Somecommodities—most notably, fruits and veg-etables—have a relatively short physical life.Others have a short commercial life. For example,garments and footwear are affected by changesin season and fashion.

The competitiveness of the markets in which thecargo is sold also affects the logistics require-ments. Market sensitivity to the delivery timesand variations in those delivery times, as well asto delivery costs and variations in those costs,are particularly important.

These sets of characteristics are linked. The firstitem is linked to the delivered cost where that

cost is measured relative to value of the cargo.The second item is also linked to the deliveredcost because damages or losses during transitincrease the delivered that cost. The third itemis linked to the delivery time because it limitsthe acceptable time for delivery. Table 2.12 showsthe relationship between the physical and com-mercial characteristics of the cargo and the typeof logistics required.

Commodities can be categorized according tothe level of logistics services required. The firstcategory is high-value, time-sensitive cargoesthat are vulnerable to damage. These must bemoved quickly, generally in unitized form, witha minimum amount of transfers. Typical reor-der times are 1.5 to 2 months, implying a maxi-mum travel time of 25 to 35 days. The price oftransport is less important than the time andreliability of deliveries. Higher-value cargo canafford a higher cost of transport. Among thecargoes in this category are fruits and vegetables,meat, fish (both fresh and frozen), and otherfood products. The shipper chooses the fastestmode of transport with a preference for the routethat has the least number of handlings. Roadtransport is generally preferred unless transship-ment can be avoided through the use of railtransport. For high-valued perishables, air freightis preferred.

Four other commodities—consumer goods, woodproducts, seasonal garments, and textiles—areoften included in the first group. These can bedivided between upscale products such as elec-tronics, fashion garments, and designer furniturethat have a shorter shelf life and tight deliveryschedules, and low-cost products such as appli-ances, basic clothes, and general furniture thattend to have a longer shelf life and much looserdelivery schedules.

These low-cost goods are part of the secondcategory: medium-value commodities with


moderate shelf lives and limited susceptibility todamage. Carpets are included in this group de-spite their high value. They are only moderatelysusceptible to damage and, most important, havea long shelf life. Other commodities in this groupare jute, cotton and other fibers, tea, timber, andpetrochemicals. Delivery times are longer, about

TABLE 2.12 COMMODITY CHARACTERISTICS

Susceptibility Market sensitivity

Value Shelf life damage Delivered DeliveryCommodity US$/ton Density a Physicalb Commercialc and loss d cost e time e

Fruits and vegetables 1,500 M S S V M VFresh meat and fish 2,000 M S S V V VFrozen meat and fish 3,000 M M S V M VTea 2,400 L M M M M MGrain 200 M L L M V MJute, cotton L L L M V MTextiles, fabric, yarn 2,500 L L M M V VCarpets 6,000 L L L M M MGarments 3,000 L L M M V VWood products 1,500 L L M M V MFood products 1,500 M M M M M VConsumer goods 2,500 L M M M V MCement 60 H M L M V MClinker < 50 H L L N V MTimber 500 M L M M M MSteel products 350 H L L N V MPetroleum and oil

products 200 H L M N V MPetrochemicals 500 H L M N M V

Notes:a. L = low (< 0.7), M = medium, H = high (≥ 1.0).b. S = short (< 1 month), M = moderate, L = long (> 1 year).c. S = short (< 3 months), M = moderate, L = long (> 9 months)d. V = very susceptible, M = moderately susceptible, N = relatively impervious.e. V = very sensitive, M = moderately sensitive, N = relatively insensitive.Source: Consultant study team estimates.

forty to sixty days. Reorder times are two to threemonths. These commodities are more price sen-sitive, so it is necessary to select logistics ser-vices that balance between cost and time.Trucking is preferred, but the shipper may chooserail or inland water if it provides a lower costand fewer handlings.


TABLE 2.13 LOGISTICS COSTS AS % OF CARGO VALUE

Land Percentdistance cargo

Mode Commodity (km) value

High value, short lifeTruck Cotton garments 280 8Truck Agricultural produce 1,194 18Truck Freight, all kinds 1,615 4Truck Yarn 359 3

Medium valueTruck Tea 1,380 12Truck Wool 1,215 8Truck Polypropylene 820 25Truck Carpet 1,026 3

Low valueTruck Limestone 786 119Rail Cement 1,535 44


The remaining category includes low-value com-modities with long shelf lives that are relativelyimpervious to loss or damage. These are typi-cally bulk cargoes such as grains, cement, andlimestone. Their logistics emphasize low-cost,reliable transport. Because these commoditiestend to be handled in large volumes, the logis-tics are less concerned with minimizing deliverytime and more with maintaining a reliable deliv-ery schedule. The greater the variance in deliv-ery times, the larger the inventories that must bemaintained to avoid outages. The shipper willprefer the mode that handles large consignmentsbut minimizes the number of handlings. Rail isthe most popular mode, followed by inland wa-ter transport. Where these are not readily avail-able, road transport will be used, especially forpetroleum products.

For all three groups, there will be a preferencefor routes that do not require border crossingswith significant delays or transshipments. Table2.13 shows the impact of the logistics costs onthe delivered cost of the cargo. These logisticscosts, including the ocean freight for imports andexports, are divided by the delivered cost of thecargo. Not surprisingly, the percentage is great-est for the low-value cargoes, such as cementand limestone, and least for the high-value car-goes, such as carpets, garments, yarn, and con-

sumer goods. The cargo value has a greater im-pact than the distance shipped, as can be seenby comparing the local shipment of agriculturalproducts with the export of cotton garments tothe west coast of the United States.

55

The choice of routes for trade flows is made based on fourfactors: the total logistics costs, time required for door-to-door movement, reliability of delivery, and conditionof the delivered goods.1 Chapter 2 analyzed components

of the logistics chain for major trades and routes currently in use inorder to explain their impacts on cost and time. This chapter willexpand the analysis by comparing the time and costs for these exist-ing routes with those of alternative routes that are not currently inoperation, either because of protocol restrictions or infrastructure gaps.The comparative analysis demonstrates how the components of thelogistics chain contribute to the competitive advantages of one routeover another. The analysis provides a framework for evaluating pro-posed improvements in a specific route. The impact of these im-provements depends on the change in logistics time and cost, as wellas the potential for cargo damage, for the route relative to competingalternatives. Similarly, comparative analysis provides a basis for iden-tifying and evaluating new routes by considering their advantage interms of time, cost, or condition relative to currently used routes. TheBank study team, in collaboration with private sector stakeholdersfrom the subregion, developed the logistics cost model used for thecomparative analysis (see Map 6 at the end of this report).

The framework provides a tractable and easy-to-use tool for stake-holders that will help in two types of decisionmaking: (a) to deter-mine which of the routes available is less inefficient and (b) todetermine which of the components of the transport logistics chainon a particular route are problematic, where improvements in the

Route Selection:Applying aLogisticsViewpoint

3

1. The exports and imports analyzed in Chapter 2 are sold either cost-insurance freight(cif) or ex-factory/farm gate. The imports of polypropylene and wool are bought on acif basis. The intraregional shipments are sold either cif or ex factory/farm gate. In allcases, the responsibility for the logistics rests with either the shipper or the consignee,not both. Therefore the selection of a route will be based on the complete logisticstime and cost. The alternative would be to sell exports at the port on a free on board(fob) basis and to purchase imports cif at the port. When the logistics stop at the port,the selection of a route is decided by both the shipper and the consignee.


short term can bring significant returns in termsof efficiency improvements. Shippers and con-signees can use this analytic framework to se-lect routes. Governments and other stakeholderscan use it to evaluate policies and investmentsintended to improve performance on one or moreroutes.

The objective here is not to recommend any oneparticular route over others or to suggest thatany one of the routes analyzed here is the mostefficient. The routes analyzed all have inefficien-cies, some more than others. Rather, the focus ison trying to encourage further probing and in-formed dialogue among stakeholders on theroutes where efficiency gains can be achievedin the short term, and where more long-terminterventions would be required. The focus ison the information that stakeholders have avail-able when selecting routes for shipping cargo.The objective is to identify those improvementsin infrastructure, services, and trade facilitationthat allow shippers to offer their goods to se-lected markets at a lower delivered cost with adelivery time and reliability that is acceptable tothat market.

It is important that shippers have options. Thechoice of route will vary with the type of com-modity being shipped and the market for thatcommodity. Reductions in cost, time, and dam-age on one route will cause some of the cargoto be diverted from alternative routes. These di-versions are not instantaneous, but they can oc-cur rapidly if cargoes are traded in competitivemarkets. Lower logistics costs allow shippers tocompete on delivered price. Faster travel timesallow shippers to compete for markets that re-quire shorter delivery times. Less damage allowsshippers to compete where the quality of theproduct is a major concern or where restockingtimes are long. The following analysis suggeststhat relatively small changes in the logistics chaincan have a big impact on route selection.

This same technique can be used to assess fu-ture requirements for logistics services. Already,liberalization of trade and the restructuring ofinternational and domestic transport industrieshave raised expectations regarding the qualityof logistics. Future changes in trade and the trans-port network will raise not only expectations butalso requirements for new routes with lower lo-gistics cost and time, and with greater reliability.These trends are discussed briefly at the end ofthe chapter. They are important to anticipate sincethe logistics industry in the region has largelybeen in a catch-up mode and has acted as aconstraint rather than as a catalyst for growth intrade and economic development.

The planned improvements in the regional trans-port network will raise expectations and leadto a diversion of freight movements to the moreefficient routes. The end of this chapter dis-cusses the impact of these improvements onroute selection. The type of commodities beingshipped are expected to change from predomi-nantly raw and semiprocessed materials tosemifinished and finished manufactured goods.The trend toward the production of high-valuegoods must be complemented by better logis-tics if producers are to compete in internationalmarkets.

A more precise indicator of logistics performanceis the variance, rather than the average value, ofthe times and costs of transportation. It is diffi-cult to obtain data on this variable. This chapteralso includes a brief discussion of the impact ofvariance on the costs to the user. It then looks atthe relative importance of the condition of thecargo following shipment and the impact of lossesand damage on route choice. Losses and dam-age not only increase the delivered cost but alsoadd to reorder time and increase inventory costto cover potential shortfalls in the delivery ofacceptable goods. The number of intermediatetransfers is important for cargoes that are sus-

Route Selection: Applying a Logistics Viewpoint 57

ceptible to loss of damage. The form of shipmentis important because it affects both time anddamage. Containers and bulk cargoes can bemoved more quickly with less damage if handledwith appropriate equipment. Several of the se-lected routes involved container movements, butpart of the transport was in break bulk becauseof physical or regulatory constraints. Bulk cargois often bagged at a port or transfer point be-tween rail and truck transport, thereby increas-ing losses and delivery times.

This chapter begins with a comparative analysisof five of the routes that the previous chapterdiscussed. The analysis is based on currentcharges and performance. Comparisons are madewith alternative routes that have been suggestedby users and other stakeholders, or are in theprocess of being made available because of on-going bilateral or multilateral negotiations, up-grades to the physical infrastructure, or bothfactors. These alternatives have specific advan-tages that may or may not be significant whenplaced in the context of the total costs for move-ment of the cargo. Using the same contest, thechapter reviews various proposals for improv-ing the efficiency of the logistics for the existingand proposed routes. Based on the result, a se-ries of initiatives are proposed for improving theselection of routes available by building on therecommendations of the previous chapter.

COMMODITIES, MODES, AND ROUTES:SELECTED CASE STUDIES

The five cargo flows selected for comparativeanalysis were presented in the previous chapter.Three are extraregional trade in carpets, tea, andgeneral cargo (or FAK), and two are intraregionaltrades in cement and fruits. The comparisons alsoconsider routes through other countries, espe-cially Bangladesh and India, which are shorterand may offer potential savings in cost and time

for the landlocked regions of Nepal, Bhutan, andNortheastern India.

Case 1: Exporting High-Value Goods from a LandlockedCountry to an International Market

Carpet is exported from Nepal to European mar-kets via Calcutta port. The carpets are container-ized at Birganj, which is 165 kilometers fromKathmandu. The container trucks are cleared byNepalese customs and, after an overnight waitat the Nepal-India border, enter Raxaul for clear-ance on the Indian side. The entire trip by roadfrom Kathmandu to Calcutta port, plus the timein port, averages eight days. This includes a two-day wait to enter the port. It takes an additionalfour days for clearing customs and loading thecargo on the vessel. The cargo is then shippedeast to Singapore for transshipment to a largerocean vessel heading west to Europe.

The freight forwarders in Nepal are proposingthe use of the port at Nhava Sheva (JawaharlalNehru Port Trust, or JNPT) on the western coastof India as an alternative to Calcutta once theBhairawa ICD becomes operational (Map 8 atthe end of this report).2 This would allow directshipments to Europe instead of feeding throughSingapore. The new route would be by truckfrom Kathmandu through Bhairawa to Nautanwa,India, where the cargo would be packed intocontainers. The containers would be transportedto the ICD at Moradabad and placed on rail carsfor shipment to Mumbai and the JNPT containerterminal. Although the land transport distance isthree to four times as far as the distance toCalcutta port, the ocean portion offers consider-able savings in freight rates and shipping times.

2. Nepalese cargo has access through the ports at Kandlaand Nhava Sheva on the western coast of India in additionto Calcutta port.


It has the additional advantage of better produc-tivity and fewer delays at Nhava Sheva than atCalcutta port. Table 3.1 shows the cost and timecomparison of the two routes.

Although there is about a 14 percent reductionin cost for the route via the JNPT, the more sub-stantial benefit is a 30 percent reduction in traveltime from nearly 38 days to 26 days. The land

TABLE 3.1 CASE 1—HIGH-VALUE EXPORTS FROM A LANDLOCKED COUNTRY TO EUROPE

CONSIGNMENT ATTRIBUTESCommodity type CarpetShipment size 1 TEUOrigin Kathmandu, NepalDestination Munich, GermanyVia Bremen Port, GermanyShipment value $90,000

ROUTE 3-1 ATTRIBUTES ROUTE 3-2 ATTRIBUTESKathmandu-Birgunj/ Kathmandu-Bhairawa-Nautanwa-

Raxaul-Calcutta Port-Bremen Moradabad-Mumbai (JNPT)-Bremen

Cost (US$) Time (hours) Cost (US$) Time (hours)

Transport & handlingInland transport 480.00 117 740.00 88Cargo handling 260.00 74 463.00 155Ocean freight 1,200.00 528 750.00 336

Cross-border processingCargo transfer 261.00 164 125.00 37Customs inspection 405.00 20 202.33 7

Trade-related logisticsTime cost of goods 1,252.45 864.09Insurance or pilferage & damage 675.00 675.00Documentation & forwarding 450.00 450.00Bank processing for letter of credit 360.00 360.00

KEY RESULTSTransport logistics cost (US$) 5,343 4,629Transport logistics time (hours) 903 623



route to the JNPT is more costly because of thelonger distance, but the travel time is reducedby more than one day because of the higherspeed on the rail connection between Moradabadand the JNPT. The three-day time for transfer-ring cargo from truck to rail at the MoradabadICD and 1.5 days in Nhava Sheva port is compa-rable to the six days spent at Calcutta port. Thereduction in ocean transport time is substantialbecause the route from Calcutta is assumed toinclude a three-day voyage to Singapore and afive-day wait at Singapore for connection to themother ship. The JNPT route time could be re-duced by one day through tighter coordinationin the packing of containers and loading on therail cars. Further efficiencies could be obtainedif the transshipment from road to rail could beavoided altogether at Moradabad. With theoperationalization of the rail ICD at Birganj, itwould be feasible to ship containerized carpetsall the way by rail from Birganj across India tothe JNPT.

Although the new route through Nhava Shevaoffers substantial savings in time and cost forcargoes shipped to Europe, the same does notapply for shipments to Asia. The latter wouldrequire shipping the cargo from Nhava Shevaback through Singapore. Surprisingly, the differ-ence in costs and time with this doubling backwould not be that much greater than the routethrough Calcutta.

Carpets are high-value commodities, and ship-pers are interested in minimizing the number ofhandlings. This is better accomplished by ship-ping containers through Nhava Sheva. Althoughcarpets do not have short order times, they dohave a high carrying cost so that a one-monthreduction in delivery time will produce a savingto the shipper of about $1000 per container ship-ment. More importantly, the faster route allowsNepal to compete in markets that require tighterlogistics and shorter order times.

This case also suggests that efficient train opera-tions can play a role in the movement of high-value cargoes over long distances. Moreimportantly, it shows that inefficient ports canhave a major impact on route selection. Even ifthe time in Calcutta could be reduced to fourdays and the cross-border movement could bereduced to one day (especially once the BirganjICD is operational), the route through the JNPTwould still be nine days shorter for shipments toEurope.

Case 2: Exporting Medium-Value Goods Froma Landlocked Region To a Third Country

The second case concerns tea shipped fromAssam to Europe. Tea produced in Assam is ex-ported to foreign markets through an all-Indiaroute, either by rail from an ICD at Gauhati toHaldia port or by road from Assam to Calcuttaport. Let us consider the latter case. The tea iscrated at the exporter’s premise and trucked toCalcutta port. The 1,380-kilometer trip viaShiliguri requires about seven days. In Calcutta,the cargo is checked by customs and loaded intocontainers at the port’s container freight station.It is drayed to the container terminal and subse-quently loaded onto an oceangoing vessel. Thetotal processing time on average is 6.75 days.The ocean route involves transshipment via Co-lombo or Singapore before continuing on toEurope, taking a total of 23.5 days. The majoravoidable delays occur at the port of Calcutta.

An alternative route for Assamese tea exportscould be through Bangladesh via the port ofChittagong. This route is not one that is in usebecause of the absence of a bilateral agreementbetween Bangladesh and India providing transitaccess to cargo from Northeastern India. If thetwo countries were to come to an agreement onthis issue, then a possible routing could be fromAssam south to Agartala (Tripura), crossing overto Bangladesh at Akhaura and on to Chittagong—


ferred to Bangladeshi trucks from Indian trucksat the border. Assuming that there is no conges-tion, the processing time at the border would beabout 19 hours and cost US$72, or $8.60 per

a distance of about 530 kilometers (Map 9 at theend of this report). If the current policy of pro-hibiting foreign vehicles into Bangladeshcontinues, this would mean that the cargo is trans-

TABLE 3.2 CASE 2—MEDIUM-VALUE EXPORTS FROM A LANDLOCKED REGION TO EUROPE

CONSIGNMENT ATTRIBUTESCommodity type TeaShipment size 8.4 tonsOrigin KarimganjDestination Liverpool, United KingdomVia Liverpool, United KingdomShipment value $20,000

ROUTE 3-5 ATTRIBUTES ROUTE 3-6 ATTRIBUTESKarimganj-Gauhati-Siliguri- Karimganj-Agartala-Chittagong-

Raiganj-Calcutta Liverpool, United Kingdom

Cost (US$) Time (hours) Cost (US$) Time (hours)

Transport & handlingInland transport 620.00 168 117.00 29Cargo handling 205.00 16 328.00 37Ocean freight 1,250.00 564 1,250.00 585

Cross-border processingCargo transfer 265.00 150 78.00 177Customs inspection 120.00 12 100.00 39

Trade-related logisticsTime cost of goods 280.48 267.23Insurance or pilferage & damage 200.00 200.00Documentation & forwarding 100.00 100.00Bank processing for letter of credit 80.00 80.00

KEY RESULTSTransport logistics cost (US$) 3,120 2,520Transport logistics time (hours) 910 867



ton. At Chittagong, it would require an averageof nine days for the cargo to clear customs, beloaded into a container, and wait to be loadedonto a vessel. The ocean voyage from Chittagongto Europe is similar to that from Calcutta (viaSingapore). This route would save about 19 per-cent in total cost, as Table 3.2 shows, but thesavings in time is insignificant because of thedominance of the ocean movement. The shorterroad route (by over 60 percent) would save about5.5 days, but the time for cargo transfer and cus-toms clearance at the border would add about 3days. Because Chittagong has less efficient han-dling, the time the cargo spends in port is about2.5 days longer. Overall, the shorter route throughChittagong port produces transport time savingsof less than 2 days.

