Transcript Transportation and Distribution

Creating Global Value
Through Efficient Trade
Logistics
Warren H. Hausman
Hau L. Lee
Uma Subramanian
Overview
• Motivation for logistics indicators research
• Survey instrument for logistics indicators
• Assessment of logistics indicators in
different countries
• Logistics indicators as determinants of
bilateral trade
• Supply chain-based logistics index
The Growing Global Economy
• Global trade grew 10.2% • World trade growth has
in 2004; constituting 10%
exceeded output growth
of world’s GDP
rate every year since 1950
• Global economy grew 5% • 1973-1999: World trade
grew at an annual rate
in 2004
nearly three times higher
• Foreign exchange
than
world
GDP
transactions:
$10 billion a day in 1970; • Trade to GDP Ratio:
– U.S.: tripled since 1970
$10 billion a second today
– World: doubled since 1970
Source: Gene Long, UPS, 2005
Selling and Sourcing Trends
Revenue Generated
Outside Home Market
FY08
42%
FY05
FY02
35%
27%
Sourcing of Raw,
Semi-finished and Finished
Goods Outside Home Market
FY08
38%
FY05
FY02
Source: Accenture Global Operations Survey, 2005
31%
22%
Growing Global Market
• Growing global middle class:
– 95% of consumers live outside of U.S., 60% in Asia
– 52 developing nations with population of
1.5 billion reaching middle class
– China middle class at 300 million, with 1% annual growth
– India tripled middle class since 1985
• Emergence of BRICs (Brazil, Russia, India, China):
– Today their economies constitute 15% of G6.
– Economies will be half of G6 by 2025
– Economies will surpass G6 in less than 40 years
What Determines Bilateral Trade?
What Determines Bilateral Trade?
Propensity
to Import
Institution Quality
Infrastructure
Shipping
Cost &
Time
Logistics
Frictions
Propensity
to Export
Institution Quality
Infrastructure
Past Studies on Bilateral Trade
GDP
Institution Quality
Infrastructure
Distance
GDP
Institution Quality
Infrastructure
Our Focus
GDP
Institutional Quality
Infrastructure
Distance
Logistics
Frictions
GDP
Institutional Quality
Infrastructure
Research Opportunities
• Institutional quality and infrastructure variables have been
based on subjective indices or expert assessments.
• Quantifiable and measurable logistics performance
indicators have not been used.
• Variables used are not operational, i.e., not directly
actionable.
• Best results without using country-specific dummy
variables explain 66% of variability in bilateral trade.
Objectives of Research
• Determine the significance of logistics
performance in influencing bilateral trade through
the use of measurable and quantifiable logistics
indicators.
• Perform a critical assessment of logistics
performance of countries globally.
• Develop supply-chain logistics index to guide
resource allocation and deployment for improving
logistics efficiency.
Survey Instrument
• Textiles
• Apparel
• Coffee, tea,
cocoa, spices
80
Countries
Focus on
containerized
imports & exports
2005 Study
Questionnaire
Survey
(17 pages)
Answers from
Panalpina
Experts
Follow-up
Phone Checks
by World Bank
Examples of Logistics Indicators
Time
• Trade
procedure
• Customs
clearance
• Vessel
turnaround
• CSI times
• Waiting time
for berth
• Container
dwell time
Cost
• Port &
terminal
charges
• Document
Processing
• CSI costs
• Trade
procedure
costs
• Custom
clearance
incentives
• Inland freight
Complexity
Efficiency
• No. of
documents
per
transaction
• % of
containers
inspected
• Level of
inspection
• No. of
signatures for
customs
clearance
• No. of
containers
unloaded per
berth hour
• Port
shutdown
days
• Inland
transport
speed
• Frequency of
vessel calls at
port
Average Time for a Typical
Import Transaction
Days
60
69
58
53
40
49
49
46
48
41
36
33
44
37
20
28
0
14
OECD
EAP
LAC
MENA
SAS
ECA
Source: World Bank Global Logistics Indicators Survey, 2005
AFR
150
Days for an Import Transaction
50
100
Burundi
Trade Transactions Processing Time
and GDP
Kyrgyz Republic
Niger
Kazakhstan
Mongolia
Zimbabwe
Nigeria
Nepal
Nicaragua
China
Senegal
Philippines
Argentina
Turkey
Dominican Republic
Chile
France
New Zealand
Japan
United States
0
Germany
GDP per capita (thousands of dollars)
10
Source: World Bank Global Logistics Indicators Survey, 2005
20 30 40
Total Cost for a Typical Import Transaction
Cameroon
Zambia
4616
Algeria
5787
2248
Kazakhstan
2029
1800
China
Korea
1631
United States
1428
India
1409
Brazil
1335
South Africa
1242
Malaysia
841
Ireland
821
700
Spain
Sweden
550
Norway
506
Thailand
501
0
1000
US $
2000
3000
4000
Source: World Bank Global Logistics Indicators Survey, 2005
5000
6000
Cost for a Typical Import Transaction
AFR
1983
LAC
286
EAP
1370
SAS
438
SAS
1677
ECA
AFR
1277
104
ECA
77
EAP
1130
MENA
74
MENA
1120
LAC
73
OECD
OECD
983
US Dollars
0
500
1,000
1,500
2,000
Percent (Cost/Per Capita GDP)
0
100
Source: World Bank Global Logistics Indicators Survey, 2005.
200
300
400
Number of Signatures for Typical Export Transaction
Congo, Dem.Rep.
