Transport and Logistics Facilitation as an Effective Means of

Economic Development and Employment
Agriculture, Fisheries and Food
Transport and Logistics Facilitation as an
Effective Means of Promoting Trade and
Regional Integration within the SADC
Working Paper
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Transport and Logistics Facilitation as an
Effective Means of Promoting Trade and
Regional Integration within the SADC1
Thomas Feidieker
1
This working paper, commissioned by the Trade Programme of GIZ, was prepared in the context of the author‘s function as an
Advisor in the Trade Division of the Federal Ministry for Economic Cooperation and Development (Germany). Thomas Feidieker
had been seconded for a short-term period to the World Bank Pretoria Office. He is currently working as an Advisor to the
German Executive Director at the World Bank in Washington, DC.
Abstract
This paper examines the costs of transport and logistics in the Southern African Development Community
(SADC) from the perspective of regional integration. Logistics are pivotal for trade facilitation and the software
side of logistics, i.e. administrative costs of transit and related customs procedures are crucial in determining
transport prices. To this end, hurdles to transport and logistics can be reasonably seen as a quasi non-tariff
barrier to trade. Major weaknesses of transport logistics within the SADC region include high port costs and
processing fees, high dwell time for inbound containers, poor transport services with long transit times and
unreliable service quality, as well as poor clearance and quality of transit infrastructure. This paper identifies
transport bottlenecks and shortcomings and draws a revised conceptual logistics framework conducive for
deeper regional integration. In this context, smoothing regional disparities can be regarded as a crucial success
condition. Of particular interest is, therefore, the specific situation of landlocked countries. The driving
question is how to deal with landlocked countries and how to improve the supply chain across countries.
Both areas are of major importance striving to intensify regional trade, division of labor and the regional
value add in international trade.
The paper differentiates trade facilitation measures with regard to traditional measures, such as streamlining
trade-related procedures, supporting infrastructure, reforming customs and more importantly, the “new trade
facilitation agenda”. The latter incorporates a supply chain perspective, covering issues such as logistic
processes, trade-related infrastructure, services and transport facilitation, and regulatory and commercial
procedures. The approach of the paper is to analyse transport and logistics with a comprehensive view on the
production and the trade supply chain. Consequently, the paper is organized along single elements of
transport and logistics costs and consists of five parts. The introduction lays down the driving questions, the
objectives, and the concept. Part two summarizes results of the World Bank‘s 2010 Logistic Performance Indicator
(LPI), which are of relevance for understanding the stance of logistics in the SADC area. Part three focuses
on different sources of direct transport and other logistic costs in order to identify shortcomings and options
for cost reductions and efficiency gains. Chapter four is the main part of the paper and consists of seven
sections. The first section analyzes the positive nexus between supply chain reliability and trade. From this
perspective, the different types of process induced logistic costs are treated in six sections. The final chapter
draws policy conclusions and recommendations for actions within the SADC region.
In the light of a division of labor, specialisation, south-south trade, and regional value chains trade facilitation
measures are a precondition for export competitiveness of SADC member states. Striving for development of
the entire SADC region, policy measures need to equally provide for the needs of landlocked countries. In
this context, both sides of logistics, i.e. exports and imports, should be targeted as export activities and are the
main beneficiaries of improved import logistics. This helps reducing the cost of backward logistics and
services and provides for economics of scale and a bigger regional market. The main finding is that process
induced costs, not conventional logistic infrastructure provide the most effective leverage for reducing costs.
Interestingly, a reduction of border-crossing delays has the highest impact on transport prices. Enhancing the
reliability and predictability of the supply chain has the potential to substantially reduce the stock of
inventories and thereby the cost of production. Hence, these measures should be a top priority of policy
actions in SADC member states.
Content
List of Abbreviations ......................................................................................................................................................... 6
1
Introduction and Overview ..................................................................................................................................... 7
2
What Does the Logistic Performance Index Reveal about SADC?.................................................................. 8
3
4
5
2.1
Construction of the Index .............................................................................................................................. 8
2.2
LPI Performance of SADC Members ........................................................................................................ 10
Direct Transport and other Logistic Costs ......................................................................................................... 11
3.1
SADC Transport Costs Compared ............................................................................................................. 11
3.2
Transport Costs, Prices and Time ............................................................................................................... 12
3.3
Market Regulation and Liberalisation Experiences .................................................................................. 13
3.4
The North-South Corridor in Southern Africa ......................................................................................... 14
3.5
Logistic Costs for Landlocked Countries................................................................................................... 15
Logistics Process Induced Costs........................................................................................................................... 16
4.1
The Nexus of Supply Chain Reliability and Logistic Cost ...................................................................... 16
4.2
Transit Systems and the Supply Chain ....................................................................................................... 17
4.3
Border Procedures, Governance, and Delays ........................................................................................... 18
4.4
One Stop Border Post ................................................................................................................................... 20
4.5
Other Logistic Costs and the Risk of Rents and Market Failures .......................................................... 21
4.6
Unreliability and Supply Chain Risks .......................................................................................................... 21
4.7
Transport Deviation and Multimodal Transport Choices....................................................................... 24
Policies Conclusions for the SADC Region and Recommendations ............................................................. 25
5.1
Policy Conclusions ......................................................................................................................................... 25
5.2
Recommendable Policy Options ................................................................................................................. 27
List of Tables..................................................................................................................................................................... 29
List of Figures ................................................................................................................................................................... 29
List of Boxes ..................................................................................................................................................................... 29
6
References ................................................................................................................................................................ 30
5
List of Abbreviations
BUSA
Business Unity South Africa
CIF
Cost Insurance Freight
COMESA
Common Market for Eastern and Southern Africa
DRC
Democratic Republic Congo
EAC
East African Community
FOB
Free On Board
IT
Information Technology
LDC
Least Developed Countries
LLDC
Landlocked Developing Countries
LMIC
Lower Middle Income Countries
LPI
Logistic Performance Index
MOL
Mitsui O.S.K Lines
NTB
Non-Tariff Barriers
OECD
Organisation for Economic Cooperation and Development
OSBP
One Stop Border Post
SADC
Southern African Development Community
SSA
Sub Sahara Africa
TEU
Twenty-foot Equivalent Unit
TIR
Trans International Routes
UMIC
Upper Middle Income Countries
VAT
Value Added Tax
6
1
Introduction and Overview
The following paper examines the costs of transport and logistics in the SADC region. The main target of the
paper is to analyse logistics costs in the perspective of negative consequences for import and export
competitiveness. As logistics and trade are deeply entangled, the aim is to draw conclusions on how logistics
facilitation may foster competition, trade and regional integration within the SADC region and elsewhere.
Despite there being no internationally agreed upon definition, logistics can be seen as an important area of
policy action when striving to facilitate trade. This becomes quickly clear when focusing on the software side of
logistics. Administrative costs of transit and related customs procedures, for example, are crucial in
determining transport prices. To this end, hurdles to transport and logistics can be reasonably seen as a quasi
non-tariff barrier to trade within SADC. Bearing in mind the regional integration efforts of SADC, as well as
COMESA and EAC, there is a need for identifying transport bottlenecks and shortcomings and drawing a
revised conceptual logistics framework conducive to broader and deeper regional integration. Of particular
interest is the specific situation of landlocked countries as regional disparities are high and smoothing them
can be regarded as a success condition of the SADC. The driving question in the context of logistics and
trade competitiveness is how to deal with landlocked countries and how to improve the supply chain across
countries. Both areas are closely connected and of major importance striving to intensify regional trade,
division of labor, improving the value chain and the regional value added in international trade.
Major weaknesses of transport logistics within the SADC region include high port costs and processing fees,
high dwell time for inbound containers, poor road transport services with long transit times and unreliable
service quality, as well as poor clearance and transit infrastructure with low capacity and quality, for example.
Poor logistics impose considerable extra costs, which, particularly for landlocked countries, might be
prohibitively high, thereby strangling trade and concurrent growth, and excluding them from the benefits of
regional and global integration. SSA countries are still heavily focused on commodities and agricultural
products. Due to similarities in production and trade between the neighbouring countries and weak
infrastructure and other barriers, most trade in Africa is international and not sub-regional. For instance,
regional trade in imports and exports within SSA is less than 10%. Therefore, most transport is outwardoriented, relying heavily on ports and shipping. This holds particularly true for the SADC region as it contains
five landlocked countries2 (Teravaninthorn/Raballand 2009:18).
Transport costs in Southern Africa are not outrageously higher than in OECD countries. Taking into account
quite low wage levels in most of the SADC member countries, transport costs and prices should be much
lower, partly the lowest in the world, as transport is labor intensive. However, all four African sub-regions
(West, Central, East, and South) show on average higher transport costs and lower quality than other regions
in the world (Teravaninthorn/Raballand 2009:14). Therefore, sources of costs need to be examined
thoroughly, keeping in mind that higher than average transport costs are detrimental to investment, growth
and trade competitiveness.