The potential advantage of a shorter routethrough Chittagong is compromised by delays atthe border and the requirement to transfer cargoto Bangladeshi trucks. Since the cargo is not con-tainerized, the contents are sensitive to damage,even though tea exporters limit the potential fordamage by packing tea in relatively sturdy crates.The choice of route is also affected by the de-lays at port, which in turn are a function of portperformance and frequency in sailings. It is likelythat a choice would be made based on the avail-ability of sailings to Europe. The delays on bothroutes could be significantly reduced with im-proved port performance. The time in Calcuttacould be reduced to four to five days, while thetime in Chittagong for packing and waiting forthe vessel could be reduced by two to three days.With these improvements the route throughChittagong would be faster and less costly, andthe delivery time would be reduced to about40 days.

Additional time savings could be achieved if In-dian trucks were allowed to carry the cargo toChittagong and if the tea could be transported incontainers through Bangladesh.3 The elimination

of the transshipment requirement at the India-Bangladesh border would provide savings in timeand cost, but more importantly would reducethe cargo damage. This alone would lower thelogistics cost by about 0.25 percent of the valueof the cargo.

With the changes in the long-term road and railtransport network envisioned in the subregion,(or even with the current networks), it would bepossible to send tea containerized all the way toJNPT if the choice of land routes were expandedto include the rail connection to Nhava Sheva.Initial estimates indicate reduced travel time ofan additional 1 to 1.5 weeks and reduced ship-ping costs of about US$200 compared with theChittagong route.

Case 3: Intraregional Movement of Break-Bulk Cargoof Essential Commodities to a Landlocked Region

Northeast India obtains most of its essential com-modities from the rest of India. The third caseexamines the transportation of general cargo(freight of all kinds or FAK) from the warehousesin Calcutta to Agartala, Tripura (Table 3.3). Thegoods are carried on trucks in break-bulk formfrom Calcutta, the closest major market supplyingthese goods, through Shiliguri to Agartala in Tripura.The 1,615-kilometer journey from warehouse toTripura requires about eight days. Because thisis a direct movement, there are no internationalborder crossings and no delays for customs clear-ances or handling cargo along the way.4

There have been recent debates in Bangladeshon possible options for providing Indian cargo

3. Container movement on road within Bangladesh is non-existent. The main mode for moving containerizable goodsin the Dhaka-Chittagong corridor is by rail, which also isunderutilized. See Background Note 4.

4. Constraints in state border crossings within India are notincluded here.


TABLE 3.3 CASE 3—MEDIUM-VALUE EXPORTS WITHIN THE REGION

CONSIGNMENT ATTRIBUTESCommodity type FAKShipment size 8 tonsOrigin CalcuttaDestination AgartalaShipment value $24,000

Calcutta-Raiganj-Siliguri-Gauhati- Calcutta-Petrapole-Benapole-Daulatdia Ghat-Aricha Ferry-

Karimganj-Agartala Narayanganj-Bhairab Ferry-Brahmanbaria-Ashuganj-Akhoura-Agartala

Proposed transshipment Reduced delays WithoutAll India through Bangladesh through Bangladesh transshipment

Cost Time Cost Time Cost Time Cost Time(US$) (hours) (US$) (hours) (US$) (hours) (US$) (hours)

Transport & handlingInland transport 760 180 263 41 263 41 263 41Cargo handling 278 18 270 20 270 20 270 20Ocean freight — — — — — — — —

Cross-border processingCargo transfer — — 106 35 106 35 0 0Customs inspection — — 125 151.5 125 55.5 75 12

Trade-related logisticsTime cost of goods 73 96 83 96Insurance or pilferage & damage 240 180 180 180Documentation & forwarding 60 240 240 240Bank processing for letter of credit 96 96 96 96

KEY RESULTSTransport logistics cost (US$) 1,507 1,376 1,363 1,220Transport logistics time (hours) 198 247.5 151.5 73



transshipments access through Bangladesh. Analternative routing would be for the cargo des-tined to the Northeastern Indian states to be routedthrough Bangladesh, thereby reducing the landroute by 1,000 kilometers. A possible routing forthe cargo could be via the Petrapole (India)-Benapole (Bangladesh) border crossing on thewestern side and enter Northeastern India at theAkhoura (Bangladesh)-Agartala (India) crossing(Map 10 at the end of this report). The route wouldinclude ferry crossings at Aricha and Bhairab.

With the current policies of not allowing foreigntrucks into Bangladesh, this would require trans-fer of cargo at the Petrapole-Benapole bordercrossing to Bangladeshi trucks on the westernside and again at the Akhoura- Agartala bordercrossing to Indian trucks. The route could re-duce trucking time by about six days, but thecross-border procedures and transshipment ofcargo at both sets of border crossings (Petrapole-Benapole and Akhoura-Agartala) add back eightdays. The savings in trucking costs (over 50 per-cent) would be offset by the increased costs forcargo inspection, transshipment, and documentprocessing at the two border crossings. Therewould also be the potential for additional dam-age during the transfer of cargo from Indian trucksto Bangladeshi trucks and back to Indian trucks.In this situation, the shorter route throughBangladesh is not significantly different in cost(less than 10 percent cost savings) and, in fact,requires 50 hours more logistics time, as shownin Table 3.3 (column 2). The routing throughBangladesh with transshipment would reduce theline-haul transport time by over 75 percent, butthere would be a significant increase in the totallogistics time due to the border crossing prob-lems. Taking average estimates provided by pri-vate sector members in the subregion, the biggestproblems are at the Benapole–Petrapole bordercrossing. They include two days of waiting inline at the border, and over 2.5 days for cross-border clearance at customs. Furthermore, there

would be customs clearance at Akhoura and atAgartala (over two days) and transshipment re-quirements at both sides. It must be emphasizedthat these are average estimates that do not in-clude strikes and other incidents that are com-mon to the subregion, which can increase delaysby 60 to 100 percent.

If the delays for waiting in line at the Petrapole-Benapole border crossing were eliminated, andthe procedures at both sets of border crossingsbetween Bangladesh and India were simplified,the time for the transit route could be reducedby four days. This would make the route twodays shorter than the route through Siliguri, butthere would not be a significant reduction in cost.(Table 3.3, column 3).

A scenario to consider would be along the linesof practices in other parts of the world, includ-ing Europe and developing countries in CentralAsia. It would allow Indian trucks transit accessto a dedicated corridor across Bangladesh. In thiscase, there would be no transshipment betweenIndian and Bangladesh trucks at the borders. Ifthe cargo was allowed to move in-bond in In-dian trucks across Bangladesh, an additional 3.25days would be saved because the trucks couldmove quickly through customs. The provisionfor in-bond movement would reduce both cargotransfer costs and the costs for clearance so thatthe logistics costs would be 19 percent less thanthe route through Siliguri. The savings in timewould be five days (Table 3.3, column 4).

This case demonstrates the importance of bor-der crossings as a source of delay. More efficientborder crossings and protocols could produce adramatic increase in transit traffic. Although thetransit through Benapole introduces extremedelays, all cross-border movements are delayedat least one day per border crossing. Efficient in-bond clearance procedures will significantly re-duce trip times.


Case 4: Intraregional Movement of Low-ValueCommodities to Northeast India

Cement is an important commodity that is trans-ported from Eastern India to Northeastern India.Consider the movement of cement from WestBengal to Agartala in Tripura. It is moved in bagson broad-gauge rail from Calcutta throughGauhati and Lumding and then down toKarimganj and Agartala. This is a total distanceof 1,635 kilometers with no border crossings,assuming that the supplier and the customer havedirect access to the rail sidings (Map 11 at theend of this report). The trip takes 2.5 days andcosts about US$26 per ton (Table 3.4).

The alternative would be to move the cementthrough Bangladesh by rail, a route that is notcurrently in use due to the lack of agreementbetween the two countries. The current broad-gauge rail connection from India extends intoBangladesh (at Darshana-Gede and Petrapole-Benapole) and stretches across the Jamuna bridgeas a dual-gauge line. The broad-gauge link isbeing extended to Joydepur and Tongi (Back-ground Note 3). A meter-gauge link connectsTongi to Akhoura. There are tentative plans tolink the broad-gauge rail between Akhoura,Bangladesh, and Agartala, India, on the easternside of Bangladesh’s border with India. If weassume that the two countries agree on protocolto allow cargo movement for the NortheasternIndian states by rail via Bangladesh, this routewould require one shift from broad gauge tometer gauge at Tongi and then back to broad atAkhoura (assuming that the other broad-gaugelinks are in place and completed as planned).

This alternative route would reduce the total dis-tance by more than 1,010 kilometers, but it wouldrequire an exchange of locomotives at both bor-ders. If this exchange is efficient, the route has acompetitive advantage in time and cost. The line-haul time would be shorter by 1.25 days. The

transshipment and customs clearance was as-sumed to add a half-day, but this could easilyincrease to four to five days with a missed con-nection between Indian and Bangladeshi trains.

The cost for rail transport would be 43 percentless on the alternative route, while the handlingand clearance would add back only 2 percent.There could be additional offsets related to de-lays and damage. This route would require ad-ditional handling—and handling of baggedcement inevitably involves significant losses.Missed connections at the border and losses dur-ing the transfer from broad to narrow gauge couldcreate shortfalls in deliveries. On balance thisroute would be considerably less costly due tosavings from the considerably shorter line-hauldistance. However, this assumes that gauge con-versions are completed, particularly the Akhoura-Agartala link that is still at a preliminary stage ofplanning. If not, the portion of meter gauge re-quiring a transshipment, either between rail carsor to and from trucks, would substantially in-crease the handling costs and the damage to thecargo.

An inland water route from Calcutta to Ashuganjby inland waterways transport was also consid-ered. This route is available for transiting throughBangladesh to and from the Northeastern Indianstates because of a bilateral protocol that wasrevised in October 1999. The route would re-quire trucking the cargo from the cement plantto Calcutta, loading it on the barges, and ship-ping it to Ashuganj, where the cement would beloaded on trucks for delivery.

This route adds 10 days to the line-haul timeand several days for loading and unloading thebarges (Table 3.4, column 3). The result is a nine-fold increase in logistics time compared to therailway transit route. Furthermore, the logisticscosts would increase by about 23 percent, notcounting the substantial increase in cargo loss


TABLE 3.4 CASE 4—INTRAREGIONAL MOVEMENT OF LOW-VALUE, BULK COMMODITIES TO LANDLOCKED REGION

CONSIGNMENT ATTRIBUTESCommodity type CementShipment size 2,200 tonsOrigin CalcuttaDestination AgartalaShipment value $133,000

ROUTE 3-9 ATTRIBUTES ROUTE 3-10 ATTRIBUTES ROUTE 3-11 ATTRIBUTES

Calcutta-New Jalpaiguri- Calcutta-Gede-Darsana- Calcutta-Narayanganj-Bongaigon-Gauhati- Ishurdi-Jaydevpur-Dhaka- Ashuganj by barge andLumding-Karimganj Tongi-Akhaura-Agartala Ashuganj-Agartala by truck

Cost Time Cost Time Cost Time(US$) (hours) (US$) (hours) (US$) (hours)

Transport & handlingInland transport 58,400 48 33,468 18 4,300 3Cargo handling 1,022 12 2,237 24 9,774 108Inland waterway transport & handling — — — — 29,314 264

Cross border processingCargo transfer — — — — 511 48Customs inspection — — 400 17 300 120

Trade-related logisticsTime cost of goods 123 121 1,113Insurance or pilferage & damage 1,330 998 1,330Documentation & forwarding 665 665 333Bank processing for letter of credit 532 532 532

KEY RESULTSTransport logistics cost (US$) 62,072 38,421 47,507Transport logistics time (hours) 60 59 543



during the transfer between trucks and barges.However, the inland waterways transport routeremains preferable to the route through Siliguriin terms of logistics costs—it is 23 percent lessby inland waterways transport than by the longall-India rail route around India’s so-calledchicken’s neck. The disadvantage in logistics timecould also be reduced through the introductionof navigation aids, including those for night navi-gation.

Case 5: Movement of Perishable Commodities fromNepal: 8.5 Tons of Apples from Kathmandu to Dhaka

The final case analyzes the movement of applesfrom Kathmandu to Dhaka (see Background Note7 for a full report). For both Bhutan and Nepal,the most important trade goods with the regionare vegetables, fruits, and related produce. Theanalysis does not concern alternative routes butrather the importance of simplified border cross-ing procedures. The recent Phulbari corridoragreement among Bangladesh, India, and Nepalallows Nepalese goods, particularly agriculturalproduce such as jhumla apples, to find a marketin Bangladesh. The apples travel from Nepal toDhaka as loose cargo on trucks. The initial move-ment is to the border with India in a Nepalesetruck, a distance of 619 kilometers. The truckcrosses Nepal at Kakarvitta and travels throughPanitanki and Phulbari in India to enterBangladesh at Banglabandh, a distance of 43 ki-lometers (Map 12 at the end of this report).

The Nepalese consignment is escorted by In-dian police over this route. When it crosses overto Bangladesh, the cargo is transferred toBangladeshi trucks and carried 532 kilometersto Dhaka. The Banglabandh border crossing is afledgling one, and it does not have a formal cus-toms office or an official in place. The nearestcustoms office is in Panchagarh, about 58 kilo-meters away. It has to be informed every time aNepalese consignment is expected to arrive. Total

trucking time is about three days. Another 1.75days is spent in crossing the borders and trans-ferring cargo between trucks. The time and costof transferring the cargo between trucks is a rela-tively small part of the total logistics time andcost, but this does not include the damage to theapples as a result of the transfer. Also, the im-pediments faced in the process of clearing fourcustoms points (at the two border crossings) andthe absence of a customs office at Banglabandhdo not provide positive incentives for trade.

The inefficiencies could be reduced if Nepalesetrucks were permitted to carry the cargo all ofthe way to Dhaka. The impact in terms of traveltime and direct costs would be relatively small,but the reduction in damage could be signifi-cant. A reduction in losses of 1 percent of thecargo value would be equivalent to the savingsfrom handling costs and produce a total savingsof 10 percent. A similar kind of analysis couldbe done for Bhutan, which also supplies perish-ables such as fruit and fruit-based products toBangladeshi markets. These commodities aretransported from Phuntsholing, Bhutan, throughJaigon and Changrabandh in India. They enterBangladesh at Burimari, where they are trans-ferred to Bangladeshi trucks to be carried toDhaka markets. For sustained and improved re-gional markets for agricultural and horticulturalproducts from Nepal and Bhutan, improved lo-gistics would be key to reducing damage.

HIGHLIGHTS OF CASE STUDIES

The accuracy of the comparative analysis is lim-ited because performance on existing routes isbeing compared with expected performance onnew routes that are not in operation, either be-cause of the absence of bilateral protocols andagreements or because of infrastructure inadequa-cies. However, these examples clearly demon-strate the importance of being able to select


among alternative routes. A fixed number ofborder crossings may be appropriate because theresources required to operate these crossings arelimited, but there is little justification for limitingthe routes between these crossings.5 The free-dom to choose alternative routes can also helpto reduce congestion at the major crossings. SeeTable 2.6 for a list of current and alternativeroutes.

Route selection is affected by the bottlenecks atthe border crossings and seaports as well as bythe condition of the links. The reaction of ship-pers to the growing congestion at the Benapolecrossing is a case in point. The situation deterio-rated to the point that shippers rerouted throughremote and unmanned border crossings ratherthan wait for days at the border, especially ifthey were carrying perishable cargo. This issueis now being resolved through an expansion ofthe border crossing (discussed in the previouschapter).

Based on the comparative analysis, the follow-ing route-specific observations can be made:

• Intraregional shipments of fruits, vegetables,and other perishables from Bhutan and Nepalto India and Bangladesh require much betterlogistics. This can be achieved by allowingthe cargo to move in a single truck from ori-gin to destination and by ensuring that clear-ance time at the border on both sides doesnot exceed six hours.

• High-value exports from Nepal to the PacificRim require faster handling at Calcutta,Chittagong, and Haldia, while shipments toEurope and the U.S. East Coast require direct(intermodal) connections to the JNPT. Both

require containerization of the cargoes at theearliest point in the logistics chain. The abil-ity to ship in containers will be substantiallyimproved with the operationalization of thethree ICDs on the Nepalese border.

• Truck routes via Bangladesh can offer reduc-tions in time and cost for medium-value goodsmoving between East and Northeast India. Thiswill require an effective protocol for in-bondmovements and coordination between cus-toms checkpoints to significantly reduce de-lays and eliminate transshipment. The savingsto the shippers should be sufficient to sup-port tolls to cover the cost for road mainte-nance resulting from the increase in transittraffic.

• For trade in high-value goods between Indiaand Bangladesh, trucks will be the dominant,if not exclusive, mode. Travel time will bethe major concern and route selection will bebased on reducing door-to-door delivery time.Significant improvements in rail operations willbe needed if this mode is to capture some ofthis traffic.

• Low-value goods, especially bulk cargoes, willmove primarily by rail because of the highercosts for trucking and the longer transit timesfor inland water. However, inland waterwayscould play a more prominent role in the trans-port of the low-value bulk cargoes that movebetween Calcutta and north and eastBangladesh, which is not yet served by broad-gauge rail. With improvements in night navi-gation aids, the transit times by inlandwaterways could be reduced.

• If the Indian and Bangladesh railways con-tinue to integrate their systems and to extendtheir broad-gauge networks, they might cap-ture some medium-value break-bulk cargoes.However, delays will continue at the border

5. There are many reasons for restricting the use of routesby international traffic, including issues of security and safety.


unless compatible rolling stock is introducedand the shortage of locomotives ends.

• Seaports are very important factors in deter-mining route selection because of the largedelays and high costs for transferring cargothrough the port. More cargo would be routedthrough efficient seaports that eliminate un-necessary customs procedures and delays incargo handling.

DAMAGES, DELAYS, AND CORRUPTION

In this and previous chapters, frequent referenceshave been made of the cost of damages; how-ever, data were not available to determine howdamage varied by route. The insurance for pil-

ferage and damage was assumed to be 1 per-cent of cargo value for longer routes and 0.75percent for shorter routes. Insurance covers onlypart of the losses because the existing legisla-tion regarding carriage of goods does not clearlyassign liabilities.

