INVESTING IN LOGISTICS FOR SUSTAINABLE ECONOMIC GROWTH BACKGROUND STUDIES FOR THE PREPARATION OF CAMBODIA LOGISTICS MASTER PLAN October 2018 disclaimer © 2018 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Interior photo: Port. Photo: Chhor Sokunthea, The World Bank. TABLE OF CONTENTS ACKNOWLEDGEMENTS......................................................................................................................... V ABBREVIATIONS AND ACRONYMS...................................................................................................... VI CHAPTER ONE: CAMBODIA’S TRADE COMPETITIVENESS: INVESTING TODAY IN LOGISTICS DEVELOPMENT TO SUSTAIN TOMORROW’S GROWTH.................................. VII EXECUTIVE SUMMARY........................................................................................................................... 3 1. INTRODUCTION.................................................................................................................................. 7 2. TRADE COMPETITIVENESS IN CAMBODIA........................................................................................ 9 AN OUTLOOK OF TRADE COMPETITIVENESS.............................................................................. 9 2.1 DIVERSIFICATION AND SOPHISTICATION OF EXPORTS............................................................. 14 2.2. 3. MARKET ACCESS .............................................................................................................................. 26 4. LOGISTICS SERVICES IN CAMBODIA’S EXPORT STRATEGY ............................................................ 29 5. CONCLUSION AND RECOMMENDATIONS...................................................................................... 33 RECOMMENDATIONS........................................................................................................................ 34 REFERENCES........................................................................................................................................... 36 END NOTES............................................................................................................................................. 37 CHAPTER TWO: AN ASSESSMENT OF THE LEGAL AND REGULATORY FRAMEWORK FOR THE LOGISTICS SECTOR IN CAMBODIA.............................................. 39 ACRONYMS........................................................................................................................................... 42 EXECUTIVE SUMMARY........................................................................................................................... 43 1. INTRODUCTION.................................................................................................................................. 47 1.1 CONTEXT..................................................................................................................................... 47 1.2 DETERMINING A NEED FOR LEGAL AND REGULATORY REFORM........................................... 48 2. ROAD TRANSPORT............................................................................................................................. 51 2.1 INTRODUCTION........................................................................................................................... 51 2.2 ACCESS TO THE PROFESSION OF ROAD TRANSPORT OPERATOR.......................................... 51 2.3 ACCESS TO THE PROFESSION OF TRUCK OR BUS DRIVER....................................................... 52 2.4 REGULATIONS ON TECHNICAL STATE OF VEHICLES................................................................ 52 2.5 LAW AND REGULATIONS ON OVERLOADING......................................................................... 54 2.6 HARMONIZATION OF CAMBODIAN ROAD TRANSPORT LEGISLATION WITH NEIGHBOURING COUNTRIES..................................................................................................... 56 2.7 CONCLUSION AND RECOMMENDATIONS.............................................................................. 57 3. RAILWAY TRANSPORT........................................................................................................................ 58 4. PORTS, MARITIME, AND INLAND WATERWAY TRANSPORT.............................................................. 60 4.1 INTRODUCTION........................................................................................................................... 60 4.2 LEGISLATIONS ON PORTS, MARITIME TRANSPORT, AND INLAND WATERWAY TRANSPORT............................................................................................................ 61 INVESTING IN LOGISTICS FOR SUSTAINABLE ECONOMIC GROWTH: BACKGROUND STUDIES FOR THE PREPARATION OF CAMBODIA LOGISTICS MASTER PLAN III 4.3 LAWS AND INTERNATIONAL CONVENTIONS IN PORTS AND MARITIME TRANSPORT............ 62 4.4 DRAFT PORT LAW........................................................................................................................ 63 4.5 DRAFT LAW ON MARITIME TRANSPORT.................................................................................... 64 4.6 DRAFT LAW ON INLAND WATERWAY TRANSPORT................................................................... 64 4.7 RECOMMENDATION.................................................................................................................. 66 5. MULTIMODAL TRANSPORT AND FREIGHT FORWARDING................................................................ 67 5.1 MULTIMODAL TRANSPORT......................................................................................................... 67 5.2 FREIGHT FORWARDING.............................................................................................................. 68 6. CURRENT INSTITUTIONAL ARRANGEMENTS FOR LOGISTICS IN CAMBODIA.................................. 69 6.1 IDP................................................................................................................................................ 69 6.2 COORDINATION OF THE PUBLIC AND PRIVATE SECTOR IN LOGISTICS................................. 71 6.3 COORDINATION BETWEEN CUSTOMS AND THE PRIVATE SECTOR......................................... 72 6.4 CONCLUSION............................................................................................................................. 72 ANNEX 1. SUMMARY MATRIX OF LEGAL AND REGULATORY PRIORITY ACTIONS FOR THE CAMBODIA LOGISTICS MASTER PLAN.......................................................................................... 74  RAFT INTERNATIONAL AGREEMENT ON MULTIMODAL TRANSPORT................................ 77 ANNEX 2. D  ROPOSAL FOR MODEL NATIONAL LAW ON FREIGHT FORWARDING.............................. 82 ANNEX 3. P CHAPTER THREE: A MONITORING AND EVALUATION FRAMEWORK FOR LOGISTICS IN CAMBODIA............................................................................................................ 89 EXECUTIVE SUMMARY........................................................................................................................... 93 1. INTRODUCTION.................................................................................................................................. 97 2. CONCEPTUAL FRAMEWORK FOR MONITORING AND EVALUATION OF LOGISTICS...................... 99 3. APPROACH TO LOGISTICS PERFORMANCE MONITORING IN CAMBODIA................................... 109 METHODOLOGY AND DATA COLLECTION .............................................................................. 110 3.1  CAMBODIA LOGISTICS COST OVER SALES............................................................................... 111 3.2  4. LOGISTICS PERFORMANCE IN CAMBODIA...................................................................................... 114 COMPARING THE RESULTS AGAINST THE WORLD BANK’S LPI................................................. 115 4.1  5. OUTSOURCING AND LOGISTICS SERVICE PROVIDER CAPABILITY................................................. 117 6. LOGISTICS HUMAN RESOURCES....................................................................................................... 120 7. MONITORING AND EVALUATION FRAMEWORK FOR CAMBODIA LOGISTICS MASTER PLAN....... 121 8. SUMMARY AND RECOMMENDATIONS............................................................................................ 130 REFERENCES........................................................................................................................................... 132  ROPOSED INTEGRATED M&E FRAMEWORK....................................................................... 133 ANNEX 1: P  SERS OF LOGISTICS SERVICES SURVEY............................................................................. 139 ANNEX 2: U  OGISTICS SERVICE PROVIDER SURVEY.............................................................................. 145 ANNEX 3: L INVESTING IN LOGISTICS FOR SUSTAINABLE ECONOMIC GROWTH: IV BACKGROUND STUDIES FOR THE PREPARATION OF CAMBODIA LOGISTICS MASTER PLAN ACKNOWLEDGEMENTS This background study for the 2018 Cambodia Logistics Master Plan Development was prepared by a World Bank Group team led by Lan Van Nguyen (Senior Economist) and Konesawang Nghardsaysone (Economist). The first Chapter on Cambodia’s Trade Competitiveness was prepared by Gonzalo Varela (Senior Economist), Fabio Artuso (Consultant), Marong Chea (Consultant) and Federico Ganz (Consultant). The second Chapter on the Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia was prepared by Charles Kunaka (Lead Private Sector Specialist), Rene Meeuws (Logistics Consultant) and Harrie de Leijer (Logistics Consultant). The third Chapter on the Design of the Monitoring and Evaluation of the Logistics Sector in Cambodia was prepared by Charles Kunaka (Lead Private Specialist) and Ruth Banomyong (Consultant). Lyden Kong (Program Assistant), Vanna Pol (Program Assistant) and Socheat Ath (Program Assistant) provide administrative and logistical support to in- country missions and consultations during the preparation, and dissemination workshops of the final reports. The team worked under the guidance of Asya Akhlaque (WB Acting Practice Manager for EAP Trade and Competitiveness Global Practice) and Deepak Mishra (WB Practice Manager for EAP Macroeconomics Trade and Investment Global Practice). The team is grateful for advice and comments provided by Ellen A. Goldstein (WB Country Director for Myanmar, Cambodia and Lao PDR) and Inguna Dobraja (WB Country Manager for Cambodia). Several World Bank colleagues who provided comments and suggestions on draft reports include Julian Latimer Clarke (Senior Economist), Periklis Saragiotis (Senior Private Sector Specialist), Diep Nguyen-Van Houtte (Lead Transport Specialist) and Chanin Manopiniwes (Infrastructure Specialist). The team is grateful to the Cambodian authorities, particularly the Ministry of Public Work and Transport (MPWT) for its strong ownership and leadership in preparation of these background studies as inputs into the 2018 Cambodia Logistics Master Plan Development. The team is also grateful to Japan International Cooperation Agency (JICA) for a constructive cooperation and partnership in joint preparation of background inputs into the 2018 Cambodia Logistics Master Plan Development. For questions on the content of this publication, please contact Saroeun Bou (sbou@ worldbank.org) INVESTING IN LOGISTICS FOR SUSTAINABLE ECONOMIC GROWTH: BACKGROUND STUDIES FOR THE PREPARATION OF CAMBODIA LOGISTICS MASTER PLAN V ABBREVIATIONS AND ACRONYMS ASEAN Association of Southeast Asian Nations C2C Cash Conversion Cycle COE Council of Europe DIFOT Delivery in Full, on Time FDI Foreign Direct Investment GDCE General Department of Customs and Excise GDL General Department of Logistics GDP Gross Domestic Product GMS Greater Mekong Subregion GVC Global Value Chain IMD International Institute for Management Development IMO International Maritime Organization IT Information Technology JICA Japan International Cooperation Agency KPI Key Performance Indicator LPI Logistics Performance Index LSP Logistics Service Providers M&E Monitoring and Evaluation MARPOL Convention for Prevention of Marine Pollution MPWT Ministry of Public Works and Transport NLC National Logistics Council NLSC National Logistics Steering Committee NSW National Single Window OECD Organisation for Economic Co-operation and Development OTIF Intergovernmental Organisation for International Carriage by Rail RGC Royal Government of Cambodia RID Regulation concerning the International Carriage of Dangerous Goods by Rail SOLAS Safety of Life at Sea TAB Trading Across Borders TEU Twenty-foot Equivalent Unit WDI World Development Indicators WEF World Economic Forum WHO World Health Organization INVESTING IN LOGISTICS FOR SUSTAINABLE ECONOMIC GROWTH: VI BACKGROUND STUDIES FOR THE PREPARATION OF CAMBODIA LOGISTICS MASTER PLAN CHAPTER ONE CAMBODIA’S TRADE COMPETITIVENESS: INVESTING TODAY IN LOGISTICS DEVELOPMENT TO SUSTAIN TOMORROW’S GROWTH Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth VII TABLE OF CONTENTS EXECUTIVE SUMMARY........................................................................................................................... 3 1. INTRODUCTION.................................................................................................................................. 7 2. TRADE COMPETITIVENESS IN CAMBODIA........................................................................................ 9 AN OUTLOOK OF TRADE COMPETITIVENESS.............................................................................. 9 2.1 DIVERSIFICATION AND SOPHISTICATION OF EXPORTS............................................................. 14 2.2. 3. MARKET ACCESS .............................................................................................................................. 26 4. LOGISTICS SERVICES IN CAMBODIA’S EXPORT STRATEGY ............................................................ 29 5. CONCLUSION AND RECOMMENDATIONS...................................................................................... 33 RECOMMENDATIONS........................................................................................................................ 34 REFERENCES........................................................................................................................................... 36 END NOTES............................................................................................................................................. 37 LIST OF FIGURES Figure 1. Annual Growth of Exports of Goods and Services (Constant 2010 US$).............. 9 Figure 2. Annual Growth of GDP per Capita (Constant 2010 US$)....................................... 9 Figure 3. Population below the Poverty Line (National)......................................................... 9 Figure 4. Cambodia’s Participation in GVCs........................................................................... 10 Figure 5. Time for Documentary and Border Compliance to Export (hours) ...................... 10 Figure 6. Cost to Export (US$)..................................................................................................... 10 Figure 7. Cambodia’s Exports Now and in 15 Years (Constant 2016 US$, million).............. 11 Figure 8. Cambodia’s Export Performance in 2005................................................................ 11 Figure 9. Cambodia’s Export Performance in 2014................................................................ 11 Figure 10. Cambodia’s FDI Performance in 2001–2005............................................................ 12 Figure 11. Cambodia’s FDI performance 2011–2015................................................................ 12 Figure 12. Cambodia: World’s Export Shares............................................................................. 12 Figure 13. East Asia and Pacific: World Exports Share.............................................................. 12 Figure 14. Composition of Cambodia’s Export Growth........................................................... 13 Figure 15. Cambodia’s Regional Integration............................................................................ 13 Figure 16. Composition of Cambodia’s Export Growth 2005–2016 (US$)............................... 13 Figure 17. Contributions to Export Growth (2005–2016) in US$................................................. 13 Figure 18. Cambodia’s Export Composition by Sector (2005)................................................. 14 Figure 19. Cambodia’s Export Composition by Sector (2016)................................................. 14 Figure 20. Decomposition of Cambodia’s Garments Value Added - Domestic Versus Imported ........................................................................................ 14 Figure 21. Cambodia’s Position in the Quality Ladders for its Main Exports........................... 15 Figure 22. Cambodia’s Export Partners in 2016 (Gross Exports)............................................... 18 Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 1 Figure 23. Number of Products Composing 80 Percent of Total Exports................................ 18 Figure 24. Cambodia’s Capability Endowments Versus Vietnam and World......................... 22 Figure 25. Sectoral Capability Requirements Versus Cambodia’s Capability Endowments............................................................................................. 23 Figure 26. Revealed Capability Intensities of GVC Products and Cambodia’s Endowments (in standard deviations of world averages).............. 25 Figure 27 Number of Agreements Over Time........................................................................... 26 Figure 28. Number of Agreements Per Country........................................................................ 26 Figure 29. Number of PTAs............................................................................................................. 26 Figure 30. Labor Productivity in the Garment Sector................................................................ 27 Figure 31. Decomposition of Exported Value Added.............................................................. 30 Figure 32. Forward Exported Value Added by Transport and Storage (percentage of total exported value added)........................................................ 30 Figure 33. Total Domestic Value Added (forward links’ decomposition)............................... 31 Figure 34. Total Exported Value Added (forward links’ decomposition)............................... 31 Figure 35. Exported Value Added (backward links, percentage of total value added).... 31 Figure 36. Backwards Cambodian Value-Added Decomposition......................................... 32 Figure 37. Trade Facilitation, Cost to Export in US$, 2018.......................................................... 32 Figure 38. Logistics and Land Transport Costs from Bangkok to Phnom Penh (US$ per 40-foot container)........................................................................................ 32 LIST OF TABLES Table 1: Threshold RCAI for Cambodia’s Exports.................................................................... 15 Table 2: Details of the Specific Products in Each Category (Classics, Disappearances, Emerging, and Marginals)........................................... 16 Table 3. Main Exported Products in 2005................................................................................. 19 Table 4. Main Exported Products in 2016................................................................................. 9 Table 5: Capability Framework to Participate in GVCs.......................................................... 20 Table 6. Cambodia’s Selected Capability Endowments Versus GVC Participation Requirements............................................................................... 21 Table 7. Capability Requirements by Sectors: RCI Estimates................................................. 22 Table 8. Percentage of Firms Identifying Access to Finance as an Obstacle..................... 27 Table 9. Percentage of Firms Identifying the Following as the Top Constraints for Operations............................................................................................................... 28 Table 10. Selected Policy Indicator, Average by GVC Type, 2001......................................... 29 Cambodia’s Trade Competitiveness: 2 Investing Today in Logistics Development to Sustain Tomorrow’s Growth EXECUTIVE SUMMARY sectors,C indicating that inefficiencies in logistics is a reason for low export diversification in other sectors. Even though there is evidence that Cambodia has moved up the value chain toward a Why is trade important for more sophisticated export mix, garments Cambodia? and specifically, cut-make-trim activities still account for most of the value added in During the last decade, Cambodia’s exports of manufacturing. Garments account for 55 goods and services outpaced the growth of the percent of all manufacturing value added economy and outperformed the growth in world in the economy and for 84 percent of all the export over the same period. Over this period, value added in manufacturing that is exported. exports of goods and services expanded In turn, for every dollar exported of garments in threefold, from about US$4 billion in 2005 to gross terms, 43 cents originate in Cambodian US$13.3 billion in 2016. value added, while 57 cents correspond to The solid export growth resulted in improved imported components. livelihoods for Cambodian households. For Despite Cambodia’s strong position in global a small economy such as Cambodia, trade garment exports, Cambodian firms still occupy is a platform for productivity-led growth. It a low-quality segment of the garment market. offers access to larger markets and it comes The prices that Cambodian firms fetch for hand in hand with foreign direct investment garments in the international markets are 70 (FDI)—that has boomed in Cambodia over percent lower than those fetched by top-quality the last 10 years—and gives access to exporters, suggesting that there is substantial transfers of technology and know-how. In fact, space for quality upgrading. Upgrading, in turn, concomitant to fast export growth, Cambodia requires top-class logistics and skilled workers also experienced a booming gross domestic and managers. product (GDP) growth, averaging 6 percent per year for the past decade. In per capita terms, Where is Cambodia aiming at? this led to Cambodia climbing up 9 positions in the international ranking, moving from 163rd in By 2030, through Cambodia’s highways, ports, 2005 to 154th in 2016. This income growth was airports, and warehouses, Cambodian firms are pro-poor, resulting in a decline in the poverty projected to move 4.1 times more goods. At the headcount. In 2014, the poverty rate was 13.5 current trajectory, merchandise exports will grow percent compared to 47.8 percent in 2007. from US$10.1 billion registered in 2016 to US$41.5 billion in 2030.1 For this growth to materialize Where did this export growth and be sustainable, traditional sectors including come from? rice, rubber and low-end garments will have to keep performing strongly with diversification Exports concentrated in the garment sector, with expanding into higher value-added segments some diversification occurring within the sector, with more knowledge-intensive activities. either in new products or new markets. The most common form of diversification involved There are encouraging signs that Cambodia’s the penetration of a new export product exports are becoming more sophisticated. into an existing export market,A but exports The growth in electronics and auto-assembly also diversified into new destinations during is promising. Recent Japanese investments in this period, reaching 34 new destinations.B plants producing small electrical components Diversification was mostly within the garment in the border areas of Bavet (located on the sector, where the importance of logistics costs border with Vietnam) and Poipet (located on in sales is relatively low compared to other the border with Thailand) could originate growth 1 2016 US$ value. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 3 poles around which new investment can cluster framework for border clearance but inspects over time. The Royal Government of Cambodia every shipment. Moreover, reforms could be (RGC) would have to design adequate policies introduced to enable trucks to travel from and to foster these activities to position Cambodia to neighboring countries without transshipping as a regional center for FDI and manufacturing. goods at the border. What will it take? Diversification and upgrading could be supported by a combination of public and For Cambodia to improve its competitiveness, private interventions to enhance production more transformative reforms are needed to capabilities with respect to capital equipment reduce high logistics costs that are external and worker skills. To support the development to firm performance and competitiveness. The of more sophisticated manufacturing in extremely high logistics cost in Cambodia does Cambodia, it is necessary to enhance not find a justification on market conditions production capacity. By comparing only, as they hide opaque practices aiming Cambodia’s performance across a series of at formalizing illegal payments at the border. dimensions, it is possible to identify the gaps that The cost to transport a 40-foot container it must address to improve its competitiveness from Bangkok to Phnom Penh over land is compared to global competitors. about US$2,170. However, trucking costs are very competitive in Cambodia when they To expand export diversification in new sectors are compared to neighboring countries. In such as intermediate electronics, machinery, fact, informal costs for border clearances and transport equipment products, Cambodia and weighbridge inspection are billed by needs to upgrade its logistics in the short run local freight forwarders, which contribute to and its human capital in the long run. In terms formalizing and hiding corruptive practices. of logistics capabilities, Cambodia ranks 73rd Local agents include in their invoices2 all the out of 159 countries. Successful exporters of informal costs that they incur when clearing electronics, such as Thailand or Malaysia, goods at the border and weighbridges. This are positioned about 30 positions ahead of practice was introduced to avoid any qualified Cambodia, showing the importance of efficient scrutiny by external audits, undergone by logistics to attract investment in this sector. large exporters. These large exporters are In the long term, increased human capital is mostly foreign investors and suppliers of major crucial for new export products to develop. international brands, which operate under strict Cambodia—with its population having an anticorruption corporate codes.3 average of 4.7 years of schooling —ranks 126th out of 146 countries, while successful exporters The RGC could consider the implementation of are typically endowed with an average of 9.72 substantial reforms to reduce high logistics costs, years of schooling. including the consolidation of multiagency border controls and the implementation Cambodia’s successful integration into global of a single inspection scheme to improve value chains (GVCs) can deepen only if urgent transparency and remove informal payments. actions are taken. To build upon its current level There is room to streamline border operations, of value chain integration Cambodia will have by removing the Customs/CAMCONTROL to focus on logistics. Two broad themes emerge duplication and by aligning the risk management from this study. First, worker skills and capacity framework for border clearance. While Customs will need to improve over the medium term if has a risk management framework in place, Cambodia is to maintain its ambitious growth CAMCONTROL does not currently use any risk trajectory. Second, the institutions governing 2 Allegedly freight forwarders’ total charge from Phnom Penh to Sihanoukville Port is about US$600, of which US$200–US$250 are for trucking costs, and the rest goes to formal and informal payments for border clearance. It is estimated that about 15 percent of the garment industry’s revenues go in unofficial payments at the border. 3 U.S. Foreign Corrupt Practice Act (1977), Organisation for Economic Co-Operation and Development (OECD) Antibribery Convention (1999), and the Council of Europe (COE) Criminal Law Convention on Corruption and the Civil Law Convention on Corruption. Cambodia’s Trade Competitiveness: 4 Investing Today in Logistics Development to Sustain Tomorrow’s Growth trade facilitation require stronger governance (b) Second, Cambodia performs poorly in and more efficient procedures. Cambodia trade costs that are related to logistics could consider aligning its trade strategy with and border crossing when compared to its plan for increased human capital4, as well as competitors in the region and beyond. building up institutions to face the challenges Because informal costs appear to be and opportunities that integration into the included in the current value of logistics global marketplace provides. costs, it is critical for the government to tackle informal payment practices Main recommendations by undertaking more radical reforms to remove corruption and patronage To continue growing along the intensive preference practices at border margin—that is, to consolidate existing exports, clearance and weighbridge inspection. Cambodian firms will need to remain cost- Key priority actions include the following: competitive. This implies that productivity will need to increase at the same pace as wages. Increases in productivity will be driven by (i) Adopt a comprehensive integrity and increases in competition, improvements in the anticorruption strategy (including a provision of key backbone services (including strong and implementable ethical electricity and logistics), upgrading of skills— code of conduct for border agency both of workers and managers—and increased staff) considering international good innovation. practices for border management operations. To diversify into more sophisticated segments of production, Cambodia faces serious reform (ii) Implement a modern automation challenges in the short run and in the long run. In system for non-customs border the short run, Cambodia would have to reduce agency management, especially for trade costs to remain competitive. Three CAMCONTROL, by reducing face-to- components stand out. face interactions between staff and traders and by using the appropriate (a) First, for trade and investment costs that risk management framework to are related to market access, Cambodia reduce the current rate of 100 percent could take actions to integrate more physical inspections. deeply with the world, going beyond agreements on tariffs and implementing (iii) Digitalize/automate port operation the harmonization of standards in service processes to reduce face-to-face trade or investment agreements. These are interaction and remove informal critical to transform trade and investment payments. operations in the country for increased participation into GVCs. As firms become (iv) Establish a feedback loop for border part of international production networks agencies and port operators by led by firms elsewhere, these agreements expanding the existing mechanism tend to reduce the transaction costs for initiated by General Department these firms to coordinate processes and of Customs and Excise (GDCE). exchange parts and components. This, This system should be designed to in turn, increases the likelihood of joining receive complaints and opinions of and upgrading within these networks. In the trading communities and logistics this regard, Cambodia needs to seriously operators on informal payments and implement its trade and investment administrative burdens related to agreement commitments to lower trade border clearance and road transport and investment costs. weighbridges. 4 Human capital refers to intensive skills of workers, education quality, and good health. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 5 (c) Third, Cambodia would have to upgrade quadruplication of trade volumes in the next 15 its human and institutional capital to years. Currently, transportation, warehousing, close the gap with competitor countries and storage services appear to account for and upgrade its participation in GVCs. almost 14 percent of export value added but this For Cambodia to increase its capabilities share is far higher than its neighboring countries required to move into more knowledge- and competitors in the region. Logistics and intensive investment activities, it could transport operators often charge higher fees consider three main actions in parallel: because of inefficient and uncertain logistics operations. Exporters have to face higher costs (i) Establish a clear policy framework for inputs and goods storage and inventory, to improve skills and knowledge of reducing the competitiveness of Cambodia’s workers and upgrading managerial exports in regional and global markets. Two competency in industries and in actions are recommended: government institutions. (d) Undertaking regulatory and operational (ii) Close the current gap of skills shortage reforms to enable inter-transport mode and mismatch by considering and multimodal transport operations is a importation of skilled labor and high priority to optimize the use of existing implementing knowledge transfer transport infrastructure of different modes programs for specific industries along each economic corridor. This through investment incentives. would help reduce costs for warehousing, (iii) Invest in human capital development storage, and inventory for exporters by improving education and as logistics operation becomes more health delivery services focusing on efficient and predictable. education and health quality. (e) Attract large foreign investment in logistics Investment in improving soft and hard logistics operation to modernize both infrastructure infrastructure would have to be commensurate and services. This would contribute to to Cambodia’s growth ambitions. Logistics increase competition in the sector and to will have to be adequate to support a rationalize logistics costs. Cambodia’s Trade Competitiveness: 6 Investing Today in Logistics Development to Sustain Tomorrow’s Growth 1 INTRODUCTION inventories, thus driving up logistics cost. With better logistics, Cambodia can become a more attractive investment destination that will enable the country to position itself as an important node in regional value chains and GVCs. Likewise, at the center of fast growing and high-growth economies like China, Thailand, Cambodia’s two decades of growth have been and Vietnam, there is a strong opportunity for largely driven by trade. Cambodia has achieved Cambodia to diversify and upgrade its highly strong economic growth and it has leveraged concentrated but low-tech export basket integration into the global marketplace to toward more diversified and sophisticated export grow for the past two decades. Cambodia’s products. Because of limited diversification exports of merchandise, at US$10 billion in and low value addition of current exports, the 2016, stood at 50 percent of gross domestic Royal Government of Cambodia (RGC) has product (GDP), reaching 148 destinations— undertaken several initiatives in the framework and standing at US$13.3 billion when adding of the Industrial Development Policy (IDP) 2016– services exports. Export performance led by 2025, approved in 2016. The IDP was formulated integration into global value chains (GVCs), based on issues and policy priorities identified with substantial foreign direct investment (FDI) in the Rectangular Strategy (RS III 2014–2018), from East Asia and Pacific sources and strong the 2014 Diagnostic Trade Integration Study, trade links to major export destinations in the and the 2012 Cambodia Trade and Transport United States and the European Union (EU). Facilitation Assessment. Exports, however, have been concentrated in textiles and garments, with little sophistication The Government’s strategies and policies are and technological content. Indeed, exporters appropriate, though implementation of those in Cambodia are specialized in the cut-make- policies has been inconsistent. Because the trim phase of the garments value chain—a underlining objective is to prepare high-quality segment with low profit margins. With labor costs inputs into a logistics master plan development, increasing on one hand, and prospective trade this report provides an update on Cambodia’s agreements between developed countries and trade patterns, product diversification and several ASEAN countries potentially eroding sophistication, capability to drive Cambodia’s preferences and diverting trade on the other participation in GVC, use of trade policy for hand, the competitive edge of Cambodia is trade expansion, and an assessment of export at stake. This makes it essential for the country value addition and related constraints in the to seek new drivers of export growth, in more GVC. The analysis builds largely on existing sophisticated and diversified activities to sustain studies such as Trade and Transport Facilitation long-term growth. The connectivity played by Assessment (TTFA), Diagnostic Trade Integration the logistics sector has been and continues to Study (DTIS), and IDP as well as studies by be an important part of the Cambodia’s growth development partners. By employing various storyline and global market integration. analytical tools and techniques such as trade competitiveness diagnostics, trade outcome Looking forward, Cambodia can sustain high analysis, performance benchmarking, and growth and increase its competitiveness in Trade in Value Added (TiVA5) analysis of forward the global market place by easing logistics and backward links, the report provides insight bottlenecks that are one of the primary causes into the challenges and opportunities facing of high trade costs. The reliability of a country’s Cambodian policy makers. logistics network has a positive impact on firm productivity, whereas unreliable logistics This report is organized into three sections: trade networks force companies to stockpile large competitiveness, trade policy framework in the 5 Trade in Value Added (TiVA) is the estimation of trade in value added terms that leads to the decomposition of gross exports into their domestic and foreign value-added contents. OECD website: http://www.oecd.org/sti/ind/measuring-trade-in-value-added.htm. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 7 GVC map, and value addition analysis in the GVC light of export diversification and Cambodia’s map. First, it examines Cambodia’s competitive present capacity to participate in GVCs. patterns of export and import, diversification Third, the report reviews Cambodia’s market potentials and product sophistication, and access and integration challenges. The report capability to drive participation in GVC. concludes with a discussion on the importance Second, it reviews Cambodia’s performance of value addition in the GVC map including the in the trade policy map with some detailed contribution of logistics sector reforms to export descriptive statistics focusing on trade policy in value addition. Cambodia’s Trade Competitiveness: 8 Investing Today in Logistics Development to Sustain Tomorrow’s Growth 2 TRADE Figure 2. Annual Growth of GDP per Capita (Constant 2010 US$) COMPETITIVENESS IN CAMBODIA 14% 11% 12% 10% 9% 9% 8% 6% 6% 5% 6% 5% 5% 5% 5% 4% AN OUTLOOK OF TRADE 2.1 4% COMPETITIVENESS 2% Trade has played a critical role in reducing 0% Cambodian household poverty. For a small -2% -1% economy such as Cambodia, trade is a platform -4% for productivity-led growth. It offers access 2005 2007 2009 2011 2013 2015 to bigger markets, it comes hand in hand with foreign direct investment (FDI)—that has boomed in Cambodia over the last 10 years— and generates knowledge spillovers associated Figure 3. Population below the Poverty with transfers of technology and know-how. In Line (National) fact, export growth has supported an impressive GDP growth in Cambodia, averaging 6.5 percent per year. This income growth has been 40% pro-poor, resulting in a decline in the poverty headcount by 19 percentage points from 2004 35% 33% to 2014 (Figure 3). 32% 30% 29% 30% 28% Figure 1. Annual Growth of Exports 28% 27% 26% of Goods and Services 25% (Constant 2010 US$) 20% 19% 14% 25% 15% 21% 19% 20% 19% 10% 16% 16% 15% 14% 14% 5% 11% 10% 10% 9% 0% 2005* 2006* 2007 2008* 2009* 2010* 2011* 2012 2013 2014 7% 5% 0% Source: Authors’ calculations based on World Development -5% Indicators (WDIs), World Bank Group. -10% Cambodia has averaged economic growth of 6 -10% percent over the past decade. Over this period, -15% exports of goods and services expanded threefold, from about US$4 billion in 2005 to 2005 2007 2009 2011 2013 2015 Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 9 US$13.3 billion in 2016, contributing to reduce Figure 6. Cost to Export (US$) the poverty rate from 53.2 percent in 2004 to 13 550 .5 percent in 2014 (World Bank 2017). Despite 500 poor infrastructure and a weak investment 450 climate, FDI rose from US$1 billion in 2004 to 400 US$3.14 billion in 2014. 350 300 To maintain a growth rate of 6–7 percent over the 250 next decade, Cambodia will need to expand 200 future exports and FDI. Initial diversification from 0 KHM INDO PHL VNM MYS THA garments into new sectors such as electronics Source: Trading Across Borders, 2018 World Bank Doing and bicycles is helping Cambodia climb up the Business Indicators. value chain. Two bottlenecks are constraining Logistics costs remain high due to poor quality Cambodia’s climb up the value chain—logistics of logistics services and inadequate quality of costs and electricity costs. Labor skills will also transport infrastructure. The cost and time to export have to be developed to sustain the growth of a container from Sihanoukville, Cambodia’s the manufacturing sector. major sea port, is much higher than the global average, as reflected in the country’s poor Figure 4. Cambodia’s Participation in ranking in the Trading Across Borders indicators GVCs of Doing Business (108 out of 190 countries). Cambodia’s GVC integration (2000 vs. 2011) Cambodia’s performance is particularly striking 40 when compared to neighboring Thailand and 37.0 36.8 35 Vietnam. Figure 5 shows that documentary and 30 25 border compliance procedures take 180 hours 20 in Cambodia, over 70 percent more time than 15 12.0 9.5 10 in Vietnam and almost triple the time needed in 5 0 Thailand. Documentary and border compliance Backward participation in GVCs Forward participation in GVCs procedures impose greater costs to Cambodian 2000 2011 firms than in most comparator countries: while Source: Authors’ calculation based on data from OECD the cost adds up to US$475 in Cambodia, it TiVA. is 10 percent lower in Vietnam (US$429) and Figure 5. Time for Documentary and 33 percent lower in Thailand (US$320) (Figure 6). Based on perceptions of logistics service Border Compliance to Export operators during the stakeholder consultations (hours)6 in Phnom Penh 2017, the informal payment per 200 container is estimated at about 48 percent 180 of the cost of one container transaction. The 160 estimated logistics cost for an export container 140 120 of 40-feet size is about US$931–US$1,000 and for 100 an import container about US$979–US$1,167 80 through Sihanoukville Port. 60 40 A linear projection of Cambodia’s economic 20 expansion implies that 4.1 times more goods 0 will be shipped in 2030 than the current volumes KHM INDO PHL VNM MYS THA of trade in 2016D (Figure 7). The national infrastructure system, including highways, Source: Trading Across Borders, 2018 World Bank Doing ports, airports, and warehouses, will have to Business Indicators. be ready to process this volume of goods. If 6 KHM refers to Cambodia, INDO refers to Indonesia, PHL refers to the Philippines, VNM refers to Vietnam, MYS refers to Malaysia and THA refers to Thailand. Cambodia’s Trade Competitiveness: 10 Investing Today in Logistics Development to Sustain Tomorrow’s Growth this will not be the case, the government risks Cambodia’s impressive export growth since curbing Cambodia’s export potential and 2005 has been sustained (Figures 8 and 9) by having an impact on the economy’s capacity strong FDI flows, indicating a consolidation of to create new and better jobs. its position in GVCs. Cambodia’s performance outstrips other countries in the region that have Figure 7. Cambodia’s Exports Now been integrated into GVCs over a longer period, and in 15 Years (Constant such as Thailand and Vietnam. Cambodia’s 2016 US$, million) FDI has been increasing in parallel with export growth. Between 2001 and 2005, Cambodia 55,000 52,072 attracted US$178 million per year on average 45,000 41,514 (about 3 percent of GDP), and between 2011 and 2015, this reached US$1.7 billion (closer to 9 35,000 33,597 percent of GDP) (Figures 10 and 11). The main 25,000 sources of investment in Cambodia were China; 15,000 the Republic of Korea; Malaysia; Taiwan; Hong 10,069 Kong SAR, China; and Thailand. 5,000 -5,000 2016 2030 Figure 8. Cambodia’s Export Performance in 2005 Source: Authors’ calculations based on data from International Monetary Fund (IMF) World Economic Outlook Total exports (WEO) (April 2017). in 2005 The current high ratio of exports to GDP will have 20 IND log of total exports to be maintained if Cambodia is to maintain PAK BGD KHM LKA 15 its growth targets. Yet, sustaining export LAO NPL BTN AFG competitiveness will depend on overcoming 10 three challenges. First, trade preferences awarded to Vietnam and Thailand through free 5 40 45 50 55 trade agreements (FTAs) will erode Cambodia’s log(GDP(exp)*sum(GDP(imp)/distance)) competitive edge. Second, its forthcoming Other countries exp. Cambodia and Comparators Fitted values graduation from least developed country Source: Baci, Authors’ calculations (LDC) status will further erode market access. Source: Authors’ calculations based on BACI 7. Third, the increasing cost of laborE will make it Figure 9. Cambodia’s Export more difficult for Cambodia’s products to be Performance in 2014 competitive, unless productivity increases. Total exports Improving logistics performance through in 2004 (in thousand USD) 25 lowering logistics costs, increasing service reliability, and reducing delays is a high log of total exports 20 IND priority for Cambodia over the next decade. A KHM LKA BGD PAK LAO 15 coherent logistics master plan is needed and NPL AFG BTN proposed by the Ministry of Public Works and 10 Transport (MPWT) to establish a modern and efficient logistics/multimodal transport system 5 40 45 50 55 that will improve logistics services, reduce log(GDP(exp)*sum(GDP(imp)/distance)) Other countries exp. costs, increase reliability, and decrease the Cambodia and Comparators Source: Baci, Authors’ calculations Fitted values time needed to move goods within Cambodia Source: Authors’ calculations based on BACI. and across borders. It also supports policies to reduce congestion and the environmental Robust FDI, coupled with a relatively open impact of transport. economic regime, has brought rapid integration 7 BACI is the World trade database developed by the Centre d’Études Prospectives et d’Informations Internationales (CEPII) at a high level of product disaggregation. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 11 into the world trading community. Cambodia Figure 12. Cambodia: World’s Export joined the World Trade Organization (WTO) Shares in 2004. As part of its accession package, 0.09% Cambodia undertook reform commitments, 0.08% which contributed to open the economy with 0.07% their progressive implementation in the following 0.06% decade. Over the last decade, Cambodia’s 0.05% export market share has been increasing 0.04% exponentially and faster than that of East Asia 0.03% 0.02% and Pacific as a whole (Figure 12 and Figure 0.01% 13 ). In 2016, Cambodia accounted for almost 0.00% US$8 out of every US$10,000 exported globally, 2002 2005 2008 2011 2014 2016 up from US$3.4 of every US$10,000 exported Source: Authors’ calculations based on UN Comtrade8. globally just 11 years before, in 2005. Figure 13. East Asia and Pacific: World Figure 10. Cambodia’s FDI Performance Exports Share in 2001–2005 25% 20% 20 FDI Inflows (Net, % of GDP 2001-2015) 15% 15 10% 10 5% 5 KHMVNM THA LAO 0% 0 2002 2005 2008 2011 2014 2016 4 6 8 10 12 log GDP Per Capita (2001-2005) All countries Cambodia’s export growth has been characterized by diversification of export KHM & Comparators Fitted values products and export destinations. Figure 14 Source: Authors’ calculations based on WDI. decomposes Cambodia’s export growth, Figure 11. Cambodia’s FDI showing that 44 percent was due to more performance 2011–2015 exports of the same products to the same destinations (intensive margin) and 56 percent was generated due to some sort of diversification 20 FDI Inflows (Net, % of GDP 2011-2015) in terms of products or destinations (extensive 15 margin). This is an important indicator as it points to a strong dynamism, although a large 10 part of it was recorded within the garment and KHM VNM footwear sector. Within the extensive margin, 5 LAO THA product diversification in established markets accounted for 27 percent of the total growth 0 6 8 10 12 and bringing a new product (already exported Log GDP Per Capita (2011-2015) All countries Fitted values somewhere else) to an old market accounted KHM & Comparators for 29 percent of total growth. Source: Authors’ calculations based on WDI. Cambodia’s trade direction needs to be diversified and focused toward emerging growth poles. The bulk of Cambodia’s exports, mostly 8 UN Comtrade Database. (Accessed in December 2017). https://comtrade.un.org/. Cambodia’s Trade Competitiveness: 12 Investing Today in Logistics Development to Sustain Tomorrow’s Growth garments and footwear, are transported to Cambodia’s trade with ASEAN is accelerating Europe and the United States, which have been faster than Cambodia’s trade with the rest of the main exporting markets since the country the world. The fast growth of exports of parts started its integration in the world trading system. and components to the region (increasing However, it is important to point out that part of 12-fold in the 2005–2016 period) suggests that Cambodia’s export growth is associated with Cambodia is strengthening its links to regional increasing integration in regional value chains value chains (Figure 16) at a sustained rate. in the East Asia and Pacific Region, particularly In the last decade, Cambodia succeeded in with China and neighboring Association of reaching out to new export destinationsH but Southeast Asian Nations (ASEAN) countries the volume of exports to these new destinations (Figure 15). This is in part attributable to the recent remain relatively small. However, export growth diversification from garments to electronics and in the last decade continued to be driven by machinery.F Within the latter, vehicle parts and Cambodia’s traditional export destinations: accessories’ exports grew 48-fold between Europe and the United States. 2010 and 2016, from US$69,000 to US$3.35 million. Although this is still an incipient sector Figure 16. Composition of Cambodia’s (only US$3.3 for every US$10,000 of Cambodian Export Growth 2005–2016 exports fall into this sector), it constitutes an area (US$) with more potential for expansion in the future development of Cambodia’s exports. 40% 36% 35% Figure 14. Composition of Cambodia’s 30% 26% Export Growth 25% 20% 15% 12% Export Growth (millions of USD) 10% 8,000 7,000 5% Old Prod, Old Mkt 6,000 (Diversif) 0% -2% 5,000 New Mkt, New Prod -5% 4,000 Old Prod, New Mkt Parts & Comp. Other Parts & Comp. Other 3,000 Old Mkt, New Prod Regional Extra regional 2,000 Intensive Margin 1,000 Source: Authors’ calculations based on UN Comtrade. 0 2005-2016 Figure 17. Contributions to Export Source: Authors’ calculations based on data from UN Comtrade.G Growth (2005–2016) in US$ Figure 15. Cambodia’s Regional 250% Integration 200% Cambodia: Exports to East Asia and Pacific, % total exports 150% 194% 16% 14.0% 14% 100% 12% 9.4% 10% 50% 8.2% 17% 8% 27% 6% 4.9% 0% -4% 4% 2.9% 2% -50% 0% 2005 2008 2011 2014 2016 P&C - Reg P&C - Extra Reg Other - Reg Other - Extra Reg Source: Authors’ calculations based on data UN Comtrade. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 13 2.2.DIVERSIFICATION AND gross terms, 43 cents originate in Cambodian value added, while 57 cents correspond to SOPHISTICATION OF EXPORTS imported components (Figure 20). Cambodia’s exports remained highly concentrated in garments over the past 15 Figure 20. Decomposition of years. The percentage share of garments in total Cambodia’s Garments Value exports did not change much between 2005 Added - Domestic Versus and 2016 (Figure 18 and Figure 19). Garments Imported 9 are still the dominant export product with limited diversification into other high-value products. Nevertheless, signs of nascent diversification can 43% be observed in some emerging exports (rubber, fur-skins, bicycles, telephone accessories, and 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% cereals) though volumes are low. Domestic VA CHN TWN VNM KOR HKG MYS THA ROW Figure 18. Cambodia’s Export Composition by Sector Source: Authors’ calculations based on TiVA (OECD). (2005) Cambodia’s rapidly evolving export mix has not changed the fact that most of Cambodia’s export garments still consist of low-price garments. Specializing in low-price garment segments, Cambodia is at the bottom of the distribution in terms of quality. The charts in Figure 21 present quality ladders for the top four export products of 2014. The position of Cambodia’s Source: Atlas of Economic Complexity (MIT). exporters in the quality ladder is low, compared Figure 19. Cambodia’s Export to other countries exporting similar products (quality is proxied by the unit price received Composition by Sector by exporters). For rice, Cambodian exporters (2016) appear in the bottom half rather than in the bottom quarter, indicating a specialization in products with a higher value added. Also in rice, however, similar to garments, the analysis implies substantial space for quality upgrading. Source: Atlas of Economic Complexity (MIT). Garments, and specifically, cut-make-trim activities account for most of the value added in manufacturing. Garments account for 55 percent of all manufacturing value added in the economy and for 84 percent of all the value added in manufacturing that is exported. In turn, for every dollar exported of garments in 9 Domestic VA refers to “domestic value added”; CHN refers to China; TWN refers to Taiwan; KOR refers to Korea; ROW refers to “Rest of the World”. Cambodia’s Trade Competitiveness: 14 Investing Today in Logistics Development to Sustain Tomorrow’s Growth Figure 21. Cambodia’s Position in the Quality Ladders for its Main Exports Semimilled or wholly milled rice (2015-2016) Women’ or girls’ trousers (2015-2016) .15 .003 Relative Kg Value Relative Kg Value .1 .002 .05 .001 0 0 0 20 40 60 80 0 20 40 60 80 Rank Rank Men’s or boys’ trousers (2015-2016) T-shirts of cotton, knitted or crocheted (2015-2016) .25 .2 .2 Relative Kg Value .15 Relative Kg Value .15 .1 .1 .05 .05 0 0 0 20 40 60 80 0 20 40 60 80 100 Rank Rank Source: Authors’ calculations based on data from UN Comtrade. Table 1: Threshold RCAI for Cambodia’s Exports Average Exports (US$, millions) Average Average By Tech Category Product PRODY Average Share of Total Exports (%) Path Matrix PP RB LT MT HT 2000–04 2005–07 2008–10 2011–13 2014–16 Classics 7 1 – 6 – – 13,003 101 1,316.1 2,381.4 2,628.2 3,958.5 5,384.4 67.6 70.6 52.8 62.0 63.5 Disappear 1 – 1 – – 17,059 101 9.0 6.0 5.6 12.9 15.3 ances 0.4 0.2 0.1 0.2 0.2 Emerging 4 1 – 3 – – 13,183 119 52.9 100.6 273.1 713.2 1,227.6 Champions 2.7 3.0 5.5 11.2 14.5 Marginals 15 — 3 9 2 1 14,264 138 98.0 120.9 166.3 206.4 365.0 5.0 3.6 3.3 3.2 4.3 Totals 27 2 3 19 2 1 *10,816 *87 Source: Author’s calculation using Comtrade data. Note: *Weighted by average export share for 2014–2016; RCAI = Revealed Comparative Advantage Index Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 15 Cambodia’s emerging export structure still and have less scope for diversification than the appears unsophisticated, with classics and sectors belonging to other categories. Also, the emerging champions concentrated in low-tech low average income level of the destination sectors.I Table 1 indicates the threshold RCAI for countries is an indicator of the quality of Cambodia’s exports in four dimensions: classics, the products exported, while the low path disappearances, emerging, and marginals. The means that factors of production employed share of export classics products10 has declined in producing these classic products cannot over the period between 2000 and 2016. In 2000, be easily redeployed to alternatives. Seven the classics products (undergarments, dresses, classics products are primary products and and natural rubber latex) accounted for 67.6 six are low-technology products. The share of percent, while in 2014–2016 this share declined disappearances has decreased over the period to 63.5 percent. Both the average income level from 0.4 percent to 0.2 percent.11 However, (PRODY) of classics (US$13,003) and its path the average income level of the product is (101) are low when compared to the other comparatively very high at US$17,059 with a categories, meaning that segments, in which path of 101. This implies that the disappearances Cambodia traditionally had a comparative are exported toward countries that have a advantage, reach relatively poor countries relatively high average income level. Table 2: Details of the Specific Products in Each Category (Classics, Disappearances, Emerging, and Marginals) ID Product Name Tech Category PRODY Path Count (SITC) CLASSICS (RCA 0406=1, RCA 1416=1) filtered with exports > US$500,000 in 2004–16 2320 Natural rubber latex; natural rubber and Primary Products 10,093 51 8443 Undergarments, women’s, of textile Low Tech 12,757 92 8451 Jerseys, pullovers, twinsets, and cardigans Low Tech 16,698 114 8452 Dresses, skirts, suits and so on, knitted or Low Tech 14,929 128 8459 Other outer garments and clothing, knitted Low Tech 13,881 113 8462 Undergarments, knitted out of cotton Low Tech 13,715 109 Not reported 8464 Under garments, knitted of other fiber Low Tech 8,950 in the Average 13,003 101 7 DISAPPERANCES (RCA 0406=1, RCA 1416=0) filtered with exports > US$500,000 in 2004–16 8484 Headgear and fittings thereof, n.e.s Low Tech 17,059 101 Average 17,059 101 1 EMERGING CHAMPIONS (RCA 0406=0, RCA 1416=1) filtered with exports > US$500,000 in 2004–16 422 Rice semi-milled or wholly milled, Primary Products 9,126 93 10 Classics: Products in which Cambodia’s RCA was high in the earlier period (2000–2004) and continues to remain high in the recent period (2014–2016). As a policy implication, classics products have a strong export performance and long-term competitiveness that should be maintained. 11 Disappearances: Products in which Cambodia’s RCA in the earlier period was high but is now low. This means that the competitiveness of disappearances products declines. Cambodia’s Trade Competitiveness: 16 Investing Today in Logistics Development to Sustain Tomorrow’s Growth 8463 Undergarments, knitted, of synthetic Low Tech 13,749 119 8465 Corsets, brassieres, suspenders, and t Low Tech 15,211 120 8510 Footwear Low Tech 14,645 143 Average 13,183 119 4 MARGINALS (RCA 0406=0, RCA 1416=0) filtered with exports > US$500,000 in 2004–16 1222 Cigarettes Resource Based 14,559 144 2483 Wood of non-coniferous species, sawn Resource Based 8,195 110 2690 Old clothing and other old textiles Resource Based 6,239 173 6534 Fabrics, woven, of discontinuous synthetic fabric Low Tech 13,830 155 6583 Travelling rugs and blankets, not knit Low Tech 11,074 145 6584 Bed linen, table linen, toilet and kitchen cloth Low Tech 13,736 134 6924 Casks, drums, boxes of iron/steel for Low Tech 15,274 185 7234 Construction and mining machinery, n Low Tech 14,431 173 8423 Trousers, breeches, and so on of textile fabrics Low Tech 12,298 112 8429 Other outer garments of textile fabrics Low Tech 20,211 115 8431 Coats and jackets of textile fabric Low Tech 15,202 134 8434 Skirts, women's, of textile fabrics Low Tech 12,414 137 8435 Blouses of textile fabrics Low Tech 12,914 116 8439 Other outer garments of textile fabrics Low Tech 17,383 116 9310 UN Special Code Not classified 26,202 118 Average 14,264 138 15 Source: Authors’ calculation using Comtrade. Marginal products are 15, out of which 3 are level is comparatively low at US$13,183 with a RB, 9 LT, 2 MT, and 1 HT. Table 2 shows the share high path of 119. of marginal products, in which Cambodia Cambodia is slowly moving from garment has exported but has not had comparative exports to more sophisticated activities and advantage. Marginals decreased over has not yet begun to export sophisticated the period from 5 percent to 4.3 percent. products. The increase in exports has been Cambodia’s RCA has been low in both the based on diversification along the product earlier and recent period. However, the dimension, which occurred mostly within the average income level is comparatively higher textiles and garment sector. In 2005, only at US$14,264 with a high path of 138. This implies 15 products accounted for 80 percent of that the disappearances products are exported Cambodia’s exports, while in 2016, 39 products toward countries that have a relatively high have to be considered to reach 80 percent average income level. The high path implies that of exports (Figure 22). Outside of garments, there are more opportunities to diversify from initial diversification is occurring in a handful marginal products than others. Significantly, the of sectors, including in wood products, rice, share of emerging champions products12 has and electronics. A large part of rice exports, increased over the period from 2.7 percent to however, is still informal. Unmilled rice is being 14.5 percent. However, the average income transported across the border to Thailand and 12 Emerging champions: products in which Cambodia’s RCA was low in the earlier period but is high in the recent period. This implies that these products have an emergent competitiveness. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 17 Vietnam where it is processed and packaged, A comparison of the 20 most exported products to provide value addition that could be done in in 2005 and 2016 indicates that the garment Cambodia itself if more investments would be sector still plays a significant role, accounting for made in processing and if logistics bottlenecks 50 percent of the most exported products in 2016 were addressed. (Tables 3 and 4). Nascent export diversification is confirmed by the presence of rice (cereals), Figure 22. Cambodia’s Export Partners bicycles, and telephone parts in Cambodia’s in 2016 (Gross Exports) export mix. The garment trade continues to dominate Cambodia’s exports destined to Europe, the United States, Canada, and Japan. These are low-value, low-tech products linked to Cambodia’s specialization in cut-make-trim, which is the lowest profit margin sector in the garment industry. Moving up the sophistication ladder needs to be done simultaneously with maintaining competitiveness in the low-value garment segments where it is currently holding a solid position in relation to its competitors. In its Source: Atlas of Economic Complexity (Harvard University). attempt to increase value addition, Cambodia Figure 23. Number of Products will have difficulties in competing with more Composing 80 Percent of advanced countries such as Hong Kong SAR, Total Exports China; the Philippines; and Taiwan, China in the area of design. Cambodia could consider 50 increasing some upstream activities in the area 39 40 of merchandising (sourcing accessories and 30 raw materials). This will be possible if additional 25 16 19 skills are developed as these are not currently 20 15 available in the market. 10 0 2005 2008 2011 2014 2016 Source: Authors’ calculations based on UN Comtrade. Cambodia’s Trade Competitiveness: 18 Investing Today in Logistics Development to Sustain Tomorrow’s Growth Table 3. Main Exported Products in 2005 Top 20 HS6 Exported Products 2005 Source: Authors’ calculations based on data from UN Comtrade.2.3. Revealed Capability Intensities: Where is Cambodia positioned? Table 4. Main Exported Products in 2016 TOP 20 HS6 Exported Products 2016 Source: Authors’ calculations based on data from UN Comtrade.2.3. Revealed Capability Intensities: Where is Cambodia positioned? Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 19 Cambodia’s high concentration in garment capabilities, depending on the extent to which manufacturing may be crowding out export these can be affected by policy levers. These diversification toward more value-added are (a) fixed capabilities that include proximity products. Cambodia’s garment exporting to markets and natural capital; (b) long-term industry has been mainly driven by low wages policy variables that include human capital, and trade preferences. Measuring Cambodia’s physical capital, and institutional capital; and available capabilities in the economy is (c) short-term policy variables that include important to understand its current position logistics connectivity, wage competitiveness, in GVCs and how to upgrade toward greater market access, and access to inputs. They diversified value-added exports. A country also proposed that indicators to represent position in GVCs can be analyzed by comparing these capabilities, as illustrated in Table 5, are its capabilities with the revealed capability for use in the assessment of Cambodia’s GVC intensity (RCI) of traded goods that are most position. Because it is challenging to obtain likely included in cross-border production reliable data on some indicators for Cambodia, networks. Following a classification developed the indicators on total value of natural capital, by Farole and Pathikonda (2016), there are wage competitiveness, and access to inputs three relevant groups of GVC participation are excluded. Table 5: Capability Framework to Participate in GVCs Category Capability Indicator Units Source Fixed Proximity to GDP-weighted distance Kilometersa CEPII capability markets Natural capital Total value of natural Current US$, billions World Bank Wealth of capital Nations Long-term Human capital Average years of Years Barro and Lee (2010) policy schoolings (>15 years old variables population) Physical capital Capital stock per person 2005 US$, thousands WDI Institutional Rule of law Rating from (-) 2.5 to (+) 2.5 World Governance capital Indicators Short-term Logistics Logistics performance Rating from 1 to 5 World Bank LPI policy connectivity index (LPI) variables Wage Minimum wage for a US$a World Bank Doing competitiveness 19-year old worker or an Business apprentice Market Access Overall trade Uniform tariff equivalent of Kee, Nicita, and restrictiveness index (of partner country tariff and Olarreaga (2008, trading partners) non-tariff barriers* 2009) Access to inputs Overall trade Uniform tariff equivalent of Kee, Nicita, and restrictiveness country tariff and non-tariff Olarreaga (2008, barriers* 2009) Source: Farole and Pathikonda (2016). Note: a. Two variables were inverted from the source data to give all indicators the same direction; a higher figure for all indicators signifies a higher capability level. Cambodia’s Trade Competitiveness: 20 Investing Today in Logistics Development to Sustain Tomorrow’s Growth Cambodia lies below the world average in Cambodia is still far from joining the production of GVC capabilities that can be shaped through intermediate GVC products that typically have policies. The position of Cambodia’s capability greater capability requirements (according to endowments in various non-fixed dimensions Farole and Pathikonda 2016), but at a closer (including short-term and long-term policy distance from GVC products and final GVC variables) is still in the negative zone, implying products.13 Capabilities to produce final GVC that the country’s endowments lie below the products involve mostly assembly activities in world average and that further significant which wage competitiveness and access to upgrades are necessary to enable the country inputs constitute the basic capabilities required. to join GVC at different stages of productions. (see Table 6) Table 6. Cambodia’s Selected Capability Endowments Versus GVC Participation Requirements Requirements Cambodia’s Category Capability Capability GVC Final GVC Intermediate Endowment Products Products GVC Products Fixed Proximity to markets 0.0085 0.049 0.372 −0.36 Human capital 0.0120 0.087 0.189 −1.30 Long-term policy Physical capital 0.0079 −0.066 0.227 −0.86 variables Institutional capital 0.0113 −0.020 0.240 −1.11 Logistics 0.0157 0.141 0.484 −0.14 Short-term policy variables Market access 0.0048 −0.080 0.099 −0.48 Source: Farole and Pathikonda (2016) According to Farole and Pathikonda (2016), capital, and institutional capital than sectors different sectors are associated with different such as garments and textiles that involve mostly levels of capability requirements. Transport, access to inputs and wages. They calculated machinery, and electronics involve higher level RCI estimates for each industry, presented in of capabilities such as human capital, physical Table 7. 