Bangladesh could boost its exports by 20 percent if it reduces logistics costs – which now stand at 4.5-47.9 percent of total sales value.
The main reason behind the excessive logistics expenses is the high cost of transportation. Transporting each tonne of goods using a 16-tonne-capacity truck costs $0.06 in Bangladesh – three times more than that in neighbouring India and Pakistan, said a World Bank report published on Wednesday.
Transportation cost per tonne for per kilometre is $0.024 in India and $0.02 in Pakistan. Bangladesh ranked 100th among 161 countries in the World Bank Logistics Performance Index 2018.
According to the report titled "Connectivity and Logistics to Sustain Bangladesh's Success," businessmen in Bangladesh face high transportation costs due to traffic congestion in highways.
They also lose profits to extra dwell times at the Chattagram port, facilitation payments, accident costs and several other inefficiencies.
While presenting the report, Matias Herrera Dappe, senior economist of the World Bank, said, "The average speed of a truck is about 17 kilometres per hour in Bangladesh, which could be double in a congestion free road."
He also said that the average dwell time for an export container at Chattagram port is 4 days, while for an import container, the dwell time is 11 days.
Bangladesh also has a chance to increase its real income by reducing logistics costs by 25 percent through reducing dwell times at Chattogram port and congestion along national highways, report added.
Transportation cost using trucks in Bangladesh is higher than that of China and France at $0.05, and also higher than that of Australia and the United States at $0.036.
The report blames several factors behind high trucking costs in Bangladesh, including systemic inefficiencies, low truck utilisation, extreme levels of congestion in roads and ports, and about 35 percent empty trips.
"If there was no congestion on the road, and dwell times were reduced to a justified level, logistics cost would reduce 35 percent in Bangladesh, and exports may rise 20 percent," said Dappe.
Eliminating congestion could reduce emissions from trucks by 50-73 percent and social costs due to CO2 emissions could be reduced by $1.6 billion – which is about 0.7 percent of the national gross domestic product.
The report shows that in Bangladesh, logistics costs make up for a minimum of 4.5 percent of sales value of the footwear industry and 6 percent of that in the readymade garments industry.
Horticultural products have the highest logistics costs with 47.9 percent of the industry's total sales value.
The report found that significant improvements could reduce 35 percent of the logistics costs in dairy sector, 24 percent in wooden furniture industry, 21 percent in the structural metal industry, 20 percent in rice milling, 13 percent in jute and horticulture, 9 percent in footwear and 7 percent in the readymade garment industry.
Highlighting multiple obstacles in rail sector, the report said most of the railroads are single track ones, and railway vehicles perform poorly.
Moreover, the railway does not have the capacity to transport goods as per the current demand.
Although there is huge potential for river course in Bangladesh, it cannot be exploited because of the navigational crisis and safety issues while transporting at night, the report stated.
Speaking as the chief guest at the publishing ceremony, Economic Affairs Advisor to the Prime Minister Dr Mashiur Rahman said the government is working to improve the logistics performance considering it as an important factor in developing the business environment.
He said that the rail network has long been neglected, that is why the dependence of trucks on transport of goods has increased in the country.
"Making logistics more efficient, Bangladesh can improve its communication, business environment and competitiveness," remarked Mercy Tembon, country director of the World Bank Dhaka office.
She stressed improving logistics to make Bangladesh a dynamic upper-middle income country.