In order to understand the impact of damages,comparisons were made between the reportedlogistics costs and typical costs for damages. Itwas assumed that the losses per intermediatetransfer average between 0.25 and 1.5 percentof cargo value, depending on the type of com-modity and cargo form. The lower rate appliesto containerized cargo and the higher rate toagricultural products shipped in break-bulk form.Table 3.5 shows the number of intermediatehandlings and expected losses per handling.

TABLE 3.5 ESTIMATED IMPACT OF DAMAGE

Damage perTotal intermediatetime No. of handling

Origin/destination Mode Cargo (days) handlings (percent)

DomesticCalcutta-Argatala Rail Cement 9.8 2 1.00Calcutta-Argatala Truck General cargo 8.3 3 0.50

RegionalKathmandu-Dhaka Truck Agricultural produce 4.6 3 1.50Thimpu-Dhaka Truck Limestone 3.6 3 0.75Calcutta-Dhaka Truck Yarn 11.3 3 0.50Calcutta-Argatala Barge Cement 19.0 4 0.75

InternationalKarimganj-Calcutta-Liverpool Truck Tea 37.4 3 0.25New Zealand-Calcutta-Kathmandu Truck Wool 33.4 4 0.50Singapore-Calcutta-Thimpu Truck Polypropylene 29.5 4 0.50Dhaka-Chittagong-United States Truck Cotton garments 34.3 3 0.25Kathmandu-Calcutta-Bremen Truck/rail Carpet 39.1 4 0.25

Source: Logistics cost study estimates, World Bank.


The costs of delays to the shipper were includedin the logistics costs presented above, and theyare based on the estimated carrying costs to theshipper for the value of cargo while in transit.This assumes that the shipper borrows against theletter of credit for the time the cargo is shipped towhen it is received. The other cost of delay de-rives from the uncertainty of the period of ship-ment. The consignee must maintain sufficientinventory to prevent an outage if goods are notdelivered in the maximum delivery time.6 The costof financing this inventory is the value of the in-

cremental inventory required, multiplied by theannual rate of interest paid by the consignee.7

This additional inventory is then related to theannual shipment of goods to obtain a percentageof cargo value. For the purposes of comparison,the reorder rate was assumed to be 3 months fortextiles and carpets, 1.5 months for building ma-terials, 1 month for tea, and 2 weeks for agricul-tural products. Table 3.6 summarizes the results,which assume the delays are 15 percent of theexpected transit time, including ocean transport.

6. If the product is reordered every x weeks and maximumdelivery time is y weeks greater than the average, then theminimum stock at the time of order must be the amountconsumed during the average delivery time plus y weeks.

TABLE 3.6 IMPACT OF DAMAGE AND DELAYS

Logistic cost Delay costa Damageb

(as percentage (as percentage (as percentageOrigin/destination Cargo of cargo value) of cargo value) of cargo value)

DomesticCalcutta-Argatala Cement 44.7 0.39 1.00Calcutta-Argatala General cargo 4.3 0.17 0.50

RegionalKathmandu-Dhaka Agricultural produce 18.1 0.59 1.50Thimpu-Dhaka Limestone 119.3 0.11 0.75Calcutta-Dhaka Yarn 3.2 0.45 0.50Calcutta-Argatala Cement 58.7 0.76 1.50

InternationalKarimganj-Calcutta-Liverpool Tea 12.3 2.25 0.25New Zealand-Calcutta-Kathmandu Wool 8.0 0.67 1.00Singapore-Calcutta-Thimpu Polypropylene 24.6 0.59 1.00Dhaka-Chittagong-United States Cotton garments 4.1 0.69 0.25Kathmandu-Calcutta-Bremen Carpets 2.9 0.78 0.50

a. Additional cost for the consignee’s inventory, assuming delay equal to 15 % of total travel time.b. Excludes initial loading and final unloading.Source: Logistics cost study estimates, World Bank.

The net impact of the uncertainty in delivery time is that theconsignee must maintain an extra y weeks worth of inven-tory or x/y of a typical shipment.

7. The prevailing commercial interest rate is used. The properrate, the consignee’s cost of capital, is larger.


Table 3.6 compares the costs of delay with dam-age and logistics costs. The impact of damageand delay are greatest for the high-value car-goes because the amounts are comparable tothe other logistics costs. For Nepalese carpets,Bangladeshi garments, Indian yarn, and importedwool, the costs for damage and delay is equal to25 to 45 percent of the logistics costs. ForBhutanese limestone and Indian cement, thesecosts are equal to just 1 to 3 percent of the logis-tics costs. For Indian FAK, Nepalese agriculturalproducts, and Assam tea, the costs are 11 to 20percent of the logistics costs. Assam tea is mostsensitive to delay because the logistics time andthe reorder time are similar, whereas Bhutaneselimestone is the least sensitive because thelogistics time is small compared to the reordertime. Damage is more important for the non-containerized cargo with several intermediatehandlings. The requirement for introducing con-tainers to reduce damage is greatest for agricul-tural products. The reduction in intermediatehandlings to reduce damage is greatest forcement.

The impact of corruption was also examined byrequesting information on informal payments.These include not only payments to customs of-ficials at the border crossings, but also paymentsto police at checkpoints along the route and tocargo handlers in port. Most of the informationcollected was anecdotal, although an attempt wasmade to relate payments to shipments as shownin Table 3.7. These indicate small costs relativeto the value of the cargo, with the exception ofthe imports of polypropylene.

Examples of informal costs cited by shippersinclude:

• 30 percent of invoice value for a consignmenton the Bangladesh-Phulbari corridor throughKakarvitta,

• US$150 per consignment on imports and ex-ports via Haldia,

• Rs6,000 per container and Rs2,000 to Rs3,000per truck on average at the Indian bordercrossing points, and

• Rs80 per ton at the Raxaul-Birgunj bordercrossing, payable at the Indian side of theNepalese border.

VARIATIONS IN TRANSPORT LOGISTICSPERFORMANCE AND COST

The logistics cost estimates presented earlier aresubject to variations as dictated by operatingconditions prevalent at the time. Under less fa-vorable operating conditions, processing the ac-tivities in the transport chain can take muchlonger and therefore affect transport logistics costsadversely. As interest in minimizing inventoriesand shortening reorder times has increased, sohas concern for the reliability of shipment timeand cost. Each link in a logistics chain poses arisk of additional delay and, when appropriate,additional informal payments. Reducing the un-certainty associated with the cost and time fordelivery has already been given greater prioritythan absolute cost and time for some trades.Unfortunately, information on this variation isdifficult to collect. The small sample of stake-holders consulted during the exercise did notallow for a reliable estimate of the variance inlogistics time and cost. However, the stakehold-ers did estimate that about 10 percent of theshipments during the course of the year experi-ence above-average delays. These occur duringthe following:

• Claiming shipment at the gateway port.This can occur because of late notification ofship arrival notice, long preparation time for


assembling documents for customs clearance,or other reasons, thereby increasing port clear-ance time by 14 days.

• Port terminal processing. Equipment break-downs can increase processing time by threedays and a labor strike can cause delays ofmore than a week.

• Customs clearance at the port. Any of anumber of issues, including incorrect docu-mentation, container inspection necessitatedby a broken seal, or uncertainty over the du-tiable amount of import item, can increasethe clearance time by one day to (in the caseof incorrect documentation) more than aweek .

• Egress from and access to the port. Fre-quent political strikes and transport industrystrikes outside the port cause congestion andinhibit mobility, thereby increasing the transittime by one to several days.

• Road-line haul between the port and theborder crossing or destination. Delays ofone day to more than 15 days can result fromtruck accidents, truck breakdown, police in-spection or harassment, the driver visitinghome if it is along the route, truck bans in thecity, ferry crossings, and other issues.

• Land exit or entry port in the transit coun-try. Congested traffic access and egress (par-ticularly on Mondays in the Nepal-Indiaborder), late arrival of sealed cover, and localpolitical strikes may increase the processingtime by one to several days.

• Land entry or exit port in the destinationcountry. Incorrect or incomplete documen-tation or disagreement over the descriptionor classification of the goods, as well as the

valuation of the goods subject to customs duty,may increase the clearance time by two daysto more than a week.

The magnitude of the impact of these additionaldelays depends in many respects on how manydelays occur for a given shipment. Conceivablyall could occur per shipment in the worst-casesituation; alternatively, just one incident couldbefall a shipment. To demonstrate the high im-pact on transport logistics cost, calculations fortwo routes have been made, using data fromexporters, freight forwarders, and importers.

The first concerns the case of yarn import fromCalcutta to Dhaka. In this case, additional delays

TABLE 3.7 INFORMAL PAYMENTS

Informalpayment

Route Commodity (% of cargo value)

DomesticCalcutta-Argatala Cement 0.0–0.3Calcutta-Argatala General cargo 0.15–0.5

RegionalKathmandu-Dhaka Agricultural produce 1.2–1.2Thimpu-Dhaka Limestone 0.9Calcutta-Dhaka Yarn 0.25Calcutta-Argatala Cement 0.25

InternationalKarimganj-Calcutta-Liverpool Tea 0.3–.0.5New Zealand-Calcutta-Kathmandu Wool —Singapore-Calcutta-Thimpu Polypropylene 1.0–4.3Dhaka-Chittagong-United States Cotton garments 0.18Kathmandu-Calcutta-Bremen Carpets 0.3

Source: Logistics cost study estimates, World Bank.


are incurred through several points in the sys-tem, namely:

• Trucking from Calcutta to Petrapole increasedto 24 hours (from 5 hours) because of con-gested traffic caused by political protests alongthe way;

• Waiting at Petrapole customs increased to 108hours (from 84 hours) because of unusuallylong lines;

• Indian customs clearance at Petrapole in-creased to 24 hours (from 1 hour), plus speedmoney (informal payments) doubled, becauseof incorrect documentation that required fix-ing at Calcutta;

• Waiting and unloading at the Bangladeshi cus-toms storage area in Benapole increased to96 hours (from 60 hours) because of equip-ment breakdown;

• Bangladeshi customs clearance at Benapoleincreased to 120 hours (from 72 hours), plusspeed money doubled, because of incompleteand incorrect documentation that requiredadditional documentation from Dhaka;

• Loading cargo onto Bangladeshi trucks at theBenapole customs storage area increased to24 hours (from 12 hours) due to equipmentbreakdown again; and

• Line-haul trucking from Benapole to Dhakaincreased to 24 hours (from 12 hours) due todelayed ferry crossing and the untimely ar-rival at Dhaka during a period when truckswere banned.

The impact of these delays is to increase thecycle time by 64 percent and the transport logis-tics cost by 9 percent over the results obtainedunder average conditions.

The second example refers to carpet export fromKathmandu to Bremen. In this case, the addi-tional delays are incurred at the following pointsin the system:

• Nepalese trucking from Kathmandu to Birgunjcustoms increased to 24 hours (from 12 hours)due to an accident along the way;

• Unloading and packing cargo into a containerin the Birgunj customs storage area increasedto 12 hours (from 6 hours) hours due to equip-ment breakdown;

• Nepalese customs clearance increased to 48hours (from 3 hours) because of incorrectdocumentation;

• Loading the container onto an Indian truckincreased to 24 hours (from 3 hours) becauseof a labor strike in the Birgunj customs stor-age area;

• Trucking to Raxaul at the Indian border in-creased to 8 hours (from 5 hours) because oftraffic congestion between Birgunj and the In-dian border;

• Line-haul trucking from Raxaul to Calcutta portincreased to 220 hours (from 100 hours) be-cause of a truck breakdown along the way;

• Waiting time to enter Calcutta port increasedto 96 hours (from 48 hours) because the truckmissed the last sailing and had to wait for thenext one;

• Container handling in the terminal increasedto 72 hours (from 36 hours) because of laborunrest;

• Waiting for the vessel and loading it increasedto 120 hours (from 60 hours) because of equip-ment breakdown.


The impact of these delays is to increase in thecycle time by 39 percent and the transport logis-tics cost by 10.7 percent over the results obtainedunder average conditions.

CONCLUSIONS

The various insights developed in this chaptercan be summarized as follows:

• The entire logistics chain must be examinedwhen considering route selection. The infor-mation on an individual component can pro-duce incorrect results. For example, relativetransport distance is not directly related toeither the time or cost of moving cargo alonga route. For most of the routes, the proce-dures at border crossings introduced substan-tial and avoidable costs and delays that madethe route less competitive. Requirements totransfer cargo from one vehicle to another wereparticularly expensive and time-consuming.Similarly, the seaports were the major sourceof costs and delays. This could discourageshippers and consignees from choosing a routethat relies on a port as a gateway regardlessof the route’s advantages.

• The problems with customs procedures in-clude not only the annoyance of informalpayments but, more importantly, the unnec-essary and uncertain delays and the damagethat can result during cargo inspections. Someof these delays are due to capacity constraintsor lack of cargo-handling equipment ratherthan inefficient inspection and clearance pro-cedures. Improvements in cross-border pro-cedures could significantly increase the useof a route.

• Certain cargoes have specific problems thataffect route selection. For high-value goodswith short reorder times, uncertainty with re-

gards to the actual time in transit (measuredas a percentage of the average value) intro-duces a significant cost for importers that theywill avoid by seeking the fastest, most reli-able route. For cargoes that are susceptibleto damage, multiple handlings along a routewill be a major disincentive to using a route.Perishable cargoes are susceptible to dam-age due to intermediate handlings, long traveltimes, and uncertain delivery times. Shippersof these cargoes will look for reliable servicesthat involve a single vehicle or container. Atthe extreme are higher-value perishables thatwill be transported by air freight. Only forthe lowest-value, bulk commodities will ship-pers be concerned exclusively with logisticscosts.

• Truck transport normally has a competitiveadvantage over rail transport, but efficient unittrains can compete effectively for cargo mov-ing over medium to long distances where thereare direct rail connections. The short-termimprovements in rail transport, such as gaugeharmonization, unit train operations, and in-creased private sector operations, are expectedto improve the competitive position of railtransport compared to trucking, especially forcontainerized cargoes. However, the long-termimprovements planned for the road network,such as widening roads and strengtheningbridges, will increase the market share oftrucking relative to rail.

• Over the next decade typical goods beingshipped will increase in value and therebyincrease the demand for better logistics.Intraregional trade for Nepal and Bhutan willincreasingly be in consumer goods, pharma-ceuticals, garments, and fresh fruits and veg-etables. All these products will require betterlogistics, lower costs, and significant reduc-tions in time, if they are to compete in re-gional markets.

75

This chapter examines the opportunities for public-privatepartnerships for developing an efficient transportationsystem in the region. It begins with a review of the viewsand comments presented in a discussion among private

sector transport users and operators in a World Bank-sponsored con-sultative workshop in Kathmandu on February 4, 1999 (see Back-ground Note 1 for the proceedings). The private sector expressedstrong dissatisfaction with the existing state of freight transportationfor domestic and international markets, especially the problems ofroute and mode restrictions, onerous cross-border procedures, andlack of consultation with users in bilateral and multilateral discussionson a cross-country route and mode choices.

Private sector groups are pursuing improvements in trade relationsand transport logistics to ensure a smoother flow of goods and cost-effective services among the countries in the region. The purpose ofthe Kathmandu consultative meeting was to discuss specific regionalconstraints to the movement of goods and means of facilitating ser-vices. Four specific topics were discussed:

• Priority corridors,

• Cost of transit formalities,

• Recommendations for the role of the private sector, and

• Suggestions for government actions

The previous chapter discussed the first two items. The followingsection covers some of the specific problems identified by the partici-pants. The remaining sections discuss specific examples of privatesector involvement and conclude with lessons learned from interna-tional experience in private sector involvement in public transportinfrastructure.

There was general agreement among the four representative groupsabout issues affecting regional transit and the need for interaction

ImprovingPrivate-PublicPartnershipsin South AsianTransport andLogistics

4


between the private and public sectors to im-prove transit of trade in multilateral or bilateralprotocols. The Nepal transit facilitation initiative,which included the establishment of a broad-based trade and transport facilitation committee,was seen as a positive step toward bringing to-gether the private and public sectors, providingcost-effective infrastructure, and influencing therenegotiations of transit treaties while prioritiz-ing the facilitation of transit formalities.

The following issues were found to be commonto all four countries:

• Poor harmonization of documents and proce-dures between the countries;

• Cumbersome cross-border procedures due tothe high rate of inspections;

• Requirements for multiple copies of numer-ous types of documents;

• Manual, not automated, processing of docu-ments;

• Regulatory and physical restrictions to poten-tially cost-effective transit corridors;

• A failure to identify the most cost-effectivetransit corridors in multilateral and bilateralprotocols, partly because of insufficient con-sultation with the users;

• Customs facilities and communications in needof modernization and streamlining;

• Custom officials in need of more training andexport orientation before being posted at bor-ders; and

• Poor dialogue between the public sector inits role of facilitator and the private sector inits roles of user, subject of regulatory systems,and potential contributor to public investment.

Many of these problems could have been avoidedif government officials had consulted moreclosely with business leaders and business peopleinvolved in trade and transport before negotiat-ing bilateral agreements and protocols.

The representatives said that these various con-straints produced long delays and high costs fortransport. The problems they mentioned in spe-cific countries included:

• Gateways in northwestern Bangladesh thatlink eastern Nepal and Bhutan are limited toBurimari for Bhutanese traffic andBanglabandha for Nepalese traffic.

• Land ports in northwest Bangladesh have poorroad access and egress.

• Treaty or protocol agreements established ona bilateral basis between Bangladesh andneighboring countries require double handlingof cargo at the border due to the transfer fromtrucks of one jurisdiction to trucks of anotherjurisdiction.

• Container transport in Bangladesh is not in-cluded in the present transit protocol withIndia, thereby encouraging costly break-bulkhandling of containerizable goods.

• Container escorts are compulsory en route toCalcutta for Nepalese and Bhutanese tradewith countries outside the subregion.

• Long lines on both sides of the India-Bangladesh border result from inadequatetransshipment facilities, onerous clearanceprocedures, and lack of truck-to-truck and rail-to-truck transfer facilities.

• Bribery and corruption exist at various offi-cial levels at border crossings and ports, whichmakes the speedy clearance of goods a costlyactivity.

Improving Private-Public Partnerships in South Asian Transport and Logistics 77

• Roads are in poor condition in India on theroutes to Nepal, Bhutan, and Bangladesh. Par-ticularly bad are sections of roads in Biharand Uttar Pradesh on routes from Calcutta toNepal and Bhutan, and heavy congestion onthe route from Calcutta to Benapole due tohigh traffic volume on narrow, poorly main-tained two-lane roads.

• Arbitrary procedures exist concerning the ex-change of goods between India and Bangla-desh, and the prohibition of trucks of onecountry entering the other.

• Indian railways limit the choice of corridorsfor cross-border movements of wagons andcontainers.

• There is a lack of legislation for the transportof containers by road in Bangladesh.

• Transshipments are required from broad- tonarrow-gauge railroads in India andBangladesh.

• Bangladesh railways have capacity constraints,such as short loops and limited rail terminals,which if corrected would improve the utiliza-tion of Indian wagon capacity.