13 The classification of products in intermediate and final follows Athukorala (2010) and Sturgeon and Memedovic (2011). Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 21 Table 7. Capability Requirements by Sectors: RCI Estimates Source: Farole and Pathikonda (2016). Note: Legend: 1 = Plastic/Rubber; 2 = Hides, Skins; 3 = Textiles; 4 = Clothing; 5 = Footwear - Intermediate; 6 = Footwear - Final; 7 = Stone/Glass; 8 = Metals; 9 = Machinery/Electronics - Final; 10 = Machinery/Electronics - Intermediate; 11 = Transport - Final; 12 = Transport - Intermediate; 13 = Miscellaneous - Final; 14 = Miscellaneous - Intermediate. The results show that Cambodia lags behind the Figure 24. Cambodia’s Capability world average and its comparators in terms of Endowments Versus Vietnam capabilities necessary to integrate into GVCs. and World Cambodia faces a particularly important Prox to markets challenge in terms of long-term policy variables. 0.5 It is positioned in the last quintile in the human 0.0 capital, institutional capital, and physical Market access -0.5 Human capital capital dimensions (illustrated in Figure 24). With -1.0 its current capability endowments, Cambodia is -1.5 suited to participate in the low-margin garments in GVCs, the current main exporting sector. Logistics Physical capital Long-term capabilities, such as human capital, institutional capital, and physical capital are Institutional capital crucial for Cambodia to move up to more Cambodia Vietnam World sophisticated value chains such as transport Source: Authors’ calculations based on Farole and equipment or machinery and electronics. While Pathikonda (2016), WDIs, CEPII, World Bank The Changing Cambodia’s capability endowments in logistics Wealth of Nations, Barro Lee Database, Penn World Tables, World Bank World Governance Indicators, World Bank LPI. and market access under the short-term policy variables are in a much better position, both Cambodia’s capability endowments shape indicators are far behind average requirements the country’s success in some sectors but not for participating in GVCs. These short-term in others. Its capability endowments in market policy variables play important roles to support access, logistics, and proximity to markets GVC participation. are sufficient to participate in the garment GVCs. However, when it comes to human, Cambodia’s Trade Competitiveness: 22 Investing Today in Logistics Development to Sustain Tomorrow’s Growth physical, and institutional capital, Cambodia and machinery/electronics—intermediate is inadequately endowed even for garment inputs than what it is for clothing. A comparison production, one of the least capability-intensive of three sectors is illustrated in Figure 25. GVCs. The fact that Cambodia has managed Human capital capabilities emerge as to integrate the GVCs in the clothing sector a binding constraint to diversification of despite its shortcomings in long-term policy Cambodia’s export basket to higher value- dimensions may imply the sector’s reliance added intermediate GVC products. Likewise, on low wages. With its current capabilities Cambodia also lacks logistics capability to endowments, it should be no surprise that drive its participation in key sectors, including Cambodia has also limited activities in upstream machinery and electronics intermediates, value chains even within the clothing GVCs, machinery and electronics, and textiles and such as cloth design and sourcing of fabrics transport. and accessories. Cambodia is even more inadequately prepared to participate in textiles Figure 25. Sectoral Capability Requirements Versus Cambodia’s Capability Endowments Plastic Hides, Skins Textiles Prox to Prox to Prox to markets markets markets Market Human Market Human Market Human access capital access capital access capital Physical Physical Physical Logistics capital Logistics capital Logistics capital Institutional... Institutional... Institutional... REQ KHM REQ KHM REQ KHM Clothing Footwear - Intermediate Footwear - Final Prox to Prox to Prox to markets markets markets Market Human Market Human Market Human access capital access capital access capital Physical Physical Physical Logistics Logistics Logistics capital capital capital Institutional... Institutional... Institutional... REQ KHM REQ KHM REQ KHM Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 23 Stone / Glass Metals Machinery/Electronics - Final Prox to Prox to Prox to markets markets markets Market Human Human Human Market Market access capital capital capital access access Physical Physical Physical Logistics Logistics capital Logistics capital capital Institutional... Institutional... Institutional... REQ KHM REQ KHM REQ KHM Machinery/Electronics - Transport - Final Transport - Intermediate Intermediate Prox to Prox to Prox to markets markets markets Market Human Market Human Market Human access capital access capital access capital Physical Physical Physical Logistics Logistics Logistics capital capital capital Institutional... Institutional... Institutional... REQ KHM REQ KHM REQ KHM Miscellaneous - Final Miscellaneous - Intermediate Prox to Prox to markets markets Market Human Market Human access capital access capital Physical Physical Logistics Logistics capital capital Institutional... Institutional... REQ KHM REQ KHM Source: Authors’ calculations based on Farole and Pathikonda (2016), WDIs, CEPII, World Bank The Changing Wealth of Nations, Barro Lee Database, Penn World Tables, World Bank World Governance Indicators, World Bank LPI. Firms will have to enhance their production how far it stands from key players in different capabilities, including better-trained workers, desirable GVCs. better equipment, more efficient production To produce intermediate electronics and techniques, and low-cost electricity and machinery, or transport equipment products, logistics to succeed in diversification and Cambodia needs to upgrade its logistics in the upgrading. To make more sophisticated short run and its human capital in the long run. activities feasible in Cambodia, it is necessary In terms of logistics capabilities, Cambodia is to enhance these production capabilities. positioned 73rd in a ranking of 159 countries. Comparing Cambodia’s performance in a Because logistics are crucial for this activity, on series of capability dimensions is useful to assess Cambodia’s Trade Competitiveness: 24 Investing Today in Logistics Development to Sustain Tomorrow’s Growth average, successful exporters of electronics, at 4.7 years—ranks 126th out of 146 countries such as Thailand or Malaysia are positioned with available information, with the average about 29 ranks ahead. In the long term, requirements for successful exporters being increased human capital is crucial to make this 9.72 years of schooling, closer to a mid-ranking activity feasible. Cambodia’s low performance position. in terms of years of schooling of its population— Figure 26. Revealed Capability Intensities of GVC Products and Cambodia’s Endowments (in standard deviations of world averages) Proximity to markets 0.5 0 Market access Human capital -0.5 -1 -1.5 Logistics Physical capital Institutional capital GVC Products Final GVC Products Intermediate GVC Products Cambodia’s endowment Source: Authors’ calculations based on WDI, LPI. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 25 3 MARKET ACCESS Figure 27 Number of Agreements Over Time 35 300 30 250 25 200 20 150 15 Cambodia’s trade preferences confer an 10 100 advantage on its exports by making them 5 50 0 cheaper than Vietnamese or Thai exports at 0 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 the destination markets of the EU, Canada, High depth Medium depth Low depth Not in force Cumulative and Japan. Cambodia enjoys enhanced Source: Calculations based on World Bank Preferential market access for its exports conferred by its Trade Agreement (PTA) content dataset (2016). status as an LDC. It has benefited mainly from Figure 28. Number of Agreements Per unilateral concessions, such as the Everything Country but Arms (EBA) scheme provided by the EU and similar schemes offered by Canada and Japan. Preferential access will be phased out progressively with LDC graduation. Without trade preferences, Cambodia will likely be less competitive in these garment sectors as well as in other sectors. Cambodia can use FTAs to ensure market access to major export markets as its LDC preferences wane over time. Cambodia is Source: Calculations based on World Bank PTA content lagging behind regional peers such as Vietnam, dataset (2016). Thailand, and Malaysia in negotiating and Figure 29. Number of PTAs signing bilateral FTAs (Figure 26). In the last 30 Comparator Countries years, the number of trade agreements has 15 Number of agreements increased substantially, as countries seek to 10 reduce cross-border trade costs (Figure 27). Cambodia is part of only six agreements, all 5 of which have been negotiated in the ASEAN 0 framework. Cambodia belongs to the ASEAN ar ia m s sia nd o nm d na La ay la bo ya ai et free trade area (1992) and is part of the ASEAN al am Th Vi M M C South-South With Japan With EU +1 agreements with China, Japan, Australia- North-North North-South With USA New Zealand, India, and the Republic of Korea. Source: Calculations based on World Bank PTA content Cambodia has not yet made use of FTAs to dataset (2016). increase market access. Moreover, Cambodia’s Cambodia’s success story can continue if agreements fail to include provisions beyond specific reforms are designed and implemented WTO rules that can help protect assets and to address the existing bottlenecks which are attract sophisticated, knowledge-intensive threatening trade expansion and jobs creation. FDI. Only half of Cambodia’s agreements Figure 30 shows that Cambodia’s labor include provisions on intellectual property productivity is lower than in many comparator rights or competition policy that have been countries such as Guatemala, Malaysia, and the found to be key to attract knowledge-intensive Philippines.14 Despite recent salary growth and investments—a crucial conduit for diversification its relatively low labor productivity, Cambodia into sophisticated tasks. still has a competitive edge. However, if labor costs rise at a faster pace than productivity, the 14 Partial productivity measured in 2009 (US$). All data points are for the median firm on each measure of performance. Cambodia’s Trade Competitiveness: 26 Investing Today in Logistics Development to Sustain Tomorrow’s Growth country’s competitiveness might be eroded. Cambodia’s export growth. As such, Cambodia With labor intensity as the main source of will need to address business constraints to meet comparative advantage, increases in labor its growth and export targets. With significant costs detached from the evolution of labor delays in completing transformative reforms, productivity might discourage the entry of private firms still face major constraints in doing efficiency-seeking FDI.15 business in Cambodia. Access to finance remains challenging. In 2016, only 2.6 percent of It is also essential for the RGC to be proactive firms used banks to finance investment. This was in promoting market access through higher- a 30 percent drop from 2013 and substantially quality bilateral and regional trade agreements below the average for firms in lower-middle- that will help mitigate the erosion of preferences. income countries. The World Bank Enterprise It is expected that Cambodia will lose much survey16 shows that exporters are particularly of its trade preferences when the economy affected by this financial constraint. While only graduates from its LDC status, expected to take a third of non-exporter firms identified access to place in 2025. Cambodia will only benefit from finance as an obstacle, 42 percent of exporters FTAs if it can implement trade agreements to considered it an obstacle, confirming that improve market efficiency and to be attractive access to finance is more of a constraint for for more high-quality FDI. As indicated in the firms that have greater working capital and International Trade Centre (ITC) database, investment needs (Table 8). Access to formal the level and complexity of Cambodia’s tariff financial facilities is constrained by several protection is restricting its access to foreign reasons, including the relatively unsophisticated markets. Cambodia has not yet benefited structure of Cambodia’s banking sector, a much from reciprocal conditions in trade poor regulatory structure, and the inability of agreements but mostly from its entitlement to SMEs to obtain loans, including because of trade preferences for foreign market access. the informality of a large portion of the private In this context, Cambodia operates in a less sector. Poor access to formal credit, however, is favorable environment than it used to in terms partially offset by informal financing framework of market access. Implementation of key offered to small firms. Moreover, medium and reforms required and encouraged by trade large exporting firms are mostly subsidiaries of agreements is extremely crucial to upgrade larger companies operating in several countries, Cambodia’s foreign market access. where they can obtain easier access to finance through subsidiaries abroad. Figure 30. Labor Productivity in the Garment Sector Table 8. Percentage of Firms Identifying 25 22.5 Access to Finance as an 20 19.3 19.5 Obstacle 15 Access to Finance 9.6 10.3 10.5 10 5.1 5.9 7.1 Not an An Total 4.3 4.6 5 2.4 3.7 3.5 Obstacle Obstacle 0 KHM BGD NIC GTM THA MMR LAO MYS Comparators East Asia PHL TVTN IND BRA RUS CHN BRICS Non-exporter 67% 33% 683 Exporter 58% 42% 148 Source: World Bank Group calculation based on data from World Bank Enterprise Surveys. Total 547 284 831 The cost of doing business in Cambodia is high. Source: Authors’ calculations based on World Bank Enterprise Surveys. Foreign investment is a necessary component of 15 The recent increase in the cost of labor is likely to have an impact on unit cost if Cambodia has challenges to enhance its productivity in the garment sector. Experience demonstrated that Cambodian garment firms used to successfully mitigate the adverse effect of increased wages on competitiveness through productivity enhancement, especially through the implementation of ‘the better work better factory’ (Fukunishi and Yamagata 2015). The GMAC recognizes difficulties created by high labor costs, which have now reached those of Vietnam, whose productivity, however, is higher. However, labor is still abundant in Cambodia and this is a major advantage in attracting FDI, particularly for labor-intensive operations. 16 Enterprise Surveys (http://www.enterprisesurveys.org), The World Bank. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 27 Other distinctive constraints for exporters include For Cambodia to remain cost-competitive and access to skills (inadequately educated labor diversify into more sophisticated manufacturing force), labor costs regulations, and corruption— segments, it is critical to implement reforms correlated with payments of bribes (Table 9). aiming to reduce trade costs and improve trade Coincidentally, exporting firms that revealed transparency along two dimensions. First, logistics paying ‘gifts’ to Customs, completed border quality and reliability and to administrative procedures about one full day earlier than those players in public service delivery leading to that did not pay ‘gifts’ (4.6 days on average informal payments. These costs account for a versus 5.75 days). large part of Cambodia’s export value and are crucial for manufacturing upgrading. Second, Table 9. Percentage of Firms Identifying trade costs driven by poor market access the Following as the Top and lack of deep FTA provisions, including for Constraints for Operations example, asset protection, investment, services Potential Constraint Exporters Overall trade, or competition policy harmonization. (%) (%) The negotiation of new FTAs will contribute to Inadequately educated attenuate the erosion of preferences and to 15 11 attract FDI in higher-value sectors. labor force Corruption 13 11 Electricity 13 15 Labor regulations 12 3 Political instability 10 11 Tax rates 9 10 Practices of competitors in 5 13 informal sector Courts 4 2 Customs and trade 4 2 regulations Source: Authors’ calculations based on World Bank Enterprise Surveys. Cambodia’s Trade Competitiveness: 28 Investing Today in Logistics Development to Sustain Tomorrow’s Growth 4 LOGISTICS SERVICES Selected Policy Indicator, Table 10. Average by GVC Type, 2001 IN CAMBODIA’S GVC type FDI LPI Educ Innovation Quallty EXPORT STRATEGY buyer_agr_mfg buyer_mfg 4.97 5.82* 2.52 3.21 3.17 4.31 2.77 3.48 buyer_mfg_serv 4.53 3.06 4.33 3.57 hub 1.97 3.85 4.77 5.09 seller_agr 4.05 2.37 3.15 2.77 seller_agr_mfg 3.00 2.54 3.40 2.92 seller_comm 5.61 2.56 3.55 3.01 The logistics sector plays a leading role in seller_comm_mfg 3.06 2.78 3.62 3.04 facilitating, linking, and supporting the country’s seller_comm_ 3.63 3.14 3.91 3.42 socioeconomic development and enabling mfg_serv Cambodia to take advantage of exporting seller_comm_serv 4.53 2.71 3.99 3.43 seller_mfg_serv 5.55 3.84 5.08 4.71 opportunities. However, local logistics service providers lack the capabilities to provide modern Source: Making GVCs work for development. logistics value-added services and Cambodian Note: Countries are classified into 11 GVC types which are defined using three measures: (a) overall GVC integration, manufacturers usually suffer from low levels (b) value added sectoral decomposition, and (c) upstream of logistics performance and high logistics nature of the export and import baskets. Green refers to high values and red refers to low values. Most important cost. The World Bank Group’s 2017 Systematic policy objective by GVC type highlighted in bold. Country Diagnostic (SCD) report highlights *Average higher due to two outliers Ireland and Singapore that poor quality of transport infrastructure with average FDI inflows of 18–19 percent. FDI = Avg. FDI inflows (percentage of GDP) between 2000 and 2011 from and logistics services is a constraint to WDI. LPI = Average LPI of 2007 and 2011 (1–5 = High) from Cambodia’s international trade and economic WDI. Education quality = Average index of educational quality, 1–7 (Best), between 2006 and 2011 from World diversification. The IDP paper of the RGC also Economic Forum (WEF). Innovation = Average index on identified the transport and logistics sector as an innovation environment, 1–7 (Best), between 2006 and 2011 important pillar of the IDP implementation. The from WEF. transport and logistics sector is a critical aspect International cross-country evidence suggests of Cambodia’s economy in two significant ways. that logistics performance matters for upgrading First, logistics is a major business cost. Second, into manufacturing GVCs. Table 10 shows logistics supports many economic transactions; that FDI attraction matters most strongly for it is an important aspect of facilitating the sale resource-intensive sellers. Once diversification of all goods and services. Improved logistics into manufacturing takes place, connectivity enables the seamless flow of goods, services, (as measured by the LPI) becomes more and persons. important than FDI. The quality of education (including worker skills and worker education), Cambodia’s overall logistics performance together with connectivity, is very relevant for remains poor and regional performance below manufacturing buyers. Moreover, to become average. In 2016, Cambodia ranked 73rd in the a manufacturing seller or hub, countries need World Bank LPI. This was an improvement from to have strong innovative capabilities —besides a rank of 129 in 2010. The improvement can be world-class connectivity and education quality attributed to significant customs reforms and (and FDI attraction). Figure 30 indicates that, in automation including the use of the Automated 2011, more than a fifth of the value added of System for Customs Data (ASYCUDA) at all the inputs into manufacturing came from the checkpoints. However, the overall logistics transport and storage sector. score of 2.80 (against the average overall score for the East Asia and Pacific Region of The quality and reliability of logistics services in 3.14) points to a need and potential for further Cambodia will have to improve to support export improvements. The scores of more competitive diversification and expansion. To improve the neighbors, such as Thailand and Vietnam, were quality of logistics services in Cambodia, the RGC 3.26 and 2.98, respectively. could consider addressing several legal gaps Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 29 to develop an adequate legal environment, framework and the policy objectives described in line with regional sectoral agreements and in the IDP and in other RGC policy documents. international conventions. Primary focus of Quality of logistics services would improve also the RGC could be on addressing qualitative as a result of liberalization of ports’ administration criteria for logistics operators to access the and enhanced transparency of fees’ structure. market, ensuring consistency between the legal Figure 31. Decomposition of Exported Value Added Services Manufacturing Primary 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Agriculture, hunting, forestry and fishing Financial intermediation Computer, Electronic and optical equipment Food products, beverages and tobacco Renting of machinery and equipment Motor vehicles, trailers and semi-trailers Wood and products of wood and cork R&D and other business activities Manufacturing nec; recycling Coke, refined petroleum products and nuclear fuel Education Construction Rubber and plastics products Other community, social and personal services Hotels and restaurants Basic metals Mining and quarrying Post and telecommunications Machinery and equipment, nec Textiles, textile products, leather and footwear Real estate activities Electrical machinery and apparatus, nec Pulp, paper, paper products, printing and publishing Computer and related activities Other transport equipment Chemicals and chemical products Public admin. and defence; compulsory social security Electricity, gas and water supply Other non-metallic mineral products Health and social work Wholesale and retail trade; repairs Fabricated metal products Private households with employed persons Transport and storage Source: Authors’ calculations based on data from TiVA OECD. Cambodia requires streamlined access to they account for about half of the value-added imported inputs in the manufacturing sector. exports by the garments value chain. Cambodia Foreign inputs are important in Cambodian faces challenges in terms of trade facilitation domestic production that makes transport and that must be addressed to better integrate with logistics a key sector for Cambodia’s growth the world and embrace GVCs. and development. Foreign inputs in in garments result in large value added: 27 percent of Figure 32. Forward Exported Value total value of production correspond to value Added by Transport and added that comes from China, 10 percent from Storage (percentage of total Taiwan, 4 percent from Vietnam, 4 percent from exported value added) the Republic of Korea, 2 percent from Hong Kong SAR, China, 2 percent from Malaysia, 2 16% 14% percent from Thailand, and so on. The transport 12% sector alone accounts for 14 percent of the 10% exports value added in Cambodia and has 8% a larger share in the exporting structure than 6% 7% in comparator countries (average 4 percent) 4% 3% 4% 4% (Error! Reference source not found.), reflecting 2% 14% higher transportation costs in Cambodia. 0% Cambodia Indonesia Malaysia Thailand Vietnam Transport and storage, together with wholesale and retail services, play a crucial role in the Source: Authors’ calculations based on OECD TiVA (2011). textile and garments export strategy: together Cambodia’s Trade Competitiveness: 30 Investing Today in Logistics Development to Sustain Tomorrow’s Growth For Cambodia to remain competitive, it is Figure 34. Total Exported Value necessary to reduce trade costs (including Added (forward links’ transportation cost) which are currently very decomposition) high. In Cambodia, 43 percent of the garments’ value corresponds to domestic value added and Vietnam Primary Other services 57 percent to foreign value. Only transport and Thailand Transport and Storage storage costs explain a big chunk of exported Manufacturing Malaysia Wholesale & value added in Cambodia. The contribution of Retail logistics to Cambodian exports of value added Indonesia is significantly higher than in other countries in Cambodia the region. Forward exported value added by 0% 20% 40% 60% 80% 100% transport and storage accounted for about 14 percent of total exported value added. In Although the textile sector by itself constitutes contrast, its neighbors—Thailand and Vietnam— one of the largest creators of value added, have transport and storage contributing to their when the whole textile value chain is considered exports of value added only at 7 percent and (including associated services), its large share 4 percent, respectively (Figures 19 and 20). This in Cambodia’s total value-added exports grows high share of transport and storage explains considerably. Textiles directly account for about how important this sector is for Cambodian 27 percent of total value-added exports being garments in the GVC but it acts as a burden on embedded in textile products. In the case of its exporters because logistics service providers Cambodia’s exports to the United States, when and transport operators pass on all costs to the the logistics and wholesales sectors are included exporters. in export value added for textiles exports, the participation of the textile value chain in the Overall logistics contribution to value added total value-added exports almost doubles. in Cambodia is high when compared to the When decomposing the domestic value region, it is even higher for exported value added in Cambodia’s textile exports to the added. By decomposing forward links, logistics United States, there is a majority of 77 percent contribution to total domestic value added is that corresponds to value added directly almost 10 percent. Decomposition of forward by the textile sector through backward links, links for exported value added also shows that while 5 percent corresponds to value added logistics contribution is the highest, as much as originally generated in the logistics sector. more than 14 percent. Transport and storage value added embedded in Cambodia’s exports of textiles to the United Figure 33. Total Domestic Value States is 5 percent and lower than 14 percent Added (forward links’ embedded in overall exports of Cambodia to decomposition) the world. Figure 35. Exported Value Added Vietnam (backward links, percentage Thailand of total value added) Malaysia Agriculture & Fishing Direct value Indonesia added Other personal services Manufacturing inputs Cambodia Primary inputs Transport & Storage Services inputs 0% 20% 40% 60% 80% 100% Textiles & Footwear Primary Manufacturing Other services Wholesale & Retail Wholesale & Retail Transport and Storage 0% 10% 20% 30% Source: Authors’ calculations based on OECD TiVA (2011). Source: Authors’ calculations based on OECD TiVA (2011). Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 31 Figure 36. Backwards Cambodian countries. Local freight forwarders, however, Value-Added Decomposition have allegedly consolidated opaque practices whereby they produce formal invoices to cover 90% also the informal costs they incur when clearing 80% 77% goods at the border. This practice seems to 70% have been introduced to hide informal costs, 60% which could not pass auditing controls that 50% large garment exporters were subjected to. 40% These, in fact, are suppliers of major international 30% brands which operate often in legal and social 20% 9% 10% environments sanctioning corruptive practices. 10% 5% Figure 38 shows that it costs US$2,170 to transport 0% a 40-foot container over land from Bangkok Textiles Wholesale Transport & Rest & Retail Storage to Phnom Penh. This extremely high cost could Textile exports be substantially reduced if a combination of reforms could be implemented, including Figure 37. Trade Facilitation, Cost to the possibility for trucks to travel across the Export in US$, 2018 countries without transshipping the goods at 5000 the border, the consolidation of border control, 4500 4000 and the implementation of a single inspection 3500 3000 scheme. With reference to border operations, 2500 2000 the cost of logistics in Cambodia could be 1500 1000 500 KHM reduced by addressing transparency of border World Average 0 clearance practices, as informal payments to MDG AGO CHIN DMA CMR CAN RUSS NOR MWI AFG GBR CAF EGY VEN NLD VCT INDI SYC FSM BOL GIN ZAR AUT LKA SVK LBN SEN BRB NZL SLV BLR LBY MLI SLB BIH EST KIR IRL Customs and CAMCONTROL are bundled in Source: World Bank Doing Business database. the invoices issued by the freight forwarders to the exporters.17 There also is room to streamline Although the cost of exporting in Cambodia border operations, by removing the Customs/ is relatively low when compared to the world CAMCONTROL duplication. average, Cambodia falls behind the region in most trade facilitation indicators (Figure 37). Figure 38. Logistics and Land Transport One issue raised by the garment industry is that Costs from Bangkok to local competition among freight forwarders is not working as it should because of the way the Phnom Penh (US$ per 40-foot apparel international value chain is structured. container) In fact, the common practice is that buyers Different scenarios of logistics land transportation costs: Bankgkok-Phnom Penh nominate shipping lines, and the nomination 2,500 2,170 generates a cascade of nominations: each 2,000 shipping line uses a specific logistics company, -35% -44% -56% which nominates the dry port, which in turn 1,500 US$ nominates the trucking company to be used by 1,000 the manufacturer. 