42
Azerbaijan
40
39
Nigeria
Mongolia
Lao PDR
21
17
Bangladesh
15
Senegal
8
7
7
Colombia
China
Venezuela
United States
6
5
5
5
Italy
Ireland
Korea
3
3
3
3
Indonesia
France
Finland
Singapore
0
2
Number of Signatures
10
20
30
Source: World Bank Global Logistics Indicators Survey, 2005
40
Number of Signatures for Imports
10
20
30
Process Inefficiencies and Wealth
29
Total
For Customs
16
13
9
8
5
4
0
2
High income
Upper middle income
Lower middle income
Source: World Bank Global Logistics Indicators Survey, 2005
Low income
Percentage of Import Containers
Inspected
100
80
60
40
20
0
Source: World Bank Global Logistics Indicators Survey, 2005
Logistics Impediments and Income
40
44
20
29
11
0
Percent of Import
Containers Inspected
60
69
High
income
Upper middle
income
Lower middle
income
Source: World Bank Global Logistics Indicators Survey, 2005
Low
income
Augmented Gravity Model
Basic
Attraction
Logistics
Indicators
Institutional
Quality
• Exporter GDP
• Importer GDP
• Distance
• Time
• Cost
• Variability
Bilateral
Trade
• Exporter’s corruption index
• Importer’s corruption index
• Regional trade agreement dummy
Critical Global Logistics Indicators
Time
• Exporter’s average time for all procedures
• Importer’s average time for all procedures
Cost
• Importer’s total costs for import-related
procedures
Variability
• Exporter’s Max Time – Average Time for all
procedures
• Importer’s Max Time – Average time for all
procedures
Augmented Gravity Model Results
Log GDP exporter
Log GDP importer
Log distance
Log Exporter’s Avg Time for Procedures
Log Importer’s Avg Time for Procedures
Log of Importer’s Total Cost for Procedures
Log Exporter’s Max Time – Avg Time
Log Importer’s Max Time – Avg Time
Exporter’s Corruption Perception Index
Importer’s Corruption Perception Index
Regional Trade Agreement Dummy
Adjusted R-Squared
Observations
F-Statistics
Coefficient
t-Statistic
1.262
0.940
-1.379
-0.453
-0.072
-0.294
-0.264
0.033
0.749
0.593
0.314
74.37
52.63
-38.09
-6.53
-0.94
-6.9
-4.78
0.42
8.99
6.18
4.33
0.710
5149
1263.3
Observations
• Measurable and quantifiable logistics
indicators improve explanatory power of
gravity model for bilateral trade.
• Logistics indicators results show efficient
logistics in time and cost can contribute to
increased trade.
• Variability matters – higher variability in
processing time can be a deterrent to
bilateral trade.
Supply-Chain Based Logistics Index
• A single metric to evaluate and measure
logistics efficiencies
• Weights of each variable in the Logistics
Index show relative benefits
• Use weights to guide resource allocation
and deployment of logistics improvements
• A single measure enables quick and easy
benchmarking
Supply Chain-Based Logistics Index
Distance
Total Cost of
Processing
Shipping Cost
Trade-Related
Costs
Total Time
Inventory cost
(Freight + Ports)
(In-Transit)
Coeff of Var of
Total Time
Inventory cost
(Safety Stock)
Product Cost
Total
Landed
Cost
Three-Stage Logistic Index Estimation
Stage 1
Stage 2
Stage 3
•
•
•
•
•
Bilateral
Trade
Residual
from Stage 1
Bilateral
Trade
•
•
•
•
Log Exporter GDP
Log Importer GDP
Exporter’s Corruption Perception Index
Importer’s Corruption Perception Index
Regional Trade Agreement Dummy
Log Distance
Total Total Processing Cost
Total Time
Coeff of Variation of Total Time
• Stage 1 variables plus
• Logistics Index
Logistics
Index
Stage 1 Logistics Index Model Results
Coefficient
t-Statistic
Log GDP exporter
1.200
61.67
Log GDP importer
0.888
46.04
Exporter’s Corruption Perception Index
0.298
24.09
Importer’s Corruption Perception Index
0.252
17.85
Regional Trade Agreement Dummy
1.005
11.5
Adjusted R-Squared
0.620
Observations
5149
F-Statistic
1710.0
Stage 2 Logistics Index Model Results
Coefficient
t-Statistic
Log Distance
-1.282
-34.19
Log of Total Processing Costs
-0.129
-3.64
Total Time (Fright + Ports)
-0.009
-4.9
Coeff of Var for Total Time
-0.874
-4.18
Adjusted R-Squared
0.221
Observations
5149
F-Statistic
376.4
Stage 3 Logistics Index Model Results
Coefficient
t-Statistic
Log GDP exporter
1.278
75.45
Log GDP importer
0.921
55.06
Exporter’s Corruption Perception Index
0.244
21.87
Importer’s Corruption Perception Index
0.179
13.73
Regional Trade Agreement Dummy
0.345
4.85
Logistics Index
1.077
40.37
Adjusted R-Squared
0.710
Observations
5149
F-Statistic
2293.5
Model Comparisons
Augmented
Gravity
Model
Logistics
Index
Model
Number of Variables
11
6
Adjusted R-Squared
0.710
0.710
F-Statistic
1263.3
2293.5
Logistics Index Observations
• It is possible to derive a single logistics
index that captures all the explanatory
power of all the logistics indicators.
• The logistics index is a significant
determinant of bilateral trade.
• The logistics index is derived from distance,
time, cost and variability measures.
Summary
• Logistics indicators are a significant determinant
of bilateral trade.
• A single Logistics Index has equal explanatory
power to the set of logistics indicators.
• Countries and enterprises should collaborate to
improve logistics performance and reduce
logistics friction in order to foster trade.
• The Logistics Index can be used to guide
resource allocation and deployment for such
improvement projects.