Within the area of trade facilitation it can be differentiated on the one hand between traditional measures, such
as simplifying and streamlining trade-related procedures, supporting infrastructure investment, and reforming
customs and on the other hand, the “new trade facilitation agenda”. The latter incorporates a broader supply
chain perspective, covering more comprehensively issues such as logistics processes, trade-related
infrastructure, services and transport facilitation, regulatory and commercial procedures and red tape and
inconsistent regulations. Aiming at regional integration and increasing world market participation, it is crucial
to analyse transport and logistics comprehensively in view of the production and the trade supply chain.
Consequently, this paper is organized along single elements of transport and logistics costs. Despite the lack
of a formally agreed upon definition, in the context of this paper the term logistics is defined in the broader
sense of the process, i.e. planning, implementing, and controlling the efficient, cost-effective flow and storage
of raw materials, pre-products, in-process inventory, finished goods, and related information from point of
2
Not counting Swaziland and Lesotho.
7
origin to point of consumption or processing. Logistics costs encompass a much wider range of activities
than transport costs and include transaction and process costs (related to transport and trade processing of
permits, customs, and standards), financial costs (such as inventory, storage, and security), and nonfinancial
costs (such as insurance). Accordingly, the total logistics costs can be broken down along the following types.
Table 1
Components of Total Logistics Costs
Costs =
+
Fees paid for actual freight and transit transportation services to truckers, rail,
or ship operators
(1) Transportation Costs
(direct costs)
(2a) transport and transit overheads such as fees, procedures, road blocks,
facilitation payments.
(2) Other Logistics Costs
(direct costs)
(2b) Fixed administrative costs of shipments
(3a) in transit moving inventory costs (costs of goods maintained on the road,
or in clearance while already paid for, e.g. cost of average transit time)
+
(3)
Delay
and
Hedging
(process induced costs)
Costs
(3b) induced costs to hedge time unreliability (inventory and warehousing
costs), or shift to faster/more reliable and thus more expensive mode of
transportation
(3c) induced costs to hedge quality unreliability and transport damage
(inventory and warehousing costs), or to shift to more expensive mode of
transportation
(3d) false in cargo composition and wrong documentation
This paper consists of four chapters. It starts by briefly summarizing the results of the World Bank‘s recent
2010 Logistic Performance Indicator (LPI), which are of relevance for understanding the stance of logistics in the
SADC region. Findings provide an overview and a contextual background of logistics performance within
SADC and are helpful for the following analysis. Part three focuses on different sources of direct transport
and other logistics costs, prices aiming at identifying shortcomings and options for cost reductions and
efficiency gains. Chapter four can be seen as the main part of the paper, as it will reveal that process induced
costs provide the most effective leverage for reducing logistics costs within SADC. The first section starts by
analysing the positive nexus between supply chain reliability and trade. The different types of process induced
logistics costs, such as border procedures and governance, the relevance of one stop border posts, effects of
rent seeking activities and market failures, the impact of an unreliable supply chain on the stock of
inventories, transport deviation and the need for multimodal transport choices is treated in six sections. The
final part draws policy conclusions and recommendations regarding areas of action for the SADC region.
2
2.1
What Does the Logistic Performance Index Reveal about SADC?
Construction of the Index
Facilitating trade and transport is essential for countries to compete in the global market place. Firms need to
move goods and services across borders swiftly, reliably and with low transaction (logistics) costs. However, it
is not only the global market place but the regional level which deserves particular attention in various
perspectives. Regions provide plenty of options for enlarging often narrow national markets, thus allowing
for capitalization on economies of scale. Intensifying intra-regional trade offers a lot of opportunities for
improving the regional value chain as well as trade diversification. Herewith connected are advancements in
the regional degree of division of labor. Furthermore, intensifying regional economic linkages and trade can
often also be seen as a prerequisite and important intermediate stepping stone towards successfully entering
global markets. As the World Bank‘s 2010 Logistic Performance Indicator (LPI) shows, trade logistics
performance is directly linked with important economic outcomes, such as trade integration and regional
trade. The key issue – already highlighted by the 2007 LPI – is that a trade supply chain is only as strong as its
weakest link. This points to regional bottlenecks and potential areas of action within SADC as well as other
African regions.
8
The World Bank‘s 2010 Logistics Performance Index summarizes the performance of countries in six areas that
capture the most important aspects of the current logistics environment:
Efficiency of the customs clearance process.
Quality of trade and transport-related infrastructure.
Ease of arranging competitively priced shipments.
Competence and quality of logistics services.
Ability to track and trace consignments.
Frequency with which shipments reach the consignee within the scheduled or expected time.
The LPI consists of two main parts based on different perspectives: international and domestic. The
international LPI provides qualitative evaluations of a country in the six areas described above by its trading
partners—logistics professionals working outside of the country. The domestic LPI provides both qualitative
and quantitative assessments by logistics professionals working inside the country. This part includes more
detailed information on the logistics environment, such as core logistics processes, institutions in the
respondents‘ countries of work, and performance time and cost data. Compared to 2007, the 2010 LPI was
improved, as it contains on the domestic level important new areas of assessment, such as customs valuation
methods, rate of shipments physically inspected, use of electronic submissions, pre-arrival clearance and postclearance audit procedures, the transparency of customs procedures and administration, and border and cargo
security.
The LPI ranks the 155 participating countries along the score of 4.11 (highest value, Germany) down to the
lowest score of 1.34. As the cumulative distribution of LPI scores shows (see Figure 1 below, source World
Bank, 2009) participating countries are clustered in five quintiles, while the distribution of LPI scores suggests
four types (thereby grouping the 3rd and 4th quintile into one type) of country logistics environments:
logistics unfriendly, or severely logistics constrained countries, such as often least developed countries
(bottom quintile); partial performers, such as the low and middle-income countries facing similar constraints
(fourth and third quintiles); consistent performers , such as countries achieving better logistics performance
than their income group (second quintile); and logistics friendly, high performers, for the most part highincome countries (top quintile).
Figure 1
Cumulative Distribution of LPI Scores
9
2.2
LPI Performance of SADC Members
Having an LPI lower by one point – such as 2.5 rather than 3.5 – implies two to four additional days for
moving imports and exports between the port and a company‘s warehouse or e.g., it implies a rate of physical
inspection that is 25 percentage points higher. Table 2 below shows the LPI distribution of 9 participating
SADC members, which, in perspective of quintiles, can be split up in three groups: South Africa ranges on
top as logistics friendly, the partial performer are made up of three countries (of which two landlocked) and a
group of five countries ranges in the fifth quintile, of which two are landlocked. The distribution
demonstrates the heterogeneity of logistics performance across the SADC.
Table 2
LPI Distribution of 9 Participating SADC Countries
LPI 2010
Sub rank in six categories
% of
SADC
LPI
LPI
Countries
rank
score
highest
per-
InfraCustoms
International
structure
former
shipment
Logistics
quality,
competence
Tracking
Time-
and
tracing
liness
South Africa
28
3.46
78.9
31
29
31
25
24
57
Mauritius
82
2.72
55.3
50
96
33
97
100
127
DR Congo
85
2.68
53.8
59
98
109
49
119
94
Madagascar
88
2.66
53.2
87
60
53
102
109
128
Botswana
134
2.32
42.3
126
119
152
119
99
123
Mozambique
136
2.29
41.5
145
124
87
130
135
150
Zambia
138
2.28
41.2
111
140
128
149
130
131
Angola
142
2.25
40.1
151
149
130
147
106
121
Namibia
152
2.02
32.8
152
148
145
144
144
151
Source: The World Bank Connecting to Compete 2010: 35
The results of the sub-rankings of SADC members show a considerable spread demonstrating that there are
strengths and weaknesses in the six specific logistic categories. As the total sample in the LPI reveals, income
alone does not explain the variation of logistic performance across countries. Most high income countries are
in the top 20 percent of LPI performers, but grouping other countries by income displays that there is a
considerable dispersion across all LPI performance types. Upper and lower middle-income countries, for
example, are present in all five of the LPI 2010 quintiles—with scores ranging from the bottom group of
logistics performers to the top. Even low-income countries have LPI scores across four of the five quintiles.
Vietnam for instant, a low-income country, has an LPI score broadly comparable with those of some upper
middle-income countries.
Plotting the average relation between country income and logistics performance in the LPI allows identifying
over- and underperformers in the logistics sector. An over-performer is a country with a higher LPI score
than would be expected based solely on its income level, an underperformer a country with a lower than
expected LPI score. Excluding high-income countries, within the group of the ten most significant overperformers three SADC countries can be found: Republic of Congo, Madagascar, and South Africa. Within
the group of the ten most significant underperformers are Angola, Botswana, and Namibia. The composition
of these two groups, as well as the general dispersion in performance within income groups, suggests that
national policy has a strong influence on logistics sector performance. The fact that each group,
underperformers and over-performers, contains a landlocked country points also to the relevance of the
policy environment. Some landlocked countries in Africa even managed to outperform their coastal
neighbours in logistic cost.