• Differences in wagon technology create timedelays. This should be addressed in bilateralagreements between India and Bangladesh.

• India and Bangladesh should issue multiplevisas to genuine importers and exporters asrecommended by the Federation of IndianChambers of Commerce and Industry (FICCI)and the Federation of Bangladesh Chambersof Commerce and Industry (FBCCI) and theirconstituent customers.

• The lack of insurance coverage for Indiangoods in Bangladeshi government warehousesleads to large losses for Indian exporters.

Bangladeshi insurance companies should pro-vide coverage on import cargo, and bankingand insurance norms followed by both na-tions’ banks should be standardized;

• The formats for issuing letter of credit inBangladeshi banks are not compatible withinternational informational norms, and non-fulfillment of letter of credit commitments byBangladeshi banks presents problems for In-dian exporters. The FICCI and FBCCI shouldresolve issues on a case-by-case basis in or-der to build the confidence of exporters andimporters in both countries.

The representatives mentioned problems in spe-cific locations, including:

• Poor performance at Chittagong and Calcuttaports, which increases the cost of trade to andfrom international markets because of poormanagement, labor problems, lack of infra-structure, rigid rules and regulations, and thefailure of the landlocked cargo owners to claimtheir shipments in a timely manner. The railconnection between Radhikapur and Birolshould be converted from meter gauge tobroad gauge.

• The working times at Petrapole and Benapoleare not synchronized. That is, operating hoursand holidays at the two cross-border points dif-fer, creating inefficiencies in traffic movement.

• Banglabandh has no customs clearance ser-vices unless authorities are notified in advance.

• Problems of work duplication at Ranaghat andGede customs should be resolved by formingan Indian Export Processing Zone inBangladesh, patterned after the Korean Ex-port Processing Zone.

• Lengthy export procedures at Ranaghat shouldbe reduced by posting an assistant customs


commissioner at Ranaghat instead ofKrishnanagar, and providing a single windowcustoms clearance at Ranaghat or Gede.

DELEGATES’ VIEWS OF THE PRIVATE SECTOR ROLE

The delegations recognized the limitations of theprivate sector in overcoming infrastructure short-comings, but they voiced the desire to be con-sulted through appropriate trade organizationson all decisions concerning the negotiation andratification of agreements and protocols relatedto regional trade. They also wanted to be con-sulted on other regulatory and trade matters. Theyoffered the following comments about their pro-spective role.

• Management of landports and logistics fa-cilities. There is a need for greater privatesector involvement in the operation of thesefacilities and in the development of containertransport. The current experience with pri-vate sector concessions in the NepalMultimodal Project was mentioned as a goodexample of this involvement. Private sectoractivity should extend to the management oflandport facilities and services, cargo-handlingfacilities and services, container operations,and facilities and labor.

• Third-party logistics at the landports.There is a need for the private sector to pro-vide services, including freight forwarding,customs clearance, financial services, storageand warehousing, and general transit and ship-ping services at seaports and land border cross-ings. This needs to be supported byappropriate regulatory provisions and ad-equate government contributions for basic in-frastructure facilitation.

• Operations. The private sector would workwith appropriate government bodies through

its trade associations to pass cost-effectivetransport policies, such as transit facilitationfor Nepalese cargo moving in containers to theJNPT and facilitation of Nepalese and Bhutanesecargo transiting Bangladesh and India.

• Electronic communications and im-proved procedures. The private sectorwould support the introduction of new cus-toms systems and procedures, especially theelectronic communications interface with us-ers. It would contribute to public-private train-ing programs, as are being conducted in Nepal.

EXPECTATIONS ABOUT GOVERNMENT ACTION

Historically, the governments in the region haveprovided transportation infrastructure and trans-port services through state-owned corporations(such as the Bangladesh Inland Waterway Trans-port Corporation, Indian Railways, and Bangla-desh Railways). In recent years, the private sectorhas replaced the government in providing truck-ing and inland waterway transport, but privatesector participation in rail services has been lim-ited. The government continues to provide infra-structure, but this has slowly started to change asgovernment officials accept the need for privatefinancing, especially for ports and expressways.

The delegates made a number of proposals forgovernment action in trade facilitation. Theseproposals included:

• Harmonize government trade and transportpolicies and regulations (such as road trans-port regulations, customs, and insurance andliability) with transit treaty and protocol stipu-lations to encourage seamless multimodaltransport. This includes the compatibility ofkey procedures and documents for trade,transport, and fiscal transactions. This effortshould aim at a “one-stop window.”


• Amend transit treaties and protocols to allowfor a freer choice of transport routes and ser-vice providers, such as carriers and clearingagents. Service providers should operate un-der the coverage of regionally acceptabledocument and insurance.

• Institute a program of modernization for cus-toms and cross-border facilities under the jointresponsibility of national and local govern-ment authorities, supported as necessary byindustry and trade associations.

• Increase the use of container transport by re-moving institutional impediments, such as theprotocol between India and Bangladesh,which does not recognize container transport,and Bangladesh’s trade and transport legisla-tion, which makes no provision for road trans-port of containers.

• Construct ICDs in the region to encourage con-tainer transport outside of the main India railtransport corridors. This should be the jointconcern of government and trade associations,and it should be supported by private invest-ment as appropriate.

• Improve the access to credit and financial in-termediation services throughout the region,particularly in the landlocked countries, so car-riers can finance the development of an effi-cient trucking fleet in order to compete incross-border transport markets.

The public sector should view the private sec-tor not only as a user but also as a potentialinvestor and a facilitator. Legal instruments andbilateral agreements should reflect the publicand private sector interaction. Government of-ficials should rely on the support of the privatesector trade associations when defining theneeds and responsibilities for operation andshared investment.

ORGANIZATIONS FOR INNOVATIVE PRIVATE-PUBLICINVESTMENTS

Private sector-led activities in the subregion area nascent but emerging force. There have beenseveral interesting and innovative ways in whichprivate sector participation has been elicited inthe various countries. Some of these activitieshave been in predominantly public sectors. Someinitiatives were geared toward the creation of abetter investment environment with more activeprivate sector participation. In other cases, theprivate sector is directly involved in logistic ser-vices. Four organizations that have been estab-lished to address private sector participation inlogistics and transport infrastructure are theEmerging East Initiative, Infrastructure InvestmentFacilitation Center, Infrastructure DevelopmentCompany Limited, and West Bengal Infrastruc-ture Development Corporation.

Emerging East Initiative

West Bengal, Bangladesh, Bhutan, Nepal, andEast India have joined efforts to coordinate eco-nomic development through a multicountry pri-vate sector forum under the Emerging EastInitiative. This group has identified goals toimprove trade and shipments of goods withinthe region, including the need for standardiz-ing procedures and documents. This endeavorwas initiated by the Indian Chamber of Com-merce and has the support of the various coun-tries involved as well as that of the AsianDevelopment Bank. The forum is comprisedof various industry and business leaders in thedifferent nations as well as chamber membersfrom each region. Its mission statement in-cludes the following:

• To help promote subregional economic co-operation in the Emerging East Region, com-prising of Bangladesh, Bhutan, Nepal andEastern India;


The IIFC is organized into two teams. One, whichworks on the design phase, is comprised of con-cession policy and design team specialists; theother, which works on the implementation phase,is comprised of transaction award and execu-tion team specialists. The spectrum of partner-ship arrangements that are available range froma service contract to management contracts toleases, concessions, build-operate-transfer agree-ments, and, finally, divestitures. The IIFC willwork together with the line ministries to addresssuch questions as:

• What is the goal of the private sector par-ticipation arrangement—new capacity, newtechnology, wider distribution, or other im-provements?

• Are the necessary political and stakeholdersupport systems in place, along with mecha-nisms for cost recovery, knowledge of exist-ing infrastructure, an adequate regulatoryframework, and appropriate sources of fi-nance?

• What would be the best private sector partici-pation option?

• What is needed in terms of assistance withconcession design and the tendering and ne-gotiation of a formal arrangement with theprivate sector?

Infrastructure Development Company Limited

The Infrastructure Development Company Lim-ited (IDCOL) is a nonbank financial institution.It was established in Bangladesh in 1997 as agovernment-owned limited company. The boardof directors is comprised of senior governmentofficials and prominent private sector entrepre-neurs. A team of project financial advisors as-sists this group.

• To accelerate economic development in thisregion for the mutual benefit of all the coun-tries and its people;

• To identify joint initiatives that would furtherthe cause of subregional co-operation in trade,investment, tourism, infrastructure, servicesand any other areas that could enhance thegrowth of the subregion;

• To strengthen the private sector and its orga-nizations in individual nations of this sub-region;

• To discuss, negotiate, promote, and under-take continuous dialogue with the governmentand relevant authorities;

• To promote the objectives of subregional co-operation and implementation of agreed ini-tiatives, such as, those under the South AsianGrowth Quadrangle;

• To propagate the benefits of subregional co-operation through the media to enhance theawareness of the people and the decision-makers in this region.

Infrastructure Investment Facilitation Center

Bangladesh has committed itself to improvementthrough its support of such institutions as theInfrastructure Investment Facilitation Center(IIFC). This is a group that the Bangladeshi gov-ernment and the World Bank set up to help thegovernment encourage private sector participa-tion. Financing and technical assistance comesin part from the United Kingdom’s Departmentfor International Development and the CanadianInternational Development Agency. The IIFC’sresources include expertise in engineering, eco-nomics, finance, competition and regulation,procurement, and contracting.


The IDCOL’s objective is to promote significantparticipation of the private sector in investment,operation, ownership, and maintenance of in-frastructure facilities. The government ofBangladesh and the World Bank fund IDCOL,which has access to roughly US$225 million. Theorganization has garnered interest from otherinternational agencies that are willing to provideadditional funds if sufficient demand is realized.The intent of IDCOL is to participate as a lenderin limited recourse project finance, based on sat-isfactory evaluation of all aspects of the projects,in conjunction with the private sector. Its spe-cific focus is the infrastructure sectors, includingtelecommunications, ports, toll roads, and otherlogistics infrastructure as may be approved bythe government of Bangladesh.

IDCOL will finance up to 40 percent of the totalcosts of the build-own-operate and build-oper-ate-transfer types of projects. The sponsor musthave 20 percent of the equity for the total capi-tal contribution.

Current projects in IDCOL’s pipeline total an es-timated total US$1.1 billion, including variousenergy projects valued at $672 million, the $200million Stevedoring Services of America,Bangladesh (SSAB) container port, and the esti-mated $200 million Bangladesh Telephone andTelegraph Board’s (BTTB) 300,000 telephonelines.

West Bengal Infrastructure Development Corporation

The West Bengal Infrastructure DevelopmentCorporation Ltd. (I-WIN) is a joint venture be-tween the All India Public Financial Institution,ICICI Limited (formerly the Industrial Credit andInvestment Corporation of India), and the stategovernment owned West Bengal Industrial De-velopment Corporation Ltd. (WBIDC). I-WIN wasformed in 1995 with the objective of promoting

and facilitating infrastructure development in thestate of West Bengal in India. It began opera-tions in 1997. Its equity structure is comprised of76 percent from ICICI and 24 percent fromWBIDC. The board of directors includes profes-sionals from ICICI and the state government. I-WIN participates in the following activities:

• Identifying suitable infrastructure projects fordevelopment, including the preparation ofproject feasibility reports and proposals forsuitable financial structuring, mode of imple-mentation, and appropriate ownership ar-rangements (such as the spectrum betweenpurely private and purely public).

• Marketing properly packaged projects to po-tential domestic and international investors.

• Evaluating proposals for setting up infrastruc-ture projects and assessing the competenceof sponsors.

• Arranging finance for projects—equity, loans,and guarantees from the government, privatesector, financial institutions, banks, and mul-tilateral agencies.

• Providing project management services to se-lected projects.

• Advising the government on legal and regu-latory reforms required to facilitate the flowof investments into projects.

Development efforts for the transportation infra-structure are focused on the following segments:roads and expressways, urban transportation andintegrated area development, industrial parks,ports, waterways, and airports.

I-WIN also arranges requisite financing for infra-structure projects. Investments in Haldia include


a major water supply project, internal roads,drainage, sewerage, and solid waste managementsystems, and commercial complexes. I-WIN is alsoinvolved in representing the state government’sinterest in a limited-access expressway that willconnect Haldia, West Bengal, to the northerngateway city of Siliguri (in the northern part ofWest Bengal).

ORGANIZATIONS FOR PRIVATE OPERATIONS OFTRANSPORT INFRASTRUCTURE AND OPERATIONS

Under this emerging investment environmentthere have been several private-public partner-ships in transport infrastructure and services tra-ditionally restricted to the public sector. Examplesof such initiatives include the contracting of op-eration and maintenance of the Jamuna Bridgein Bangladesh, the leasing contracts betweenBangladesh Railways and the private sector, anda proposal for private development and opera-tion of the port of Patenga in Bangladesh.

Jamuna Bridge Toll Operations

The concept of constructing the Jamuna Bridgebegan in 1964, seven years before the establish-ment of the Bangladeshi republic. The bridge wascompleted and became operational in June 1998and was renamed the Bangabandhu Bridge. Thisis a multipurpose bridge providing road, rail, andgas connections between the physically dividedregions.

A tender for private operation and managementwas awarded to an international joint ventureconsortium formed from South African, UnitedKingdom, and Bangladeshi corporations in June1998. The contract involves the upkeep of allexisting facilities, including roads, river, bridges,buildings, and equipment, as well as traffic man-agement and the collection of tolls. The respon-sibilities include providing a maintenance

management system, overseeing inspections ofthe main bridge structure and the east and westapproach road, and routine maintenance inspec-tions for the main bridge, river training, and high-way structures.

This operation and maintenance five-year con-tract with the Jamuna Multipurpose Bridge Au-thority is based on a fixed fee to cover theprovision of all defined services in the authority’sarea. Ownership, investment, and commercialrisk reside with the government. The advantageof this arrangement for the government and theregion is that the foreign private sector operatorbrings experience and foreign technology to theregion, which may not have been feasible in apublic arrangement.

Bangladesh Railway

Bangladesh Railway has involved the privatesector in various initiatives to become more effi-cient, market-oriented, and financially self-sustaining. The efforts are aimed at enhancingproductivity, improving service quality, and pro-viding flexibility in the management of assetsthrough leasing and BOT arrangements with theprivate sector. Among the initiatives are:

• Leasing out commercial activities of passen-ger trains on a 16-kilometer section connect-ing Dhaka to Narayanganj. This is a passengerservice for commuters between Dhaka andNarayanganj daily. This section was leasedout on July 7,1997, to a private operator whotook over the commercial activities of thepassenger trains running between this sec-tion. The result was an increase in revenuesof roughly 90 percent. In August 1998, thecommercial activities (including ticketing andluggage booking) of Padmagarh Express,which runs between Santahar andLalmonirhat, were also leased, producing a368 percent increase in revenues.


• Leasing onboard services of the prestigiousnonstop Subarna Express, which runs betweenDhaka and Chittagong. As per the 1998 agree-ment, the lessee is responsible for the clean-liness of the coach, including toilets, passengercomfort, and safety. The staff posted by theprivate contractor ensures that only genuinepassengers board the train, operates the pub-lic address system, and looks after any pas-senger requirements during the run. The lesseeis permitted to run a pantry and buffet car,and to serve snacks, tea, and mineral water ata prefixed rate to the passengers. BangladeshRailway pays service charges to the contrac-tor after adjusting for the revenues from thepantry and buffet car. This agreement has as-sured better quality of service to the travelingpublic. Encouraged by the improvement inservice quality, the railway intends to offersimilar arrangements for a number of inter-city trains running between important townand district centers.

• Leasing out of surplus capacity of BangladeshRailway’s fiber optic telephone system to aprivate phone company, Grameen Phone Ltd.(GP), on a long-term basis. As per this 1997lease, GP assumes all relevant costs for therepair, replacement, operation, and mainte-nance of the railway telecommunication sys-tem, including paying the salaries of personnelengaged in this system. GP pays an annualrental for the lease to Bangladesh Railway.GP also repaired and upgraded the networkand paid for the redundancies to improve thereliability of the system. The results of thispartnership are the generation of revenuesfrom the surplus capacity of the fiber optictelephone system and the added social ben-efit of increased telecommunication servicesat better prices.

• Private sector participation in a build-operate-transfer arrangement to upgrade non-

airconditioned cars. Bangladesh Railway’smain constraint for modernizing its fleet hasbeen inadequate funds for procurement andrepairs. Intercity train distance between anytwo main city centers is about 300 to 400 ki-lometers, but none of the intercity trains haveair-conditioned cars for these five-hour jour-neys. Air-conditioned buses plying the sameroutes have very competitive fares and areable to attract passengers away from the rail-road. Under this arrangement, the private partywill convert these coaches at their cost, im-prove their décor and interiors, and maintainthem for the next four years. Bangladesh Rail-way will run the coaches in two intercity trainsbetween Dhaka-Chittagong and Dhaka-Sylhet.The conversion of these coaches will be donein the railway workshop where the privateparty will bring its own equipment, material,and manpower. It will also train railway per-sonnel in this conversion work. BangladeshRailway will benefit by getting state-of-the-art technology at no initial cost and will getincreased revenues due to the superior classof service provided to the traveling public.

• The Indian Railways have made similar ar-rangements, but these have been primarilylimited to services on passenger coaches.

Port Development

In the mid 1990s, Orient Maritime Limited (a lo-cal ship chartering company and subsidiary ofOPSIN Chemicals) and Stevedoring Services ofAmerica (an international terminal operator),proposed developing a second container sea-port terminal for the Bangladesh market inPatenga south of the existing terminal inChittagong Port. In December 1997, the Ministryof Shipping granted a concession on an unsolic-ited basis to SSAB, a joint-venture companyowned equally by Orient Maritime and Steve-doring Services. The terms included the exclu-


sive right to develop and operate the project fora 99-year tenure with an option to renew foranother 99 years. As the container market forthe proposed Patenga container terminal is closeto Dhaka, the consortium pursued another pro-posal to develop and operate an ICD at Panagaon,in the vicinity of Dhaka. The intent was tocomplement the Patenga terminal by linking tothe ICD with an inland waterway barge system.The Bangladesh Inland Waterway Transport Au-thority accepted this second proposal in 1998.

The proposal calls for an expenditure of about$220 million to build the terminal on a 50-acresite. The terminal will be capable of handling300,000 TEU per year initially and, eventually,600,000 TEU per year. At first, a break-bulk truck-ing system will be used to serve the Dhaka mar-ket. But when the ICD at Panagaon is ready, abarge system will carry the containers betweenthe two terminals.

So far no approval has been given to developthe project, but negotiations are currently un-derway between the Ministry of Shipping andSSAB. The Ministry receives project advice fromthe IIFC while SSAB is receiving support fromIDCOL.

FUTURE OF PRIVATE-PUBLIC PARTNERSHIPIN THE REGION

As the economies in the subregion develop andexpand, significant capital will be required tofinance transport projects to keep pace with thedemand for infrastructure. Attracting capital fromthe private sector will be a major task. The gov-ernments need to consider more seriously thetype of environment needed to attract foreignsources of capital. Because many of the projectscall for limited recourse financing with its atten-dant risks, government officials must create an

enabling environment that will be acceptable toinvestors.