500 It is difficult to justify this extremely high logistics cost, based on market conditions in Cambodia _ Base case No consolidation of Single inspection Free trade case transshipment & only. Trucking costs, in fact, are very competitive border control when they are compared to neighboring Source. Authors’ compilation based on World Bank data. 17 Allegedly freight forwarders’ total charge from Phnom Penh to Sihanoukville Port is about US$600, of which US$200–US$250 is for trucking costs, and the rest goes to formal and informal payments for border clearance. It is estimated that about 15 percent of the garment industry’s revenues go in unofficial payments at the border. Cambodia’s Trade Competitiveness: 32 Investing Today in Logistics Development to Sustain Tomorrow’s Growth 5 CONCLUSION AND to diversify beyond its well-established garment exports and has not yet begun to export sophisticated products. The increase in exports RECOMMENDATIONS has been based on a diversification along the product dimension, which occurred mostly within the garment sector. Its emerging export structure also still appears unsophisticated, Economic growth is projected to navigate with classics and emerging champions between 6 percent and 7 percent depending concentrated in low-tech sectors. Cambodia’s on expansion of future exports and FDI. Initial high concentration in garment manufacturing diversification from garments into new sectors has hindered export diversification toward more such as electronics and bicycles is helping value-added products in GVCs and regional Cambodia climb up the value chain. This trend value chains. could only be supported if effective policy measures are devised and implemented The position of Cambodia’s capability to address the two main bottlenecks: high endowments in GVCs is still in the negative electricity and logistics costs. Moreover, labor zone, implying that further significant upgrades skills will also have to be developed to sustain are needed for the country to join GVCs at the growth of the manufacturing sector. different stages of production. Cambodia is still far from joining the production of intermediate Cambodian firms are expected to move 4.1 GVC products, but at a closer distance from times more goods in 2030 than in 2016. Soft GVC products and final GVC products. Limited and hard infrastructure in logistics will have endowments in human capital appears to be the to be adequate to support this substantial biggest constraint for each sector to participate increase. Cambodia needs to strengthen its in the GVCs. Human capital capability is even competitiveness to ensure that its exports-to- more important for Cambodia to diversify from GDP ratio remains at least at the current level to its current concentration toward more high- sustain a medium- and long-term high economic value-added intermediate GVC products. growth. Easing logistics bottlenecks is important for Cambodia to sustain its competitiveness Cambodia is lagging behind regional peers in the international market. Lowering logistics such as Vietnam, Thailand, and Malaysia in costs, increasing service reliability, and reducing pursuing bilateral and regional FTAs to enhance delays is key to maintaining Cambodia’s growth market access. It is essential for the RGC to story for the next 15 years. be proactive in promoting market access by negotiating deep bilateral and regional trade Robust FDI coupled with a relatively open agreements that will help mitigate the erosion economic regime have led to Cambodia’s of preferences. increasing role in the world trading community. Diversification has played a role in this story. With significant delays in transformative reforms, Cambodia has not yet extensively engaged private firms in Cambodia still face major in sophisticated exports. Cambodia’s trade constraints in doing businesses. For Cambodia direction needs to be diversified and focus on to remain cost-competitive and diversify into emerging growth poles. The bulk of Cambodia’s more sophisticated manufacturing segments, it exports, mostly garments and footwear, are is critical to implement reforms aiming to reduce being sent to Europe and the United States, trade costs and improve trade transparency. which have been the main exporting markets since the country started its integration in the The logistics sector plays a leading role in world trading system. Exports toward regional facilitating, linking, and supporting the country’s destination has been growing faster than export socioeconomic development and enabling to the rest of the world. Cambodia to take advantage of exporting opportunities. Foreign inputs are important However, Cambodia is facing serious challenges in Cambodian domestic production that Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 33 makes transport and logistics a key sector electricity), upgrading of skills—both of workers for Cambodia’s growth and development. and managers—and increased innovation. Transport and storage costs represent a major To diversify into more sophisticated segments chunk of exported value added in Cambodia. of production, Cambodia faces serious reform Although the cost of exporting in Cambodia challenges in the short run and in the long run. In is relatively low when compared to the world the short run, Cambodia needs to reduce trade average, Cambodia falls behind the region costs to remain competitive. Three components in most trade facilitation indicators. The high stand out. logistics cost is not justified by local market (a) First, for trade and investment costs that conditions. Trucking costs, in fact, are very are related to market access Cambodia competitive when compared to neighboring can reduce these costs by deeper countries. Informal costs are often hidden in integration in the world trading system, lump-sum service contracts between industry going beyond agreements on tariffs, and and services operators to which services by implementing the harmonization of operators would absorb all informal payments standards in service trade or investment in their final prices presented in the service agreements that are critical to transform contracts. The design and implementation of trade and investment operations in a strong anticorruption policy is an essential the country for increased participation element to reduce logistics costs and support into GVCs. As firms become part of export expansion. international production networks led Cambodia would have to upgrade its game by firms elsewhere, these agreements in logistics now and at the same time design tend to reduce the transaction costs for a clear strategy to increase the human these firms to coordinate processes and capital of its population, as well as building exchange parts and components. This, up institutions, to be prepared to face the in turn, increases the likelihood of joining challenges and opportunities that integration and upgrading within these networks. In into the global marketplace provides. A this regard, Cambodia needs to seriously number of recommendations could be implement its trade and investment considered by the RGC to ensure, on the agreement commitments to lower trade one hand, that the observed export growth and investment costs although it has a is sustained and continues contributing to long way to go. economic development, and on the other, that (b) Second, Cambodia performs poorly in Cambodian firms move into more sophisticated trade costs that are related to logistics and knowledge production processes, to and border crossing when compared to appropriate more value-added products. competitors in the region and beyond. To produce intermediate electronics and Because informal costs appear to be machinery, or transport equipment products, included in the current value of logistics Cambodia needs to upgrade its logistics in the costs, it is critical for the government short run and its human capital in the long run. to tackle these over-burden informal RECOMMENDATIONS payment practices by undertaking more radical reforms to remove corruptions To continue growing along the intensive and patronage preference practices margin—that is, to consolidate existing exports, at border clearance and weighbridge Cambodian firms will need to remain cost- inspection. Key priority actions include the competitive. This implies that productivity will following: need to increase at the same pace as wages. Increases in productivity will be driven by (i) Adopt a comprehensive integrity and increases in competition, improvements in the anticorruption strategy (including a provision of key backbone services (including strong and implementable ethical Cambodia’s Trade Competitiveness: 34 Investing Today in Logistics Development to Sustain Tomorrow’s Growth code of conduct for border agency (ii) Close the current gap of skills shortage staff) considering international good and mismatch by considering practices for border management importation of skilled labor and operations. implementing knowledge transfer programs for specific industries (ii) Implement a modern automation through investment incentives. system for non-customs border agency management, especially for (iii) Invest in human capital development CAMCONTROL, by reducing face-to- through improving education and face interactions between staff and health delivery services focusing on traders and by using the appropriate education and health quality. risk management framework to Investment in improving soft and hard reduce the current rate of physical infrastructure of logistics would have to be inspections that are almost 100 commensurate with Cambodia’s growth percent after the risk-based customs ambitions. Logistics will have to be adequate inspections. to support a quadruplication of trade volumes (iii) Digitalize/automate port operation in the next 15 years. Currently, transportation, processes by entailing cross-border warehousing, and storage services appear trade to the extent technologically to account for almost 14 percent of export feasible that will reduce face-to- value added but this share is far higher than face interaction and remove informal its neighboring countries and competitors in payments. the region. Logistics and transport operators often charge more due to the inefficient and (iv) Establish a feedback loop for border uncertain logistics operation that results in more agencies and port operators by pressures for exporters to carry on a high rate of expanding the existing mechanism input and goods storage and inventory control initiated by the GDCE to seriously and these costs have made Cambodia’s export take complaints and opinions of the products less competitive in regional and global trading communities and logistics markets. Two actions are recommended: operators on informal payments and administrative burdens at border (d) Undertaking regulatory and operational clearance and road transport reforms to enable inter-transport mode weighbridges. and multimodal transport operations is a high priority to optimize the use of (c) Third, Cambodia needs to upgrade existing transport infrastructure of different its human and institutional capital modes along each economic corridor immediately to close the gap of skilled and this would help reduce the level of mismatch and shortage for an upgrade warehousing, storage, and inventory in participation in GVCs. For Cambodia requirement for exporters as logistics to increase its capabilities required to operation becomes more efficient and move into more knowledge-intensive predictable. investment activities it should consider three main actions in parallel: (e) Attract large foreign investment in logistics operation to modernize both infrastructure (i) Establish a clear policy framework to and services to follow the global players’ address its largest capability deficit, international standards and practices especially skills and institution that that would increase competition in the currently constrains Cambodia by sector and rationalize logistics costs to be building up skills and knowledge of more favorable to Cambodia exporters workers and upgrading managerial and manufacturers. competency skills in industries and in government institutions. Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 35 REFERENCES Achim Zeileis (2017). pwt9: Penn World Table (Version 9.x). R package version 9.0-0. URL https:// CRAN.R-project.org/package=pwt9. Athukorala, Prema-chandra (2010), “Production Networks and Trade Patterns in East Asia: Regionalization or Globalization?” ADB Working Paper Series on Regional Economic Integration, No. 56. Barro, RJ and JW Lee (2010), “A New Data Set of Educational Attainment in the World, 1950-2010”, NBER Working Paper 15902. Edited by Ricardo Hausmann, César A. Hidalgo, Sebastián Bustos, Michele Coscia, Sarah Chung, Juan Jimenez, Alexander Simoes, Muhammed A. Yıldırım. 2013. “The Atlas of Economic Complexity: Mapping Paths to Prosperity.” Cambridge, MA: The MIT Press. Website: atlas.cid.harvard.edu. Fukunishi, Takahiro, and Tatsufumi Yamagata. 2015. “Employment and Wages in Export-oriented Garment Industries: Recent Trends in Low Income Countries under Trade Liberalization”. http://www. ide.go.jp/library/English/Researchers/pdf/2013Fukunishi_Yamagta.pdf. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. “Estimating Trade Restrictiveness Indices,” Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, January. Lange, Glenn-Marie; Wodon, Quentin; Carey, Kevin. 2018. The Changing Wealth of Nations 2018: Building a Sustainable Future. Washington, DC: World Bank. © World Bank. https://openknowledge. worldbank.org/handle/10986/29001 License: CC BY 3.0 IGO OECD Trade in Value Added Database (Accessed in December 2017). http://www.oecd-ilibrary. org/trade/data/oecd-wto-statistics-on-trade-in-value-added/trade-in-value-added-nowcast- estimates_c25a117e-en. Pathikonda, Vilas, and Thomas Farole. 2016. “The Capabilities Driving Participation in Global Value Chains.” Policy Research Working Paper 7804, World Bank, Washington, DC. https://www. openknowledge.worldbank.org/handle/10986/25049 License: CC BY 3.0 IGO. Sturgeon, Timothy J. and Memedovic, Olga (2010), “Mapping Global Value Chains: Intermediate Goods Trade and Structural Change in the World Economy”, UNIDO Development Policy and Strategic Research Branch Working Paper, No. 5 World Bank Group. 2016. Logistics Performance Index database. https://lpi.worldbank.org/. World Bank Group. 2017. Cambodia: Sustaining Strong Growth for the Benefit of All. Systematic Country Diagnostics. World Bank, Washington, DC. https://openknowledge.worldbank.org/ handle/10986/27149 License: CC BY 3.0 IGO. World Bank Group. 2017. World Development Indicators. https://data.worldbank.org/data-catalog/ world-development-indicators. World Bank Group. 2017. Worldwide Governance Indicators. https://www.govindicators.org Cambodia’s Trade Competitiveness: 36 Investing Today in Logistics Development to Sustain Tomorrow’s Growth END NOTES A To explain this in simpler terms, for every US$100 of additional exports, US$44 was accounted for more exports of the same products to the same destinations, while the remaining US$56 represented some sort of diversification into new export markets or new products. B The new markets were distributed across the following regions: Africa (14), Latin America (9), and Europe (6), bringing the total of export partners being served by Cambodian firms to 149. C Logistics cost over sales for the textile and garment industry was estimated at 13.06 percent, lower than automotive (15.83 percent), chemical products (16.50 percent), and food (20.38 percent). These figures were estimated from the survey data on logistics users and service providers for the draft paper on the monitoring and evaluation framework for Cambodia’s logistics. D To forecast Cambodia’s exports in 2030, Figure 7 uses IMF’s WEO projections to 2022, which have been extended to 2030 assuming that the historical growth rate after 2022 will be maintained and a constant export-GDP elasticity of 1.7. Alternative elasticities based on Constantinescu, Mattoo, and Ruta (2016) are used to construct an interval and showed in dotted lines. IMF’s real export growth expected in 2017–2022 is 10.5 percent per year. The real expected GDP growth in 2017– 2022 (IMF) is 7 percent per year. The GDP growth to export growth ratio for 2017–2022 is 1.7. The historical average of GDP growth assumed for 2022–2030 is 7 percent. E From 2018, minimum wages for garment workers in Cambodia will increase from US$153 (2016) to US$170 in 2018, an increase of about 11 percent, announced by the Ministry of Labor and Vocational Training in October 2017, and of which US$5 will be topped up by the RGC. The current minimum wage was already doubled from US$80 in 2012. EuroCham Cambodia at http://www. eurocham-cambodia.org/post/452/Prakas-396-on-Minimum-Wage-Determination-for-Workers-in- Textile-Garment-and-Footwear-Sector-for-2018. F Electronic components correspond to telecom parts and accessories (US$149 million exported in 2016), toys and games (US$23 million exported in 2016), computer peripherals (US$20.4 million exported in 2016), telephone lines (US$12.6 million exported in 2016), and others (US$35 million exported in 2016). Machinery corresponds to electric motors and AC generators (US$27 million exported in 2016), circuit breakers and panels (US$12.6 million exported in 2016), iron tubes (US$5.7 million exported in 2016), locksmith hardware (US$5.7 million exported in 2016), yarn preparing machines (US$3.9 million exported in 2016), vehicle parts and accessories (US$3.35 million exported in 2016), and others (US$29.5 million exported in 2016). G Export growth can be decomposed into the expansion of existing trade flows (the intensive margin) and the addition of new products and markets (the extensive margin). This indicator allocates all product growth—and contraction—to one of seven categories. Intensive margin: (a) increase of existing products in established markets, (b) decrease in existing products in established markets, and (c) extinction of exports of products in established markets. These three categories are represented all together in the ‘intensive margin’ category. Extensive margin: (a) introduction of new products in new markets (‘new market, new product’); (b) introduction of new products in established markets (‘old market, new product’); (c) introduction of existing products in new markets (‘old product, new market’); and (d) product diversification in established markets—for example, France exports widgets to Guatemala and Singapore, but exports gizmos only to Singapore. The Cambodia’s Trade Competitiveness: Investing Today in Logistics Development to Sustain Tomorrow’s Growth 37 following year, France begins to also export gizmos to Guatemala, thereby diversifying its trade (‘old product, old market [diversified]’). H Cambodia’s export partners in 2016 included 34 new destinations with respect to 2005, of which 14 were in Africa, 9 in the Americas, 6 in Europe, 3 in Oceania, and 2 in Asia. The net increase in countries reached is concentrated in low income but populous countries. They account for 0.4 percent of global GDP and for 6 percent of global population. These new destinations include Nigeria (186 million inhabitants), Ethiopia (102 million), Uganda (41 million), Algeria (40 million), and Sudan (39 million). The main export products with which these markets have been reached are rice, rubber, tobacco, and garments and footwear. As indicated in Figure 13, however, North America, Europe, and China remain the main destination countries. I PRODY indicates the average income of the buyers. The path is an indicator of scope for diversification and ease of redeploying factors of production into other uses. The greater the path, the greater the scope for diversification. Technology categories are defined as primary products (PP), resource-based (RB), low technology (LT), medium technology (MT), and high technology (HT). PP includes fresh fruit, meat, rice, cocoa, tea, coffee, wood, coal, crude petroleum, and gas. RB includes prepared meats/fruits, beverages, wood products, vegetable oils, ore concentrates, petroleum/rubber products, cement, cut gems, and glass. LT includes textile fabrics, clothing, headgear, footwear, leather manufactures, travel goods, pottery, simple metal parts/structures, furniture, jewelry, toys, and plastic products. MT includes passenger vehicles and parts, commercial vehicles, motorcycles and parts, synthetic fibers, chemicals and paints, fertilizers, plastics, iron, pipes/tubes, engines, motors, industrial machinery, pumps, switchgear, ships, and watches. HT includes office/data processing/telecommunications equipment, televisions, transistors, turbines, power generating equipment, p harmaceuticals, aerospace, optical/measuring instruments, and cameras. Cambodia’s Trade Competitiveness: 38 Investing Today in Logistics Development to Sustain Tomorrow’s Growth CHAPTER TWO AN ASSESSMENT OF THE LEGAL AND REGULATORY FRAMEWORK FOR THE LOGISTICS SECTOR IN CAMBODIA An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 39 TABLE OF CONTENTS ACRONYMS........................................................................................................................................... 42 EXECUTIVE SUMMARY........................................................................................................................... 43 1. INTRODUCTION.................................................................................................................................. 47 1.1 CONTEXT..................................................................................................................................... 47 1.2 DETERMINING A NEED FOR LEGAL AND REGULATORY REFORM........................................... 48 2. ROAD TRANSPORT............................................................................................................................. 51 2.1 INTRODUCTION........................................................................................................................... 51 2.2 ACCESS TO THE PROFESSION OF ROAD TRANSPORT OPERATOR.......................................... 51 2.3 ACCESS TO THE PROFESSION OF TRUCK OR BUS DRIVER....................................................... 52 2.4 REGULATIONS ON TECHNICAL STATE OF VEHICLES................................................................ 52 2.5 LAW AND REGULATIONS ON OVERLOADING......................................................................... 54 2.6 HARMONIZATION OF CAMBODIAN ROAD TRANSPORT LEGISLATION WITH NEIGHBOURING COUNTRIES..................................................................................................... 56 2.7 CONCLUSION AND RECOMMENDATIONS.............................................................................. 57 3. RAILWAY TRANSPORT........................................................................................................................ 58 4. PORTS, MARITIME, AND INLAND WATERWAY TRANSPORT.............................................................. 60 4.1 INTRODUCTION........................................................................................................................... 60 4.2 LEGISLATIONS ON PORTS, MARITIME TRANSPORT, AND INLAND WATERWAY TRANSPORT............................................................................................................ 61 4.3 LAWS AND INTERNATIONAL CONVENTIONS IN PORTS AND MARITIME TRANSPORT............ 62 4.4 DRAFT PORT LAW........................................................................................................................ 63 4.5 DRAFT LAW ON MARITIME TRANSPORT.................................................................................... 64 4.6 DRAFT LAW ON INLAND WATERWAY TRANSPORT................................................................... 64 4.7 RECOMMENDATION.................................................................................................................. 66 5. MULTIMODAL TRANSPORT AND FREIGHT FORWARDING................................................................ 67 5.1 MULTIMODAL TRANSPORT......................................................................................................... 67 5.2 FREIGHT FORWARDING.............................................................................................................. 68 6. CURRENT INSTITUTIONAL ARRANGEMENTS FOR LOGISTICS IN CAMBODIA.................................. 69 6.1 IDP................................................................................................................................................ 69 6.2 COORDINATION OF THE PUBLIC AND PRIVATE SECTOR IN LOGISTICS................................. 71 6.3 COORDINATION BETWEEN CUSTOMS AND THE PRIVATE SECTOR......................................... 72 6.4 CONCLUSION............................................................................................................................. 72 ANNEX 1. SUMMARY MATRIX OF LEGAL AND REGULATORY PRIORITY ACTIONS FOR THE CAMBODIA LOGISTICS MASTER PLAN.......................................................................................... 74  RAFT INTERNATIONAL AGREEMENT ON MULTIMODAL TRANSPORT................................ 77 ANNEX 2. D  ROPOSAL FOR MODEL NATIONAL LAW ON FREIGHT FORWARDING.............................. 82 ANNEX 3. P An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 41 ACRONYMS ADN European Agreement on International Carriage of Dangerous Goods by Inland Waterways ADR European Agreement on International Carriage of Dangerous Goods by Road ASEAN Association of Southeast Asian Nations ASYCUDA Automated System Customs Data CAMFFA Cambodian Freight Forwarders Association CAMTA Cambodian Truckers Association CBTA Cross-Border Transport Facilitation Agreement CCNR Central Commission for Navigation on the Rhine CFR Cambodian Rice Federation CFS Container Freight Station CPC Certificate of Professional Competence CPPM Customs-private Sector Partnership Mechanism FBL FIATA Bill of Lading FDI Foreign Direct Investment FIATA International Federation of Freight Forwarders Association GDCE General Department of Customs and Excise GDL General Department of Logistics GDTP General Department of Trade Promotion GHG Greenhouse Gas GIZ German International Cooperation Agency (Deutsche Gesellschaft für Internationale Zusammenarbeit) GMAC Garment Manufacturers Association in Cambodia GMS Greater Mekong Subregion ICC International Chamber of Commerce ICT Information and Communication Technology IDP Cambodia Industrial Development Policy IMO International Maritime Organization IRU International Road Transport Union JICA Japan International Cooperation Agency KAMSAB Kampuchea Shipping Agency and Brokers MARPOL International Convention for the Prevention of Pollution from Ships MEF Ministry of Economy and Finance MOC Ministry of Commerce MPWT Ministry of Public Works and Transport MRC Mekong River Commission MTO Multimodal Transport Operator NLC National Logistics Council NLSC National Logistics Steering Committee OTIF International Organization for International Carriage by Rail PAS Sihanoukville Autonomous Port PPAP Phnom Penh Autonomous Port RGC Royal Government of Cambodia RID Regulation for the International Carriage of Dangerous Goods by Rail SDR Special Drawing Right SMEs Small and Medium Enterprises SOLAS International Convention for the Safety of Life at Sea STCIN Development of the Standards of Training and Certification in Inland Navigation STCW International Convention on Standards of Training, Certification and Watchkeeping for Seafarers UN United Nations UNCTAD United Nations Conference on Trade and Development UNECE United Nations Economic Commission for Europe VAT Value Added Tax An Assessment of the Legal and Regulatory Framework for 42 the Logistics Sector in Cambodia EXECUTIVE SUMMARY fully conform to regional commitments and is inconsistent with international best practices. Regional and international conventions and agreements on transport and logistics are partially translated into the national sector Cambodia’s transport sector policy has laws and regulations. Some of the international paid attention to close the infrastructure gap conventions that can help fill the regulatory by focusing on more investments in hard gaps relate to safety and handling of hazardous infrastructure development, but it does not materials. Cambodia signed the Association of adequately strike a balance for improving Southeast Asian Nations (ASEAN) Framework soft infrastructure. Due to huge needs for hard Agreement on Multimodal Transport in 2005 infrastructure development, Cambodia has but has not transposed this agreement into its struggled to get all the planned infrastructure national law on multimodal transport, which investments as prescribed in the key transport means that the country is not compliant with sector policy as part of the Industrial the agreement. For instance, Cambodia does Development Policy (IDP). Its emphasis on hard not have a system to authorize and recognize infrastructure development has left a large operators registered in other ASEAN member gap in the soft infrastructure of the sector. states and its operators are also not widely Specifically, the legal and regulatory framework recognized by other member countries. for Cambodia’s transport and logistics sector Implementation of this agreement is important has been underdeveloped and enforcement as it will strengthen the legal position of the has been weak. In addition, the transport international multimodal transport operators sector policy also lacks sufficient inclusion of (MTOs). In addition, even though Cambodia sustainable dimensions of the transport sector ratified the Greater Mekong Subregion (GMS) to improve competitiveness in the long run, Cross Border Transport Agreement (CBTA), it has including greenhouse gas (GHG) emission not implemented all the annexes and protocols reduction and efficient fuel consumption in the to the agreement. This has constrained country. the full implementation of the agreement. Currently, logistics and transport services in Consequently, Cambodia typically enters Cambodia operate under numerous decrees, into the less-efficient approach of concluding sub-decrees and regulations, orders, and bilateral transport agreements with its neighbors, guidelines but not all activities in the sector are especially Thailand and Vietnam. covered. Cambodia does not have a law on Cambodia does not have a land transport law land transport, but it has partial coverage of but has it in preparation like many other laws some aspects of road transport mainly under a in the transport and logistics sector. Some Road Law and Land Traffic Law. Other transport general transport issues are being regulated in modes, railway, port and maritime transport, the existing road law and land traffic law. These and inland waterways are presently not covered include registration for obtaining an operator’s by any primary legislation. However, the Royal license and overloading of trucks as they directly Government of Cambodia has drafted laws for affect the road infrastructure and road traffic these sectors though they are still to be enacted. safety. Access to the road transport market In fact, the process of enacting new legislation and access to the profession of road transport seems to face long delays in part due to limited operator and truck or bus driver are hardly capacity of the lead agencies and a seemingly regulated in Cambodia. Often, registration and convoluted bureaucratic process. That said, fulfilment of the administrative requirements the Government is keen to make progress and are sufficient to obtain an operator’s license for is actively driving the process of enacting the carrying out road transport. Professional drivers new legislations. only need a driver’s license and are often able In addition to incomplete coverage, Cambodia’s to obtain a license without driving lessons and regulatory framework for logistics does not examinations. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 43 Railway transport in Cambodia operates facilities and channels, harbor master function, with a regulatory regime of some secondary port development and implementation plan, legislations, but these often lack important and supervision and/or conducting of port provisions, especially those relating to safety. operations. The last one leaves room for third- The only railway operator, the Royal Railway party/private involvement. It specifies the Company, has to deal with several government principles of port dues and charges and the agencies, including the Port Authority, Customs, requirement for publication of those and the and CamControl, and follow and comply possibilities of the Ministry of Public Works and with their guidelines and regulations on Transport (MPWT) to set limits. The Draft Port different aspects of its operations. In the field Law has a chapter on safety and environment, of international railway transport, the transport for example, for ship-generated waste, spill of dangerous goods is mostly regulated under contingency plan, and port facility security the Regulation for the International Carriage requirements, all in line with International of Dangerous Goods by Rail (RID), under the Maritime Organization (IMO) regulations, and guidance of the International Organization for chapters on pilotage and the navigation International Carriage by Rail (OTIF). Although channels and navigation. Details are to be rail traffic in Cambodia is purely domestic, and included in sub-decrees. The Port Authorities the OTIF and RID relate to international carriage, are in discussion with the MPWT on the Draft Port in many countries RID also applies to national Law but argue that the main points for them in traffic. This is also recommended for the Royal the Draft Port Law relate to trade facilitation Railway Company in Cambodia. and safety issues. Cambodia has drafted but not yet finalized the The Draft Law on Maritime Transport provides important basic laws that govern port, maritime the legal and institutional framework for transport, and inland waterway transport. administration and management of maritime Currently, these transport modes and facilities transport and defines the general principles are being guided by secondary legislations on the governance structure for development, such as royal decrees, sub-decrees, ministerial administration, and management of maritime regulations, standards, and procedures. By affairs. Each chapter in the law addresses recognizing the requirement of basic primary the international conventions (International legislations that should conform to and be Convention for the Safety of Life at Sea [SOLAS], compliant with international conventions and International Convention for the Prevention that serve as a framework for transport and of Pollution from Ships [MARPOL], and so on). logistics development, three draft laws were The general provisions describe the objectives, prepared and are pending to be proposed (among others, safety of ships, environment, for finalization and adoption. These include maritime operations and commerce, (a) Draft Port Law, (b) Draft Law on Maritime development of the sector, labor force), Transport, and (c) Draft Law on Inland followed by the marine area and the exclusive Waterway Transport. These draft laws were economic zone of the Kingdom of Cambodia. reviewed, and their contents appear to include Respective chapters deal with ship registration, basic conformity and principles of international business licenses for shipping companies (to be conventions, good practices, and standards. issued by the MPWT), crew requirements, safety of ships, safety of environment, navigation and The Draft Port Law contains provisions that entry permits, inspection and control of vessels, conform with international good practices investigations in case of incidents, shipyards and and standards. It defines four classes of port repairs, and finally enforcement and penalties. categories (international, bilateral, domestic, The provisions are of a general nature, and not and special ports, for example, for a specific all details are included. Some of the details are commodity and for a specific user) and the then elaborated in secondary legislation. port zone. The responsibilities of the port management body include, among others, port The Draft Law on Inland Waterway Transport An Assessment of the Legal and Regulatory Framework for 44 the Logistics Sector in Cambodia mainly focuses on cabotage in inland waterway this agreement is the registration of the MTOs. transport operations. The main purpose of the For inclusion in the register of MTOs, the person Draft Law is to maintain order, security, and concerned shall submit an application to the safety of inland waterway transport and to respective competent national body and protect human and wildlife and environment of establish that he/she fulfils all requirements as the inland waterways. It also draws some content prescribed by national law. Lack of a national to prevent adverse effects to human health legal framework for multimodal transport in and damage of public and private property Cambodia has constrained its compliance with and encourage development of the inland this agreement. This puts serious bottlenecks waterway sector. The draft law is applicable to for the international and national operation of the ships, the crew, ship owners and shipping MTOs. While Cambodia does not have a system companies, and the construction of waterways to authorize and recognize operators registered and other activities related to navigation. The in other member states, its operators are also Draft Law only relates to Cambodian waters not yet widely recognized by any of the other and does not include cross-border international member countries. Having a national legal transports. The draft law mainly covers those framework for MTOs would help address this activities that are not regulated under the Draft constraint. Law on Maritime Transport. The intersection Cambodia does not currently regulate freight between maritime transport regulations and forwarding while it regulates customs brokers. inland waterway transport can at times be This is quite common across the world as most confusing unless the scope of respective countries do not have a legal and regulatory regulations is clearly defined. In particular, framework for freight forwarding other than Cambodia seeks to regulate carriage of cargo having freight forwarding businesses registered between two points in national waterways, as enterprises. Some countries impose business including coastal sea water within the country by operating licenses issued by public work and vessels registered in Cambodia and in another transport agencies, but such imposition often country. Like most countries, Cambodia still brings about administrative frustrations rather highly restricts the permission of foreign vessels than facilitating the establishment of freight to engage in cabotage. forwarding businesses. It may not be necessary Cambodia does not have a national legal that Cambodia should have national legislation framework for multimodal transport, though to regulate the freight forwarding business. it signed the ASEAN Framework Agreement Rather, if Cambodia drafts a law on multimodal on Multimodal Transport. A national legal transport, then that should cover the freight- framework for multimodal transport should forwarding activities without the need for a normally cover carriage of goods by national specific law. Customs brokers are regulated and international multimodal transport under the Law on Customs and related customs contracts, which also include provisions regulations. However, the capacity of customs concerning the liability of MTOs. Cambodia and brokers needs substantial upgrade as they have other ASEAN member states1 signed the ASEAN a significant impact on the performance of Framework Agreement on Multimodal Transport Cambodia supply chains. on November 17, 2005. In the agreement Cambodia faces capacity challenges not only ‘international multimodal transport’ is defined as in coordinating across ministries to process and the carriage of goods by at least two different adopt new laws but also in implementing and modes of transport on the basis of a multimodal enforcing existing laws and regulations of the transport contract from a place in one country transport and logistics services. In November at which the goods are taken in charge by the 2017, Cambodia established a National Logistics MTO to a place designated for delivery situated Steering Committee (NLSC) and a National in a different country. An important element in 1 Brunei Darussalam, Republic of Indonesia, Lao People’s Democratic Republic, Malaysia, Union of Myanmar, Republic of the Philippines, Republic of Singapore, Kingdom of Thailand, and Socialist Republic of Vietnam. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 45 Logistics Council (NLC) that aim at improving be regulated in support of a dynamic and coordination between line ministries and being a innovative transport and logistics services consultative and decision-making forum to deal sector. Along those lines, the preparation and with transport and logistics issues. While there adoption of primary and secondary legislations has been some progress, key challenges remain for transport and logistics services should especially in terms of the MPWT’s capacity to involve adequate and wide participation of develop and enforce laws and regulations. stakeholders. Gathering the feedback and Cambodia has a lengthy process to develop opinions of all relevant stakeholders is critical primary legislation with a few reaching the final for a sound and well-understood legal and stage of approval. There have also been limited regulatory framework that will help modernize stakeholder consultations in drafting legislations and develop transport and logistics services. It is and regulations to which important feedback also good practice when formulating legislation and opinions of the private sector were reported to carry out some regulatory impact assessment to be excluded in the final legal text of laws and to balance the costs and benefits of such new regulations. The MPWT still needs to improve its legal instrument. Other good practice principles capacity to monitor implementation of laws are the following: and regulations and their impact. yy Regulation should be kept minimal and Cambodia does not prohibit importation of limited to only a few issues relating to the second-hand motor vehicles. Cambodia interests of safety or market failures such remains one of the developing countries that as the existence of monopolies that one maintain a large second-hand vehicle market. market player can create more income Imports of second-hand motor vehicles still and profit than that would be allowed in account for more than 80 percent of used a healthy market. vehicles in the country. Increased use of second- yy Regulations should be accessible, hand vehicles has some serious implications on simple, and understandable (Cambodia fuel use efficiency and GHG emission issues. established a national trade repository or While there is no study available at the moment, trade portal, but it has not been regularly Cambodia may need to assess the impact of updated to enrich the content, especially increased imports and use of second-hand legal and regulatory content on transport- vehicles, especially for trucks in the country with and trade-related issues). respect to fuel use efficiency and GHG emission. yy Rules and regulations should be consistent Old vehicles have some disadvantageous with transport and logistics policy goals. technical issues as they were designed yy Special sectors may require special with limited use of environmental-friendly policies and regulations. technology, such as fuel efficiency and emission reduction. They also have maintenance costs yy Rules and regulations should conform and durable implication in use. To implement to bilateral, regional, and international a more competitive and sustainable transport agreements. and logistics sector, there should be remedial yy Guidelines and administrative structure for measures to raise the technical standards and implementation and enforcement should specifications of importation of used motor be established. vehicles that minimize GHG emission and yy Implementation of laws and regulations improve fuel use efficiency. and their impacts should be monitored. AN AGENDA FOR LEGAL AND Guided by these principles the main legal REGULATORY REFORM and regulatory issues for each subsector in each background section and specific Cambodia needs to modernize its legal and proposed reforms are summarized in the legal regulatory framework for logistics. A modern and regulatory priority action matrix for the framework should be clear on what needs Cambodia Logistics Master Plan in annex 1. to be regulated and what does not need to An Assessment of the Legal and Regulatory Framework for 46 the Logistics Sector in Cambodia 1 INTRODUCTION blocks for a national logistics strategy. One of the key actions has been the establishment, in 2016, of a National Logistics Council (NLC) to be chaired by the Deputy Prime Minister. The Council, which comprises all the main national 1.1 CONTEXT stakeholders, including representatives of the private sector, is supported by a National Cambodia has made tremendous progress in Logistics Steering Committee (NLSC) and a key areas of trade facilitation, as evidenced General Department for Logistics (GDL) which by an improvement in the country’s logistics will serve as the Secretariat to the Steering performance which has increased from a Committee and the Council. The Royal Decree ranking of 129 in 2010 to 73 in 2016 in the on the Establishment of the NLC and NLSC is World Bank’s Logistics Performance Index. signed by the King in November 2017 and this However, its overall score of 2.80 is still lower establishes the NLC and the NLSC. than the regional average of 3.14 for the East Asia and Pacific Region. For the country to The World Bank has been supporting the RGC on meet its growth targets in exports and the various aspects of trade facilitation and logistics. planned diversification of manufacturing and The support includes the 2014 Diagnostic Trade agricultural exports, Cambodia should make Integration Study and technical support for the further improvement in logistics performance. establishment of the NLSC and the GDL. The The Government recognizes this need and GDL has recently drafted a tentative outline has requested the World Bank and Japan of the National Logistics Master Plan, which is International Cooperation Agency (JICA) to expected to be finalized by March 2018. The contribute to the development of a Logistics World Bank and JICA have been requested by Master Plan. the Government to elaborate specific sections of the Logistics Master Plan. JICA will focus on The development of the master plan is consistent key strategic actions associated with the hard with the national and regional integration infrastructure aspects of the proposed Logistics priorities and efforts. For instance, the Royal Master Plan, while the World Bank will build on Government of Cambodia (RGC) has prioritized its previous and ongoing engagement and connectivity in its Rectangular Strategy III (2014– support to elaborate four main aspects of the 2018), while the Industrial Development Policy soft issues to be included in the master plan, (a) (IDP) 2015–2025 foresees the development legal and regulatory framework for the logistics and implementation of a master plan for the sector, (b) monitoring and evaluation system for transport and logistic system. Moreover, the the proposed Logistics Master Plan, and (c) an development of a comprehensive strategy update of trade competitiveness to inform the for the logistics sector in Cambodia also fits design of the proposed Logistics Master Plan. in with the Association of Southeast Asian Nations (ASEAN) Transport Strategic Plan 2016– This background paper focuses on an 2025, which aims to “establish an integrated, assessment of the existing regulatory framework efficient and globally competitive logistics and for transport and logistics services in Cambodia. multimodal transportation system, for seamless Having an appropriate regulation regime is movement of passengers by road vehicles important for services providers to respond to and cargos within and beyond ASEAN,” and growing demand for economic diversification the ASEAN Connectivity 2025 which aims at and growth and lower costs but higher quality lowering supply chain costs and improving better logistics service provision. The RGC speed of supply chains in each ASEAN member has recognized the need to improve logistics state. performance and reduce the high logistics costs in the country to achieve economic growth At the national level, the Government has already and meet its growth targets in exports and established some of the fundamental building the planned diversification of manufacturing An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 47 and agricultural exports. To guide this process, commercial presence for international maritime a National Logistics Master Plan is being shipping, domestic road freight, and domestic developed with support from JICA and the rail freight, but does not open its maritime World Bank. The assessment of the legal and auxiliary services to foreign investment. regulatory framework is one of the inputs for the However, maritime auxiliary services to own ships logistics master plan development. are virtually closed with a Risk-Sophistication- Treatment-Inventory score of 754 that include The regulatory framework assessment covers cargo handling, storages and warehousing, domestic laws, decrees, and regulations as well customs clearance services, container station as international conventions in the transport or depot services, maritime agency services, and logistics services2 sector in Cambodia. The and freight-forwarding services (see figure 1). focus of the review is on regulations that affect The provision of important maritime auxiliary market access, costs of services, operational services is currently monopolized by state- efficiency, and integration of markets with owned enterprises, leaving a large gap for those of neighboring countries. A diagnosis of competition to improve services’ quality and bottlenecks for transport and logistics operators delivery. Price setting is somewhat artificial has been made based on a review of previous through administrative decisions made by the studies and reports as well as on collection Ministry of Public Works and Transport (MPWT) of primary data from the public sector and and the Ministry of Economy and Finance (MEF). transport and logistics services operators Services for port-related services handling in Cambodia. Attention has been paid to specifically is higher in Cambodia in comparison procedures and restrictions affecting access with similar services in Thailand and Vietnam. to cargo; documentary requirements for the organization of transport and the transport of Figure 1. Restriction of Transportation goods by the various modes of transport (in Services in Cambodia particular road, rail, and inland water transport );3 Service Trade Mode 3: Commercial Presence accessibility to regulatory information 120 Transport Restriveness Index (transparency); and conformity of regulations 100 with international good practices. In addition, a 80 review of institutional issues related to logistics 60 40 services has been made. Priorities for legal and 20 regulatory reform have been identified and 0 an action plan for reform of the regulatory Maritime Shipping Maritime Auxiliary Road Freight Rail Freight Domestic Domestic framework for logistics services in Cambodia International Services is presented. Finally, recommendations have Cambodia Malaysia Thailand Viet Nam been made to improve the regulatory process Source: World Bank Group’s service trade restriction in Cambodia in a more general way. database. At the same time, the demand for modern and DETERMINING A NEED FOR 1.2  competitive international logistics services is LEGAL AND REGULATORY growing. Foreign direct investment (FDI) into REFORM logistics services has been strong in recent years that the country has attracted a number of Cambodia has one of the most open policies international players, including APL Logistics, for foreign participation in logistics services. It DSV, Panalpila, and Yusen Logistics, to establish has virtually opened most subsectors, including operation in the country. While statistics on 2 The transport and logistics sector includes, among others, trucking, railway transport, maritime and inland waterway transport, ports, air transport, warehousing, freight forwarders, shipping and customs agents, and value-added logistics services (third- and fourth-party logistics providers). 3 No attention has been paid to air cargo, which, although important for the transport of essential and strategic components, for instance, the manufacturing industry, is almost neglectable in terms of volume. 4 Service trade database by the World Bank Group. http://iresearch.worldbank.org/servicetrade/home.htm. An Assessment of the Legal and Regulatory Framework for 48 the Logistics Sector in Cambodia FDI in the logistics services sector is lacking, In addition, there are other more specific Cambodia’s export-oriented industries such as weaknesses with the regulatory framework garments, rice, and emerging manufacturing that require special attention for a modern and products has been a key target for international competitive logistics services market to emerge. logistics providers. FDI inflows into transportation The main weaknesses are the following: services rose by 33 percent and warehouse and (a) Competition between formal registered storage services by 103 percent, comparing the service operators and informal FDI sums between two different periods of 2007– unregistered operators drags down the 2012 and 2013–2017 (see figure 2). standards in the provision of transport Figure 2. Cambodia’s FDI in Logistics and logistics services in Cambodia. Services Formal services operators appear to have 2500 competitive disadvantages in competition 2000 with informal operators that have enjoyed 1500 much higher profit margins due to regulatory avoidance. In addition, formal US$ million 1000 operators are also required to follow some 500 standards and quality in their provision 0 Business Financial Transportation Warehousing of services, set by Cambodian Truckers Services Services & Storage Association (CAMTA) and Cambodian 2007-2012 2013-2017 Freight Forwarders Association (CAMFFA). Source: World Bank Group. However, the informal operators are Competition between foreign and local logistics operating independently without proper operators appears to rise. Foreign operators standards and quality assurance though have more competitive advantage in providing surviving competition due to financial high value-added services, including track viability and market capture. There and trace and inventory management, have been no clear efforts by CAMTA while local operators lack professional and and CAMFFA to integrate the informal management personnel and have limited operators into their associations. It would international experiences. However, it is also be necessary to integrate these informal more challenging for foreign operators to operators into the formal associations compete with local operators that focus on low- so that they would be more compliant end services that serve the domestic market. to set standards and regulatory The current penetration of foreign operators requirements such as taxation and public into Cambodia’s logistics services suggests safety measures. There has been an further enhancement of legal and regulatory outstanding issue on non-compliance transparency to reduce administrative burdens of the length of trucks in Cambodia and for investment entry. It is likely that foreign equity most of these trucks are operated by participation in logistics services investment will informal operators. Non-compliance of help modernize local firms’ quality and reliability safety measures has also elevated the of higher value-added services. authority’s responses with more frequent inspections on main economic corridors. Based on the abovementioned and previous There are now about two or three road studies, it is clear that Cambodia’s regulatory checkpoints for safety and weight control regime for logistics services is outdated and inspections, conducted by the MPWT. fragmented and has a large gap with regard to Effectiveness of such frequent inspections international good practices and standards. As of trucks on the road remain doubtful, a result, services are similarly fragmented and while more inspections appear to open high cost, contrary to modern practice which the opportunity for informal payments places a premium on seamless service and from truck drivers to avoid regulatory efficient door-to-door services. compliance. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 49 (b) There are large gaps and inconsistencies performance. Qualitative access criteria in laws and regulations governing logistics embedded in the legal and regulatory services. Legal and regulatory reform system are then required. It is important in transport and logistics can be a tool to ensure economically efficient that promotes economic efficiency transactions through the enforcement of and enhances logistics operations, thus valid contracts. By ensuring compliance contributing to a reduction in logistics costs. with contractual terms, market parties Reform should include adoption of good are given confidence that all will fulfill the practices following the implementation of obligations that were agreed upon. international conventions and alignment The remainder of this background paper with common regulatory practices of reviews and assesses the existing regulatory neighboring countries in ASEAN/Greater framework for transport and logistics services. Mekong Subregion (GMS). Legal and The regulatory framework is defined to include regulatory reform should ensure provision of domestic laws, decrees, and regulations as well transparency in procedures, services and as international conventions in the transport fees, accessibility to information in relevant and logistics services5 sector in Cambodia. The languages, and the development of clear focus is on regulations governing access to and objective criteria for access to the specific markets and operations. A diagnosis of market and the profession. Transparency bottlenecks for transport and logistics operators in regulations and access to regulatory has been made based on existing studies and measures, fees, and forms are critical to reports as well as on information provided by the ensure predictability of and less time to public sector and transport and logistics service navigate through layers of transactions operators in Cambodia. Attention has been being executed with requirements of less paid to procedures and restrictions affecting discretionary decisions to be made by access to cargo; documentary requirements authorities. for the organization of transport and the (c) Some activities are dominated by transport of goods by the various modes of state-owned monopolies, at apparent transport (in particular road, rail, and inland significant costs to the economy. The water transport6); accessibility to regulatory existence of monopolies is an example information (transparency); and so on. Also, a of a market failure, where one market review of institutional issues related to logistics player can create more income and services has been made. Priorities for legal and profit than would be allowed in a healthy regulatory reform have been identified and market. However, overregulation should an action plan for reform of the regulatory be avoided. In this respect, the economic framework for logistics services in Cambodia analysis and efficiency can be used to has been presented. Finally, recommendations guide legal practice and considers how have been made to improve the regulatory legislation should be used to improve process in Cambodia in a more general way. market conditions. The introduction of minimum standards will result in incentives for higher quality and better logistics 5 The transport and logistics sector includes, among others, trucking, warehousing, freight forwarders, shipping and customs agents, and value- added logistics services (third- and fourth-party logistics providers). 6 No attention has been paid to air cargo, which, although important for the transport of essential and strategic components, for instance, the manufacturing industry, is almost neglectable in terms of volume. An Assessment of the Legal and Regulatory Framework for 50 the Logistics Sector in Cambodia 2 ROAD TRANSPORT ACCESS TO THE PROFESSION 2.2  OF ROAD TRANSPORT OPERATOR Cambodia does not have any qualitative requirements for access to the profession of 2.1 INTRODUCTION road transport operator in Cambodia. Many The transport and logistics sector in Cambodia countries establish three main requirements in does not have an integrated Land Transport common for an access to the profession of road Law. Like many other laws, a Draft Law on transport operator: Land Transport is under preparation, but it has (a) Good repute not been advanced for parliament debates and approval. One of the main problems is (b) Financial standing that Cambodia has a very long process of developing legislation. Many drafts of legal acts (c) Professional competence and regulations are still in the preparation stage Good repute relates to the conditions that the or pending for many years. These draft versions applicant has not been convicted of serious often face many revisions, and few reach their criminal offences, including offences of a final stage of approval and adoption. This may commercial nature, and has not been declared be caused by many factors: changing policy unfit to pursue the occupation under any rules priorities, lack of involvement stakeholders, lack in force concerning the pay and employment of capacity in drafting legal acts and regulations, conditions in the profession, road haulage, and so on. Some general transport issues are or road passenger transport, as appropriate; being regulated in the existing Road Law and rules relating to driver’s driving and rest periods; Land Traffic Law. These include requirements for environmental protection; and rules relating to obtaining an operator’s license, registration of professional liability and any other legislation. trucks, and overloading of trucks. These were included because they directly affect road Financial standing requires the road transport infrastructure and road traffic safety. company to maintain minimum available capital and reserves. The amount differs from Access to the road transport market and access one country to another. For the constitution of to the profession of road transport operator a firm, international practice shows an average and truck or bus driver are hardly regulated in of about US$50,000 as available capital and Cambodia. Registration and fulfilment of the reserves and about US$10,000 when operating administrative requirements are often sufficient one vehicle and US$5,000 for each additionalvehicle. to obtain an operator’s license for carrying out road transport. The professional driver only Professional competence requires a needs a driver’s license and he or she is often qualification certificate for the manager who able to obtain such a license without having will run the daily operations of the road transport driving lessons and qualification examinations. company. The reason behind this requirement is that the manager of the road transport Domestic regulation does not place major company should have knowledge about the constraints to access to the domestic road laws and regulations, safety, security, financial transport market in Cambodia. Access to management and tax issues, labor conditions, the international road transport market is insurances, liabilities, and so on. regulated through multilateral agreements for road transport permits within the framework Although there is no international regulation, of ASEAN, the GMS Cross-border Transport which prescribes that these requirements Agreement (CBTA), and bilateral road transport should be included in the national legislation, agreements. the International Road Transport Union (IRU) 7 An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 51 —the international organization of national REGULATIONS ON TECHNICAL 2.4  road transport associations—recommends STATE OF VEHICLES that all countries include these requirements into national legislation. The IRU also has an IRU Both the Road Law and Land Traffic Law do not Academy, which sets the minimum standards define any up-to-date technical requirements for access to the profession of road transport concerning the technical state of vehicles, operators and may assist countries in this including trucks. What is regulated in the process. Cambodian Land Traffic Law is the frequency of the technical checks of the vehicles. Second- ACCESS TO THE PROFESSION 2.3  hand trucks will be checked every year and OF TRUCK OR BUS DRIVER a first check for a new truck will be done two years after registration. The Cambodian Land Professional drivers only need a driver’s license, Traffic Law also prescribes that technical but there is no requirement for a certificate of inspection has to be carried by a garage, which professional competence (CPC) of professional is licensed by the MPWT. There is much room for drivers (trucks and buses). Because the improvement for enforcement of the technical profession of professional drivers has been requirement of the vehicle. The Government still evolving over the last 20 years, being a driver allows importation of second-hand trucks into of goods and passengers is much more than Cambodia because they are cheaper but less just ‘steering the wheel, driving on the road, durable and economically diminished. Most of and watching over the traffic’. Communication the trucks on Cambodian roads are old and skills, geography and route planning, loading are in bad technical state, with slow driving and unloading, administrative procedures and speed resulting in congestion on the roads, documentation handling, communication with high levels of emissions, and high fuel expenses. inspection agencies and clients, road safety, Exemptions are mostly trucks that transport eco-driving, and so on are becoming more fuel (Kampuchea Tela Co., Ltd. (Tela), Sokimex and more important for the driver. Because of Petroleum (Sokimex), and so on.), which, in these reasons, many countries have introduced general, are in good technical state and often an additional requirement for the professional even comply with the European Agreement on competence of drivers, that they would need International Carriage of Dangerous Goods by a CPC in addition to the driver’s license to Road (ADR) standards. be a truck or bus driver. The Cambodian Truckers Association (CAMTA) agrees with Figure 3. On the Road from Sihanoukville this requirement and has proposed to the to Phnom Penh - November 10, 2017 Government to establish driving schools for professional drivers, which do not currently exist in Cambodia. Currently, the German International Cooperation Agency (Deutsche Gesellschaft für Internationale Zusammenarbeit, GIZ) supports the Cambodian road transport sector in enhancing the training of professional drivers, including training in eco-driving. Furthermore, it is important to include qualitative requirements for professional drivers in the new Land Transport Law, which is under preparation. Source: Photo taken by authors 7 https://www.iru.org/; https://www.iru.org/iru-academy. An Assessment of the Legal and Regulatory Framework for 52 the Logistics Sector in Cambodia It is important to regulate and enforce the older than seven years, for instance, apply technical state of vehicles, particularly trucks, a principle of a lower percentage of import as they, because of their dimension and weight, duties and value added tax (VAT) for newer have enormous impact in case of accidents trucks, apply a lower rate of excise duties on and collisions. Newer trucks are more expensive fuel for newer trucks, and so on. To stimulate to purchase but normally are safer to run and the renewal of the fleet, the Government may more efficient than older trucks as they have also want to buy the old trucks, at a price of less maintenance costs and more efficient use US$5,000, for dismantling and/or scrapping. For of fuel. The Government may promote the instance, this amount may be reduced from the replacement of the old fleet of trucks with a import duties and/or VAT when a new truck is variety of measures: restrict the import of trucks purchased or a second-hand truck is imported. Figure 4. On the Road from Sihanoukville to Phnom Penh - November 10, 2017 Source: Photo taken by authors An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 53 