10
Comparing the figures in the 2007 and 2010 LPI indices, 26 countries with statistically significant LPI change
can be identified. The majority (25) of these changes are positive, while upward shifts of developing countries
were partly remarkable and impressive. Overachievers, of which there are eight low income countries (LDCs),
five low to middle income countries (LMIC), and ten upper middle income countries (UMIC), followed the
same strategies as top high income countries. They implemented comprehensive and advanced national
logistic policies aiming at enhancing their competitiveness. Tunisia, for example, established a national
logistics council in 2009 - involving main public and private stakeholders - to implement a comprehensive
action plan building on earlier successes. The action plan dealing with border procedures, ports, and logistics
services was included in the economic competitiveness program. Morocco has developed a similar program.
All in all LPI results show an improvement across the whole sample, except for the top 20 per cent. Measures
taken by these developing countries provide insight and examples for possible policy action of SADC
members.
3
3.1
Direct Transport and Other Logistic Costs
SADC Transport Costs Compared
Taking into account low wage levels for most of the SADC members, transport costs and prices should be
much lower and partly the lowest in the world, as the transport industry is labor intensive. Surprisingly, and in
contradiction to the aforementioned, all four African sub-regions (West, Central, East, and Southern) show
on average higher cost and lower quality in transport than other regions in the world
(Teravaninthorn/Raballand 2009:14). As shown in Figure 2 (Teravaninthorn/Raballand 2009:14) transport
prices are on average higher than in all other regions, while prices at the Durban-Lusaka corridor in Southern
Africa are close to the price level of other world regions. The large difference in transport prices (and costs)
between Southern Africa on the one hand and Central and West Africa on the other hand is clearly correlated
with the level of truck utilization and the oversupply which is mainly the result of a cartelized market
structure in Central and West Africa. Compared to this, the Southern African logistics industry works in a
mostly mature market environment and is relatively competitive. Trucking companies in Southern Africa are
able to utilize their vehicles at levels similar to European transporters with 10,000 to 12,000 kilometres per
month. However, it should be noted, the price and utilization level of Southern Africa is an average figure.
Keeping in mind the disparity, the LPI points to transport prices in single SADC Members that are much
higher. Why Southern African transport prices, despite low wages, are not lower and more comparable to e.g.
Brazil or Pakistan will be clarified in the following sections.
Figure 2
Average Transport Prices. A Global Comparison in 2007
In perspective of transport quality compared to costs, Southern Africa ranges above other African regions.
However, compared to other regions it still figures below Latin America. There is, as noted above, also
considerable disparity in transport quality across the region.
11
Figure 3
3.2
Transport Quality Worldwide Based on LPI 2007
Transport Costs, Prices and Time
Transport costs are rather similar around the world. Lower fixed costs in developing countries, that is mainly
lower wages and buying second hand trucks, are compensated by higher variable cost, i.e. high fuel
consumption (partly up to 50 litre per 100 kilometres) and maintenance due to the age of the truck fleet and
poor road conditions. Transport prices in contrast differ widely across the African regions, whereas Southern
Africa is the cheapest region. As transport time is a good indicator of quality of service it needs to be noted,
that there are high discrepancies in transport time from freight arrival at the port to the inland point of
destination across African regions. The highest delivery spreads can be found within West and Southern
Africa. For example, transit time from ship arrival to final destination is 8-9 days from Durban to Lusaka and
9-10 days from Durban to Ndola compared to an average of 7 days in Central and East Africa.
As international experiences show weak competition in the transport sector or absence of railway services
creates opportunities for the trucking industry to charge monopolistic prices. This underlines the importance
of intermodal transport competition in the SADC region. Importing or exporting firms benefit from more
comparable or lower transport cost either generated by an efficiently operating truck fleet or a competitive
rail transport service. Another important cost factor for prices charged to the producer (agent) is the utility
rate of the trucking fleet, which widely varies within Africa and is linked to the transport market structure.
Organized trucking companies in Southern Africa optimize the usage of their fleet and have similar rates as
European firms. However, as Figure 4 (Arvis/Raballand/Marteau 2009:36) shows this does not hold for the
entire SADC region, as average truck mileage of Malawi is around one third of South Africa.
Figure 4
Average Truck Mileage in Selected Developing Countries
Source: Arvis/Raballand/Marteau 2009:36.
12
3.3
Market Regulation and Liberalisation Experiences
International experience demonstrates the benefits of fierce competition in the trucking industry. Prices
charged for transportation and the quality of services depends heavily on regulatory issues and market
structure. Countries which introduced substantial reforms within in the last two decades in the transport
markets show broad positive results in terms of lower prices and better services. An illustrative example (Box
1, Teravaninthorn/Raballand 2009:23-25) is the case of transport liberalisation in Rwanda compared to an
attempt of Malawi aiming at protecting national truckers.
Box 1 African Experiences Compared: Transport Liberalisation in Rwanda and
Transport Protection in Malawi
Rwanda. The only deregulation experience in the African region so far took place in Rwanda in 1994, and it had a huge
effect on transport prices, confirming the impact that cartelized structures have had elsewhere. After deregulation of
international transport, prices declined by more than 30% in nominal terms and 75% in real terms. The impact in Rwanda
was probably stronger than in most other countries, because before deregulation road freight services were a monopoly of a
parastatal trucking company (STIR) (Mwase 2003). Deregulation resulted in lower prices and led to growth in the Rwandan
fleet. This result is in contrast to common fears that deregulation, which liberalizes market entry, leads to eradication of the
fleet owned by truckers from landlocked countries. In the case of Rwanda, the fear was even stronger given the
disappearance of its trucking fleet at the height of the Civil War in 1994. Deregulation helped to achieve a rapid recovery of
the domestically owned fleet. In addition, the business strategy followed by Rwandan truckers aimed at specialization in
specific goods to capture niche and profitable markets, such as petroleum products. This largely explains why the current
fleet is equal to the level prior to deregulation of international transport.
Malawi. This was a case of attempted protection of the local trucking industry against competition from truckers from
other countries, mainly South Africa. The Malawian government established surtax on domestic transport in Malawi. Under
the current tax system, the domestic transporter collects the surtax on transport from the customer. The surtax in fact
served no purpose, other than hurting farmers who had to pay the surtax for transport of their production, reducing their
profit margins, and providing the local truckers with additional profit for their services. Market regulations in any case
provided a strong entry barrier to South African truckers entering into the Malawi transport market, where the government
intended to protect the domestic road transport providers.
Thus, trucking deregulation is the more successful strategy, leading to more competition, lower prices, and better services,
while attempts to artificially protect local transporters (Malawi) have had perverse consequences.
The major positive difference is that in Southern Africa rather than in West or Central Africa there are no
quotas, freight allocation schemes, or queuing systems established. These regulations have a severe market
distorting effect and promote cartelizing (see Table 3, Teravaninthorn/Raballand 2009:48). The absence of
these measures can be seen as one of the important reason for the relative competitiveness of the transport
sector in Southern Africa. Transport to and from Southern African is settled in bilateral agreements. Direct
contracting, that is a medium- or long-term contract between a shipper and a trucking company, is the
normal case and one of the best signs of good logistics and developing an efficient transport industry
(Teravaninthorn/Raballand 2009:33,54). However, there is some room for improvement and existing
regulations should be reviewed as the case of cabotage prohibition in Malawi and the third country rule
demonstrates. Cabotage prohibition leads to an underutilization of freight capacity or, putting it differently to
an overall capital stock, higher than needed and lesser competition. Closely connected is the third country
rule which allows operation of trucks registered in none of the two countries which are part of the transaction
(origin or destination). Within the SADC region the third country rule is only applied on a reciprocal basis
between Southern Africa and Zimbabwe and during a defined period of time in Malawi. Extending the third
country regulation increases competition across the region. However, it should be extended only given that
free cabotage in all SADC members is provided. Otherwise, as transport initiation is oriented to the point of
origin and destination, limited cabotage would put landlocked transport companies in disadvantage compared
to coastal shippers. The transport industry and the major corridors in Southern Africa are compared to other
corridors in Africa, the most advanced in terms of regulatory regimes and efficiency of logistics services.
13
However, compared with international levels the logistic performance is poor and much needs to be done
(see chapter 2).
Table 3
3.4
Main Regulatory Barriers in Sub Saharan Africa
The North-South Corridor in Southern Africa
For better orientation this section provides some information on the main corridor in advance. The
important issue of corridor-related one stop border posts is treated more intensively in perspective of indirect
logistic cost in section 4.4. Logistics in Africa are organized along main trade and transport corridors
connecting the ports of entry or exit to the hinterland and via transit to landlocked countries. The northsouth corridor connects the main ports of entry, which is Durban (South Africa), Beira (Mozambique), and
Dar-es-Salaam (Tanzania), with five landlocked countries (Botswana, Malawi, Zambia, Zimbabwe, DR of
Congo) of the SADC region. The north-south corridor is of great economic importance as it provides a dual
purpose. First, it serves an intraregional trade route between landlocked countries (Botswana, DR of Congo,
Malawi, Zambia, Zimbabwe) thus potentially fostering intraregional trade. Second it connects these countries
to the South African market and links them to the port of Durban for overseas imports and exports, thereby
providing for supply chain needs. On the south-north axis there are two main border crossing points, Beit
Bridge/Ressano Garcia between Southern Africa and Mozambique and Goblers Bridge/Martins Drift
between South Africa and Botswana. With 500 trucks per day, Beit Bridge/Ressano Garcia is frequented
twice as much as Goblers Bridge (Teravaninthorn/Raballand 2009:33-34).