There are many international lessons to belearned, whether the project is full-scaleprivatization, build-own-transfer, or a variationof the two (or based on leases or service con-tracts, especially after the explosion of privatesector involvement in infrastructure services inEast Asia and elsewhere in the 1990s). For everyproject that gets completed there are as many asfour to five others that fail in the implementa-tion process.1 The reasons most often cited in-clude underestimation of corruption, bureaucraticdelays, and organized crime.

Even without these unconventional risks, typi-cal infrastructure projects have complicated pro-cesses and long cycle times. Project developershave to:

• Establish the potential of the project;

• Identify the relevant decisionmakers;

• Determine the official procedures to steer theproject through the approval process;

• Conduct economic, legal, financial, and engi-neering reviews;

• Prepare bidding documents and proposals;

• Obtain the relevant approvals, permits, andlicenses;

• Structure the ownership of the project;

• Negotiate with lenders;

1.The Financial Times on March 11, 1999, commented on asurvey of 7,500 multinational firms, of which 84 percent didnot meet their financial targets for the last three years and26 percent eventually failed.


• Select a contractor to build the project; and

• Choose an operator for the facility.

Some of the things that governments need toavoid if they are to develop a good reputationwith the investment community include:

• Lack of a strong institutional framework thatcan lead to poor coordination and disagree-ment among government agencies whoseapprovals and clearances are required. A par-ticular problem is the absence of a singleauthority to control the process.

• Poor institutional capacity due to a shortfallin expertise in private infrastructure projects.Although civil servants involved in publiclyfinanced turnkey projects tend to be highlyskilled in the engineering aspects of theprojects, they lack the legal and financial skillsto manage a complicated project structure suchas a build-operate-transfer (BOT).

• Lack of transparency in the selection processdue to insufficient experience and politicalcronyism that often leads to over-reliance onunsolicited proposals. Although unsolicitedproposals that are correctly executed havemerit, particularly in terms of speed and di-rectness in developing projects, they lack thetransparency, market orientation, and poten-tial efficiency gains of competitive bidding.

• Market inefficiency that occurs when a gov-ernment privatizes a project or liberalizes asector without paying sufficient attention tothe type of market it is creating. Governmentsfrequently fail to establish an effective regu-

latory framework for protecting the publicinterest.

• Policy reversal that occurs when the commit-ments made by a previous government arenot honored by the current government. Theproject developer at best is forced back to thenegotiating table or, at worst, faces cancella-tion of the contract.

There is no particular road map for an effectivepolicy framework to avoid the problems encoun-tered in a public-private partnership. Each countryhas its own economic, social, and political cir-cumstances and must develop its own solutions.Nevertheless, private sector projects are com-monly judged on the basis of the ease or diffi-culty with which they are taken through theproject cycle. The cycle consists of contract sign-ing (such as concession or BOT), financial clo-sure, permit and license approvals, projectconstruction, sustainable operations, and respon-siveness to consumer needs. Governments needto establish:

• An enabling environment that is transparentand consistent,

• A sound legal framework to assure the in-vestment community concerning the rules ofthe game,

• A cadre of civil servants with the skills toimplement private sector projects,

• Effective regulatory procedures to deal withmarket imperfections after privatization, and

• A sustainable commitment.

87

Recent trends in globalization that enable the decentraliza-tion of production and distribution activities worldwideoffer tremendous economic opportunities of employmentand growth to poor countries. One-third of world trade in

the mid 1990s occurred within such global production networks (WorldBank 1999).1 The ability of countries to grow rapidly depends ontheir capacity to link with global and regional markets. In turn, thiscapacity depends significantly on connectivity, and on the efficiencyand speed with which goods and services can be moved from pro-duction centers to final markets.

One of the underlying objectives of this study was to develop ways toimprove access to the landlocked areas of South Asia, specificallyNepal, Bhutan, and Northeast India. This objective is closely linked toopening up a region to new economic opportunity because of geo-graphic interdependencies. For this reason, the study took a regionalapproach and focused on multicountry routes serving these areas.The conclusions for improving the trade logistics among these coun-tries and with the outside world can also be applied to internal tradebetween the rural areas and the urban markets. The approach was togather information from private sector logistics providers and ship-pers concerning the current situation on selected routes. The conclu-sions presented in this chapter for improving logistics will providedirect savings to the shippers, logistics providers, and consignees.

There are two fundamental questions. First, to what extent do theeconomies of the transit countries benefit from these improvements?Second, to what extent do these improvements benefit the poorermembers of society? There are, of course, simple answers to thesetwo questions. First, the country providing the transport infrastructurecan recover its investment through appropriate charges to the transitvehicles and cargo while deriving additional value from complemen-tary services provided to these transport activities. The value added isgreatest where the transit country provides an efficient international

Setting aDynamicProcessin Motion

5

1. World Development Report 1999, The World Bank.


seaport gateway and some of the trucking or railservices used in the logistics chain. Second, thepoorer sections of the society will derive directbenefits because of better access to urban andforeign markets for local products as well as in-creased employment associated with upgradingthe transport infrastructure. The indirect benefitsare the continuity of employment in industries,which, without better logistics, would lose mar-ket share. The more complex answers about theextent and allocation of benefits are dependenton the following issues:

• How well the isolated or landlocked regionsare served,

• The structure of the charges (in terms of whopays and who benefits), and

• The efficiency of the logistic systems that willhelp minimize cost to the economy.

This chapter discusses the role of the Bank inhelping to shape the outcome.

The previous sections made the following rec-ommendations regarding transport and logisticsin the subregion:

• Protocols. Establish or amend bilateral tran-sit protocols to allow for the movement oftransit cargo across borders under bond with-out transshipment or inspection.

• Procedures. Simplify and standardize thedocuments and clearance procedures requiredfor cargo crossing land borders or exportedor imported through the seaports.

• Productivity. Improve the productivity of theseaports and the railway services to eliminateunnecessary delays. These measures can dra-matically reduce the time that cargo spendsin ports or on railways.

• Privatization. Expedite the transfer of respon-sibility for transport operations and services(but not necessarily infrastructure) from thepublic to the private sector.

• Providers. Reduce the level of regulation ofthe providers of third-party logistics in a waythat will both encourage competition and al-low for vertical integration of such services astransport, storage, consolidation, documenta-tion, and clearance. Modern regulations shouldbe introduced to govern the liabilities associ-ated with the carriage of cargo by differentmodes.

• Perishability. Improve the quality of logis-tics by placing an emphasis on reducing de-livery time, increasing reliability of delivery,and minimizing losses en route to enable lo-cal manufacturers to compete for the supplyof perishable products.

• Packaging. Increase the use of containersfor shipment of goods by developing ICDsthat allow cargo to be stuffed and destuffedcloser to the point of origin or the point ofdestination.

• Flexibility. Allow flexible routing for vehiclescarrying transit cargo or imports through de-fined border crossings.

• Cyber trade. Introduce electronic data inter-change and business-to-business e-commerceto reduce logistics costs and time and overalltransaction costs.

The changes that offer the largest benefits interms of improved logistics are the revision ofthe current bilateral transit protocols, flexibilityin transit cargo routing, and the increase in pro-ductivity at the seaports. Those offering signifi-cant benefits for both transit traffic and domestictraffic are improvements in the productivity of

Setting a Dynamic Process in Motion 89

the railways and privatization of the transportservices. The improvements in packaging, de-regulation of logistics providers, and expansionof cyber trade offer the best long-term oppor-tunities for reducing transaction costs and pro-viding the quality of logistics required forhigh-value cargoes.

Improvements in transport logistics have impor-tant implications for poverty alleviation in oneof the poorest regions of the world. This is pos-sible through opening up the region and by of-fering new opportunities through better marketlinkages, easier and cheaper development of theresource base, and reduced losses that result frominefficient storage and multiple handling. Therole of transportation in economic developmentincludes everything from limited-access nationalhighways to local feeder roads in rural areas,regional container transshipment terminals tobarge terminals, and block trains to scheduledfreight rail services. The same applies to logis-tics, which covers the complete movement fromorigin to destination. Improved logistics are es-pecially important for small and medium indus-tries in rural areas that must deliver a qualityproduct within an acceptable time and at a com-petitive cost. Presented below are some examplesin which the countries and states in the subre-gion are beginning to seek and find benefits ofimproved transport logistics.

Bhutan has recently explored the possibility ofexporting fruits and vegetables and associatedprocessed products. Although the industry hashad some difficulties providing products of suf-ficient quality to sell in the neighboring coun-tries, the major impediment has been poorinefficient transport links. Current border-crossingprocedures create delays and add costs becauseof informal payments and damage to the perish-able cargo. The future development of this tradewill depend on better marketing and improvedlogistics.

The development of improved logistics withinthe region will encourage the growth in interna-tional and intraregional trade, as well as domes-tic trade between rural and urban areas. Anexample of the latter is the marketing of pump-kins produced along the river in the Bogra area.The pumpkins were formerly produced by poorpeople on public land and traded in the localmarket. Recent improvements in transportationthat came about because of the construction ofthe Jamuna Bridge are now allowing the grow-ers to sell their produce in urban markets.

The recently established Numaligarh refinery inAssam is examining ways to supply petroleumproducts to the Baghabari region in Bangladeshby transporting them to West Bengal viaBangladesh by inland waterways. The Indianrefineries are located close to the Bramhaputrariver (designated as the No. 2 National Water-way in India). The Inland Water Transit and Tradeprotocol between India and Bangladesh, revisedin October 1999, facilitates easier and more ra-tional barge movements between the two coun-tries. Baghabari would be the port of call forIndian vessels for unloading petroleum productsbecause large storage facilities and barge unload-ing facilities already exist.

STRATEGIC LINKAGES AND AREASFOR DEVELOPMENT

The previous chapters examined various routesrequiring additional development. Other routeswere selected based on the findings of back-ground studies conducted under the RegionalInitiative and other projects (such as the NepalMultimodal Trade and Transit Facilitation Projectand the Export Diversification Project) and ob-servations of the private sector. From these, acore set of strategic linkages or routes have beenidentified that would create opportunities forincreased economic growth and trade in the sub-region. These would include:


The key routes linking landlocked Nepal andBhutan to regional and international marketsinclude:

• Kathmandu-Birgunj-Calcutta

• Kathmandu-Bhairahwa-Nhava Sheva

• Kakarbhitta-Phulbari-Banglbandh-Dhaka

• Thimphu-Phuntsoling-Siliguri-Calcutta

• Thimphu-Phuntsoling-Burimari-Dhaka

The key routes linking the Northeast states ofIndia to regional and international markets wouldinclude:

• Calcutta-Benapole-Akhaura-Agartala (roadand rail)

• Calcutta-Gede-Darsena-Jamuna Bridge-Akhaura-Agartala

• Agartala-Akhaura-Chittagong

The routes linking the landlocked countries arecurrently used but are inefficient due to prob-lems at the border crossings and seaports. Theexception is one of the more efficient ports atNhava Sheva. These routes require improvementsin both roads and port operations. They wouldalso benefit from changes in customs proceduresand revisions of the bilateral transit protocols.The routes to Northeast India are not currentlyused because they lack critical links and are notdesignated as transit routes in the bilateral agree-ments. These will require a combination of in-vestment and revision of the agreements.

The most immediate problem affecting the effi-ciency of shipments of imports, exports, and tran-sit cargoes is the productivity of the ports.Cumbersome operating procedures, restrictivework rules, old and unreliable equipment, and a

lack of commercial management produce long,unnecessary, and unpredictable delays. In addi-tion, they add to the informal payments and theloss of cargo. These not only account for a signifi-cant portion of the time and cost for land trans-port, but they also add to the ocean freight costsby delaying vessels and discouraging the use oflarger vessels and scheduled shipping services.

Calcutta faces the additional problems of siltationand a location more than 100 kilometers up theHooghly River. Investments in container facili-ties and equipment in recent years have not beenable to offset the problems associated with lowlabor productivity and limited depth at the berth.Chittagong has problems of road access for con-tainers moving to and from Dhaka. It also hasdifficulties with labor productivity that remaindespite investments in new facilities and equip-ment. Any attempt to reduce the delays and coststo cargo moving through these ports must firstaddress management problems and the low rateof utilization of existing assets.

The second most important problem is the lackof capacity and efficiency at the border cross-ings. It is important to establish a set of bordercrossings capable of handling trucks and rail traf-fic that do not cause unnecessary delays becauseof inadequate facilities, poor management, andcomplex procedures. The number of these bor-der crossings should be limited in order to re-duce the cost of establishing and staffing thesecrossings and, more importantly, to ensure thatthere is a sufficient concentration of traffic toattract private sector providers of logistics ser-vices such as freight forwarding, customs clear-ance, and banking. Table 5.1 lists the primaryborder crossings and their key constraints.

The scale of operation at the border crossingscan be categorized as:

• High-volume operations such as Benapolewith a significant volume of traffic in both


directions, including both import/export andtransit cargoes. These crossings require ad-equate parking area for the vehicles, ware-housing for cargo that is stored while waitingfor documents, loading platforms for inspec-tion of cargo and for transit shipment, andfully equipped customs checkpoint gates.

• Medium-volume operations such as Burimarithat handle both import/export and transitcargoes. This crossing requires storage andparking areas as well as customs checkpoints,but on a smaller scale than a high-volumeoperation.

• Low-volume operations such as Banglabandhwith traffic limited to transit cargo that is ei-

ther traveling in-bond under seal or has beenprecleared. This cargo requires only a roadcrossing from one country to the other with acheckpoint to verify the seal or confirm thatthe cargo has been cleared.

The first group of border crossings is relativelyexpensive to develop. The crossings require largeareas for storage of vehicles or rail wagons tomeet demand during peak flows and periodswhen there is a disruption to normal activity atthe border crossing. The volume of traffic andthe average processing time for customs deter-mines the amount of warehousing and inspec-tion facilities. The customs checkpoints shouldhave a sufficient number of parallel gates to ac-commodate the normal weekly peak. The gates

TABLE 5.1 CONSTRAINTS AT BORDER CROSSINGS AND PORTS

Border crossing Mode Problem Action

Chittagong Water Inefficient management and Privatization of port operations andoperations, lack of equipment, investmentexcessive delays and costs

Calcutta Water Inefficient management and Privatization of port operations andoperations, lack of equipment, investment (increased use ofexcessive delays and costs Haldia for Nepal)

Benapole/Petrapol Road Congestion Construction; simplify procedures

Birgunj/Rauxal Rail Operations not yet decided Privatize ICD operations

Bhairahwa/Notanawa Road Operations not yet decided Privatize ICD operations

Benapole/Petrapol Rail Soon to start operations Simplify procedures

Darsana/Gede Rail Long processing times Simplify procedures. Bank and custom tobe available seven days per week

Akhaura/Agartala Road/ rail Not open for traffic Protocol for road and rail movement

Kakarbhitta- Panitanki Road Poor facilities on both borders, Improve border crossing facilities; allowno customs at Banglaband transit for Nepalese trucks

Burimari-Changrabaandh Road Insufficient infrastructure, lack of Infrastructure investmentscustoms office, bad road access

Source: Logistics cost study team, World Bank.


crossings and at the seaports. The resulting in-crease in productivity will minimize investmentin facilities and storage as well as the cost ofstaffing and operations. This simplification shouldbegin with the development of a common for-mat for the basic import/export and transit cargodeclarations. A common document should beadopted for the four countries within SAARC inorder to expedite the exchange of informationbetween officials on each side of a border. Thebasis for this common structure has already beeninitiated by the decision of Bangladesh, Bhutan,and Nepal to use the ASYCUDA format for tradeinformation. India has decided to use a propri-etary format that is supposed to be compatiblewith ASYCUDA.

The common declaration form should be in aformat that can be computerized so that thedata can be easily transferred between customscheckpoints. The processing of this documentshould be simplified to minimize the numberof signatures and copies required for clearingcargo. This form should be developed in con-junction with efforts to establish a national elec-tronic data interchange (EDI) system. Althoughit is unlikely that a full-scale EDI system will beavailable for cross-border movements anytimein the near future, such a system will be intro-duced fairly soon in airports and seaports. TheEDI system should also be expandable to theland border crossings, and the data entry systemshould provide an interface for trucking compa-nies and railroads, as well as for airlines andshipping lines.

The existing bilateral agreements between eachof the neighboring countries in the region areonly a preliminary step toward the free move-ment of goods across borders and through coun-tries to gateway ports. The major problems withthese agreements are that they attempt to re-strict the number of routes and impose cumber-some customs procedures on both bilateral trade

should have air-conditioned offices equippedwith communications equipment. Where appro-priate, they may also be equipped with an auto-matic weighbridge. Space should be providedfor the addition of new gates as traffic increases.Over time, as procedures are simplified and thenumber of inspections are reduced, the amountof facilities required will decrease. The increas-ing percentage of the cargo that moves directlyacross the border without handling or storagewill offset the increase in traffic.

The access road to the border crossings shouldhave sufficient width and the bridges shouldhave sufficient strength to accommodate fullyloaded trucks, including tractor-trailers. The roadshould widen as it approaches the checkpointto create a waiting area large enough to handlethe normal weekly peak traffic. Public invest-ment in these border crossings should be lim-ited to the customs facilities, such as thecheckpoint and inspection area, as well as tothe road or rail access. The private sector shoulddevelop the remainder of the infrastructure, suchas warehousing, office space, and, possibly, park-ing areas.

Where possible, the customs facilities on bothsides of the border should be located in a com-mon structure and the processing should be doneat the same time. If this is not possible, the op-posing checkpoints should be established witha minimum distance between them and be linkedby dedicated telephone and data channels. Thesewould allow the customs officials on one side toadvise the officials on the other side of informa-tion about a vehicle crossing the border.

POLICY REFORM AND IMPROVED TRANSITPROTOCOLS

It is important to simplify the procedures for clear-ing vehicles and their cargo at the land border


and transit cargoes. In amending these proto-cols, it is necessary to allow greater flexibility inthe routing of transit cargo and to simplify cross-border procedures to reflect the efficient prac-tices achieved elsewhere in Asia.

The problem of existing protocols is that theydo not allow for unhindered movement of trucksand railway wagons across national boundaries.At the extreme, they prohibit such movements.At a minimum, they subject the vehicles and theircargo to lengthy clearance procedures even fortransit cargo moving from border to border orborder to seaport. One of the difficulties in de-veloping better protocols is that the transit coun-tries do not perceive any immediate benefits forthemselves, but they do perceive security risks.Although the continuing efforts at trade liberal-ization and economic reform are reducing theincentives for illegal movement of goods acrossborders, the maintenance of secure borders re-mains a priority for customs authorities. Further-more, each of the countries in the region hasdifficulties in providing adequate transport in-frastructure for its own use and is reluctant toimprove infrastructure and allow free access foradjoining countries.