LAW AND REGULATIONS ON 2.5  weight of the sustaining axles and should not exceed the maximum capacity limit set by the OVERLOADING company producing the vehicle and will not Both the Road Law and the Land Traffic Law be over the permitted weight. The laws provide regulate overloading of trucks or vehicles in some regulatory measures as shown in box 1. Cambodia. Carrying goods on a vehicle or truck in Cambodia should not exceed the maximum BOX 1. REGULATORY MEASURES 1. Maximum weight on the sustaining axle of automobile, trailers or semitrailers is limited as follows: • 6 tons for single axle with two wheels under the steering wheel • 11 tons for twin axles with four wheels under the steering wheel • 10 tons for single axle with four wheels • 19 tons for twin axles with eight wheels • 24 tons for triple axles adjacent to each other with twelve wheels 2. Permitted maximum total weigh of automobile is defined as follows: • 16 tons for automobiles with twin axles, where one axle is located in the front of the automobile with two wheels, and the other one located in the back with four wheels • 25 tons for automobile with triple axles as one axle is located in the front of the automobile where there are two wheels and the twin ones are located in the back of the automobile where there are eight wheels • 30 tons for automobile with four axles as twin ones are in the front of the automobile where there are four wheels and the other two axles are in the back of the automobile where there are eight wheels 3. Limitation of permitted maximum total weight of automobile with trailers shall be defined as follows: • 35 tons for automobile with trailers having four axles as a single axle, which is located in the front of automobile where there are two wheels and the other single axle in the back of the vehicle where there are four wheels and the single axles of the trailers with eight wheels • 40 tons for automobile with trailers having five axles onward 4. Limitation of permitted maximum weight of automobile with semitrailers shall be defined as follows: • 35 tons for automobile with semitrailers having four axles as a single axle, which is located in the front of automobile where there are two wheels and the other single axle in the back of the vehicle where there are four wheels and the twin axles of the semitrailers with eight wheels • 40 tons for automobile with semitrailers having five axles onward The Road Law further adds that all vehicle axle penalties for those who disobey these regulatory loads as specified earlier shall bear a pressure measures are included in both laws. on the road of not more than 5 kg per cm2. The An Assessment of the Legal and Regulatory Framework for 54 the Logistics Sector in Cambodia BOX 2. CAMBODIA ROAD LAW Article 75 Any person who has used heavy trucks to transport overloaded goods on the road that damages the road, culvert, or bridge shall be subject to imprisonment from six months to two years and a fine from KHR 1,000,000 to KHR 4,000,000. Any competent government official who permits overloading of vehicles, which has been the cause of traffic on the roads and caused damage to the roads, or broken crossing drainages or bridges shall be considered a perpetrator. Article 76 Legal entity may be found criminally responsible under Article 42 of the criminal code on the criminal responsibility of legal entities, for the offences in the Article 75 of this law. Legal entity shall be subject a fine of KHR 1,000,000 (one million) to KHR 10,000,000 and including one or more additional penalties as follows: 1. Dissolution according to formalities determined by Article 170 of the criminal code on the Dissolution and Liquidation of Legal Entities 2. Placement under the court surveillance according to formalities determined by Article 171 of the Criminal Code on the Placement under the Court Surveillance 3. Prohibition from operating one or more activities according to formalities determined by Article 172 of the Criminal Code on the Prohibition from Operating Activities 4. Expulsion from public transactions according to formalities determined by Article 173 of the Criminal Code Expulsion from Public Transactions 5. Posting decision on punishment according to formalities determined by Article 180 of the Criminal Code on the Posting of Decisions 6. Publication of decision on punishment in newspapers or broadcasting by all means according to formalities determined by Article 181 of the Criminal Code on the Broadcasting the Decision by Means of Audio-Visual Cambodia Land Traffic Law Article 84 Overloading the limited maximum weight on the axles of the vehicles and overloading the limited maximum weight of the vehicles shall be punished as follows: (a) Less than 5 percent shall have a written warning without fine. (b) More than 5 percent to10 percent, the drivers shall (a) Be fined KHR 100,000 per ton; (b) Have to unload the goods and the vehicle will be detained for 10 days; and (c) Have their driving licenses taken away and be suspended for 10 days. (c) 3 More than 10 percent to 20 percent of the drivers will (a) Be fined KHR 200,000; (b) Have to unload the goods and the vehicle will be detained for one month; and (c) Have their driving licenses taken away and be suspended it for six months. (d) More than 20 percent, the drivers shall (a) Be fined KHR 300,000 per ton; (b) Have to unload the good and the vehicle will be detained for one year; and (c) Have their driving licenses taken away and be suspended for two years. In case that there is an offense in the total loading weight on vehicles and including the offense of overloading weight on axles, there shall be fine on the two cases. In case the drivers are still committing the offences, the fine will be doubled and the transportation business will be stopped for one year. The owner of the vehicles shall be responsible for the cost An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 55 of loading and reloading the goods and renting the place to keep the goods and vehicles. The abovementioned punishment shall not be an obstacle to the judge’s decision in case infrastructure was damaged because the vehicles were overloaded. There are too many weighbridges along the towing semitrailers shall not exceed 16 m. main transport routes to control the weight of yy Maximum length of the automobiles the trucks. These weighbridges are sometimes towing trailers shall not exceed 18 m. not necessary and are reported to contribute to traffic delays and rent-seeking exercises by HARMONIZATION OF 2.6  inspectors. There is no coordination between CAMBODIAN ROAD the different weighbridges and inspections have been overwhelming without any use of risk- TRANSPORT LEGISLATION WITH based and compliance approaches. Because NEIGHBOURING COUNTRIES the weight of a container is normally specified in The harmonization of Cambodian road transport the bill of lading and once it has been checked legislation with neighboring countries—Vietnam, and closed with a seal, no additional weighing Thailand, and Lao PDR—remains challenging would need to be conducted en route. However, although substantial parts of the legislation have in practice, the trucks carrying such containers been aligned with the general framework of were still weighed and inspected again on ASEAN, GMS, and some bilateral road transport the road in Cambodia. Another problem is agreements. Further harmonization of the the calibration of the different weighbridges, road transport legislation within the framework which is not completely uniform according to of ASEAN’s interstate transport facilitation CAMTA. Inspection agencies should recognize and GMS-CBTA would increase international the weight of a truck with cargo as verified by market access and regional connectivity another authority. In Cambodia, inspection and facilitate cross-border road transport, agencies do not coordinate and/or recognize thus lowering transport costs and promoting the results and verification made by another regional trade integration. It would also authority. stimulate the development of a professional The height, width, and length of the vehicles are road transport sector. While Cambodia signed also regulated by the Land Traffic Law. When two important agreements on road transport crossing the bridges, all drivers of automobiles, within the framework of ASEAN’s interstate automobile with trailers, or semitrailers shall obey transport facilitation and GMS-CBTA, like other the permitted maximum weight signs placed in ASEAN member states, it did not transpose front of the bridges. The technical standards of these agreements into national legislation and size and weight of other types of vehicles shall continues to apply its own technical standards. be defined by Prakas (Secondary Regulation) of The technical standards for vehicle weight and the MPWT. The size of automobiles, automobiles dimensions still differ from one-member state to with trailers, or semitrailers with no loading shall another. For example, the permissible length of be defined as follows: an articulated vehicle in Cambodia is 16 m, but in Vietnam it is 20 m. yy Maximum width of the vehicles shall not exceed 2.5 m, except vehicles equipped Different technical standards for vehicle with tools should not be more than 3 m weight and dimensions have further prevented width. recognition and compliance of trucks of different nationalities operating en-route, yy Maximum height should not be higher especially in transit. It is, therefore, important than 4.2 m. that the four countries discuss the remaining yy Maximum length of each automobile differences and agree upon a way forward shall not exceed 12.2 m. to complete harmonization. Both the national yy Maximum length of the automobiles Ministries of Transport and the national road An Assessment of the Legal and Regulatory Framework for 56 the Logistics Sector in Cambodia transport associations should participate in earlier, there is a need to transpose international these discussions. Transposing international agreements into national legislation to enforce agreements into national legislation is, the application and provide national inspection therefore, important and would provide agencies with legal power for this enforcement. national inspection agencies with legal power Cambodia should introduce qualitative criteria for enforcement. for the licensing regime of road transport operators in Cambodia, such as good repute, CONCLUSION AND 2.7  financial standing, and a CPC for the road RECOMMENDATIONS transport operator. This will be an important Cambodia does not have a land transport law step toward the professionalization of the but has it in preparation like many other laws in road transport sector in Cambodia, increasing the transport and logistics sector. Some general its quality and efficiency and resulting in the transport issues are being regulated in the improvement of road safety. If the licensing existing Road Law and Land Traffic Law. These regime is related with an obligation to provide include registration for obtaining an operator’s statistical information to the licensing authority, license and overloading of trucks as they directly it will also be an important source of information affect the road infrastructure and road traffic for monitoring the development of the road safety. Access to the road transport market transport sector in Cambodia. and access to the profession of road transport It should also introduce an additional requirement operator and truck or bus driver is hardly to the profession of road transport driver, a so- regulated in Cambodia. Often, registration and called Certificate of Professional Competence, fulfilment of the administrative requirements in addition to the required driving license. The are sufficient to obtain an operator’s license measure will contribute to increasing of the for carrying out road transport. The professional quality of road transport services and improving driver only needs a driver’s license and is often road safety. able to obtain such a license without driving Cambodia needs to set up a more coordinated lessons and examinations. and efficient risk-based and compliance The harmonization of Cambodian road transport enforcement approach to conduct inspection legislation with the neighboring countries— and reduce the excessive number of Vietnam, Thailand, and Lao PDR—remains weighbridges along the main routes and at a great challenge. Although there are two ports, terminals, and logistics centers. This important signed international agreements measure would ensure improved efficiency concerning road transport within the framework and effectiveness of control and inspection of of ASEAN and GMS with its CBTA, it seems that loads that would reduce transport and traffic the countries did not transpose the contents of delays but improve effective enforcement of all these agreements into national legislation compliance and reduce overloading breaches. and continue to apply their own technical Like many other countries, Cambodia has faced standards. Technical standards for vehicle serious challenges in addressing overloading weight and dimensions still differ, which makes issues for many years. smooth international road transport difficult The road transport agreements concluded as certain trucks with certain loads will not be within the framework of ASEAN and GMS-CBTA allowed to cross the border into the neighboring should be transposed into national legislation of country. all member states of ASEAN and GMS and be The four countries need to discuss these enforced. This will allow for further development differences and agree upon establishing and of seamless international road transport, provide implementing the same technical standards. international market access for road transport Both the national Ministries of Transport and operators, lower the overall transportation costs, the national road transport associations should and facilitate the development of professional participate in these discussions. As stated road transportation. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 57 3 RAILWAY infrastructure and a full range of train services, warehouses under concession, truck fleet, dry TRANSPORT port operations, customs clearance on the site, and land and office space rental. It claimed to provide full logistics service competing with door-to-door truck services. However, it primarily provides passenger services and Railway transport in Cambodia still faces many operates on certain days of the week such as challenges ranging from limited provision Friday, Saturday, Sunday, and Monday. It is of required infrastructure and weak logistics questionable whether in a small and developing service capacity and operations on the rail. market loosening the concession model may The Royal Railway is the only concessional lead to quicker development of freight services company that holds a concession for 30 years, by rail. An assessment of the performance which is currently in year 6. Only the southern line indicators of the concession contract should be between Phnom Penh dry port and Sihanoukville recommended to ensure faster development sea port is currently operational. However, a of railways in Cambodia. As was concluded limited number of freight trains are operated on in the waterways transport section, Cambodia this line, both for containers as well as for some does not have a modal shift policy that supports bulk commodities like coal, fuel, and cement. faster development of multimodal transport A northern line up to the Thai border is under systems and rail and water transport. Road development and much is expected from transport accounts for more than 70 percent of freight potential. Currently, Cambodia does not all transport freights. have a plan to connect the Phnom Penh River Rail freight fees and passenger fares are Port to the railway network. published and available to clients, but volume The volumes by rail are still low, at around 3,000– discounts are still determined on a bilateral 4,000 containers per month that are transported basis and are not published. There is no to and from the seaport, and the market share specific regulation on fees and fares and they is still less than 20 percent. Majority of freight are not yet fully developed. There are limited transport still goes by truck, especially for ranges of tariffs and not tailored widely with containers, but also for other cargoes like fuel. respect to broad commodity types, specific Railways should be an important mode of freight customers, and industries and routes. The Royal transport in Cambodia due to key factors, Railway conducted some consultations with including the low level of theft and pilfering on stakeholders on its services and fee charges the freight trains, the guaranteed transport and through the existing mechanisms, such as the handling times, and dry port services. However, meetings of EuroCham, logistics committee, this advantage of low railway cost is offset by CAMFFA, and so on, but these remain high cost for last mile transport, extra handling inadequate. It organized some meetings for cost, and internal port transport by trucks. With the Cambodian Rice Federation (CFR) and limited use and development of railway freight, the Garment Manufacturers Association in the high dependence on freight transport by Cambodia (GMAC) in 2017 to promote railway trucks comes with high transport costs and huge services. maintenance costs for the road links between From a legal and regulatory perspective, seaports and Phnom Penh. The RGC has railway transport operates with a regulatory planned to obtain a loan from the World Bank regime of some secondary legislations, but to maintain the road between Sihanoukville important legislations are still missing as it and Phnom Penh. does not have a proper legal framework at the The concession model does not leave any room primary legislation. The Royal Railway Company for third-party operations in the railways. The has to deal with the Port Authority, the customs current concession model includes provision of and inspections, and follow the guidelines and An Assessment of the Legal and Regulatory Framework for 58 the Logistics Sector in Cambodia regulations in these areas. As far as could be To enable railway development, Cambodia may concluded from the interviews, no points are need to draft a Law on Railway Transport, but raised from the client groups in the railways this is presently not so urgent. However, having a in the regulatory field. A specific regulation Law on Railway Transport will become necessary for dangerous goods is missing. In the field of for connecting Cambodia’s railway networks international railway transport, the transport to international railways in Thailand, Lao PDR, of dangerous goods is mostly regulated under and Vietnam. Cambodia is also recommended Regulation for the International Carriage of to apply RID, under the guidance of the OTIF Dangerous Goods by Rail (RID), under the for domestic railway transport of dangerous guidance of the International Organization for goods. The application of RID is crucial for the International Carriage by Rail (OTIF). Although Royal Railway to establish and upgrade facility rail traffic in Cambodia is purely domestic, and standards, its handling capacity, and quality OTIF and RID relate to international carriage, of services intended for dangerous goods for in many countries RID also applies to national domestic and transit routes. traffic. This is also recommended for the Royal Railway Cambodia. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 59 4 PORTS, MARITIME, terminal movements in the port itself. This has been a valuable contribution to port efficiency AND INLAND improvement, as it will reduce waiting time in the port area itself, the line of queuing trucks, WATERWAY and streamline the process. TRANSPORT The PAS expansion plan foresees the development of new quay walls and terminals with better (deeper) navigation accessibility. The management model of PAS is that of a public service port, where the Port Authority is the owner of the infrastructures and superstructures 4.1 INTRODUCTION and also performs the stevedoring and other services activities. This is contradictory to the Ports and water transport are an important internationally more common landlord model, component of Cambodia’s transport network where these two functions are separated, and and ports, maritime, and inland water transport the private sector can be involved in operations, play a considerable role in the economy of for example, through a concession system the country. Cambodia has two major ports especially for stevedoring and other service and is blessed with huge assets in inland water activities. transport, as a major inland water artery crosses the country, providing it with very good PAS could explore the possibility of attracting water connectivity servicing international and and involving private investments and domestic and international freight trade. introducing a more open market in stevedoring for its future expansion plan. It is expected that The two major ports are Sihanoukville volumes in the port will grow substantially in the Autonomous Port (PAS) and Phnom Penh coming years. The Port Authority is open to start Autonomous Port (PPAP). PAS is a deep seaport this discussion for new port areas. An economic and a main gateway for maritime cargo, with zone has been established in the adjacent area a number of regular and irregular services outside the port, just outside Sihanoukville City. mainly to Asian ports in the region. Major facilities include the liquid bulk terminal and the Likewise, PPAP also follows the same container terminal, as well as other facilities for management model and has no plan expand bulk and break-bulk cargoes. the port in the near future. PPAP controls many facilities along the Mekong River and PAS has most of hinterland transport moved by is responsible for the navigation on the river road, but recently the railway line to Phnom for a stretch of 160 km. In recent years, it has Penh has opened for freight services for developed a new container port facility south containerized traffic that are linked to PAS. It is of Phnom Penh where most of the container estimated that some 30 percent of container business is now concentrated. Traffic to and traffic between Sihanoukville and Phnom Penh from the industrial areas is now less hampered now moves by rail. The majority still moves by by the congested city traffic. An economic truck, resulting in lines of trucks waiting for zone has been planned, but strangely enough port access and a huge number of trucks on it is not adjacent to the port, but is at a the main roads to Phnom Penh. To streamline distance of some 3.5 km. A main reason is that the port access process, the Port Authority land price is higher for the land closer to the has taken up the plan to develop a so-called Mekong River. Unfortunately, this will lead to a extended gate, or pre-gate, 30 km outside the suboptimal circumstance because additional port where part of the documentation process road transport will be required, adding costs and inspections could be carried out and which to logistics cost as well as transaction costs could increase efficiency in gate access and for procedures and documentation. The old An Assessment of the Legal and Regulatory Framework for 60 the Logistics Sector in Cambodia port areas in the city center mainly handle laws in these areas were recognized by the conventional cargoes. The area has no space Government and for this reason, several draft for expansion and traffic to and from these port laws have been developed to fill the gap. In areas is constrained by growing city traffic. the field of ports, maritime transport, and inland water transport, three draft laws have been PPAP has direct services to Vietnam ports such developed, but none of them has reached the as Cai Mep, but traffic has been limited as approval stage at the moment. The three draft most freights move by road transport between laws are Phnom Penh and Vietnam. The traffic to and from Vietnam along the rivers is arranged (a) Draft Port Act; through a bilateral agreement on waterway (b) Draft Law on Maritime Transport; and transportation, which includes guarantees on draught, dredging, and so on. The agreement Draft Law on Inland Waterway Transport. (c) includes transportation on the Bassac and Mekong Rivers. However, in practice there Finalization of these draft laws is still ongoing, are some draught issues on both rivers. The but the time line remains unclear. Draft versions Port Authority is responsible for maintenance of the laws have been developed with the dredging; funding is mainly from its own funds. assistance of foreign experts through technical Capital dredging is also required, but funding assistance projects. Some of them were drafted remains an issue. PPAP is a one-stop shop and 10 years ago or more. It is anticipated that it it performs lift-on and lift-off, stripping and would take several years for these draft laws stuffing, survey, dredging, compulsory pilotage, to be enacted. The MPWT has inadequate and warehousing. Private operations are limited capacity to draft and finalize legislations and only to ‘container repair and maintenance limited capacity has been the major issue services’. In contrast, PAS follows a more open for long delays in legislation development. In policy than PPAP, in that most of the container addition, making secondary legislations (not freight stations (CFSs) and warehousing services law) takes much shorter time and has less in PAS are provided by some private parties. In extensive consultation processes. This seems addition, PPAP does not have rail connectivity to be a favorable path for bureaucrats to and no clear plans are foreseen to make a keep the status quo and not undertake serious connection in the future. changes in primary legislations (laws). However, without proper laws in the sector, the secondary LEGISLATIONS ON PORTS, 4.2 legislations remain inconsistent, leaving a large MARITIME TRANSPORT, AND gap to be harmonized and compliant with international good practices and standards. INLAND WATERWAY TRANSPORT There has not been serious transposition of Currently, Cambodia does not have general the international and regional agreements and comprehensive laws that regulate ports, that Cambodia is signatory to, into its national maritime transport and inland waterways, and legislations. transport activities carried on them. Most legal The three draft laws distinguish between maritime provisions on inland waterways are scattered transport and inland water transport, where the throughout various secondary legislations, latter relates to domestic shipping or cabotage. including royal decrees, sub-decrees, circulars, In international shipping, the International Prakas, and so on that deal with more general Maritime Organization (IMO) is a major party, matters (for example, water pollution) and do and Cambodia follows most of the conventions not cover the entire field of ports and shipping. in this field. An important factor in international Cambodia is still behind its neighbors, especially shipping is the role of the Kampuchea Shipping Vietnam which has its law on Inland Waterways Agency and Brokers (KAMSAB), which holds Navigation, Law of the Sea, and Maritime Code. a monopoly this field and sets high tariffs for The need for having more comprehensive its operations and services. There have been An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 61 many debates on the role of KAMSAB to allow LAWS AND INTERNATIONAL 4.3  liberalization, but there is no traction of key CONVENTIONS IN PORTS AND stakeholders, KAMSAB, MPWT, and MEF. After discussions with shipping lines, the European MARITIME TRANSPORT Chamber of Commerce, and business Substantive parts of a Maritime Law and a Port associations, the industry has demanded Law of a sovereign country should be made more flexibility and lower fees, for example, uniform and aligned with international treaties for overtime charges. Some progress has been and conventions that it is signatory to. However, made in the introduction of lower service fees, not every country is party to all conventions and but the monopoly remains. The public sector the existing conventions do not always cover all insists that documentation has to be unified questions regarding a specific subject. In the and the present system appears to support case of conflicting rules in treaties, it is necessary trade. Chambers of Commerce and industry to decide which national law may apply. These associations still demand further improvements conflict of law rules can either be found in a in quality and efficiency of service, service- treaty or, in most cases, in national law. The IMO level standards, tariffs, and costs because some is the United Nations’ technical body that deals improvements have not been standardized yet with ports and maritime traffic. but vary upon the users’ requests. It is unlikely that this part of the shipping service market would Cambodia is member of the IMO since 1961 and be opened up. The master plan for waterborne has ratified all the principal conventions. Most of transport from 2005–2006 advises liberalization in the conventions adopted under the auspices of shipping services, but this has not been pursued the IMO fall into three main categories. The first due to lack of willingness by the Government in group is concerned with maritime safety; the fear of losing fiscal revenue. second with the prevention of marine pollution; and the third with liability and compensation, Inland water transport has decreased in recent especially in relation to damage caused by years mainly because of improvements in pollution. Outside these major groupings are the road transport network. Domestic inland a number of other conventions dealing with waterway transport is now almost nonexistent facilitation, tonnage measurement, unlawful and unfortunately there is no stimulating and acts against shipping and salvage, and so on. supporting policy. Social benefits of inland waterway transport are well-known in many The enforcement of the IMO conventions cases. However, experiences in many other depends upon the Governments of member countries show that without a supporting policy parties. Contracting governments enforce and a well-balanced package of incentives, the provisions of the IMO conventions as far it is challenging to shift to inland waterway as their own ships are concerned and also set transport. Stimulating measures for inland the penalties for infringements, where these waterway transport should be to create a are applicable. They may also have certain sustainable multimodal transport system as part limited powers with respect to the ships of other of the Logistics Master Plan. Good practices can governments. In some conventions, certificates be found in several Asian waterway countries, are required to be carried on board the ships to including China, which is probably one of the show that they have been inspected and have best examples with a high success rate, but met the required standards. These certificates also Vietnam and India that adopt and follow are normally accepted as proof by authorities waterway-friendly policies. Even the inland from other states that the vessel concerned has waterway transport market is quite matured in reached the required standard, but in some the European Union and providing incentives cases further action can be taken. The key IMO is still very common to stimulate the use of conventions are inland waterway transport for both social and • International Convention for the Safety of commercial purposes. Life at Sea (SOLAS); An Assessment of the Legal and Regulatory Framework for 62 the Logistics Sector in Cambodia • International Convention for the Prevention its utmost to meet requirements from the IMO of Pollution from Ships (MARPOL); and and bring practice in line with international regulations. • International Convention on Standards of Training, Certification and Watchkeeping for The Draft Port Law was completed some years Seafarers (STCW). ago but has not been finalized for submission to the Council of Ministers and subsequently 4.4 DRAFT PORT LAW to the National Assembly for approval. The MPWT conducted several rounds of discussions Cambodia does not have an existing Port Law in the ministry and consultation workshops with covering the full scope of port classification, stakeholders. The Draft Port Law has been safety, pollution regulations, port facility delayed due to several factors, including security code, and technical standards. Ports weak ownership, bureaucratic process, and in Cambodia are currently governed by incentives to make changes. The ministry is secondary legislations, including royal decrees, running behind schedule and it now expects sub-decrees on establishment of specific ports, that, at the earliest in 2019, the law may be and ministerial notices (Prakas) of technical submitted to the Council of Ministers. regulations and standards. Without a proper Port law, it has delayed implementation of The Draft Law integrates important and international conventions that are signatory. substantial parts of international conventions. Cambodia has ratified all the major conventions, The Draft Law defines four classes of port although in some cases not all annexes under categories (international, bilateral, domestic, these conventions. and special ports, for example, for a specific commodity and for a specific user) and the The human capacity in the MPWT seems to port zone. The responsibilities of the port be an important factor in the slow process management body are also articulated. of implementation. For example, the ministry These include, among others, port facilities is