Although the port of Beira in Mozambique is much closer than Durban for most Zambian shippers, as well
as shippers from the north-eastern part of South Africa, Durban is more convenient for several reasons. It
can be accessed directly by reliable road infrastructure and with channel-dredging equipment. Durban is the
largest port in the area, performs better in reliability and services and has a better accounting for at least three
quarters of the total capacity provided by the various ports serving the corridors in the sub-region. Durban‘s
port equipment and lower maritime transport rates make it attractive for even Zambian and Malawian
shippers. Therefore, the Durban–Lusaka corridor route is the most utilized corridor for Zambia.
A closely connected issue with main corridors is their connectivity and potential spill over effect in rural
areas, which is illustrated by the example of Mozambique. In order to reach the full potential spill over effect,
there have to be adequate links to a low-volume roads network in remote/rural areas (Box 2).
14
Box 2 Investment Calculation of Feeder Roads in Mozambique
Given existing road networks, only 19% of rural population in Mozambique live within one hour travel to an urban centre
of more than 50,000 people and 45% live within 3 hours travel time of a city of 50,000 or more people. 3 With investment
in the main northern corridor roads only, 59% of the population in all of Mozambique (and 49% of the population in the
north) is within 3 hours travel time of a city of 50,000 people or more. Adding investment in existing feeder roads (10 km
from the main northern corridors) to increase the speed from approximately 10 km/hour (on an earth road) to a speed of
80 km/hour on a paved, good-condition road increases the national population within 3 hours travel time of a city of
50,000 people or more by only 1.2%, to 60.5%. Considering only the five northern and central provinces where the major
improvements in corridors take place, investment in feeder roads increases the share of ―spatially connected‖ population
by 1.4 percentage points from 48.8 to 50.2%.
It becomes quite clear that without massive investments to low-volume roads, investments in corridor
improvement (even if combined with feeder roads) will have a limited positive impact on rural access to
roads. Given the low ratio of connecting rural population compared to invested funds this might question the
efficiency and political priority of providing for low–volume roads and feeder roads at all. However,
completing the picture requires looking at costs of rural transport and the potential benefits of improving it.
Interestingly, a study (Pedersen 2001) about Ghana shows that only 4 percent of total local and rural trucking
transport contributes to almost 50 percent of total transport costs to Europe. Rural transport is almost 500
times more expensive than maritime transport in U.S. dollars per ton-kilometre. Reducing the rural transport
time by 50 percent unfolds a big leverage and would reduce total transport costs by almost 15 percent. On
the one hand improving the low-volume and feeder road system requires enormous financial means but it can
be underlined on the other hand that it has also a significant effect on lowering total transport costs.
Thus, the competitiveness of the rural area in e.g. agricultural products and concurrent potential in trade
relies heavily on better logistics and an adequate small-scale road system in the rural area. As the corridors
and the main routes within SADC are in a good to fair condition, the challenge is mainly to upgrade the lowvolume and feeder road system in the remote/rural areas along criteria such as distribution of population,
integrated regional logistics concept, regional development targets, and potential export markets.
3.5
Logistic Costs for Landlocked Countries
International figures show that 20 of the 54 low-income countries of the world are landlocked. These
countries trade on average 30% less vis-à-vis coastal countries and show weaker growth rates. As the SADC
region contains five landlocked countries4, regional integration via trade and an effective supply chain
management is severely hampered as dependence on transit necessarily implies higher transaction and
transport costs. Being landlocked is in effect comparable to raising import prices and reducing export
revenues. Radelet and Sachs (1998) pointed to the issue that a re-export model is extremely difficult to
achieve in landlocked developing countries due to higher cost of intermediate products. This thought is key
for understanding the challenge of intensifying regional integration within the SADC. Using the CIF/FOB
margin as a proxy for transport cost, Radelet and Sachs (1998) find these costs to be about 50% higher for
landlocked countries. In addition, it is more difficult for landlocked countries organizing transport and
adequate infrastructure across borders and they are confronted with much higher transport and transit delays,
as well as higher variation of export and import leading time. These facts are generally confirmed by the 2010
LPI as Table 4 shows. However, excessive logistic costs and missing connectivity is not only a problem of
LLDC. Countries that are geographically stretched or feature an uneven distribution of population may face
similar problems. For example, ocean shipping from northern Mozambique to southern Mozambique costs
as much as that from Asia to South Africa (Minor 2007:16).
This is very different from Malawi or even southern Mozambique. Northern Mozambique is defined as the provinces in the Beira
corridor and northwards, i.e. Cabo Delgado, Manica, Nampula, Tete and Zambezia provinces. Population dispersion in the North
may be due to population movements related to the long civil war period.
4 Not counting Lesotho and Swaziland.
3
15
Table 4
Export Distance, Cost, and Time in Landlocked Countries
Africa
Port or airport
Land
Coastal countries
Landlocked countries
LPI score
2.46
2.39
Export time (days)
4.82
18.10
Import time (days)
7.21
6.99
Export cost (USD)
1,809.8
2,866.6
Import cost (USD)
2,700.6
3,059.0
Export time (days)
4.13
4.67
Import time (days)
6.93
8.41
Export cost (USD)
2,124.6
4,000.0
Import cost (USD)
2,581.3
3,220.8
Source: The World Bank Connecting to Compete 2010, p. 35.
Given longer distances landlocked countries are often faced with the disadvantage of higher transport costs.
In this regard, fuel prices and concurrent tax policies matter a lot in landlocked countries. Instead of charging
high fuel taxes, an active policy of SADC Members aiming at lowering fuel prices in landlocked countries
may smooth or compensate disadvantages (World Bank 2009:100, Teravaninthorn/Raballand). As the LPI
2010 shows, policy decisions of landlocked countries in the transport and logistic area matter a lot. For
example, landlocked Uganda is the third best performing low-income country in the entire sample of the LPI
2010 (66th place) even doing better than its transit country Kenya (99th). Uganda‘s story is closely related to
successful ongoing regional integration efforts with neighbouring countries and trade logistics and facilitation
projects supported by the World Bank Group and a number of international donors and development
agencies. In particular, the project for upgrading the Malaba border post—located at the border of Kenya and
Uganda—is key to understanding the improvements in Uganda‘s logistics performance.5
Transport costs, however, account for only a part of the costs of being landlocked. Based on extensive data
collection in several regions of the world, it can be argued that exporters/importers in landlocked developing
countries do face higher logistics costs. Interestingly, and against common perception, high logistics costs
usually do not result from poor infrastructure but mostly from delays, rent-seeking and governance issues.
These factors increase uncertainty and unreliability along logistic chains, causing additional costs for
importing or exporting producers, for instant excessive inventories. This topic deserves more in depth
analysis and will be discussed in the next chapter.
4
4.1
Logistics Process Induced Costs
The Nexus of Supply Chain Reliability and Logistic Cost
The reliability of the supply chain is one of the most important aspects of logistics performance. A high
degree of uncertainty means that exporting and importing firms and freight forwarders have to adopt costly
hedging strategies, such as maintaining relatively high inventory levels. Recent research suggests that these
induced costs on the supply chain can be even larger than the direct costs of freight
(Arvis/Raballand/Marteau 2007). Traders are faced with a trade-off between direct freight costs and
reliability, depending on imports or exports, their specific commodity (time sensitiveness), and the logistics
performance of each country involved in the transport and transit process.
5
For more information on the Malaba project, see the World Bank East Africa Trade and Transport Facilitation Project
(www.worldbank.org/projects).
16
Logistic cost can be structured in direct cost, such as freight, transit and transport overheads and process
induced costs. The latter is comprised of transit delays, failure to deliver in the needed time window or
without the necessary quality and storage cost. Whereas the reliability dimension of logistics can be further
separated in cost of
transit moving inventory, that is the cost of goods maintained on the road, or in clearance while
already paid for, (e.g. cost of average transit time)
hedging time unreliability or securing faster delivery within the promised time window, i.e.
variance of the export or import lead time and predictability of actual delivery (or in absence of
hedging options face inventory and warehousing costs).
hedging quality unreliability and transport damage of goods and predictability of quality of goods
delivered. i.e. variance of quality (or in absence of hedging options face inventory and
warehousing costs).
false in cargo composition and wrong documentation
Unreliability has far reaching negative consequences. In particular, producers of high quality sensible
manufactures, pre-products or time sensitive perishable goods are heavily exposed. Therefore, reliability and
logistics costs directly affect firms competitiveness and, for developing countries, the potential to trade and to
diversify from non time-sensitive commodities.
4.2
Transit Systems and the Supply Chain
Transport costs are only part of the costs of being landlocked. Necessarily costs of transit delay and
unpredictability have to be factored in, i.e. the value of time as a trade cost. A complete transit operation can
be described as a sequence of international and national transit links. A transit operation typically involves
many private and public participants and is highly fragmented and, therefore, also exposed to the risk of rentseeking activities. While port delays impact all countries, LLDCs are confronted with additional delays – likely
increasing with the number of transit procedures (Table 4). For importing or exporting goods, landlocked
countries face the time equivalent of at least three or four clearance processes, while coastal countries face
only one. On the North-South corridor for example, it takes on average 39 hours to enter Zambia from
Zimbabwe at Chirundu border-post (Curtis 2009).