The procedural problems in allowing relativelyunhindered movement of transit goods acrossthe border have been resolved by various cus-toms unions and trade blocs throughout theworld, but the mechanism of cost recovery hasnot. An earlier work by the Bank2 suggested thatthe transit country obtains considerable value-added benefits in providing support services fortransit movements, but the primary benefit is theparticipation of the transport industries in thetransit countries. In lieu of such participation, it

is reasonable to collect a fee for the use of theinfrastructure. It is also necessary to enforce re-gional and domestic regulations that will ensuresafe operation and accountability of the transitvehicles. Although there are ongoing discussionsregarding these issues, it is important to acceler-ate these initiatives and to take full advantage ofinternational experience in resolving these issues.

Among the procedures that have been introducedthroughout the world over the last decade and ahalf are:

• International standards for the documents usedfor the movement of transit goods across mul-tiple borders,

• Replacement of hard-copy documents with EDI,

• New mechanisms for securing transit cargo toprevent it from being sold in the localeconomy,

• New techniques for tracking shipments to pre-vent the loss of cargo equipment in transit,

• New methods of inspection to eliminate de-lays and irregularities, and

• Improved communications between customsauthorities both to facilitate cross-border move-ments and to identify irregularities.

MODERNIZATION OF TRANSPORT NETWORKSAND SERVICES

The plans for improving the national transportnetworks in each of the four countries need toaddress problems of capacity and quality of theexisting networks as well as the need for expan-sion of the networks’ coverage. Both investmentsand policy reforms are required. A number ofinitiatives are planned to improve currently used

2. G. Ollivier and P. N. Taborga “Development of TradeServices.” Working Paper, Infrastructure Unit in Europe andCentral Asia, World Bank, 1999.


routes and introduce alternative ones. To date,the efforts to develop efficient and effective trans-port networks in the four countries have not beencompletely successful. However, there are en-couraging signs that recent initiatives will be moresuccessful. The proposal to develop a goldenquadrilateral of dual carriageway roads connect-ing the largest cities in India is an important steptoward addressing the very serious problem ofcapacity shortages on the national road network.The investment in broad-gauge and dual-gaugetrack will expand railroad services and reducerail costs for eastern Bangladesh and Northeast-ern India.

The conversion of the rail network to broad gaugeand improvements in cross-border proceduresoffer the potential for a significant increase inrail’s market share. This is strengthened by thegrowing congestion and poor maintenance ofthe road network, which have already eliminatedthe speed advantage of trucks. The increase inrail’s market share will be primarily low- to me-dium-value cargo, especially cement, coal, boul-ders, and other bulk cargoes moving in largeconsignments.

There will also be some increase in rail’s marketshare of container movements because of thegrowth in unit train operations and the expan-sion in Concor’s operations. Better rail servicewill attract more boxes in areas where there issufficient volume to justify dedicated rail ICDs.As an example, the development of a rail ICD atBirgunj will extend the handling of containers tothe border and make the route to Nhava Shevamore attractive. If there is sufficient traffic vol-ume when the broad-gauge rail connections arecompleted to Birgunj, unit trains could becomethe preferred mode for movement of high-valuecargo to and from Nepal. If the new road fromKathmandu to the border that was proposed inthe 1980s were to finally be constructed, thenthe possibility for container movements into

Nepal could dramatically change the economicsof all routes to and from Nepal. The role of rail-roads in container transport could be greatlyenhanced if Indian Railways were to make unittrain operations available to major multimodaloperators such as Maersk and Neptune OrientLines (NOL). Also, if container operations couldbe extended to Bangladesh, the potential for mov-ing high-value cargo, such as yarn, would in-crease quality assurance and reduce delays.

The critical investments for the rail network aregauge harmonization on the primary routes, pro-curing rolling stock for high-speed containerblock trains, and establishing ICDs. The formerwould include the extension of the dual-gaugerail in Bangladesh from the Jamuna Bridge toDhaka, Tongi, Akhaura, and on to Chittagong,and in India up to the Nepal border ICDs. Itwould eliminate costly transshipments and en-hance the comparative advantage of rail formedium and long distances. The ICDs would beestablished in Northeast India to provide con-tainer movements to the rest of India. Thesewould provide efficient transfer of containersbetween modes and serve as repositioning cen-ters for empty containers to be stuffed.

The growing congestion on the Indian roads notonly reduces average travel speeds but also cre-ates greater variance in travel times. This is ex-pected to slow the growth in road’s share of cargomovement. The expressway proposed by theAsian Development Bank from Haldia andCalcutta to Siliguri would reduce the travel timeby truck, but it would not solve the problem ofseaport delays. If the government is able to over-come union opposition and improve the perfor-mance of Haldia and Calcutta, more traffic willbe attracted to these ports, especially cargoheaded to Asia. Without significant improvementsin these ports, the expressway will provide anattractive connection via the golden quadrangleto Nhava Sheva or Chennai.


The essential investments for the road networkare widening the primary road links and strength-ening the bridges along those routes. This wouldsignificantly reduce the cost of transport by al-lowing larger vehicles to operate on the roadsand allow the maintenance of higher averagespeeds so that these vehicles will be better uti-lized. The major routes that are being widenedand upgraded are the Golden Quadrilateral inIndia and the expressway from Haldia to Siliguri.In Bangladesh, the road from Chittagong toDhaka is being upgraded.3 The links eastwardto Akhoura and Agartala and westward throughBenapole to Calcutta are critical links that alsorequire upgrading.

Investments in ICDs and landports also deservespecial attention. This includes (a) the comple-tion of the ICDs along the Nepal border andtheir conversion to private operation, (b) theexpansion of the Benapole crossing with an ori-entation toward increasing productivity and re-ducing delays rather than merely adding capacity,(c) the improvements in facilities and protocolfor containers moving between Bhairahwa andMoradabad, and (d) the development of newICDs to transfer import/export containers mov-ing to and from Bhutan and Northeast India. Theeconomic viability of an ICD at Siliguri wouldneed to be examined. Within Bangladesh, Tongiin the east and Noapara in the west appear to bepossible locations for ICDs.

The proposed development of a private containerterminal at Patenga south of Chittagong with aninland water connection to a Dhaka ICD wouldoffer a significant improvement over the slowand costly movement through the port ofChittagong. It would make the transit routes

through Bangladesh more attractive for high-value cargo, especially as the port would nothave the problem of heavy siltation. If a privateport facility were available to the south of Calcuttawith good road and rail connections, it woulddivert substantial traffic from Calcutta.

The introduction of effective in-bond movementof cargo with minimal delays at the border andan end to transshipments of cargo between ve-hicles will increase the volume of high-valueimport and export cargo to and from Nepal andBhutan. It would also encourage traffic betweenBangladesh and India.

For the inland waterway network, the most fre-quently mentioned infrastructure investments areincreasing the depth in specific routes and im-proving navigational aids to allow for night navi-gation. The latter is more achievable in the shortrun and is necessary because of the very lowaverage travel speeds. The former would be dif-ficult to achieve because of the current condi-tion of the dredging fleet. Moreover, it is notrequired for Class I routes, which include mostof those under consideration for handling cross-border traffic.

None of the proposed investments in infrastruc-ture will be successful without a mechanism forproper maintenance of the infrastructure andefficient operation of the transport services uti-lizing the infrastructure. Improvements in themanagement of the transport infrastructure areeven more important than the proposed capitalinvestments. The primary impediment to effec-tive use of the existing transport services is alack of commercial orientation on the part of thepublic sector responsible for providing servicesor developing infrastructure. The trucking indus-try is almost entirely private and relatively effi-cient. However, trucks are old and small becauseof the small size of consignments, competitivepressure on prices, poor condition of the roads,

3. The Asian Development Bank is financing the upgrade.In addition, Japanese financing has been used to upgradesome of the bridges along the route.


and lack of enforcement of vehicle safety regu-lations, including annual inspections and loadlimits. The government needs to address the lasttwo constraints. The maintenance of the roads(in particular the primary routes) needs to beimproved dramatically. This, combined withwider roads, will allow larger vehicles to com-pete with the older vehicles and thereby reducethe cost of road transport.

New approaches such as toll roads, road main-tenance contracts, and road funds need to beintroduced to address the perennial problem ofpavement deterioration and excessive roadroughness. The enforcement of existing lawswould produce an initial increase in transportcosts as older vehicles are disqualified from op-erations and the amount and extent of overload-ing is reduced, but it will reduce the costs ofaccidents and increase the reliability of road trans-port. At the same time, it will generate mutualtrust between countries regarding the safety ofthe trucks crossing over the border.4

The railroad industry remains almost entirelyunder the control of the public sector. The pri-vate sector manages some stations or train ser-vices on some of the less utilized routes. At thesame time, there has been the largely successfuleffort in India to create a parastatal containerrail haulage company, Concor. Despite the rapidgrowth in container shipments, much more needsto be done. In Bangladesh, the use of unit trainsfor movement of containers is much more lim-ited. The only service is between Chittagong andthe ICD in Dhaka. It handles a very small portionof the loaded box movements. Despite perennialefforts by the major shipping lines to establishtheir own block train operations, the railroads of

both countries have been unwilling to enter anyagreements. The rail sector requires competitiveservices if it is to stabilize its market share.

One of the more interesting proposals for pri-vate investment and management of infrastruc-ture and related services is the proposal toestablish a container port at Patenga, Bangladesh.The port would be operated with a new ICD inDhaka and connected by a container-on-bargeservice. The proponent of the port would pro-vide and operate both facilities, thereby solvingthree problems: excessive port delays, limitationson truck size, and inefficient unit train opera-tions. When the Dhaka-Chittagong highway iswidened, the bridges strengthened, and rail andICD operations improved, the movement of con-tainers could be split more evenly among thethree modes.

The four countries under discussion each havemade significant advancements in liberalizingtheir economies and their trade policies. BothIndia and Bangladesh have joined the WorldTrade Organization. All have made concertedefforts to reduce the involvement of governmentin commercial activities and to create a morecompetitive transport sector with an emphasison private sector operations. The amount ofchange is impressive when compared to thedecades during which the governments focusedon protecting their economies from outside com-petition and emphasized the role of the publicsector in regulating commercial activities. Per-haps nowhere in the region is this change moreevident than in India’s software industry. In arelatively short time, the country has been ableto establish a strong, internationally competitiveindustry by taking advantage of local skills andallowing for competitive forces to dictate thedevelopment of the sector.5 The success of this

4. The United States has recently used the argument of safetyto exclude Mexican trucks from U.S. highways despite theNAFTA agreements. This form of implicit protectionism, remi-niscent of similar U.S. arguments regarding flag-of-conve-nience vessels, should be avoided in SAARC.

5. Recent attempts by the government to introduce someform of regulation of the sector have met with extremelystrong resistance from all sectors.


sector depends on efficient logistics. The soft-ware industry has taken advantage of moderntelecommunications (bypassing the less efficienttelephone monopoly) to reduce the cost and timeof the logistics chain, thereby significantly re-ducing transaction costs. This has allowed pri-vate industry to mobilize its considerableintellectual resources to produce, market, andsell high-value tradable goods.

Similar changes will be required if the manufac-ture of garments, textiles, and yarn, the region’smajor export industry, is to remain competitive.So far, Nepal, India, and Bangladesh have usedtheir comparative advantage in labor costs to pro-duce garments for the low end of the market.They have strengthened their competitive posi-tion through experience with modern manufac-turing techniques and the mobilization ofdomestic financing. In particular, Bangladesh andNepal have seen a rapid growth in their exportsof ready-made garments. Although intraregionaltrade is expected to grow as these industries di-rect their design and production activities towardlocal markets, the extraregional trade is expectedto face increasing competition from China andunderdeveloped countries in Southeast Asia.Once the international system of quotas is elimi-nated, future growth of exports from India,Bhutan, and Nepal will depend on the ability tomove toward higher quality, limited run, and endproducts.

At the same time, the high end of the market isundergoing dramatic change. A larger segmentof the market is requiring better quality and de-sign. Computerization of the design, patternpreparation, sewing, and embroidery of garmentsallows countries with higher cost labor to pro-duce better quality garments at costs that arecomparable to production in low-wage countries.It also allows efficient production of the smallersize orders with more frequent changes in de-sign that are needed to meet the requirementsfor changing fashion. In the next decade, it is

expected that body scanners and databases willreplace traditional measurements, thus blurringthe distinction between ready-made and tailoredgarments. Increasingly, garments will be directordered by the consumer with marketing andsales through the Internet. Although thesechanges have only just begun to appear at theupper end of the market, it is reasonable to as-sume that they will be adopted very quicklyacross a wide customer base. In this evolvingsituation, efficient logistics will become a neces-sary complement to the technological innova-tions. In addition to putting competitive pressureon management, these changes will offer op-portunities for workers in the industry to increasetheir skills and to earn higher wages.

CHANGES AFFECTING FUTURE LOGISTICS

The logistics chains that serve the external tradeof the region are expected to undergo signifi-cant changes over the decade. Globalization, andall its implications for increased competition intraded goods, will require substantial improve-ments in logistics in order to maintain competi-tive advantage. Both the public and privatesectors must be involved in efforts to improvelogistics. Changes in transit protocols and reformsin customs require coordinated actions by neigh-boring governments. Changes in line-haul move-ments must combine actions by private sectortruck operators and national railways. Improve-ments in port performance require increasedprivate sector involvement in operations of pub-lic infrastructure.

Changes in Commodities Shipped

Chapter 1 reviewed the growth of foreign tradewithin the region. It indicated a rapid growth inthe value of trade. Data from the seaports indi-cate a rapid growth in tonnage as well. Signifi-cant growth was also observed in intraregionaltrade (in terms of absolute value of trade).


In Nepal, the principal export-oriented indus-tries are ready-made garments and carpets. Theformer recently exceeded carpets in terms ofvalue of shipments. The major overseas marketsfor ready-made garments are the United Statesand Germany, although the latter has declinedin importance as markets became saturated withNepalese goods. The growth of exports has beenconstrained by problems with quality control,availability of skilled labor, competition fromIndia, and poor logistics. Nepal has undevelopedmineral resources, but it remains a net importerof cement and raw materials for steelmaking.Imports include a wide variety of manufacturedgoods as well as textiles for the garment andcarpet industry. India also accounts for about 45percent of imports in terms of value. Trade withIndia has increased rapidly over the last sevenyears, and India is now Nepal’s third largest trad-ing partner.

The major exports of Bangladesh include ready-made garments, leather goods, jute and jutegoods, and frozen foods, especially shrimp. Thecountry has had problems with quality controlfor shrimp exports and with insufficient textileproduction to meet the demands of the garmentindustry. The major markets are the United Statesand Western Europe, which account for aboutone-third and one-fourth of the value of imports,respectively. Although exports have increasedin recent years, growth has been below expec-tations. Despite improvements in the road andrail network, limited coverage, poor performance,and deterioration in service during the monsoonseason handicap the country’s transport system.

Bangladesh imports a wide variety of manufac-tured goods, of which textiles and related goodsaccount for about 25 percent. India providesabout one-sixth of the total value and East Asiaaccounts for about one-fourth. Improved rela-tions with India have led to an increase in trade,which will continue as new routes to Northeast

India are opened and road and rail movementsacross the western border improve. Althoughregional trade in basic commodities such as ce-ment, grain, jute, and boulders will continue tobe important, the future growth in trade withIndia is expected to be in medium- and high-value goods. Better logistics are urgently requiredfor efficient truck movements across the border.If the road transport continues to suffer fromcongestion and the private sector participationin rail services increases, rail may provide theimproved logistics.

India has experienced rapid growth in both im-ports and exports as a result of the liberalizationof its trade policy. Traditional exports of cloth,garments, fibers, leather goods, animal feed,chemicals, and minerals have been broadenedto include fish, gems, pharmaceuticals, and soft-ware. The primary destinations for Indian ex-ports are Europe, which receives about 25percent by value; the United States, which re-ceives about 20 percent; and Japan and China,which each receive about 10 percent. Trade withthe surrounding countries is primarily in foodproducts, construction materials, and transportequipment, and it is now being supplementedwith other consumer goods.

Imports have been increasing rapidly in responseto boosting domestic production. The major im-ports are petroleum products, which account formore than 25 percent of the total value of im-ports, precious stones and metals, which accountfor over 15 percent, and chemicals, which ac-count for about 12 percent. The remainder areprimarily manufactured goods, most notably ma-chinery and instruments, transport equipment,textiles, and food and food products.

The increase in trade in higher-value commodi-ties is already putting pressure on the logisticsservices. Containerized shipments are increas-ing rapidly despite the limitations of the road


network and the ports for accommodating con-tainers. Air freight is becoming more important,as is electronic transfer of information technol-ogy materials. Rapid improvements in logisticswill be critical to sustaining this growth in trade.

In the future, it is expected that exports of tex-tiles will experience slow growth or even a de-cline as quota systems are dismantled and Indianmanufacturers shift investments back to India.The manufacturing sectors that are expected toincrease are pharmaceuticals that exploit localmedicinal plants and household consumables thatare sold in Indian markets. Nepal’s ability to com-pete in both export markets and trade with Indiawill depend on its capacity to delivery higher-value goods in a timely manner. A major effortis needed to improve container transport andextend the movement of boxes further into Nepal.Past efforts to improve the performance at theborder and at Calcutta have had limited success.As a result, it is likely that there will be consider-able diversion of exports to Nhava Sheva and otherseaports that offer efficient container services.

Tighter Linkages between Suppliers and Buyers

The innovation in marketing and sales currentlysweeping the developed world under the aegisof the Internet will soon make its impact felt indeveloping countries. E-commerce, in the formof both business-to-business and business-to-customer applications, will rapidly expand dur-ing the coming decade. These applications takeadvantage of modern communications and infor-mation processing to reduce the cost of access toand transactions between buyers and sellers. Oneof the areas in which e-commerce is expected tohave the most profound impacts is in marketingand sales for small- to medium-sized enterpriseslocated outside major urban areas.

The effectiveness of e-commerce depends on thequality of both communications and logistics. The

ability to deliver products from sellers to buy-ers at low cost and in a timely manner requiresefficient operations, not only for transport butalso for packaging, labeling, storing/managinginventories, tracking, financing, and customsprocessing.

The logistics requirements are expected to changeover time as the trade changes and as the trans-portation network evolves. New routes will bedeveloped and market shares will change as theperformance of different nodes and links change.The private sector participants in the major tradeswere asked for recommendations for new routes,which should be introduced to facilitate themovement of goods from landlocked areas. Con-sultants’ reports focusing on different modes alsoproduced a myriad of recommendations. Thisanalysis has presented a means for evaluatingalternatives. However, this becomes quite com-plex when considering different commodities anddifferent foreign origins and destinations. Fur-thermore, trade is now evolving relatively rap-idly, as are alternative multimodal routes. In thisenvironment it is increasingly difficult for gov-ernments to respond rapidly to the changes inthe marketplace. More and more, designatedroutes are becoming a constraint on trade ratherthan a facilitator. Although government involve-ment in trade facilitation remains essential, it isno longer beneficial for the public sector to re-strict the mode and routing of cargo moving be-tween border crossings or from border crossingsto final destinations.

POSSIBLE IMPLICATIONS FOR BANK GROUPINVOLVEMENT

The array of instruments that are available to theBank (and Bank Group) range from the lending,technical assistance, sector, and policy dialogueunder the CAS framework to the emerging roleas a knowledge bank, convenor, and partner


with other institutions’ resource mobilizationresponsibilities.

