Logistics costs need to dramatically come down to meet post-LDC challenges

Bangladesh needs to focus on attracting investment through several trade gateways such as ports and terminals, inland container depots, freight transportation etc to increase its logistics infrastructure. Photo: Mohammad Minhaj Uddin

As Bangladesh transitions to a non-LDC developing country by the year 2026, there is a lot to be done to make it a sustainable graduation. A committee is working on a smooth transition strategy and holding several effective consultations/discussions/FGDs/seminars/workshops to ensure a facilitative graduation strategy to gear up the private sector for stimulating economic growth. 

After graduation, some fundamental aspects such as preferential market access, and World Trade Organisation (WTO) related issues will be subject to changes. While Bangladesh currently enjoys duty-free, quota-free market access to 28 countries in the European Union and 10 other countries, after graduation these markets will require 9-12% duties, which will make business costly. 

For implementation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and erosion of eligibility for concessional loans and grants, Bangladesh will have to enter into a new regime. Therefore, the country needs to take policies to retain its growth by increasing efficiencies in trade facilitation, logistics services skills, infrastructure development, etc. Logistics cost is high at about 20% of GDP and one of the objectives of the policy is to reduce the cost in different phases. 

In view of this, the country has already started working and an institutional framework has been established under the leadership of PMO. A logistics policy will be prepared followed by a master plan so that an integrated logistics sector development is possible. Presently a number of ministries, agencies and departments are working to extend logistics support services. The policy will establish a coordinated mechanism so that businesses can get better support services. 

The PMO recently organised a workshop to analyse the policies of 13 different countries with whom we have maintained good trade relations. It was observed that these countries have prioritised logistics development and framed frameworks accordingly to meet specific targets. Establishing networks, connectivity, multimodal logistics systems and regional integration were their priorities, and this is reflected in their policies. Germany, the USA, Singapore etc are leading the logistics sector with high-tech digitised and automated equipment. 

It was also found that they focused on digitalisation, advanced technologies, skilled manpower, and resource efficiencies as the primary strategies for advanced logistics services. Bangladesh may be a late starter, but it has a number of effective examples from around the world that it can draw upon for policy formulation.

Most nations have given importance to ensuring an environment-friendly logistics management system by focusing on "reducing CO2 emissions, carbon footprint, Net Zero, green vehicle," etc. Countries have drawn up their Master Plans and aligned them with their logistics policies. Sectoral strategies are in line with their major goals to ensure balanced socio-economic growth. 

Another workshop was held in recent times to discuss the 21 sub-sectors included in the National Industrial Policy 2022. In that, private sector players gave special importance to policy related reforms. There are some age-old policies, which need to be updated and revisited, such as, The Tolls Act 1851, The Ferries Act 1885, Post Office Act 1898, Ports Act 1908, Ride Sharing Services Guideline 2017, Motor Vehicle Ordinance of 1983, Mailing Operator and Courier Services Rules 2013 etc. Alongside this, some new acts/policies also have to be prepared to deal with existing issues.

Participants have put emphasis on conceivable local and foreign investment in almost all sectors to create new employment and informed that there are some unexploited areas where foreign investment can be attracted, such as shipping, deep sea fishing, ICDs and ICTs. They have also acknowledged skill gaps in all 21 sub-sectors of the Industrial Policy 2022, and expect huge employment potential if properly trained manpower is created. 

Digitalisation issues were repeatedly raised to improve competitiveness. Digitalised storage facilities, tracking systems and support systems have to be ensured. ICT is a cross–cutting issue for the successful implementation of IT Logistics to support businesses for end-to-end logistics solutions that help optimise operations. It can help provide tools and systems that enable efficient planning, routing and scheduling, which can confirm the origin and traceability of products from the production point to the consumption point in a cost-effective way. 

A 4IR and technology-based logistics management system has been considered to cope with the ever-growing national and international trade volume. Moreover, adaptation of technology, online document submission, optimised transport movement, etc. needs to be addressed in their master plans. Bangladesh's economy has gradually integrated with the world economy and to move further, an advanced logistics development policy needs to be framed. 

The logistics landscape of Bangladesh is improving but progress is slow, the country ranked in the 88th position as per the Logistics Performance Index (LPI) 2023. We ranked 100th as per the LPI report in 2018. LPI scores are determined based on several parameters such as customs, infrastructure, international shipments, logistics competence and timeliness. 

Bangladesh's score in logistics competence is 2.66, whereas it is 3.5 for India, 4.4 for Singapore, 3.3 in Vietnam and 3.1 in the Philippines. In almost all parameters, Bangladesh's score has improved, but in the case of logistics infrastructure, it was 100 in 2018 and 108 in 2023. So, along with all parameters, we need to give more attention to logistics infrastructure.

Logistics is primarily a service sector and lack of reliability in the logistics value chain increases inventory carrying costs from 17% to 56% of logistics costs (WB). The prospective plan of Bangladesh acknowledged logistics as one of the areas that needs improvement. Based on a report by the World Bank, it was seen that a 1% reduction in transport costs can increase the export demand by 7.4%. Bangladesh is strongly in need of export diversification and we need to concentrate on improving logistics performance and support ease of doing business.

Bangladesh is looking to increase its export size by USD 300 billion by 2041 and increase private investment to about 37%, while FDI is planned to be at least 3% of GDP. There are challenging requirements to increase logistics infrastructure. Bangladesh needs to look at attracting investment through several trade gateways such as ports and terminals, inland container depots, freight transportation, warehousing and lighter ships for inland waterways etc. 

Trade facilitation infrastructure and steps forward in this area are a priority, however, progress so far is not up to the mark. As per the private sector, delay in releasing goods from customs is increasing costs and making them uncompetitive. 

In a recent seminar on logistics, speakers put emphasis on trade facilitation and studies show that trade facilitation can lower trade costs by an average of 14%. The global economy could be USD 9 trillion bigger by 2030 with full implementation of the trade facilitation agreement of the WTO. 

Bangladesh has so far completed 45% of its commitment till today as per the Trade Facilitation Agreement of WTO. Vietnam has completed 87.4% and by 2023-24 they will complete 100%. India has completed 100% while Sri Lanka is much behind and has been able to complete 34.9% till today. Unless Bangladesh completes the trade facilitation commitment fully, establishing regional and global networks and connectivity will be difficult.

Airport support services are a component of logistics and our airport-related charges are higher than in other countries. For example, terminal handling charges (THC) is $0.08A/kg in Bangladesh, which is $0.05 in India and in Sri Lanka it is not applicable. 

While the X-ray charge is $ 0.10/kg in Bangladesh, it is 0.04/kg in India and $ 0.03/kg in Sri Lanka. Other costs like build-up or operational handling services are higher in Bangladesh. It seems that operational capacities and efficiencies in the terminal have to be improved to facilitate local and foreign investors.

Logistics is a huge sector both within the country and globally. Utmost importance has to be given to developing logistics support services as the sector can create employment, encourage investment and at the same time add value to create competitiveness. 

At this stage of the transition, Bangladesh needs the right steps to formulate policies without wasting time and take an integrated approach, as a number of policies are connected with the logistics sector.

Ferdaus Ara Begum is the CEO of BUILD, a Public Private Dialogue Platform that works for private sector development.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.