Since many developing countries still rely heavily on tariff duties, they tend to develop redundant procedures
to avoid fiscal loss associated with diversion. Transit is therefore often conceived as a chain of control rather
than a freedom of transit given to compliant operators in exchange of guarantees (Arvis/Raballand/Marteau
2009:19). Some of the main reasons for the supply chain fragmentation are:
The initiation of transit, often as cumbersome a process as a final clearance in the gateway
country, involving officials and institutions of all countries involved.
Inadequate carnets and guarantee systems or bad implementation of good transit systems (e.g.
Trans International Routes, TIR)
Systematic implementation of transit controls, irrespective of the principals reliability and
competence.
Convoy or escort systems not only on risky cargo or insecure vessels, but also on containers.
Excessive controls en route, paving the way for additional illegal controls.
Obsolete freight regulations.
Arvis, Raballand and Marteau (2009:27) examined in an empirical application to the North Corridor in East
Africa the impact of transport predictability. They show that there are gains on transport costs from corridor
facilitation (2.2 days on average saved per truck, which amounts to 286 USD). However, they are modest
compared to significant gains from reduced inventories. In the sample, the inventory level is halved with
consequent cost savings of 800 to 1,000 USD per shipment, which amounts to 25% of the transport cost.
Hence, the most powerful leverage to reduce overall logistic costs is optimizing the reliability and the smooth
functioning of the transit process.
17
4.3
Border Procedures, Governance, and Delays
The lead time of imports and exports is a crucial element of logistic performance. The 2010 LPI survey
derived from the national level that the lead time for port or airport supply chains is twice as long in low
performance countries as compared to high performers. For land supply chains the picture is even worse, as
the lead time is more than five times longer. As these times are strongly correlated with distance it can be
concluded that geographic hurdles, and possibly internal transport markets, continue to pose substantial
difficulties (World Bank 2009:29).
As Figure 5 shows, the time taken for clearance of goods (see left scale) through customs is highest in the
bottom quintile, whereas clearance of imports in the bottom quintile is ten times higher than in the top
performer quintile. Notably, in addition the clearance time significantly increases when goods are physically
inspected. Border management reforms, therefore, need to focus on the prevalence of physical inspection,
proliferation of procedures, and red tape in low performance countries.
Figure 5
Median Import Lead Time and Average Clearance (in Days)
Averaged by LPI Quintile
14
12
10
8
6
4
2
0
6
5
4
3
2
1
0
Bottom
Fourth quintile Third quintile Second quintile Top quintile
quintile (lowest
(low
(average
(high
(highest
performance) performance) performance) performance) performance)
Lead time (port/airport) - import
Lead time (land) - import
Clearance time without physical inspection
Clearance time with physical inspection
Source: The World Bank Connecting to Compete 2010, p. 29.
The source of underperformance can be also of exogenous nature to the supply chain, the quality of service,
or the speed of clearance of goods. The LPI dataset provides information on the sources of delay not directly
related to the capacity of domestic services and agencies (Table 5). There is a sharp contrast between the high
performers and the average to low performers in perspective of three factors: compulsory warehousing, theft,
and informal (corrupt) payments.
18
Table 5
Respondents Often or Nearly Always Experiencing Delay Factors
in percent of respondents
Bottom quintile
(lowest performance)
Fourth quintile
(low performance)
Third quintile
(average performance)
Second quintile
(high performance)
Top quintile
(Highest performance)
Major delays from
Compulsory
preshipment
maritime
warehousing
inspection
transshipment
39
34
30
18
36
32
23
29
19
38
32
25
24
13
33
21
28
22
9
18
2
6
4
2
3
Theft
Informal
payments
Source: The World Bank Connecting to Compete 2010, p. 33
Customs procedures, personnel checks and also road blocks have an influence on the truck utilization level.
Table 6 (Teravaninthorn/Raballand 2009:76) provides some cross country overview. Given that transit
freight has to pass through several countries, which is often the case for landlocked countries, hours for
border crossing might easily be a multiple. In Africa there seems to be a strong correlation between transport
prices and the number of cross-border operations. Reasons for the delays are numerous, including limited
parking space for trucks, limited space in the customs yard, poor cargo documentation, and duplication of
processes between customs. Freight forwarders may have presented documentation in advance of crossing,
despite customs officials might start to process documentation only when trucks have entered the customs
yard, which leads to further delay and congestion.
Table 6
Opportunity Costs of Delays
According to The World Bank Connecting to Compete 2010 indicators of red tape also illustrate a lack of
coordination at the border and the burden this imposes on logistics operators. Operators in the lowest
performance countries typically deal with around double the number of government agencies as operators in
high performance countries (Figure 6).
19
Figure 6
Export and Import Agencies and Documentation, Averaged by LPI Quintile
6
5
4
3
2
1
0
Bottom
Fourth
Third quintile
Second
Top quintile
quintile
quintile (low (average quintile (high (highest
(lowest performance) performance) performance) performance)
performance)
No. of import agencies
No. of export agencies
No. of import documents
No. of export documents
Source: The World Bank Connecting to Compete 2010, p. 31.
The same results can be found for documentary requirements. The question of simplifying documentation
has always featured very high in the trade facilitation agenda, reflected in the many initiatives to create trade
single windows and simplified and harmonized transit procedures and documents. While COMESA has
harmonized transit documentation, despite being explicitly targeted, it is still missing within the SADC region.
From Durban to Malawi for example, the same information is declared seven times at different locations.
Simplifying documentation and pushing forward single window initiatives heavily depend on the will of
SADC Members for regional cooperation. They have to come along with addressing weaknesses in both
dimensions of border management, the soft and hard trade-related infrastructure.
4.4
One Stop Border Post
Implementing One Stop Border Post (OSBP) experienced substantial attention on the African continent in
recent years. OSBPs can be seen as an important complement to trade liberalization and regional integration
policy efforts to improve the flow of intra-regional trade and alleviate transit transports of landlocked
countries. The main operational principles are: all border control agencies of involved countries will operate
side by side in the same control zone and coordinate and integrate their activities as much as possible. The
target is facilitating the achievement of each agency‘s objectives and at the same time facilitating traffic and
transit. Smooth functioning and cooperation of border control agencies as well as simplifying administrative
procedures reduces processing times for transit and thus logistic costs. The final impact is facilitation of trade
and stimulation of growth.
In Southern Africa for example, delays at Beit Bridge/Ressano Garcia (South Africa-Mozambique) or
Chirundu (Zambia-Zimbabwe) border posts have a similar impact as those at Malaba in East Africa. The
crossings at Beit Bridge/Ressano Garcia and Chirundu take a minimum of four days, which is at least twice as
long as the Malaba crossing in East Africa. Trucking companies waste several days at these border posts
between South Africa and Zimbabwe and Zimbabwe and Zambia. Teravaninthorn and Raballand estimate
the cost of delays at Beit Bridge and Chirundu at US$3.5 million each year to trucking companies only, which
is equal to approximately a 25 percent surcharge on transport costs along the corridor. If all these delays
(port, border) could be significantly reduced, vehicle yearly mileage should improve by at least 30,000
kilometres along the north-south corridor, which would help reduce operating costs and prices.
Current examples for OSBPs within the SADC region include the initiative to create an OSBP between South
Africa and Mozambique at Beit Bridge/Ressano Garcia, Mozambique and Swaziland at Lebombo, Zambia
and Zimbabwe at Chirundu, between Zimbabwe and Mozambique at Forbes/Machipanda and along the
Trans-Kalahari Corridor. Not all of these projects have yet been materialized, but important steps have been
taken at Chirundu.
20
The OSBP between Mozambique and South Africa (Beit Bridge/Ressano Garcia) and Mozambique and
Swaziland (Lebombo) was included in the SADC plan of action to promote regional integration. The port of
Maputo was seen as an integral and strategic part of the transit chain and a potential trade and transit hub.
The idea was then, that a refurbished port would greatly benefit from the increase in trade along the Corridor.
At the same the OSBP relaxes the congestion at the Durban port, while the increased trade flows that would
result from new investments in the Gauteng area in South Africa would benefit from smooth border controls
at Lebombo and Beit Bridge/Ressano Garcia. For several years, authorities have been working on
establishing joint border posts. However, it must be critically noted that negotiations on laws and regulations
have been ongoing for 13 years6 and results are meagre compared to time. Advancements with implementing
OSBPs at Lebombo and Beit Bridge/Ressano Garcia are lagging far behind schedule and the envisaged
opening in April 2010 has been postponed.7
4.5
Other Logistic Costs and the Risk of Rents and Market Failures
The first type of other logistic costs (Table 1) is transit overheads (2a) attached to transit and added to the
transport fee (direct cost). This cost type is caused by procedures and regulations and includes procedural
fees (such as transit bonds, acquiring documents), illegal facilitation payments and mandatory private or
public services associated with transit (authorization or mandatory documents). The shipper may internalize
the overheads but, in practice, fees are paid to other parties either directly or through agents (e.g. freight
forwarders) who will charge an additional fee for processing. Unlike the transit overheads, administrative costs
(2b) for shipments are fixed costs the shipper has to pay to a freight forwarder making the logistics possible.