required to set up designated bodies and and channels, harbor master function, port officers for specific activities. In mid-2017, an development and implementation plan, and IMO audit team visited Cambodia. The audit’s supervising and/or conducting port operations. aim was to determine the extent to which The last one leaves room for third-party/private Cambodia gave full and complete effect to involvement. It specifies the principles of port its obligations and responsibilities contained dues and charges and the requirement for in a number of IMO treaty instruments. The publication of those and the possibilities of the mandatory IMO instruments included: MPWT to set limits. The Draft Law has a chapter • SOLAS 1974 and its 1988 protocol; on safety and environment, for example, for • MARPOL; ship-generated waste, spill contingency plan, and port facility security requirements, all in • STCW 1978; line with the IMO regulations and chapters on • Load lines (LL 66 and its 1988 protocol); pilotage and the navigation channels and • Tonnage measurement of ships (Tonnage navigation. Details are to be included in sub- 1969); and decrees. The Port Authorities are in discussion • Regulations for preventing collisions at sea with the MPWT on the Draft Law but argue that (COLREG 1972). the main points for them in the Draft Law relate The audit report has been sent to the MPWT to trade facilitation and safety issues. recently and contains a set of findings Tariffs and fees for port services remain high, and recommendations that have to be much higher than ports in Thailand and Vietnam. implemented. Unfortunately, the IMO report The current system of tariffs is determined by the was not made available to the consultants Board of Directors, which has representatives of despite several requests and commitments. But the MPWT and the Ministry of Commerce (MOC), in general, it is assumed that the MPWT will do An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 63 as well as independent experts and employee sub-decrees, in parallel to submission of the representatives. The port due consists of several draft law for endorsement by the Council of components (for example, pilotage, canal fee, Ministers and subsequently for approval by the vessel fee, and fee to the cargo owner) and National Assembly. tariffs are published, and information is easily Like the Port Law, Cambodia follows some accessible to all. The tariff system allows volumes main conventions in the Draft Law on Maritime discounts. Port operators and service providers Transport. The purpose of the law is to provide still need to improve the service quality and the legal and institutional framework for the standards. The use of stakeholder consultation administration and management of maritime to obtain feedback and recommendations transport and provide general principles for the from the industry and business associations governance of the development, administration, is important. The consultation mechanism and management of maritime affairs. Each exists through the Chamber of Commerce, chapter in the law addresses the international working groups, the communication center for conventions (SOLAS, MARPOL, and so on). The port clients, and the customs-port dialogues. general provisions describe the objectives, However, consultations should be carried out (that is, safety of ships, environment, maritime on a regular basis. operations and commerce, development of An important issue related to ports, but also the sector, and labor force) followed by the an issue on the inland waterways and in land marine area and the exclusive economic zone transport, is dangerous goods. Port Authorities of the Kingdom of Cambodia. Respective indicate that they do not know exactly what to chapters deal with ship registration, business do in this field and that guidelines are missing. licenses for shipping companies (to be issued The MPWT should take up this issue on a priority by the MPWT), crew requirements, safety of basis. The regulations and guidelines to deal ships, safety and environment, navigation and with dangerous goods are still missing at both entry permits, inspection and control of vessels, the primary and secondary legislations. investigations in case of incidents, shipyards and repairs, and finally enforcement and penalties. DRAFT LAW ON MARITIME 4.5  The provisions are of a general nature and TRANSPORT details are not included. It is concluded they all must be detailed and included in secondary Cambodia does not have an existing law on legislation. maritime transport. Maritime transport is currently governed by several secondary legislations DRAFT LAW ON INLAND 4.6  across different agencies and ministries. These WATERWAY TRANSPORT secondary legislations are not yet consistent and aligned with international conventions and Like ports and maritime transport, Cambodia’s treaties. The existing procedures face several inland waterway transport is operated challenges at the administrative level for under several secondary legislations and speeding up, for instance, registration for vessels administrative procedures across several and so on, but that this is hampered by the agencies and ministries. Through a bilateral complexity of the issue and limited institutional agreement on waterway transportation capacity. between Cambodia and Vietnam for navigation along the Bassac and Mekong Rivers, The Draft Law on Maritime Transport, developed Cambodia has laid some regulatory foundation in 2012, is designed to close the gaps in the to deal with international connectivity for trade secondary legislations. However, according to freight and passenger transport through inland the MPWT, it will take at least up to 2021–2022 to waterways. However, the existing secondary finalize this draft law before it can be approved. legislations are inadequate to provide Many issues still have to be developed and improved regulations, monitoring, coordination, detailed, including secondary legislation and and control of navigation activities toward An Assessment of the Legal and Regulatory Framework for 64 the Logistics Sector in Cambodia a healthier riverine environment by reducing The Draft Law on Inland Waterway Transport shipping accidents that result in oil spills and is designated to include some improved other dangerous substances. For example, regulations, monitoring, coordination, and specialized port facilities can eliminate the risks control of navigation activities. It also aims involved in the beach landings of petroleum toward a healthier riverine environment by tanker barges. The Mekong River Commission reducing shipping accidents that result in oil (MRC) is responsible for developing regulations spills and other dangerous substances. in transport and handling of dangerous goods This draft law should be clarified to avoid in the Mekong. confusion and overlapping with the Draft Law According to the United Nations Economic on Maritime Transport. One of the issues is that Commission for Europe (UNECE),8 the legislation Cambodia seems to define inland waterway on inland waterway transport must regulate the transport in a broad scope that includes not transport of dangerous goods. In the case of only cabotage or domestic shipping but the European Union, the transport of dangerous also coastal water transport, which, when goods is regulated by the European Agreement compared with international practices, can be on International Carriage of Dangerous Goods complicated and confusing because maritime by Inland Waterways (ADN). This agreement transport seems to overlap with inland waterway became a model that was being followed transport. by many countries outside Europe. In the field The Draft Law on Inland Waterway Transport is of training of crew, the Development of the considered the most advanced in the package Standards of Training and Certification in Inland of the three draft laws in this transport sector. Navigation (STCIN) became a standard, like the The draft text was developed with international STCW in maritime transport. technical assistance and consultation workshops For Cambodia, the MRC plays the role of were conducted. The draft law is now at the a regional facilitating and advisory body level of the Council of Ministers for decision governed by the water and environment making. According to the information from ministers of the four participating countries. the MPWT, the consultation process is finalized, The MRC ensures the efficient and mutually and the text can now only be amended by the beneficial development of the Mekong River Council of Ministers. This draft law is expected to while minimizing the potentially harmful effects be approved in 2018. on the people and the environment in the Lower The law only relates to Cambodian waters and Mekong Basin. Article 9 of the MRC Agreement does not include cross-border international covers the Freedom of Navigation, which transports. The draft law contains 15 chapters and gives the Commission a powerful mandate 99 articles. The purpose of the law is to maintain to promote and coordinate cross-border order, security, and safety of inland waterway waterborne transportation on the Mekong River. transport; protect humans and wildlife and Unlike the Central Commission for Navigation environment of the inland waterways; prevent on the Rhine (CCNR), the MRC does not have adverse effects to human health and damage legislative powers and a bilateral agreement of public and private property; and protect between Cambodia and Vietnam is in place and encourage the development of the inland for transport on the Bassac and Mekong Rivers, waterway sector. The law is applicable to ships, which was facilitated by the MRC. The bilateral the crew, shipowners and shipping companies, agreement on waterway transportation aims to and the construction of waterways and other reduce cross-border navigation restrictions and activities related to navigation. improve efficiency and safety standards on the Mekong River. 8 The UNECE, based in Geneva, is the body that has a worldwide mandate in this field, and many countries outside Europe, follow the guidelines set up by UNECE. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 65 The draft law specifies who can carry out this the organization and functioning of this institute inspection and the MPWT is entitled to provide is to be determined by a sub-decree. The law ship technical inspection to the private sector. specifies only the main provisions and, like in The MPWT is responsible for ship registration the other laws, specifics will be included in the and issuance of license. The ships also need a instructions and sub-decrees and many of them technical inspection certificate from the MPWT still need to be developed. and inspections shall be held once a year. Ships that do business on the inland waterways shall 4.7 RECOMMENDATION possess a license for such business that will be Cambodia needs to accelerate the process granted by the MPWT. The requirements and of developing, adopting, and implementing procedures for obtaining such license shall legislation in the field of ports, maritime transport, further be defined by regulation by the MPWT. and inland waterway transport. According The draft law also deals with the inland to the MPWT, the lack of manpower and the waterway and vessel signs; navigation rules and need to build up the human resources in the responsibilities of the captain; compensations legislative field is a priority. This has to be financed in case of collisions and incidents and liability; from the existing budget, which limits quick carriage of goods; crew requirements with development. It also needs to urgently ensure regard to training, certification, and manning; its compliance with international regulations for ship construction and repair; inspections; and the port, maritime, and inland waterway sector penalty provisions. A chapter deals with the as set by international organizations such as inland waterway transport policy and master the IMO. It should set up a special (temporary) plan, which, according to the draft law, is to be stimulating policy for inland waterway transport prepared by the MPWT. The ministry has to also to (re)develop this mode of transport. set up a maritime institute of technology and An Assessment of the Legal and Regulatory Framework for 66 the Logistics Sector in Cambodia 5 MULTIMODAL cover payment of obligations for loss, damage, or delay in delivery of goods under multimodal TRANSPORT AND transport contracts, as well as contractual risks; and (d) maintain minimum assets equivalent to FREIGHT SDR 80,000.10 FORWARDING Lack of a national legal framework for multimodal transport in Cambodia has constrained its compliance with this agreement. This causes serious bottlenecks for the international and national operation of MTOs. It is challenging 5.1 MULTIMODAL TRANSPORT for Cambodia to ensure transparency of its respective laws, regulations, and administrative Cambodia does not have a national legal procedures concerning the registration. The framework for multimodal transport though it ASEAN Framework Agreement on Multimodal signed the ASEAN Framework Agreement on Transport further states the member states had Multimodal Transport. A national legal framework to submit their registration of MTOs not later than for multimodal transport should normally cover six months after this agreement has entered into carriage of goods by national and international force. multimodal transport contracts, which also include provisions concerning the liability While Cambodia does not have a system to of multimodal transport operators (MTOs). authorize and recognize operators registered in Cambodia and other ASEAN member states9 other member states, its operators are also not yet signed the ASEAN Framework Agreement on widely recognized by any of the other member Multimodal Transport on November 17, 2005. countries. Having a national legal framework In this agreement, ‘international multimodal for MTOs would help address this constraint. transport’ is defined as the carriage of goods The benefit of implementing this agreement by at least two different modes of transport on by transposing into a national legal framework the basis of a multimodal transport contract is to enable registration by a competent from a place in one country at which the goods Cambodian national body to authorize and are taken in charge by the MTO to a place recognize the MTOs to operate in Cambodia designated for delivery situated in a different and any of the member countries, provided that country the operator submits a copy of the registration certificate to the competent national body of An important element in this agreement is the other member country in which s/he should the registration of the MTOs. For inclusion in have a legal representation such as through an the register of MTOs, the person concerned agency agreement or branch office. (Annex 1 shall submit an application to the respective presents a generic example of an international competent national body and establish that multimodal transport agreement that can be s/he fulfils all requirements as prescribed by used for future drafting of a national legislation national law. As a minimum s/he shall (a) for all multimodal transport, both national and possess the legal capacity as required by the international.) provisions of the member country in which s/he is applying for registration; (b) have domicile in Implementation of the ASEAN Framework the member country in which s/he is applying Agreement on Multimodal Transport faces many for registration; (c) have an insurance policy, challenges. Only Malaysia, Singapore, Thailand, a coverage from a protection and indemnity and Vietnam have transposed this agreement club, or an alternative of a financial character to into national legislation. Implementation of this 9 Brunei Darussalam, Indonesia, Lao PDR, Malaysia, Union of Myanmar, Republic of the Philippines, Republic of Singapore, Kingdom of Thailand, and Socialist Republic of Vietnam. 10 SDR—Special Drawing Rights—is a currency determined by the value of a basket of currencies: Chinese yuan, euro, Japanese yen, U.K. pound sterling, and U.S. dollar. The value on November 1, 2017, was US$1.403480. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 67 agreement is important as it will strengthen the the provider of freight-forwarding services and legal position of the international multimodal the client. It is not an issue for public authorities. transport operator. Without having such a As such, there is no real need for regulating transposition into national legislation, the the freight-forwarding business, which goes MTO may theoretically issue, for instance, an further than registration as a company with a International Federation of Freight Forwarders tax identification number. There are freight Association (FIATA) multimodal transport bill of forwarders who would approve of having lading and may assume liability for the cargo their profession legally recognized. However, from the place of taking charge of the goods it is rather difficult to define the profession of by the MTO until the delivery of the goods freight forwarder in legal terms. Therefore, it is as provided for in the multimodal transport not necessary to have national legislation to contract. However, in case of incidents and regulate the freight-forwarding business. There irregularities during the implementation of are various understandings of what freight the contract, legal protection by national forwarders are, what kind of services they legislation works much faster, cheaper, and provide, and whether they assume liability for better than just going to court without any the cargo toward the shipper/client until the regulation in this respect. For the benefit of cargo reaches its destination and is delivered Cambodia and its neighbors, it should start at the consignee under one bill of lading issued discussions again with neighboring countries, by the freight forwarder. such as Vietnam, Thailand, and Lao PDR about If the RGC insists on having the freight- the implementation of the ASEAN Framework forwarding activities regulated, it may need to Agreement on Multimodal Transport. have a good justification on what it needs to Cambodia may need to develop a Law on address or choose between a legislation on Multimodal Transport. This law will provide freight forwarding and a legislation on MTOs. A legal protection to the MTO in terms of sample outline of a national law, which is very liability, particularly in situations when juridical similar to the contents of a law on multimodal enforcement of irregularities in business and transport operations and focuses on liability trade is still a challenge. More importantly, issues, is provided in annex 3. it should transpose the ASEAN Framework The statutes of the CAMFFA define clearly the Agreement on Multimodal Transport from 2005 difference between a freight forwarder and an into national legislation. MTO in terms of the liability. A freight forwarder FREIGHT FORWARDING 5.2  is an agent and an MTO a principal. As such the freight forwarder, in principle, does not assume Cambodia may not need a legal and any liability for the cargo. If there is a Law on regulatory framework for freight forwarding. Multimodal Transport regulating the liability of International experiences suggest that only the MTO, there is no need to adopt a Law on few countries have a legal and regulatory Freight Forwarding if the freight forwarder is an framework for freight forwarding. In principle, agent and not a principal. freight forwarding is a business activity between BOX 3. STATUTE OF CAMFFA The Statute of CAMFFA, version February 2014 defines “(b) Freight forwarder means the person or company, as an agent, concluding a contract with a customer on freight forwarding and logistics services. (d) Multimodal transport operator means any person who on his own behalf or through another person acting on his behalf concludes a contract for the carriage of Goods by more than one mode of transport and who acts as a principal, not as an agent or on behalf of the consignor or of the carriers and assumes responsibility for the performance under a single contract.” An Assessment of the Legal and Regulatory Framework for 68 the Logistics Sector in Cambodia 6 CURRENT strengthen competitiveness and enhance the productivity of domestic industries; and INSTITUTIONAL • Moving toward developing a technology- ARRANGEMENTS driven and knowledge-based modern industry. FOR LOGISTICS IN To realize this vision, the IDP formulates four strategies: (a) mobilizing and attracting foreign CAMBODIA investments and private domestic investments by focusing on large industries, expanding markets, and enhancing more technology transfer; (b) developing and modernizing small and medium enterprises (SMEs) by expanding and strengthening the manufacturing base, modernizing the registration of enterprises, and ensuring technology transfer and industrial links; 6.1 IDP (c) revisiting the regulatory environment to strengthen the country competitiveness through The RGC has the ‘IDP 2015–2025’. It aims to investment climate and trade facilitation, include ‘Market Orientation and Enabling market information dissemination, and informal Environment for Industrial Development’ and fees reduction; and (d) coordinating supporting was approved by the Council of Ministers on policies, developing human resource and March 6, 2015. The main vision of the IDP is to technical training, improving industrial relations, transform and modernize the national industrial developing support infrastructure such as structure from a labor-intensive industry to a skill- transportation/logistics and information driven industry by 2025, through and communication system (ICT), supply of • Connecting to regional and global value electricity and clean water, and public, social chains; and financial services. The IDP also stresses the importance of improving the regulatory Integrating • into regional production environment and proposes measures to networks and developing interconnected facilitate trade and promote export. Box 4 production clusters along with efforts to presents these proposed measures. Box 4. IDP Improving the Regulatory Environment Proposed Measures for Trade Facilitation and Export Promotion (a) Accelerate the finalization of the implementation of trade facilitation reform plan and the utilization of the National Single Window Service at all international border checkpoints and ensure its integration with the ASEAN Single Window Service to support the international logistic network. (b) Establish a trade information center that consists of Internet-based information on trade measures, tariffs, and formal fees imposed by the RGC. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 69 (c) Improve customs clearance procedures for tax-exempt goods by way of strengthening cooperation among relevant institutions, streamlining documentation, facilitating procedures, and eliminating informal payments. (d) Reduce and abolish repetitive and nontransparent procedures. (e) Prepare a logistic system master plan to serve as an efficient, reliable, and highly competitive platform for trade facilitation. (f) Increase regional and subregional efforts in the context of ASEAN and GMS, to implement the CBTA and the Single Window Mechanism, to improve the efficiency of international logistic system in the region. Other supporting measures include developing institutional frameworks to be integrated into the logistic system, cooperation and broader coordination with relevant authorities in charge of transport facilitation, and movement of people and goods. (g) Strengthen the capacity of the General Department of Trade Promotion (GDTP) of MOC to become an export promotion agency, equipped with highly specialized skills in market research and identification of export products and business networks. The GDTP can provide trade consultation services, that is, information on overseas markets, coordination of export promotion activities, including market studies or exhibitions; (h) Explore the possibility of establishing a policy-based financing institution tasked to provide credit to exporters who can export products in priority industries, and export insurance services to reduce export-related risks. (i) Strengthen trade facilitation by improving procedures, strengthening the implementation of the CBTA, reducing transactional cost of trade, and strengthening institutional coordination. (j) Consider the possibility of establishing a system to reward domestic firms with outstanding export performance and new products development. This reward is provided to firms achieving predetermined export target through a transparent evaluation system based on specific industrial development objectives. (k) Promote the formation of subsectoral associations where they can share knowledge and strengthen government relations. An Assessment of the Legal and Regulatory Framework for 70 the Logistics Sector in Cambodia Figure 4. Stakeholders in the IDP Councile for development of Cambodia Committee for Economic and Financial Policy Advisory Board for Cambodia Industrial Development Cambodia Investment Board Steering Committee for Private Sector Special Economic Zone Public-Private Sector Form Development Industrial Development Private Sector Investment Working group on Agriculture Sub-Committee for and Agro-Processing InvestmentClimate and Private-Partnershipfor Working group on Tourism Infrustructure Development Working Group on Manufacturing SMEs Sub-Committee for Trade and Services Promotionand Trade- related Investment Working Group on legal Affair, Taxation and Governance Ministry of Ministy of Ministry of Ministry of Ministry of Ministy of Sub-Committee for Land Mgt, Public Works Labor and Working Group on Banking Economic Industry Mine Small and Medium and Finance and Handicraft and Energy Urban and and Vacational and Finance Enterprises Contruction Transportation Training Working Group on Transport and Infrastructure Ministy of Ministy of Sub-Committee for Eduction Youth Agriculture, Ministry of Ministry of Ministry of Working Group on Export Corporate Governance Forestries Commerce Environment Tourism and Sport Processing and Fisheries and Trade Facilitation Working Group on Industrial Sub-National Administration Local Authorities at Targeted Industrial Area Relations Working Group on Rice Sector Working Group on Mine Source: IDP. and Energy The implementation of the IDP requires institutional mechanism—GDL, NLC, and NLSC— good coordination not only among the public for coordination and consultations on logistics sector, but also between the public and the issues and challenges as well as formulation private sector. Figure 4 shows an overview of the of priorities and actions. A royal decree hereto coordination and collaboration of stakeholders was issued by the end of November 2017. The in Cambodia. NLC will involve all major stakeholders from the public and private sector and will meet once a The IDP emphasizes the importance and need year. The NLSC, which will officially monitor this for the elaboration of a Logistics Master Plan process, will meet twice a year. The establishment to support economic transformation and of the GDL, NLC, and NLSC has helped address development in Cambodia. The Logistics Master important issues for the improvement of Plan should contain the development of a efficiency in the national logistics system. This comprehensive strategy for the logistics sector not only involves transport infrastructure but in Cambodia and should be aligned with the also transport and logistics operations, trade ASEAN Transport Strategic Plan 2016–2025.11 facilitation, and customs and other inspection agencies along the trade supply chains within COORDINATION OF THE 6.2  Cambodia. In the Cambodian context, these PUBLIC AND PRIVATE SECTOR institutional arrangements are complementary IN LOGISTICS to the existing setups and committee, especially the public and private dialogue that has been To develop and subsequently implement the led by General Department of Customs and Logistics Master Plan, Cambodia established an Excise (GDCE). 11 The ASEAN Transport Strategic Plan 2016–2025 aims to “establish an integrated, efficient, and globally competitive logistics and multimodal transportation system, for seamless movement of passengers by road vehicles and cargos within and beyond ASEAN,” and the ASEAN Connectivity 2025 which aims at lowering supply chain costs and improving speed of supply chains in each ASEAN member state. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 71 COORDINATION BETWEEN 6.3  inter-agency coordination, including the private sector to discuss, monitor, and evaluate CUSTOMS AND THE PRIVATE new and existing laws and regulations in the SECTOR transport and logistics service. In November In the last 10 years, the GDCE has made good 2017, a national logistics council and a national progress in building trust and confidence within logistics steering committee were established the business community. MEF Prakas 906 was as the consultative and decision-making forums issued in October 2009 for an establishment to deal with transport and logistics issues and of the Customs-Private Sector Partnership sector policy development. The Government is Mechanism (CPPM). After the official providing multiple platforms to discuss specific establishment of the Public Relations Unit within problems among the public and the private the GDCE on December 29, 2009, the CPPM sector. These include IDP, logistics (including was launched in January 2010 and aimed transportation), Customs, trade facilitation, and at further enhancing the investment climate so on. This is a very positive development. The and fair business. The CPPM is responsible for challenge is to also guarantee coordination enhancing coordination, cooperation, and among these different platforms by actively mutual understanding between the customs making relevant information available to all administration and the private sector, as well as relevant platforms. It also requires continuous for resolving all customs-related matters to the capacity development from civil servants. greatest possible extent before moving to other There is a trade-off between a more regulated dispute settlement bodies or to the government- logistics system, which requires a need private sector forum. The level of trust and to improve the licensing system and the confidence between the GDCE and the enforcement system, versus a more open business community has improved significantly. system that regulates only things that have to Cambodia also completed the rollout of the be regulated. The first one places pressure on Automated System Customs Data (ASYCUDA) capacity in the MPWT and resources and human to all major customs checkpoints to improve capital to develop and enforce. The second customs clearance by using risk management approach requires the minimum requirements techniques and selectivity operation in the with regard especially, for example, system to facilitate trade and target specific control of noncompliance. • Access to the market (qualitative criteria); The CPPM remains an important forum for • Access to the profession (certificates and border agencies and the business community to training); engage in dialogue on trade facilitation policy • Operational requirements notable with in Cambodia. The CPMM meets normally once regards safety and security (transport every year and all documentation, including equipment, dangerous goods); and agenda of the meeting, minutes of the meeting, new laws, regulations, and measures are made • Establishing ‘traffic’ rules. available online on the GDCE’s website. All documents of the fifth CPPM meeting, which As stated in the previous chapters, activities like took place on July 1, 2015, have been compiled freight forwarding and warehousing do not need into one publication. specific legislation and can be considered as ‘free occupation’. In most countries, the industry 6.4 CONCLUSION associations have set criteria for its member companies and a self-regulatory system has The Government of Cambodia is working been created. The FIATA, for instance, has set very hard and has made good progress in minimum standards for the profession of freight establishing institutional structures to improve An Assessment of the Legal and Regulatory Framework for 72 the Logistics Sector in Cambodia forwarders and many national associations of • Setting clear criteria on operations (fee freight forwarders are providing standardized structure/user charge, transparency and training programs for their members based accessibility of information, traffic rules, on these minimum standards. Often, they also safety and security requirements, liability and have a code of conduct for their members, insurance) which is related to business operations. A more • Developing and enforcing regulations open system, with clear qualitative criteria for market entry (with no quantity limitations), There are some bottlenecks that need to be may stimulate a competitive and efficient solved in developing a sound and sustainable logistics system, under clear and enforced legal and regulatory system. Legislation is not rules when it comes to safety and security. To always uniformly known, applied, and enforced, support policy goals in the field of multimodal although considerable progress is being made in transport and especially the promotion of the making laws and regulations more transparent. use of railway and water transport, specific The starting points and advice for regulatory stimulation programs could be adopted, with reform are the following: specific rules and regulations or exemptions to them (for example, tax reduction). The modal • Improve the