We have attempted to examine how the Bankmight play a role in regional or multinationalinitiatives such as this one.6 We have used asimple chart (Figure 5.1) that rates the key ele-ments of the regional transport initiative on scalesof ■ (low) to ■ ■ ■ ■ ■ (high) for three main crite-ria: (a) constraints, (b) benefits, and (c) the Bank’spossible role.

Within each of these groups there are subcat-egories that provide more clarification. It is im-portant to highlight that the ratings are notionalratings by the study team and are intended mainlyto provide the basis for discussion with Bankstaff and management.

The key constraints in the area of reducing lo-gistics costs through improved trade facilitationsystems, simplification of documentation, pro-cedures, and other such measures are mainlyinstitutional constraints that have the potentialto have good impact or provide high benefitsfor increased international and intraregional trade.This is one area that would provide broad ben-efits to all concerned because it reduces the costsof doing business with low investment implica-tions but high technical assistance needs. TheBank’s role in its individual country operations,as well as all of its other instruments, could havea strong impact. The South Asia region has lend-ing and technical assistance operations in tradefacilitation in Nepal (Nepal Multimodal Trans-port and Trade Facilitation Project), and someaspects such as customs reform are being ad-dressed in Bangladesh through the Export Di-versification project. But such reforms are notbeing addressed in India and Bhutan. The Bank’s

experience in global best practices in trade fa-cilitation, harmonization and simplification ofdocumentation, customs systems, policy reform,and transit procedural practices can be broughtto the region through initiatives such as the Glo-bal Trade Facilitation partnership. The Bank alsocan play the role of a convenor, as done duringthe April 1999 Regional Technical Workshop onTransport and Transit Facilitation, and share glo-bal experiences.

In mode and route choice for more cost-effectivetransportation, political constraints and, to aslightly smaller extent, institutional constraints,have a strong influence. As Chapter 3 discussed,the political constraints here are linked to thoseof protocol, and shippers are constrained in theirchoices. The technical constraints in terms ofcompatibility of transport networks (such as railgauge and load standards) and gaps in physicalinfrastructure networks are a somewhat lesserproblem in the subregion. This is mainly becausethe roads are compatible and the rail problemsare being corrected in Bangladesh and India. Thebigger infrastructure inadequacies require long-term measures and investments. Some of thesegaps are being addressed through country op-erations. The strategic impact of the operations,particularly on poverty, could be enhanced ifthe regional dimension could be more effectivelyand consistently integrated in country strategies.In the area of knowledge management, the Bankthrough advisory and analytic activity such asthis one, can highlight options and provide abasis for rational decisionmaking in which theusers of the systems can participate.

The third category of rationalizing bilateral andmultilateral protocol is a politically sensitive areathat has historically been addressed on a bilat-eral basis. The SAARC charter does not allow forSAARC intervention on bilateral issues. However,we have seen that several constraints in the trans-port logistics systems would require rationaliza-

6. The framework, of course, could also be adapted for themore traditional country operations and interaction.


tion of the protocols and broader consultationswith stakeholders, particularly those who aredirectly impacted (such as shippers and export-ers in the case of transit protocol). When anoma-lies in protocol and agreements are reduced, there

are significant gains, including increased trade,greater economic opportunities and improvedefficiency through increased competition. TheBank’s direct role is limited in this area. However,in our country operations and policy dialogue,

FIGURE 5.1 CONNECTING THE SUBREGION: ECONOMIC GROWTH AND POVERTY ALLEVIATION

Routes and Rationalizingmodes for more bilateral/ Promoting

Reducing cost-effective regional private sectorCategory logistics costs transport protocol participation

ConstraintsEconomic ■ ■ ■ ■ ■ ■

Political ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Technical ■ ■ ■ ■ ■

Institutional ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

ImpactsEconomic opportunities ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Increased international,intraregional trade ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Promote competition andincrease efficiency ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Bank Group’s possible roleCountry operations through

CAS/comprehensive develop-ment framework (lending,technical assistance,policy dialogue) ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Convenor ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Resource mobilization andfiduciary ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Knowledge management,best practice cases, analyticadvisory services ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Note: ■ ■ ■ ■ ■ indicates a high rating; ■ ■ ■ is medium; and ■ is low. The ratings are those of the study team and are notional, intended to providethe basis for discussion with Bank staff and management.Source: Bank study team.


specific issues can be flagged for considerationof the relevant countries. With the Bank’s matrixmanagement structure, this could be enabled withmore dialogue between country managementteams. Also the Bank, if requested, can help with“good practice” cases and in-depth policy inputs.

The final category of promoting private sectorparticipation in dialogue with governments con-cerns regional transport issues. The constraintson investment and operations in transport, trans-shipment, and logistics services are mainly insti-tutional. The critical need for involving the privatesector is well understood and the positive im-pacts are undeniably large. The Bank operationsin infrastructure projects, particularly water sup-ply and sanitation, have been pushing the enve-lope on this for some time. In the transport sector,the experience with privatization has mainly beenin ports rather than in the road and rail sectors.In trade facilitation and logistics, the attempts toinclude private sector organizations (such aschambers of commerce, freight forwarders’ as-sociations, and shippers’ councils) in a moresubstantive manner have begun and can bestrengthened. Also, ways of promoting and sup-

porting private sector participation in provisionand management of logistics services can beexplored. On the knowledge management side,there is clear demand from the region for policynotes and for a forum for increased dialogue.One of the key recommendations that the pub-lic and private delegates of Bangladesh, Bhutan,India, and Nepal made at the regional technicalworkshop (which was again reiterated at nationalconsultative meetings) was to establish regionalcommittees with a mix of public and private sec-tor representatives to promote more consistentand coherent dialogue. The private sector in thesubregion has set up a four-country forum thatwould raise issues with the relevant governments.

Several international development and privatesector agencies are involved in the region insuch aspects as trade policy reform, highwayimprovements, toll roads, road maintenancefunds, railroad improvements and privatization,port improvement and privatization, ICDs, EDI,and improved telecommunications. A more co-herent effort to work in partnership with theseagencies is critical for effective strategy andimplementation.

103

The primary goal of this study was not to identify newprojects for investment or to provide a regional transportmaster plan for improved transportation and logistics networks. The problems discussed in this study have been

the subject of discussion at the national and regional levels for anumber of years, and the conclusions derived from the comparativeanalysis are consistent with the issues already raised by the privatesector. Rather, our objective has been to develop a mechanism wherebythe best efforts of government, the private sector, and internationalexperience can be mobilized, and regional stakeholders can use themechanism to identify and provide direction for solutions for theseproblems. Summary recommendations for consideration at nationaland regional levels are presented in Table 6.1. The solutions are im-portant not only for improving current economic performance anddeveloping areas where economic development has been lagging,but also to meet the challenges of the future when rapidly fallingtransaction costs and constantly improving logistics will change thenature of competitive advantage for both developed and developingcountries.

Because many of the solutions involve policy matters and coordina-tion between countries, an effective and sustainable mechanism bywhich such coordination can be achieved is important. One of thekey recommendations of the delegates from the four countries at theWorld Bank/Economic and Social Commission for Asia and the Pa-cific April 1999 Regional Technical Workshop on Transport and Tran-sit Facilitation (see proceedings of the workshop)1 was to establish aregional technical working committee to examine and promote keysubregional issues. Regional representation is critical because manyof the solutions extend beyond national and bilateral issues. Techni-cal expertise is critical because of the breadth of activities to be cov-ered and the interdependent links among issues. This study confirms

Next:Proposed Change

6

1. Proceedings of the workshop can be obtained from the World Bank. Also availableat the Bank’s external website http://www.worldbank.org/html/fpd/transport/trfacil/present.htm.


TABLE 6.1 NATIONAL AND REGIONAL ACTIONS: SHORT TERM AND MEDIUM TO LONG TERM

National Regional

Short Term1. Strengthen the Transport and Trade Facilitation Technical Committees 1. Establish a regional technical working committee to (a) identify

(TTTCs) recently established in Bangladesh, Bhutan, and Nepal that methods for improving logistics for intraregional andare aimed at sustaining interaction between the public agencies and extraregional trade, (b) set priorities and short-term targets forthe private sector. These committees now include representation from achieving the greatest benefits, and (c) develop a forceful andministries or departments of commerce, customs, and transport or sustainable program for improving logistics in the region. Thecommunication, and private sector representation from chambers of committee will include:commerce, transport service providers associations, and trade • Government representatives of the relevant trade, transport,associations. Examine similar institutional options for increased and customs agencies to provide the policy and publiceffective dialogue on transport, logistics, and trade facilitation issues infrastructure perspective.in India in the public and private sectors. • Private sector representatives from shippers, consignees,

chambers of commerce, and logistics providers to bring aprivate sector and commercial perspective.

• Specialists from other countries and academia representativesto provide best practices knowledge of trade facilitation,supply-chain management, and logistics services, as well aspractical limitations on reforms experienced by other regionaltrade blocs.

2. Technical assistance should be provided to assist transport ministries, 2. Regional workshops could be used to share information amongdevelopment banks, planning ministries, freight forwarders, major transport professionals, shippers and consignees, and forwardersshippers, and experts in logistics in the techniques of supply-chain to improve supply-chain logistics in the region. This would beanalysis. The logistics cost model developed would provide an easy particularly helpful for improving regional and internationaland adaptable tool for training stakeholders. Procedures should be trade, particularly for landlocked regions.developed for incorporating supply-chain analysis into decisionsregarding investments in transport infrastructure and changes inprocedures for cross-border movement. Workshops could be used toinform transport professionals, shippers and consignees, andforwarders of the techniques used in supply-chain management.

3. Port reform and modernization for improved performance and 3. Bilateral (and multilateral) dialogue and agreements canlogistics is a priority for development of the countries’ trade in facilitate routing regional cargo through more efficient ports. Forglobal markets. The measures would include: instance, routing cargo through more efficient ports on the• Privatization of port management and operations, western coast of the subcontinent could reduce travel time by• Dedicated private terminal operations to expedite cargo handling, about one week for exports to Europe.• Facilitating routing cargo through more efficient ports, and• Better coordination of movements between feeder and mainline

vessels by improving port performance so the feeder vesselscan operate on a fixed schedule.

Next: Proposed Change 105

National Regional

4. Improve the physical design of land border crossings in high traffic 4. Coordination among relevant countries in effectively improvingcrossings to reduce congestion and delays, with strategic investments the physical design of strategic high-traffic land border crossingsin place of the current practice of ad hoc investments. Support private so that current congestion and delays are reduced dramatically.sector involvement in development of superstructure and operationsat border crossings.

5. Simplification of import and export cargo clearance procedures 5. Harmonization and standardization of cross-border cargowithin the countries, including introduction of Automated Systems clearance procedures across countries.for Customs Data (or compatible) documentation.

6. Improved communication systems and adoption of automated 6. Compatibility of automated systems for effective electronictechnology for electronic transfer of information. interchange of information.

7. Eliminate requirements for transshipment of cargo by trucks at 7. Revisions of bilateral transit protocols to facilitate uninterruptedborder crossings and move toward increased transit access for movement of transit. Important changes include:vehicles from neighboring countries, so that multiple cargo handling • Replacement of the movement of transit cargo in truckand associated costs and delays are avoided. In addition, introduce: convoys to flexible movement against specified time limits• Automatic weighing of vehicles at border points with in-bond goods;• Simplified procedures and risk-assessment strategies to replace • The use of secure seals for rail cars or containers carrying

current cargo inspection practices transit cargo with very few or no inspections of cargo at the• Round-the-clock clearance of cargoes at high-density interchange border, other than checking seals;

points like Petrapole–Benapole and Gede–Darsana. • The Transports Internationaux Routiers (TIR) system for thecarriage of goods approved by customs authorities from thetransport of sealed containers using the TIR carnet; and

• Common vehicle inspection and licensing procedures fortrucks used to transport cargo across borders.

8. Monitoring/tracking systmes for cargo movement. 8. More effective mechanisms for monitoring the movement of thecargo, instead of the existing practice of using fixed routes andtruck convoys. These could include:• Joint checking of cargoes at the origin and destination;• Electronic data interchange (EDI) between customs facilities

within the country and across borders;• Identification numbers, bar codes, or other forms of electronic

identification for trucks and cargo containers;• The use of a freight operation information system for real-

time monitoring of trains, rail cars, and cargo; and• Tracking systems for transit cargo carried by trucks.

(Table continues on the following page.)


National Regional

9. Assignment of liability for the carriage of goods within the country 9. Assignment of liability for the carriage of goods and harmoniza-to encourage more efficient multimodal transport. tion of this liability scheme across regional and international

borders.

10. Development of full rake sidings for rail, night unloading facilities,and terminal facilities at major loading and unloading points.

11. Development of night navigation facilities on selected inland water-ways in Bangladesh and in the waterways linking Northeast Indiaand West Bengal.

12. For Bangladesh, a cohesive plan identifying key bridges thatneed upgrading along high-traffic corridors, taking into accountongoing efforts to strengthen bridges on the Dhaka-Chittagonghighway.

Medium and Long term 1. Investments in road network infrastructure, including widening 1. Investments at border crossings to facilitate easier two-way

roadways and constructing divided highways. Bangladesh would flow of traffic.base this on a review and update of the existing road masterplan. India would incorporate planned and ongoing road projects,including the Golden Quadrilateral and West Bengal north-southhighway, and a medium-term plan for less congested road linksto and among the Northeastern states.

2. Increased movement of containerized goods, particularly high-value 2. Extend the movement of containerized goods, particularly high-commodities. It would be useful to review (a) the Container Corpora- value commodities such as yarn, across national and regionaltion of India (CONCOR) experience and (b) the experience of Nepal borders.ICDs, including efforts to integrate private sector operations andprepare recommendations for making the process more efficient,effective, and transparent.

3. Strengthening and widening bridges where necessary, particularlyalong selected roadways for Bangladesh and Northeast India.

TABLE 6.1 (continued)


National Regional

4. The TTTCs could oversee a review of the progress and plans for 4. A review of the progress and plans for harmonization of railharmonization of rail networks to determine the likely impact on networks to determine the likely impact on regional traffic flows.national traffic flows. The review should include ways to introduce, expand, and improve

Other items on the rail agenda would include proposing standards block train operations and rail-based ICDs to serve landlockedfor rolling stock, such as the configuration of container rail cars, the areas; scope for private sector operations.identification system for rail cars, and the introduction of air brakesand semi-automatic couplers for the freight cars crossing the borderbetween India and Bangladesh. Finally the review committee wouldlook at increased private sector involvement in unit train operations,especially proposals for shipping lines and other logistic providers tooperate trains for the movement of containers inland.

5. Modern laws and regulations covering clearer assignment of liabilities 5. Harmonization of laws and regulations in the region to enablefor the carriage of cargo, permitting tighter integration of intermodal clear assignment of liabilities for the carriage of cargo and permitmovements and reducing barriers to entry for potential third-party tighter integration of intermodal movements across national andlogistic providers. international borders. (There is considerable international

experience and legal precedence concerning this issue.)

6. Expand e-commerce opportunities more broadly to remote sectors, 6. New systems are needed for improving voice and data transmis-industries, and regions so that small and medium enterprises can sions between customs checkpoints at the border crossings andmarket their products directly to businesses and markets. This would between the checkpoints and central customs offices andinvolve: seaports. Initially this could be accomplished through a value-• Access to assured data communications and Internet services, added network used by customs. This could be expanded to the• Supportive legislation to allow financial transactions over the ICDs and other border crossings that would act as a center of

Internet that are both secure and legally binding, efficient and effective communications for scheduling and• Increased privatization of telecommunications and Internet services, coordinating movements with other activities on the logist ics• Establishment of a public-private partnership to ensure a chain. Ultimately, it should allow the users to input data

competitive environment for e-commerce services, and electronically through multiple ports and, eventually, through• Training for small- and medium-scale businesses for effective use the Internet.

and development of services.

7. In the long term, systematically introduce measures to move toward 7. In the long term, systematically introduce measures to moveoffering shippers door-to-door economical just-in-time delivery toward offering shippers door-to-door economical just-in-timeservice, which is important for the country to gain position in the delivery service, which is important for the region to gainglobal market. position in the global market.

8. Implementation of a smart card system for expediting all thetransactions associated with cross-border movements.


the need for such a forum that is not necessarilya permanent institution, but rather a flexibleadaptable body that can bring together issuesand suggest options for various stakeholders fromthe relevant countries, including the private andpublic sectors.

The subregion covered by this report has madea beginning in establishing regional dialogue.Under SAARC, a subregional grouping with rep-resentation from the four relevant countries(Bangladesh, Bhutan, India, and Nepal) has al-ready been established. The private sector in thesubregion (led by the chambers of commerce)has signed a memorandum of understanding. Ithas launched the Emerging East Initiative to pro-mote investment and trade in the subregion. Theprivate sector is in the process of formalizingthe institution. To address cross–sectoral issueson transport, trade facilitation, and logistics, andto support continual private and public sectorinputs, technical committees (Transport and TradeFacilitation Technical Committees or TTTCs) wereformed in Bangladesh, Bhutan, and Nepal, afterour national consultative workshops in July 1999.These committees consist of key governmentalrepresentatives from the ministries of commerce,transport, customs, and other agencies, and pri-vate sector representatives from the chambersof commerce, freight forwarders’ associations,shippers’ councils, and other organizations.

There is need for a regional public-private fo-rum to identify methods for improving logisticsfor both intraregional and extraregional trade,set priorities and short-term targets to achievethe greatest benefits, and develop a forceful andsustainable program for improving logistics inthe region. This forum or regional technical com-mittee would have a tripartite representation:

• Government representatives from the relevanttrade, transport, and customs agencies to pro-vide the policy and public infrastructure per-spective;

• Private sector representatives of the shippers,consignees, chambers of commerce, and lo-gistics providers to provide a private sectorand commercial perspective; and

• Specialists from international organizations,academia, and consulting organizations withdetailed knowledge of trade facilitation, sup-ply chain management, and logistics servicesto provide information on best practices, aswell as on practical limitations of reforms ex-perienced in other regional trade blocs.

The institutional form, mandate, and terms ofreference of the regional technical committeewould be examined in consultation with regionalstakeholders as part of a process of discussingthe findings of this report at national workshopsand a regional conference. This chapter willpresent preliminary ideas for the range and scopeof tasks that the regional technical committeewould address. The committee would reviewongoing efforts in the region and elsewhere anddevelop a time-bound action plan. The commit-tee would coordinate with SAARC and the sub-regional quadrangle body, the private sector’sEmerging East Initiative group, the nationalTTTCs, and other relevant public and privateagencies mentioned earlier. The implementationof its recommendations would require domesticand bilateral initiatives and would be the respon-sibility of the TTTCs in each country.

PRELIMINARY AGENDA

It is important to point out that, in addition toseveral issues that require regional approachesand bilateral or multilateral agreements, thereare some areas that can be more efficiently dealtwith at a national level. There are three agendasto be addressed:

• Coordination of transport sector reform andinvestment, which would be addressed at anational level through the individual TTTCs,


• Trade facilitation, which would be addressedat a regional level through the regional tech-nical committee, and

• The development of business-to-businesse-commerce at both the national and locallevels.