Costs result from a purely private transaction irrespective of landlocked status of origin or destination. The
second type of costs depends on availability and affordability of key services. Both cost categories are deeply
interlinked with the political economy of transit. Particularly in countries with poor governance and unreliable
business practices, transit operations are highly vulnerable to rent seeking activities. The main category of
logistic overheads (2) to transit operations is corruption and facilitation payments either on the route or at
origin/destination. This contains the well known fact of small payments at scheduled or unscheduled
roadblocks to local police, military or customs agents (Arvis/Raballand/Marteau 2009:41). Transit initiation
and border crossing carry the potential of much bigger payments between transit operators, customs and/or
transport parastatals staff and there is also the potential for higher delay in the absence of payment. The
weirdness is that facilitation payments are often not charged for none complying with regulations, which in
turn sets incentives to not comply. In sum it is often difficult to separate facilitation payments and bribe. A
second main category of logistic overheads is mandatory transit-related procedures. These include bonds or
guarantees, compulsory transport or customs documents, escorts, transit fees and compulsory insurances.
Many transit related mandatory fees are overpriced and, in some cases, unjustified and akin to rents (for
instance, mandatory requirements for using of monopoly warehouses while clearance is delayed eventually
purposely).
Transit overheads for LLDCs can seldom be disentangled from transportation costs and the magnitude is
difficult to evaluate. Only facilitation payments at roadblocks have received a certain degree of attention from
policy makers. The reason for the knowledge gap is limited incentives for agencies and operators to be
transparent and widespread collusion between government officials and agents. However, rent seeking and
facilitation payments are common in all regions though the degree of proliferation varies among corridors.
4.6
Unreliability and Supply Chain Risks
As the 2007 LPI report highlighted, delays rise steeply with lower logistics performance. This is illustrated by
a severe difference in reliability between bottom and top performer of the LPI ranking (Figure 7). In low
performing logistic countries only about half of survey respondents feel that shipments are cleared and
delivered as scheduled. Interestingly, the fourth through second quintiles show a considerable gap in
Interview held with Barney Curtis (Federation of East and Southern African Road Transport Associations, FESARTA), 05
February, 2010.
7 For an update on the Maputo corridor see presentation of Victor Nunes, Annex 12: http://www.mcli.co.za/mcliweb/events/2010/04feb2010/007-lrg-osbp-nunes.pdf
6
21
performance between exports and imports. The reliability of the export supply chain appears to be
substantially higher. Vice versa the fact might point to stronger controls on imports for reason of customs
revenue.
Figure 7
LPI Respondents Indicating Shipments are Often or Nearly Always Cleared
and Delivered as Scheduled, Averaged by LPI Quintile
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Imports
Exports
Source: The World Bank Connecting to Compete 2010, p. 38.
Delays can be caused not only by shipments. Other sources are the unpredictability of the clearance process
itself, delays in inland transit, or the low reliability of some services. As will be shown below, not the average
lead time of imports and exports, but unexpected delays count most for agents and shippers. Therefore, this
section addresses in particular sources of unexpected delays, which are an important aspect of logistics
upgrading in low performance countries.
Confronted with unpredictable delays of freight the risk can be managed either through increased inventory
holdings or altering transport modal choice. These costs add to the already substantial logistics costs in
developing countries. The cost of hedging unreliability depends on the time value attached to the cargo, the
lead time in transit and its variability, and the cost for the operator of an interruption in the supply chain.
This cost can be expressed as equivalent days of inventory. In terms of the supply chain context, the relevant
category is then the cost of ownership of goods in inventory. Two types of inventories can be identified:
inventory in motion for goods in transit and inventory of a firm warehouse before processing or distribution.
Particularly logistics of LLDCs are confronted with time spent waiting for processing due to the multiple
clearances in transit logistics. Based on numerous samples in several trade and transport facilitation projects
funded by the World Bank (Arvis/Raballand/Marteau 2009:30), the ranking of causes for delays is as follows:
1) The most important source of delay is initiating transit in ports, which typically takes as much time as
final clearance for domestic goods in the same port.
2) The second source is final clearance at destination.
3) Border delays can also be a cause for concern, particularly in major regional border-crossings. Delays
are due to congestion created by haulers schedule and inadequate processing hours in the
administrations offices, as well as slow processing and duplication of tasks between the two border
countries.
4) Other sources might be:
(1)
Mandatory freight procedures
(2)
Controls en route, axle-load controls and weighbridges
(3)
Poor infrastructure conditions
22
(4)
(5)
Transhipping at multimodal facilities or reloading the freight at the border to a vehicle of
another nationality (authorities proscribe usage of national shippers)8
Customs convoy requirements which entail wasting days in transit
Arvis, Raballand and Marteau (2009:30) examined the unpredictability of lead time on basis of extensive
transit lead time data from one logistics operator on the Northern Corridor.9 According to them (Figure 8)
the broad tail of the lead time probability distribution function can be explained by the sum of uncertainties
comprising the public and private actors of transit, while the shape of the function reflects the
unpredictability of lead time.
Figure 8
Distribution of Dwell Time for Transit Containers, Dar-es-Salaam Port 2008
A quality driven shipper or freight forwarder, anticipating his practical experiences with delays and
unpredictability, will look at the probability of a container coming late to assess the induced inventory cost
(for the shipper) or to propose a guaranteed arrival schedule (for the agent). Their relevant indicator will not
be the mean, but the 95th or 99th percentile lead time, thus calculating safety margins in inventory depending
on the agent requirements and supply chain sensitiveness of export and imports. In an uncertain environment
this value can differ enormously between a relatively non-time (or non-quality) sensitive good or intermediate
and one with high requirements in punctuality of delivery.
The assessment is not directly applicable to the southern part of the transit corridor in the SADC region.
However, it demonstrates quite clearly that a fragmented transit chain and variance in processing time not
only causes delays, but also causes uncertainty and unpredictability. This poses hurdles and risks to the
smooth functioning of the intra- and inter-regional supply chain and hinders intensifying regional value
chains and trade diversification. To avoid shortages of raw materials and intermediate products, companies
start building up an excessive stock of inventories. This in turn lowers the competitiveness of the SADC
region and, in particular, it‘s landlocked members. For example, for two branches of the auto-parts supplier
of the same automobile maker, the branch located in Italy runs an inventory level of 7 days while the branch
in Morocco counts a 35 day inventory.
Spoornet10, the main railway company in Southern Africa, undertook a customer survey to assess its customer
concerns. Interestingly, reliability was considered as the prime concern before predictability, whereas time and
speed were respectively ranked 7th and 8th in this list. This is understandable as in the textile industry for
instant, product quality, reliability and time to supply goods from developing countries to Europe or the US,
are as important as the price. Given that administration procedures (and especially additional control
According to an interview with Catherine Grant from BUSA (Business Unity South Africa), held on 04 February 2010, Angola
considers implementing compulsory regulations requesting transit to be reloaded at the boarder (Onjiva) to Angolan truckers. For
transiting goods this requires eventually a second reloading. The regulation would induce transport deviation adding a severe
obstacle to regional integration of SADC. The cost of moving goods northwards into Angola by road already doubles that of the
sea option. Expected additional logistic cost and security implications of the regulation would be substantial.
9 Data include the breakdown of various phases in transit but not data of individual shipments.
10 Interview with B. Le Roux on March, 6th 2004, former CEO of Spoornet (Arvis/Rubbaland/Marteau 2009:33).
8
23
procedures) are often non-selective and essentially independent of the nature of the shipment the curiousness
is then, that, despite the willingness of compliant shippers (or agents) or consignees to pay for time reliability,
they can eventually never establish a fast track. An example is the transit operations of the World Food
Program (good quality signature, often using the best freight forwarders and ready to pay to get service)
facing the same problems as other shippers in many African corridors (Arvis/Raballand/Marteau, 2009:44).
The only option for managing unreliability is in this case providing for altering transport modal choices.
4.7
Transport Deviation and Multimodal Transport Choices
Shippers searching for more reliable logistics are faced with higher cost as a shift to other transit routes or
ports often increases transport distances. Mozambique and Malawi are good examples for illustrating
transport deviation as a result of unreliability and the need for multimodal transport choices within the SADC
region. In the last few years, Mozambique has undertaken major port and railway reforms and improved the
port efficiency. Beira Port in Mozambique is of strategic importance as being the closest port to Malawi,
Zambia, Zimbabwe, and partly Lubumbashi in DR of Congo. Traffic in transit goods imported from Beira
accounts for 70% and there is considerable trucking with Zimbabwe (50 trucks p/day) and Malawi (more
than 100 trucks p/day). Malawian trade was, except the civil war period, traditionally channelled through the
port of Beira and Nacala in Mozambique and Beira is currently Malawi´s main gateway. However, the Beira
port has operated at less than 40 percent of capacity for the last 5 years. The port is only operable during high
tide for six hours a day without the risk of vessels running aground. The remaining time it is only accessible
for vessels smaller than 800 TEU. To overcome the limitation a capital dredging of Beira is needed as World
Bank country documents point out. Compared to Durban, Beira offers mid-level price and reliability.
The intention of Port Nacala, in northern Mozambique, was to give Malawi a shorter connection to ocean
transport. As a deep water port (up to 14 meters) Nacala features excellent maritime conditions. The
complementary stretch of the Malawian railway line, however, has never been rehabilitated making it
unattractive. Since 2005 the port operator has the concession for managing the railway which faces bad
maintenance. Further, there are separate and inconsistent concession agreements on the Malawi and the
Mozambique sections of the railway. Despite the port and the railway being privatized in the late 1990s, it
handled only about 1 million tons in 2007, covering only basic costs. Main reasons are the unpaved and
impassable main road to Malawi (after Nampula city) during the rainy season. Further obstacles of Nacala
Port and the corridor are poor services, inadequate loading facilities and berthing infrastructures and long
delays. Though Nacala is the cheapest port in the region, it is not attractive for Malawian trans-shipment as
the transit time for cargo from Malawi to on-board shipment is negatively affected by high dwelling time at
the port. Nacala is therefore used for cost but not time sensitive goods, such as sugar. Non-traditional and
time sensitive goods of Malawi are partly (20%) trucked to Durban which is more reliable but also the most
expensive port in the region.
Despite a rather successful concession, traffic in transit at the Maputo port remains relatively low operating at
less than 30 percent of capacity. Since January 2008, Maputo port has had larger ships calling directly (mainly
MOL). However, calling frequency is very low. Due to low volumes most shipping lines do not call directly at
Maputo and shipping agents of freight forwarders in Maputo often do not receive the accurate information
on time from Durban. Cost comparison for container shows on average a slight advantage of Maputo against
Durban, but the positive difference is negatively outweighed by poor services.11 Mozambique ports remain
largely served by feeder vessels from Durban to Maputo and Nacala and from Durban to Beira. This
increases shipping costs and transit time. In addition, users of Mozambique ports are confronted with several
types of unpredictability.
Corruption is a severe issue in Maputo and in Durban as well, but more present in Maputo. Bribes are paid
on about 36 percent of all cargo movements for the port of Durban costing an average of 7 percent of a oneway overland shipping rate for a standard 40 foot container. For Maputo bribes are paid on about 54 percent
of all cargo movements and costing for 15 percent of the overland shipping rate for the same standard
11
See http://www.mcli.co.za/mcli-web/events/2010/04feb2010/cost-comparisons-maputo-durban.pdf
24
shipment. Unreliable logistics and poorly integrated trucking services make South African shippers suspicious
to use Mozambican ports, especially Maputo. Some large South African shippers still perceive the business
climate as unpredictable and are reluctant to redirect their logistics routes even if transport costs are lower.
Similarly freight forwarders from some landlocked SADC members choose the more distant Durban port to
avoid unpredictability. For example, a Malawian exporter of textiles needs to pay additional transportation
costs, which represent about 30% of his value added, in order to meet its delivery schedule. He prefers not to
go through the nearby ports in Mozambique, but moves his export by Durban in South Africa, which
doubles the cost compared to lower fare options (5,000 USD per container). Even so, his cost may double
again when problems en route cause him to miss the ship in Durban and, therefore, have to catch it2,000 km
further away in Cape Town (Arvis/Raballand/Marteau 2009:54). Moreover, the Mozambique government
established a scanning fee which is higher than world practices and levied even on bulk exports, such as coal
and sugar. The fee was seen by many South African shippers as a bad signal deterring their shift from Durban
to Maputo.
The examples above demonstrate the devastating effect of poor port logistics, transit services, and an
unreliable business environment. Producers, shippers and freight forwarders are confronted with a trade off
between logistic costs and reliability. Rail operations in Africa are often inefficient and do not provide for
fierce competition vis-à-vis road transport. As Nacala railway shows there is almost no multimodal transport
choice leading to a low level of competition and higher costs. The overall picture of port logistics in
Mozambique is somewhat bizarre. Nacala and Beira have great potential for landlocked SADC Members
provided that logistic services are improved, Beira would be accessible for big vessels, and Maputo is called
more frequently by larger ships directly. Maputo on the other hand is the closest port to the economic main
region in South Africa, the north-eastern Gauteng province including Johannesburg, and shows a promising
potential as a main port for corridor traffic and evolving as a major transit hub for some of the landlocked
SADC Members. In spite of this, poor trade logistics (see also the LPI) and chosen policies lead to a
considerable transport deviation putting Mozambique ports at a disadvantage and worsening in the future as
port competition increases with the planned port of Coega (South Africa).
5
5.1
Policies Conclusions for the SADC Region and
Recommendations
Policy Conclusions
Arvis (Arvis et al. 2009) points to the fact that most trade facilitation measures in the past focussed on
imports and transit. The general perception was that along with import tariff reduction, transportation costs,
delays and other facilitation problems are the primary concern of trade costs. In contrast, facilitation of
exports is considered a much less important issue. The recent renewal of the trade facilitation agenda, which
comes along with international efforts of developed and developing countries in Aid for Trade puts more
emphasis on trade facilitation as a win-win scheme for both sides of trade. Analytically, this attempt reflects
the higher degree of division of labor and specialisation of the production process at the regional and the
global level as well as the importance of increasing south-south trade and regional value chains.
Measures aiming at facilitating imports of intermediate products will directly or indirectly benefit export-led
growth strategies as better import logistics improve cost competitiveness. Vice versa, the objective of
improving export competitiveness depends on the smooth functioning of the import supply chain. Hence,
aiming at the regional value chain trade facilitation measures in regional import logistics are a precondition
for export competitiveness of the entire SADC.
Though exporters have a much higher bargaining power in politics they face the same concerns as importers
in terms of cost, delay, and reliability. As the sequence of operations in the export supply chain, not entirely
but essentially, mirrors the import supply chain both the export and the import side of logistic cost is crucial
for the SADC. The argument exports of SADC members, as partly focussed on time insensitive
commodities, suffer less from poor logistics and unreliability can be rejected. Even commodities exports rely
25
on a production process requiring imported inputs (for example, fertilizers for agricultural products,
chemicals and heavy equipment for mining). Exporters of garments or perishable agricultural products are
the more exposed. Their concern is meeting the port delivery schedule. Finally exports and imports mostly
use the same infrastructure and logistic services and are regulated by the same authorities.
As noted in the previous chapter, landlocked countries face a cost penalty compared to their coastal
neighbours in import or export logistics. For example, the transportation of exports via container to
Amsterdam from Lusaka is confronted with a 92% cost penalty and a 12% time penalty compared to coastal
Southern Africa (Arvis et al. 2010). The same is even more valid given a company in a landlocked country
that attempts integrating in a regional production chain or entering a more sophisticated production which
requires a much higher time and quality reliability in delivery of intermediates. Importing intermediates and
exporting manufactures in a poor logistic environment causes a double cost penalty and entering higher
production levels might be entirely impossible for landlocked countries. On the other hand the LPI Index
(The World Bank Connecting to Compete 2010) clearly shows that policy decisions of landlocked countries
matter quite a bit in their logistics performance (Table 7).
Hence, aiming at decreasing economic disparity and assuring a more equal development of the entire SADC
region - which in turn generates additional opportunities for economics of scale and a bigger regional market
– the logistics cost structure of the region both on the side of exports and imports is crucial and has to be
comprehensively examined and targeted with policy measures providing the needs of landlocked countries.
The scope for logistics facilitation measures explicitly oriented towards exports may be limited. However, it
should be carefully noted that export activities are the main potential beneficiaries of reforms and
improvement on the logistics import side, as this would help reduce the cost of backward logistics and
upgrade the services market.
In ‗Transport Prices and Cost in Africa‘ (World Bank 2009), Teravaninthorn and Raballand tested several
measures for African regions (West, Central, East, and Southern Africa). Aiming at lowering costs and
increasing transport efficiency as potential areas of policy activities were considered: rehabilitation of roads,
reduction of border crossing time, reduction of fuel prices, and reduction of informal payment.
According to them the most effective measures reducing transport costs are likely to be a reduction in fuel
prices and increased road rehabilitation. Reducing informal payments would have only a marginal impact on
transport costs and prices. The higher impact of road rehabilitation and fuel price changes in Southern Africa
was, compared with West and Central Africa, explained by the higher volumes of traffic and the larger and
more modern fleet. Interestingly, a reduction of border-crossing delays has the highest impact in what is
finally charged as transport price. A twenty percent reduction of border crossing time translates into a
decrease of transport prices of 10 to 15 percent. More efficiency gains can be expected, given that the higher
reliability of logistics reduces the stock of inventories and thereby cost of production.