There would be need for both short- and longterm improvements. The short-term improve-ments would address problems related to:

• The exchange of goods between East andNortheast India;

• Bhutan and Nepal trade with international mar-kets and with regional markets (in the case ofthe latter, many commodities have short shelflives); and

• The trade between Bangladesh and neighbor-ing countries, including Northeastern Indianstates, and strategic improvements forBangladesh transport and logistics systems toimprove global trade.

These would also have significant implicationsfor improved logistics in the individual coun-tries. The long-term improvements would focuson the region’s capacity to meet the logistics re-quirements for trade in high-value goods.

Coordination of Transport Sector Reform and Investment

The key areas for attention would be the devel-opment or improvement of seaport and landportfacilities to serve the foreign trade of all coun-tries, including the landlocked ones; the coordi-nation of the investment and maintenance of thetransport linkages across borders; and the intro-duction of modern technology for monitoring theflow of cargo and vehicles across borders.

A priority area for attention that has direct impli-cations for opportunities in the global markets

for the countries is the improvement of seaports.Efforts to reform the port sectors in India andBangladesh are longstanding but have achievedrelatively little, other than the recent private sec-tor initiatives on the west coast of India and theprivate sector Patenga port that is being plannedin Bangladesh. In contrast, East Asia has achievedrapid gains in port productivity and generatedsubstantial investment in port infrastructure andequipment over the last three decades. The portsector has been rationalized, customs procedureshave been automated, and the private sector hastaken over operations of several ports. Althoughcontainer traffic volumes have increased in SouthAsia, the time and costs for transferring contain-ers has not declined substantially. Calcutta andChittagong remain the most inefficient compo-nents of the logistics chain, with average vesselwaiting times of several days and container han-dling rates of less than six boxes per hour perhandling point.

Port reform is crucial for improved logistics. Itis the subject of several ongoing efforts at portmodernization. A key element is private termi-nal operations, which would expedite cargohandling. For foreign shipments, improvementsin the logistics associated with port handlingand ocean transport is critical because of thedominance of the costs and the time associatedwith port handling and ocean transport. A re-duction in the time for ocean transport wouldhave a marked impact on total travel time. Thiscan be accomplished in two ways: by routingcargo through more efficient ports and by co-ordinating movements between feeder andmainline vessels. The first will become moreattractive as the rail container movements tothe Indian ports on the western coast improve.The second requires improvements in port per-formance in order for the feeder vessels to op-erate on a fixed schedule. This involves theestablishment of dedicated privately operatedterminals. The first approach will reduce traveltime by about one week for movements to


Europe. The second approach will reduce traveltime by about three to five days.

The road, rail, and inland water transport net-works require substantial improvements. Thecurrent networks have low average travel speeds,limited hours of operation, and relatively highlosses due to poor maintenance. Investmentneeds in network infrastructure include widen-ing roadways, constructing dual carriagewayroads, strengthening bridges, deepening andstraightening navigational channels, harmoniz-ing rail lines, double tracking high-density railcorridors, developing better rail terminals, stan-dardizing rail car technology, installing systemsto more closely monitor the movements of roll-ing stock, and providing better signaling systems.Improvements in operation should include pro-viding larger-capacity, more powerful, and morereliable transport units, introducing private sec-tor management; and making greater use of tele-communications and electronic data processing.All of these require careful study and planningat this stage if they are to be effectively imple-mented during this decade.

The physical design of the cross-border facilitiesneeds to be dramatically improved. The servicesprovided at these facilities will depend on thevolume of cargo handled, as well as on the trans-port modes being served and the protocol gov-erning the cross-border movements. Basicoperational analysis should be applied to thecapacity of processing gates, parking areas, andintermediate storage areas to determine theamount of investment required to avoid conges-tion and limit delays. Benapole is an example ofad hoc planning where there have been signifi-cant investments, but the investments were notwell planned to fill gaps and inadequacies di-rected at the right components. As a result, thevarious components of the facility do not workwell together. Many of the other border cross-ings have little or no investment, and transport

is delayed waiting for service to be brought tothe site. One of the advantages of creating alimited number of border crossings is that in-vestment can be concentrated and traffic levelswill be sufficient to encourage private logisticsservice providers to locate offices there. Wherepossible, the private sector should finance thedevelopment of the superstructure at the bordercrossing.

Rail reform is important for the movement ofgoods over long distances and in areas not wellserved by the road network. At a national aswell as a regional level, there would be a needto review the progress and plans for harmoniza-tion of rail networks to determine the likely im-pact on national and regional traffic flows. Atthe national level, the TTTC would be respon-sible for the review process, whereas at the re-gional level a regional committee would overseethe review process. The review should includeways to introduce, expand, and improve blocktrain operations and rail-based ICDs to serve land-locked areas. There would be need to reviewthe experience of Nepalese ICDs, including ef-forts to provide private sector operations andprepare recommendations for making the pro-cess more efficient, effective, and transparent.Other items on the agenda would include pro-posing standards for rolling stock, including theconfiguration of container wagons, the identifi-cation system for wagons, and the introductionof air brakes and semiautomatic couplers for thefreight wagons crossing the border between In-dia and Bangladesh. Finally the review commit-tee would look at increased private sectorinvolvement in unit train operations, especiallyproposals for shipping lines and other logisticsproviders to operate trains for the movement ofcontainers inland.

Even as efforts are underway to undo the re-strictive trade practices of earlier decades, it isimportant to look ahead to the fundamental ways


in which trade is changing and to develop strat-egies for creating or at least maintaining a com-petitive advantage. Two areas in which the regionmust catch up with the rest of the world aremultimodal transport and the assignment of li-ability for carriage of goods. Although the freighttransport in all four countries can accommodateintermodal movements, the operations of theindividual modal services are not integrated.Despite the introduction of the multimodal trans-port act in India, there has been relatively littlesuccess in offering to shippers and consignees adoor-to-door service that is both efficient andeconomical.

One of the constraints limiting multimodal trans-port is the lack of modern laws and regulationscovering the assignment of liabilities for carriageof cargo. Clearer assignment of liabilities per-mits tighter integration of intermodal movementsand reduces the barriers to entry for potentialthird-party logistic providers. It also makes rail-roads and trucking companies improve theirquality of service to limit their exposure due toloss or damage of cargo. There is a consider-able body of international experience and legalprecedence in this issue. There is little reasonfor delaying the enactment of these laws andregulations.

Regional Trade Facilitation

The second agenda, regional trade facilitation,would cover protocols and procedures. In par-ticular it would focus on the need for:

• Simplification and standardization of cross-border cargo clearance procedures, and

• Revision of bilateral transit protocols.

The cost and time for customs procedures at theland borders have been reduced through ongo-ing national efforts to reform customs procedures.

These include the simplification of documents,introduction of ASYCUDA documentation, andadoption of new technologies, including theelectronic transfer of information using elec-tronic data interchange for administration, com-merce, and transport protocol. These reformsneed to be applied more consistently at theseaports and border crossings across the region.The standardization and simplification of docu-ments should be coordinated so that the samedocuments are used on both sides of a border.The procedures should be simplified to increaseinstitutional efficiency and to reduce both for-mal and informal costs.

Improvements in communications and documenttransfer are required so that the agencies involvedin monitoring border crossings are informed ofupcoming movements and have the supportingdocumentation readily accessible, preferably inelectronic form. Efficient exchange of informa-tion between shippers and customs officers, andshippers and shipping lines, as well as betweenthe customs officers on both sides of a bordercrossing, can significantly reduce the time re-quired for cargo movements as well as the un-certainty associated with these movements. Thiswill be especially important for efficient opera-tion of the ICDs at the Nepalese border, the majorborder crossings between India and Bangladesh,and the seaports handling imports, exports, andtransit cargoes.

The existing bilateral transit protocols are a workin progress. They have been useful in openingborders that had been closed and creating op-portunities for transit cargo to move from land-locked areas. They have not, however, providedefficient mechanisms for handling transit cargo,but treat them instead like import or export cargo.The first priority is to end the remaining prohibi-tions on cross-border movements of cargo forboth regional and international trade. The nextis to eliminate the remaining requirements for


• Common vehicle inspections and licensingprocedures for trucks used to transport cargoacross borders.

• Automatic weighing of vehicles at borderpoints.

• The TIR system for the carriage of goodsapproved by customs authorities from thetransport of sealed containers using the TIRcarnet.

• Simple procedures and risk-assessment strat-egies to replace current cargo inspection prac-tices.

• Round-the-clock clearance of cargoes at high-density interchange points such as Petrapole-Benapole and Gede/Darsana.

• Development of full rake sidings, night un-loading facilities, and terminal facilities atmajor loading and unloading points.

These reforms should be accomplished over thenext three years. The regional technical commit-tee would examine methods for expediting theirimplementation.

There is a need to modify the protocols to offermore routes and improve border crossings. It isimportant to identify specific border crossingswhere government officials intend to providesignificant infrastructure and a larger customspresence. These crossings will handle a majorityof the movements by road and rail. It is alsoimportant to identify minor border crossings thatwill have a lower level of service but will pro-vide an outlet for areas that have relatively lowvolumes of trade and are far from the major cross-ings. The selection of routes is a more conten-tious issue. Any limitation on routes will createinefficiencies. The goal should be to give ship-pers free access to the transport network while

transshipment of cargo between the vehicles atthe border. After that, it will be necessary to in-troduce the various procedures used in differenttrading blocs for the efficient movement of tran-sit cargo.

The elimination of transshipments for road trans-port is important because the cost and time fortransport increases dramatically where cargo mustbe transferred between the trucks of each coun-try.2 The shipper incurs the additional cost formultiple handlings and is prevented from usingthe less costly of the two transport providers forthe entire trip. This system limits the potentialfor backhaul cargoes, thereby increasing the costof transport. New bilateral transit protocols shouldallow uninterrupted movement of transit goodsin-bond. In particular, the protocols withBangladesh need to be modified to allow trucksfrom other countries to operate in Bangladesh.This will not only improve Bangladesh’s tradewith its neighbors, but it would also attract tran-sit traffic to use the logistics services inBangladesh.

Some of the more important customs reformsthat need to be introduced to facilitate cross-border movement of transit traffic, as well asreforms related to bilateral trade, include:

• Replacement of the movement of transit cargoin truck convoys to flexible movement againstspecified time limits.

• The use of secure seals for wagons or con-tainers carrying transit cargo, along with thepractice of conducting very few or no inspec-tions of cargo at the border, other than check-ing the seals.

2. The railways and the inland waterways transportationnetworks already have protocols for the movement ofvehicles and vessels across borders.


still keeping them accountable for safely mov-ing cargo to its destination. Under this system,the market would decide the most effective route,depending on the type of commodity and thefinal destination.

The mechanism for monitoring the movementof the cargo would have to be more sophisti-cated than the use of fixed routes and truck con-voys. A variety of ways to accomplish this werementioned in the previous paragraph. Other in-novations that could be introduced include:

• Joint checking of cargoes at the origin anddestination;

• EDI between customs facilities within thecountry and across borders;

• Identification numbers, bar codes, or otherforms of electronic identification for trucks andcargo containers;

• The use of freight operation information sys-tem for real-time monitoring of trains, wag-ons, and cargo; and

• Tracking systems for transit cargo carried bytrucks.

The committee should evaluate the alternativesand select those that can be implemented in thenext five years. The committee would also lookat the longer-term implementation of a smart cardsystem for expediting all the transactions associ-ated with cross-border movements.

The committee would examine current regula-tions of the logistics industry and identify waysto foster greater competition while at the sametime allowing for vertical integration through theintroduction of full-service, third-party logisticsproviders. Logistics services were traditionallyprovided by a number of different actors, each

providing a specific service. In the 1970s, withthe advent of multimodal transportation, ship-ping lines and freight forwarders sought to pro-vide door-to-door movement of cargoes.However, existing regulations slowed the inte-gration of transport services and protected theless efficient providers of individual logistics ser-vices. Nevertheless, consolidation did occur. Thesame companies now provide customs clearanceand forwarding. Forwarding agents are able tocontract directly with transport companies andform alliances with foreign forwarding agents toprovide door-to-door services. Forwarders alsosought to provide cargo consolidation. However,the ports are reluctant to give up this role, andthey frequently require shippers and consigneesto consolidate or deconsolidate their cargo withinthe port boundaries.

Modern integrated logistics service providers of-fer a full range of logistics services, includingintermediate storage, consolidation, packaging,inventory control, customs clearance, and cargotracking, as well as arranging for basic transportservices. In some cases, they will also take re-sponsibility for the inventories and sales of thecargoes. The development of these integratedservices has yet to occur in South Asia. Third-party logistics will become more important, bothas trade in high-value goods increases and asproducers focus on their competitive advantagein research, production, and marketing, and relyon others to provide efficient logistics functions.For low-value goods, it will continue to be moreefficient to negotiate individual services betweenthe shippers and suppliers of the services.

Development of Business-to-Business e-Commerce

The third agenda would be the development ofbetter trade communications. The rapid evolu-tion of telecommunications services and the im-portance of those services to trade extends fromcreating more efficiency on the major trade routes


to providing service to the more remote, less-developed areas. The unprecedented accessibil-ity provided by the Internet is matched by thescalability of its services. The first phase of elec-tronic commerce was limited to proprietary sys-tems developed by major transport companiesand trading organizations. The second phase uti-lized value-added networks that provided EDIservices developed by customs organizations,seaports, and other government agencies. Thethird phase is the ongoing development ofInternet-based business-to-business transactionsusing Extensible Markup Language (XML) mes-saging. It is this latter system that offers the great-est opportunities for improvements in trade andlogistics in areas located away from the majortrade routes. These systems facilitate communi-cation and coordination between importers/ex-porters and foreign markets, and betweenshippers and customs. It also creates opportuni-ties for more efficient use of the available trans-port services. This can lead to a reduction inboth the cost and time for transport of goods.

EDI and business-to-business e-commerce aretwo areas of increasing importance. Immediateattention should be given to implementing EDIservices that are accessible to both regional cus-toms authorities and logistics providers involvedin regional trade.

Business-to-business e-commerce is a rapidlyexpanding area of trade that makes use of mod-ern communications technologies to broaden themarket in which buyers and sellers conduct busi-ness and to reduce the costs of the transactionsin this market. This method of trade began withlarge companies that established proprietary com-munications and data management networks tofacilitate the interaction between their produc-tion units and suppliers. In recent years, this ef-fort has been expanded to external networks thataccommodate bidding by multiple suppliers

against specifications and terms of tenderingposted by buyers. Most recently, this has ex-panded into Web hosting of auction sites on theInternet. Within a few years, it is anticipated thatthis innovation, combined with simplified Webhosting and improved Web browsers, will allowsmall- and medium-scale enterprises to markettheir products directly to customers or, more im-portantly, to businesses through the Internet. Ifthese enterprises are to succeed in this market,they will require access to good-quality datacommunications and Internet services. They willalso require supporting legislation to allow fi-nancial transactions over the Internet that areboth secure and legally binding.

Efforts to expand e-commerce have generallybegun with the private sector, followed by aca-demic and government attempts to providebroader access to this way of doing business. Aprivate-public partnership should be establishedto ensure that a competitive environment is de-veloped for providing e-commerce services andthat publicly supported training and promotionalefforts focus on small and medium businesses.Among the strategic partners to be included inthis effort are the telecommunications compa-nies, chambers of commerce, and industrial fed-erations. Their focus would be to providetelecommunications access and Internet servicesfor businesses at a reasonable cost, as well asproviding training in the use of e-commerce andtechnical assistance for the creation of Web sitesand Internet markets.

The potential to improve information services isconstrained by two factors. The first is the qual-ity and coverage of telecommunications servicesin the remote areas of the region. The second isthe lack of private sector participation in the pro-vision of these services, especially the Internet.Government regulation of Internet service pro-viders prevents competition, thereby maintain-


ing relatively high prices and low quality of ser-vice. It also raises questions about the securityof transmitted messages.

New systems are needed for improving voiceand data transmission between customs check-points at the border crossings and between thecheckpoints and central customs offices and sea-ports. Initially this could be accomplished througha value-added network used by customs. Thiscould be expanded to the ICDs and other bor-der crossings, which would act as a center ofefficient and effective communications for sched-uling and coordinating movements with otheractivities on the logistics chain. Ultimately, itshould allow the users to input data electroni-cally through multiple ports and eventuallythrough the Internet.

REGIONAL CAPACITY BUILDING

As mentioned earlier, regional stakeholders willdevelop the exact structure of the regional com-mittee, as well as its mode of working, coordi-nation with existing regional and national entitiesinvolved in transport and logistics, and the par-ticipation of international agencies. It would bedeveloped as a follow-up to this study and tosubsequent discussions with these stakeholdersin national workshops and a regional conference.

A separate effort is needed to develop the ca-pacity within the public and private sectors toperform supply chain analysis. One of the diffi-

culties in reaching agreements on how to im-prove the efficiency of the shipment of goodswithin and beyond a region is that the discus-sion between the public and private sectors rarelyrises above the level of anecdotes. Occasionallya detailed analysis will be performed of one com-ponent of the supply chain. Supply chain analy-sis allows public officials, shippers, consignees,and logistics providers to identify major bottle-necks and other inefficiencies in trade logisticsand to assess the costs and benefits of initiativesto improve the performance of individual com-ponents of the supply chain. The analysis pre-sented in this report suggests that improvementsin seaports will offer the greatest return on in-vestment followed by improvements in the cross-border procedures. However, these findingsapply to specific combinations of cargoes androutes. The same type of analysis needs to beperformed as part of any effort to increase theefficiency of trade for a specific commodity andorigin/destination pair.

Technical assistance should be provided to as-sist transport and planning ministries, develop-ment banks, freight forwarders, major shippers,and experts in logistics in the techniques of sup-ply chain analysis. Procedures should be devel-oped for incorporating supply chain analysis intodecisions regarding both investments in trans-port infrastructure and changes in proceduresfor cross-border movements. Workshops couldbe used to inform transport professions, ship-pers and consignees, and forwarders about thetechniques used in supply chain management.

BACKGROUND NOTES

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Maps1. Key Subregional Routes 122

2. Cross Border Points of Interest:India, Nepal, Bhutan,and Bangladesh 123

3. Cross Border Points of Interest:India and Bangladesh 124

4. Cross Border Points of Interest:India and Bangladesh 125

5. Cross Border Points of Interest:India and Nepal 126

6. Transport Logistics Cost Model 127

7. South Asia Region 128

8. Transport of Carpet fromKathmandu to Europe 129

9. Transport of Tea from Karimganj,Assam to United Kingdom 130

10. Transport of Freights of all Kindsfrom Calcutta to Agartala 131

11. Transport of Cement fromCalcutta to Agartala 132

12. Transport of Agricultural Producefrom Kathmandu to Dhaka 133

South AsiaIntermodalTransportationNetwork

121

This section contains maps prepared for the logistics cost computer model mentioned in the text.

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MAP 2

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MAP 3

MAP 4

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MAP 5

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MAP 6

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MAP 7

MAP 8

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MAP 9

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MAP 10

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MAP 11

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MAP 12