Table 7
Expected Impact of Policies in Southern Africa
26
The bigger price impact can be explained with the deregulated market environment and the more fierce
competition in Southern Africa. Diminished border-crossing delays translate into a reduction in transport
costs and subsequently into lower transport prices. Taking into account the high fixed cost of the Southern
African trucking operators reducing delays would also help improving fleet utilization. Lower transport prices
lead to an improved regional and global competitiveness of exporting firms as well as more pricy and reliable
delivery of imports of intermediates from the regional SADC and the global market. This in turn empowers
export competitiveness. Given the higher leverage and cost efficiency, as well as the potentials for a
simultaneously decreasing stock of inventories (goods in motion for transit and warehouses) measures that
reduce border delays and enhance the reliability and predictability of the supply chain should be a top priority
in the SADC region and centre piece of policy considerations.
The main source of improvements (Arvis/Raballand/Marteau 2009:62) of the transit supply chain in
predictability and performance are in order of importance:
1.
Improved initiation of transit at the gateway, through a streamlined (IT based and quality based
differentiation of treatment) transit regime. Linked to an improvement of the clearance process in
the gateway country (customs reform, single window concept), this can lead to major economic
benefits region-wide.
2.
Improved clearance at destination. This is potentially a source of complication, especially for non-recurrent
shipments (lack of customs capacity, self imposed clearance processes and overheads).
3.
4.
Improved and more reliable service quality. The logistics service sector, especially trucking, is partly
fragmented. Improvement can also target truck maintenance and drivers‟ practices.
Improved efficiency of multimodal nodes: Key impact is often the improvement of rail services
(competitiveness compared to road, service orientation). This includes concessioning, privatization or
reform.
5.
Simplified or removed en route transit procedures, such as escort, removal of roadblocks and other controls en route.
6.
Improved border-crossings management. (Impact is limited, but some key transit points do need a specific
treatment, e.g. Garcia).
It should be critically noted that the above areas of improvement usually do not require substantial funding,
except railway upgrades, but rather the acceptance of SADC Members and the strong political will for
cooperation and coordination and renewed efforts in pushing forward regional trade integration.
5.2
Recommendable Policy Options
Short term actions:
In cross border issues, review the frequency of pre-shipment inspections and the use of scanners.
Reduce the number of items subject to inspections and develop a risk profile induced routine for
pre-shipment inspection and scanning of container.
Eliminate compulsory certificate of origin and make it on demand.
Assure smooth functioning of VAT refund, letter of credit procedures, and review restrictions on
access and payments of foreign exchange.
Establish asap a single SADC transit document for imports and exports.
Assure that all trade documents and required declarations for transport, transit and shipment can be
submitted electronically and transport and transit related payments can be made electronically.
Critically review the implementation of bilateral transport agreements, road-user charges, and
guidelines. Agree on certain principles and criteria for harmonizing road-user charges, levies, and
taxes paid at border crossings.
Expedite and eliminate immediately all controls on cargo in transit, except at the exit for risk of
falsifying.
27
Medium to long term actions:
Taking into account the political will to facilitate trade within the SADC as well as at the global level,
an agreement to create a Corridor Management Institution along the transit corridor should be
prepared and signed as soon as possible by SADC Members.
-
The institution should be financially sustainable and based on a cost recovery principle, whereby
road users pay for the operation costs of the corridor management facilities.
-
Re-engineering of the transit system should aim to change the paradigm from a multiple
inefficient clearance system subject of a control attitude to a single clearance system driven by
guarantees, a positive approach to transit, and terminating often experienced multiple clearances.
-
Efficient transit can be achieved making use of internationally approved principles and the use of
an IT system aiming at limiting physical documentation. At the same time assure that electronic
documents and data transmission range legally at the same level as paper documents.
-
The prerequisites for efficient transit should be established and tailored to local needs and
specificities, in particular those of landlocked countries.
-
Improvements should be selected and strongly oriented towards predictability and performance
of the transit supply chain.
-
Striving for regional integration logistic measures should generally account for the needs of
landlocked countries.
Centralize payment of all overhead costs in cross border transports and transit transports (such as
fees, road user charges, corridor management fees) country-wise and provide for prepayment at the
country level. In return, shippers or freight forwarders get a free passing voucher from national
authorities. With this voucher, informal roadblocks or unauthorized payments can be refunded.
Implement the one-stop border-post principle (especially for Beit Bridge/Ressano Garcia, Lebombo
and Chirundu border crossings) along the north-south corridor.
Review taxes on fuel, particularly in landlocked SADC Members in order to create a level playing
field compared to coastal neighbours. Extend the third country rule and in parallel allow for cabotage
of SADC Members, as this avoids putting landlocked transport companies in disadvantage.
As the corridors and the main routes within SADC are in a good to fair condition, upgrade the lowvolume and feeder road system in the remote/rural areas. This needs a thorough assessment.
Possible criteria are: distribution of population, overarching and integrated regional logistics
concepts, regional development targets, regional value chains, and potential export areas and
markets.
Identify and prioritize regional bottlenecks in transport and logistics costs. Provide for a SADC wide
regional concept in multimodal logistics and rehabilitate the transport corridor and port-related
railway connections. Fostering multimodal transport competition, one priority of action is rebuilding
the main road from Nacala to Malawi and further to Zambia or alternatively, finishing the
completion of the missing railway stretch from Nacala to Malawi. Before action however, take
advantage of the current concession review and the envisaged re-opening of the Sena line for the
logistics of coal.
Identify and prioritize the rehabilitation of port infrastructure from the view and the needs of the
five landlocked countries in SADC. Of greatest importance for landlocked Malawi, Zambia,
Zimbabwe and partly DR of Congo is apparently the port infrastructure in Mozambique (capital
dredging of the strategic Beira Port, improvement of services and inadequate loading and berthing
infrastructure in Nacala Port, improvement of cost and services competitiveness of Maputo Port).
Support a strong technical link between donors, authorities, and the Southern African Development
Community (SADC) Secretariat (through the trade and transport panel of experts).
28
List of Tables
Table 1
Components of Total Logistic Costs ....................................................................................................... 8
Table 2
LPI Distribution of 9 Participating SADC Countries ......................................................................... 10
Table 3
Main Regulatory Barriers in Sub Saharan Africa .................................................................................. 14
Table 4
Export Distance, Cost, and Time in Landlocked Countries .............................................................. 16
Table 5
Respondents Often or Nearly Always Experiencing Delay Factors ................................................. 19
Table 6
Opportunity Costs of Delays................................................................................................................... 19
Table 7
Expected Impact of Policies in Southern Africa .................................................................................. 26
List of Figures
Figure 1
Cumulative Distribution of LPI Scores ................................................................................................... 9
Figure 2
Average Transport Prices. A Global Comparison in 2007 ................................................................. 11
Figure 3
Transport Quality Worldwide Based on LPI 2007 .............................................................................. 12
Figure 4
Average Truck Mileage in Selected Developing Countries ................................................................ 12
Figure 5
Median Import Lead Time and Average Clearance (in Days) ............................................................ 18
Figure 6
Export and Import Agencies and Documentation, Averaged by LPI Quintile .............................. 20
Figure 7
LPI Respondents Indicating Shipments are Often or Nearly Always Cleared and Delivered as
Scheduled, Averaged by LPI Quintile .................................................................................................... 22
Figure 8
Distribution of Dwell Time for Transit Containers, Dar-es-Salaam Port 2008 .............................. 23
List of Boxes
Box 1
African Experiences Compared: Transport Liberalisation in Rwanda and Transport Protection in
Malawi .......................................................................................................................................................... 13
Box 2
Investment Calculation of Feeder Roads in Mozambique .................................................................. 15
29
6
References
Arvis / Raballand / Marteau (2007): The cost of being landlocked: Logistics costs and supply chain
reliability, Policy Research Working Paper No. 4258, World Bank, Washington, DC.
Arvis / Raballand / Marteau / (2010): The cost of being landlocked: Logistics costs and supply chain
reliability. Policy Research Working Paper No. 4258, unpublished revised and updated draft version, World
Bank, Washington, DC.
Arvis / Mustra / McLinden / Ojala (2009): Trade and Transit Facilitation, World Bank, Washington, DC.
Curtis (2009): The Chirundu Border-Post, SSATP Discussion Paper 10.
Minor (2007): Developing a cotton textile and apparel value chain in Mozambique, United States Agency for
International Development, Washington, DC.
Mwase (2003): The Liberalisation, De-regulation and Privatisation of the Transport Sector in Sub-Saharan
Africa: Experiences, Challenges and Opportunities, in: Journal of African Economies 12 (AERC Supplement
2): 153–92.
Pedersen (2001): Freight Transport under Globalization and Its Impact on Africa, in: Journal of Transport
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Radelet / Sachs (1998): Shipping Costs, Manufactured Exports, and Economic Growth, Mimeo.
Teravaninthorn / Raballand (2009): Transport Prices and Costs in Africa: A Review of the International
Corridors, World Bank, Washington, DC.
World Bank (2007): Connecting to Compete: Trade Logistics in the Global Economy, in: The Logistics
Performance Index and Its Indicators, The World Bank, Washington, DC.
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Performance Index and Its Indicators, World Bank, Washington, DC.
30
31
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