process of development, laws, as analyzed and described, contain the implementation, monitoring, and evaluation basics needed and are in line with international of laws and regulations and include conventions and agreements. Additions have stakeholder consultation. to be made especially in areas like the transport • Do not overregulate and regulate only what of dangerous cargoes. needs to be regulated. In discussion with the MPWT, and in the • Rules and regulations need to be in line with consultation meeting, it was concluded that this (multimodal) transport and logistics national open approach is supported by the Government policy goals and in compliance with bilateral, and industry. Some progress has been made in regional, and international agreements. improving the legal and regulatory framework in the transport and logistics sector over the last • Rules and regulations need to be simple and 10–15 years and in developing draft laws for understandable and complex sets of rules most relevant sectors, but at a very slow pace. need to be avoided. Some of these draft laws have reached the final • Develop guidelines/administrative guidance stage of adoption and implementation. The and structures for its implementation and main challenges remain in the following: enforcement. • Developing a national integrated sustainable • Institutionalize interaction with stakeholders logistics strategy and monitor implementation and impact of • Further liberalizing port, shipping, and logistics the rules and regulations. services There is a tremendous need for further capacity • Developing/implementing specific laws with development of enforcement officers, customs regard to railway, ports, inland waterway clearing agents, and transport and logistics transport, maritime, and dangerous goods operators. A major part of all documentary (ADR/ADN) requirements for transport and logistics operations can still only be fulfilled on paper • Introducing more qualitative (minimum) and not electronically, thus resulting in longer criteria for access to the transport/logistics waiting times, more mistakes, and more costs. market and to the profession An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 73 74 ANNEX 1. SUMMARY MATRIX OF LEGAL AND REGULATORY PRIORITY ACTIONS FOR THE CAMBODIA LOGISTICS MASTER PLAN Sector/Reform Areas Priority (high, Main Gaps Identified Good International Practices Time Line (short, medium, low) and Standards to be Adopted medium, and long terms) the Logistics Sector in Cambodia Road transport Define qualitative criteria for Medium Not existent yet. Introduce qualitative criteria to the Medium term access to the profession of The present low entrance requirements licensing regime of road transport road transport operator. are not conducive for the development operators in Cambodia, such as good of an efficient and safe professional road repute, financial standing, and a CPC for transport sector. the road transport operator. An Assessment of the Legal and Regulatory Framework for Introduction of a CPC for High Not existent yet. It is recommended to introduce an Short term road transport drivers. There are almost no requirements for the additional requirement to the profession profession of road transport driver, which of road transport driver, a so-called CPC, are needed to develop an efficient, safe, in addition to the required driving license. and secure road transport sector The measure will also contribute to the increase of the quality of road transport services and improve road safety. Setting up a national High Improvement of the existing system. Overloading is a real problem in Short term coordinated system for Cambodia, like in many other countries. control and inspection of It is recommended to make the system overloading. of control and inspection of loads at weighbridges more efficient by setting up a more coordinated and efficient system of inspection at weighbridges along the main roads and at ports, terminals, and logistics centers. Road transport agreements High Improvement of the existing system. Short term concluded within the Not all elements of the regional and framework of ASEAN and bilateral road transport agreements are GMS-CBTA should be transposed in national legislation. transposed into national legislation of all member states of ASEAN and GMS and be enforced as well. Railway transport Draft a Law on Railway Medium Not existent yet. Railway transport This is presently not really urgent but Medium term Transport. is currently guided by inadequate may become necessary if in particular secondary legislations and concession international railways are developed in agreement the future with links to Thailand, Lao PDR, and Vietnam. Apply RID, under the Medium Not existent yet. It is challenging for RID, under the guidance of OTIF, is good Medium term guidance of OTIF for Cambodia to enforce RID if no regulation practice. domestic railway transport is enacted and it also presents risks to of dangerous goods. Cambodia and its compliance with international good practices. Port, maritime transport, and inland waterway transport Acceleration of the process High Draft laws are partly prepared and partly Compliance with international regulations Short term of developing legislation in under preparation. The Council of Ministers set by international organizations such as the field of ports, maritime is to approve the draft laws and detailed the IMO is urgently needed. transport and inland time frames are not known. waterway transport. Multimodal transport Develop a Law on High Not existent yet. Lack of a national law This law will provide extra legal protection Short term Multimodal Transport. on multimodal transport in Cambodia to the MTO with regard to liability, has constrained its compliance with the particularly in situations when juridical ratified ASEAN Agreement on Multimodal enforcement of irregularities in business Transport. While Cambodia does not have and trade is still a challenge. a system to authorize and recognize the MTOs registered in other member states, the Logistics Sector in Cambodia An Assessment of the Legal and Regulatory Framework for its operators are also not yet widely recognized by any of the other member 75 countries Transpose the ASEAN High Not implemented yet. The MTOs do This law will provide legal protection to Short term 76 Framework Agreement on not have clear legal protection. Will be the MTO in terms of liability, particularly in Multimodal Transport from enforced later on. situations when juridical enforcement of 2005 into national legislation. irregularities in business and trade is still a challenge. Freight forwarding If there is a Law on High Multimodal Transport regulating the liability of the MTO, there is no need the Logistics Sector in Cambodia to adopt a Law on Freight Forwarding if the freight forwarder is considered to be an agent and not a principal. Cross-cutting priorities in current institutional arrangements Develop a national High n integrated approach toward a national Sustainable logistics should take into An Assessment of the Legal and Regulatory Framework for integrated and sustainable sustainable logistics strategy is not existent account economic aspects (growth, logistics strategy. yet. efficiency, competitiveness, employment, and so on); environmental aspects (climate change, air quality, noise, land use, biodiversity, waste, and so on); and social aspects (safety, security, health, access, equity, and so on.). Improve the process High The process of development of laws and Short term of the development, regulations is too long. implementation, monitoring, and evaluating of laws and regulations.  RAFT INTERNATIONAL ANNEX 2. D AGREEMENT ON MULTIMODAL TRANSPORT 1. OBJECTIVES multimodal transport contract and assumes responsibility for the performance thereof by 1.1. The Parties shall endeavor to harmonize issuing a document of multimodal transportation their legislation to implement a unified legal either in negotiable or non-negotiable form. framework using the definitions and based upon the concepts contained herein. Carrier means the person who actually performs or undertakes to perform the carriage, or 1.2. For this purpose, the Parties may set up a part thereof, whether he is identical with the Legal Working Group, which will adhere to the multimodal transport operator or not. concepts and definitions contained herein to work out a legal instrument, (“the Instrument”) Consignor means the person who concludes mandatory for the signatories thereto. the multimodal transport contract with the multimodal transport operator. 2. SCOPE Consignee means the person entitled to receive 2.1. The Instrument reached by means of the goods from the multimodal transport this Agreement shall be the basis for further operator. development of a legal framework for Multimodal transport document means a multimodal transport performed between document evidencing a multimodal transport places in two Parties, if the place of taking in contract issued in a negotiable or a non- charge or delivery of the Goods as provided for negotiable form (consignment note of in the multimodal transport contract is located multimodal transportation, multimodal transport in a Party. waybill and any other legally accepted form), 2.2. The contracting parties may decide to whereby the MTO has accepted the goods apply the provisions of the Instrument in full or for carriage and assumed the responsibility to in part for carriage performed involving one or deliver the goods as agreed thereby. several modes of transport, with issuance of a Delivery means the handing over of the goods single transport document or without it. to the consignee, or the placing of the goods 3. DEFINITIONS at the disposal of the consignee in accordance with the multimodal transport contract or For the purposes of the Instrument, the following with the law or usage of the particular trade definitions shall bear the meanings as follows: applicable at the place of delivery, or the handing over of the goods to an authority or Multimodal transport means a goods other third party to whom, pursuant to the law or transportation performed by at least two regulations applicable at the place of delivery, different modes of transport. the goods must be handed over. Multimodal transport contract means a single Special Drawing Right (SDR) means the unit contract for the carriage of goods by at least of account as defined by the International two different modes of transport. Monetary Fund. Multimodal transport operator (MTO) means Goods means any property, including live a natural or legal person who concludes a animals as well as containers, pallets or similar An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 77 articles of transport or packaging not supplied • the MTO shall be responsible for any other by the MTO, irrespective of whether such person of whose services he makes use for property is to be or is carried on or under deck. the performance of the contract, as if such acts and omissions were his own 4. DOCUMENTS 6.3. The Instrument shall also provide that the The form of the multimodal transport document MTO may undertake to perform or to procure used under the Instrument, may be advised by the acts necessary to ensure delivery of the the Governments of the Parties. goods. The Government of one Party shall agree to 6.4. The Instrument shall provide the following recognize the form of the multimodal transport modalities of delivering the goods to the documents advised by the Government of consignee: any other Party, so as to avoid impeding the performance of a multimodal transportation (a) when the multimodal transport (MT) performed between the Parties. document has been issued in a negotiable form “to bearer”, to the The Legal Working Group set up to develop person surrendering one original of the the Instrument shall develop and recommend document, or for use by the Parties the model document for multimodal transportation, referred to above (b) when the MT document has been issued as the multimodal transport document, in in a negotiable form “to order”, to the accordance with the United Nations layout key person surrendering one original of the document duly endorsed, or 5. INSURANCE (c) when the MT document has been issued 5.1 The Parties shall endeavor to provide a legal in a negotiable form to a named person, basis to enable the MTO to: to that person upon proof of his identity and surrender of one original document; • insure his public liability risks in connection if such document has been transferred with the transportation process “to order” or in blank the provisions of (b) • insure his liability in connection with the above apply, or goods in his charge (d) when the MT document has been issued 5.2. The Parties shall however leave it to the in a non-negotiable form, to the person discretion of the MTO to insure his liability or named as consignee in the document the goods in his charge, depending on the upon proof of his identity, or contractual arrangements with the client. (e) when no document has been issued, to RESPONSIBILITIES OF THE 6.  a person as instructed by the consignor MULTIMODAL TRANSPORT or by a person who has acquired the consignor’s or the consignee’s rights OPERATOR under the multimodal transport contract 6.1. The Instrument shall provide that the period to give such instructions. of responsibility of the MTO shall include the whole time when the MTO has the goods in his LIABILITY OF THE MULTIMODAL 7.  charge, until their delivery. TRANSPORT OPERATOR 6.2. The Instrument shall also provide that: The Instrument shall provide that: • the MTO shall be responsible for acts and 7.1. The MTO is liable for loss resulting from loss of, omissions of his servants or agents, when any or damage to, the goods as well as from delay such servant or agent is acting within the in delivery, unless the MTO proves that no fault scope of his employment or neglect of his own, his servants, agents or sub- An Assessment of the Legal and Regulatory Framework for 78 the Logistics Sector in Cambodia contractors has caused or contributed to the 8.4. The MTO is not entitled to the benefit of loss, damage or delay in delivery. the limitation of liability if it is proved that the loss, damage or delay in delivery resulted from 7.2. Delay in delivery occurs when goods have an act or omission of the MTO done with the not been delivered within the time expressly intent to cause such loss, damage or delay or agreed upon or, in the absence of such recklessly and with knowledge that such loss, an agreement, within the time it would be damage or delay would probably result. reasonable to require of a diligent MTO, having regard to the circumstances of the case. THE RIGHT OF LIEN 9.  7.3. If the goods have not been delivered within The MTO shall have the right of lien on the goods 90 consecutive days following the date of and documents in his charge, until the MTO is delivery, the claimant may, in the absence of fully paid for the transportation and reimbursed evidence to the contrary, treat the goods as lost. for other costs incurred in connection with the transportation, unless otherwise agreed by the LIMITATION OF LIABILITY OF 8.  Contract. THE MULTIMODAL TRANSPORT OPERATOR 10. LIABILITY OF THE CONSIGNOR The Instrument shall provide that: The Instrument shall provide that: 8.1. If the nature and value of the goods have 10.1. The consignor is deemed to have been declared by the consignor before the guaranteed to the MTO all information given goods have been taken in charge by the MTO with respect to the goods, and, in particular, and inserted with the agreement of the MTO in wherever applicable, their dangerous the multimodal transport document, the MTO character. shall be liable in full for the loss of the goods and shall be liable for the goods damaged in 10.2. The consignor shall indemnify the MTO the amount equivalent to the value of goods against any loss resulting from inaccuracies in damaged, or, in case where the damage to the or inadequacies of the particulars referred to goods is such that none of the goods can be above. recovered, the MTO shall have to compensate in full for the goods lost. The value of the goods 10.3. The consignor shall remain liable even if shall be deemed to be the Invoice value. the multimodal transport document has been transferred by him. 8.2. In all other cases when the nature and value of the goods have not been declared by 10.4. The right of the MTO to such indemnity shall the consignor, the MTO’s liability for loss of, and in no way limit his liability under the multimodal damage to the goods shall be limited to 8.33 transport contract to any person other than the SDR per kilogram of gross weight of the goods consignor. lost or damaged. 11. TIME-BAR 8.3. Liability for loss resulting from delay in delivery, and for consequential loss or damage 11.1 The time-bar set for all purposes of the other than loss of, or damage, to the goods Instrument, shall be one year. is limited to 5 percent of the transportation 11.2 Time begins to run for the purposes of the contract price for every day of delay. However, time bar on the day following the day of delivery in any event, the liability of the MTO for the of the goods or the date when the goods should delay in delivery of goods cannot exceed the have been delivered. amount of the transportation cost agreed in the multimodal transport contract. An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 79 12. THE SCOPE OF THE INSTRUMENT Limitation of liability Where neither other international agreements The framework agreement at clause 7 and conventions nor the Instrument make recognizes the existing practice in the region specific provisions, national law and the of full liability based on the value of goods lost provisions of the contract shall apply. or damaged but it is envisaged that this will be the case only where the MTO has agreed to Explanatory Note regarding proposed enter the value in the MT document and the agreement on Multimodal Transport customer has agreed to pay a surcharge on the normal rate. In all other cases the agreement Implementation may follow the European Union initiative on MT The proposed framework agreement on transport in proposing a uniform limited liability multimodal transport is intended to give the regime but with a lower limit of 8.33 SDRs per parties flexibility in terms of implementation kilo (the limit under the CMR) thought to be strategy. It should allow those states who wish appropriate for the region. Any working group to proceed rapidly to adopt its provisions set up to implement the agreement may wish to without the need to achieve consensus. States review the suitability of this limit and its potential could incorporate the provisions in bilateral insurability. agreements, or three or four pilot states For simplicity, calculation of the value of the might decide to incorporate them in a simple goods is based on the invoice value, as a multilateral agreement. sales invoice will normally be available. Any Cambodia could establish a legal working group working group may wish to debate whether the to perfect and implement the agreement. The market value at point of origin or destination, framework is intended for international use. replacement cost, or some other measure of However, elements from the framework could value should be used as is the case in some also be used as guidelines for regulating liability other instruments. in their domestic multimodal transport. Documentation Definitions The framework agreement at clause 6 avoids The definitions used in the framework agreement imposing a uniform transport document but are taken from the United Nations Conference requires mutual recognition of such documents on Trade and Development (UNCTAD)/ by states where they are not uniform. It hopes, International Chamber of Commerce (ICC) however, that any working group set up would Rules, modified to fit the context of the region attempt to agree a uniform transport document where necessary. for use with the agreement. Such a document should adopt the physical format as elaborated Basis of liability by the United Nations (the United Nations layout The proposed framework agreement provides a key) so as to be compatible with commonly basis of liability for the MTO in clause 5 whereby recognized software for electronic completion the MTO accepts responsibility as a principal of documents whether as printed paper from door to door. This is in line with policy set documents or as electronic virtual documents. out in in the Multimodal Transport Convention Lien of 1980. In addition, this is compatible with the UNCTAD/ICC Rules upon which the FIATA Bill of A simple lien is included in clause 8 as liens may Lading (FBL) is based and, for instance, with the not be available under all national laws. Any current draft framework for an European Union working group set up may want to consider Directive or Regulation on liability in multimodal giving the MTO a stronger lien for example as transport. provided in the FBL terms. An Assessment of the Legal and Regulatory Framework for 80 the Logistics Sector in Cambodia Consignor liability MTO than the nine-month limit in the UNCTAD/ ICC Rules and that of many Western European In line with the expressed wishes of Counterparts MTOs. However, even in Western Europe, the in discussions and in the earlier draft TA, quite nine-month limit is not always enforceable, strict duties are placed on consignors with and it was felt that the one year limit would be regard to information furnished by them. more appropriate to existing conditions in the Time limits for claims region. Any working group may wish to review this provision. These have not been included as it is believed that the national Civil Codes deal adequately Conclusion with giving notice of loss or damage to the The framework has been developed to allow the carrier. However, if any working group wished possibility of early implementation of provisions to include an international provision, the largely consistent with existing practices in the Contractor would recommend taking the region while being largely compatible with provision available in clause 9 of the UNCTAD/ practices in neighboring areas. It represents a ICC Rules. compromise. As its terms are kept as simple as Time bar possible, it should make it much easier to update in the future than a more complex agreement The time bar has been set at one year, in line containing may cross references and details. with most national and international legislation. It should be noted that this is less favorable to the An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 81  ROPOSAL FOR MODEL ANNEX 3. P NATIONAL LAW ON FREIGHT FORWARDING CHAPTER 1. GENERAL PROVISIONS 2. The parties to the Contract may determine the terms of the Contract not stipulated by Article 1. Definitions this Law, other laws of [XYZ] or other normative “Contract” means the contract of freight legal acts adopted in accordance with the Civil forwarding concluded by the Forwarder and Code of the Republic of [XYZ]. Customer. 3. The provisions of this Law shall not cover Freight “Customer” means any natural or legal person Forwarding in the field of postal communication. at whose request or on whose behalf the Forwarder undertakes its professional activities CHAPTER 2. THE RIGHTS AND or provides advice, information or services. DUTIES OF THE FORWARDER AND “Delivery” means the handing over of the goods THE CUSTOMER to the consignee, or the placing of the goods Article 3. The Rights of the Forwarder at the disposal of the consignee in accordance with the Contract or with the law or usage of 1. The Forwarder shall be entitled to undertake the particular trade applicable at the place of any or all of its services as an agent or as a delivery, or the handing over of the goods to principal. a third party to whom, pursuant to the law or 2. When the Forwarder contracts as principal for regulations applicable at the place of delivery, any services, it may perform such services itself the goods must be handed over. or it may subcontract the whole or any part of “Freight Forwarding” means the provision such services as stipulated in the Contract. of advice, information or services for the 3. Unless the Contract of freight forwarding organization of carriage of goods by any type of stipulates otherwise, the Forwarder may, in the transport and the drawing up of the documents interest of the Customer, choose or change of carriage, documents for Customs purposes the type of transport, the route of the carriage and other documents necessary for effecting of the goods, or the sequence of the carriage the carriage of goods. of the goods by various types of transport. “Forwarder” means a natural or legal person In so doing the Forwarder must immediately which undertakes Freight Forwarding (whether notify the Customer about changes made in as an agent or a principal). accordance with this sub-article. “Services” means any activity undertaken by 4. Except as provided in Article 3(3) above, the the Forwarder in the course of its business on Forwarder may deviate from instructions of the behalf of the Customer. Customer only if ARTICLE 2. SCOPE OF (i) this becomes necessary in the interests of the Customer due to unforeseen APPLICATION circumstances, or 1. This Law regulates Freight Forwarding activities (ii) the Customer’s instructions are in the [XYZ] inexact or incomplete, or An Assessment of the Legal and Regulatory Framework for 82 the Logistics Sector in Cambodia (iii) the Customer’s instructions do concluded by the Forwarder in the not conform to the Contract and name of the Customer, on the basis the Forwarder cannot obtain the of a power of attorney issued by him, Customer’s further instructions or in accordance with the Contract. consent within a reasonable time. (iv) 4. The Forwarder may not conclude in 5. If incomplete information is submitted, the the name of the Customer a contract Forwarder must request the necessary additional of insurance of the goods unless that data from the Customer. The Forwarder may is directly stipulated by the Contract. abstain from fulfilling the Services stipulated by the Contract pending the submission by the Article 6. The Duties of the Customer Customer of the necessary documents, and also 1. The Customer must promptly submit to the information about the properties of the goods, Forwarder full, exact and accurate information about the conditions for their carriage and about the properties of the goods, about other information necessary for the fulfilment of the conditions for their carriage and other the Forwarder’s Services. information necessary for the fulfilment by the Forwarder of the Services stipulated by the 6. The Forwarder may check the accuracy of Contract and also the documents necessary the documents submitted by the Customer, for fulfilling Customs, sanitary and other types of and also the information about the properties of state control. the goods, the conditions for their carriage and other information necessary for the fulfilment by 2. The Customer must pay the remuneration the Forwarder of the Services stipulated by the due to the Forwarder In accordance with the Contract. procedure stipulated by the Contract and also reimburse the expenses incurred by the Article 4. The Rights of the Customer Forwarder in the interests of the Customer. 1. The Customer may: CHAPTER 3. LIABILITY OF THE (i) request from the Forwarder relevant FORWARDER AND THE CUSTOMER information about the carriage of the goods; Article 7. General Basis of Liability of the Forwarder as agent (ii) give instructions to the Forwarder in accordance with the Contract; 1. When acting as agent, the Forwarder shall be liable to the Customer, subject to sub-articles 2 (iii) If the Contract so stipulates, choose and 3 below and to the limits of liability set out the itinerary of travel of the goods in Article 9 below, for loss resulting from loss of and the type of transport. or damage to the goods as well as from delay Article 5. The Duties of the Forwarder in Delivery if it fails to exercise a reasonable degree of care, diligence, skill and judgement (i) 1. The Forwarder must provide Services in the performance of the Contract. in accordance with the Contract and with a reasonable degree of care, 2. When acting as agent, the Forwarder shall be diligence, skill and judgement. responsible for acts and omissions of its servants and agents, when any such servant or agent is (ii) 2. When accepting the goods, the acting within the scope of his employment. Forwarder must issue a certificate of receipt to the Customer. 3. When acting as agent, the Forwarder shall not be liable to the Customer for acts and (iii) 3. When acting as agent, the omissions of third parties, such as, but not limited Forwarder must also submit to the to, carriers, warehouse operators, stevedores, Customer the originals of the contracts Port Authorities and other Forwarders, unless the An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 83 Forwarder has failed to exercise a reasonable 6. Delay in Delivery occurs when the goods degree of care, diligence, skill and judgement have not been delivered within the time in selecting, instructing or supervising such third expressly agreed upon by the parties to the parties on behalf of the Customer. Contract or, in the absence of such agreement, Article 8. General Basis of liability of the within a reasonable time, having regard to the Forwarder as principal circumstances of the case. 1. The Forwarder shall be liable as a principal Article 9. General Basis of liability of the Customer i) when it performs Services by itself using its own facilities, installations or transport means, or 1. For non-fulfilment or improper fulfilment of the ii) when, by issuing its own transport document it duties stipulated by the Contract and by this has made an express or implied undertaking to Law, the Customer shall be liable on the basis assume liability as a principal. and in the amount determined in accordance with Chapter [XYZ] of the Civil Code of the 2. The period of responsibility of the Forwarder, Republic of [XYZ] and this Law. when acting as a principal, shall extend from the time when it takes the goods in its charge Article 10. Limitation of liability of the until their Delivery. Goods shall be deemed to Forwarder be taken in charge when they are handed over 1. If the nature and value of the goods have to and accepted for carriage by the Forwarder. been declared by the Customer before the 3. When acting as a principal, the Forwarder goods have been taken in charge by the shall be responsible for acts and omissions of Forwarder and inserted with the agreement of its servants and agents, when any such servant the Forwarder in the transport document, the Forwarder shall, subject to establishment of its or agent is acting within the scope of his liability in accordance with Articles 6 or 7 hereof, employment and shall also be responsible for be liable in full for the loss of the goods and shall any other person of whose services it makes use be liable for goods damaged in the amount for the performance of the contract as if such equivalent to the value of the goods damaged, acts of omissions were its own. or, in cases where the damage to the goods is such that none of the goods can be recovered, 4. When acting as a principal, the Forwarder the Forwarder shall have to compensate the shall be liable to the Customer, subject to the loss in full. limits of liability set out in Article 9, for loss resulting from loss of or damage to the goods as well as 2. In all cases when the nature and value of the goods have not been declared by the from delay in Delivery unless it proves that no Customer in accordance with sub-article 1 fault or neglect of its own, its servants agents or hereof, the Forwarder’s liability subject to the sub-contractors has caused or contributed to provisions of Articles 6 or 7 hereof for loss of, or the loss, damage or delay in Delivery. damage to the goods shall be limited to 2 [8.33] SDRs per kilogram of gross weight of the goods 5. However, if the Forwarder proves that a lost or damaged unless a higher amount has violation of an obligation has been caused been reimbursed by the person for whom the by breach of the contract of carriage and Forwarder is responsible. the stage of transport where the loss, damage or delay occurred is known, the liability of the 3. In addition to compensation for loss or damage in accordance with sub-articles 1 or 2 Forwarder shall instead be determined on hereof, the Forwarder shall refund any Contract the basis [and in the amount] set by the rules remuneration paid by the Customer in full in applicable by law to that stage of transport. case of total loss of the goods, and in proportion An Assessment of the Legal and Regulatory Framework for 84 the Logistics Sector in Cambodia to the loss sustained in the case of partial loss, in writing the general nature of such loss or but no further compensation shall be payable. damage, is given to the Forwarder or its agent at the time of handing over of the goods to 4. Liability for loss resulting from delay in Delivery the consignee indicated in the Contract, such shall be limited to 5 percent of the Contract handing over shall be prima facie evidence of price for every day of delay. However, in any the Delivery of the goods in good order and event, the liability of the Forwarder for delay condition. may not exceed the amount of the Contract price. 2. Where the loss or damage is not apparent, the provisions of paragraph 1 of this Article shall also 5. In the case of all other losses whatsoever apply if notice in writing is not given within [6] and howsoever arising, the Forwarder’s liability [15] [30] consecutive days after the day when subject to the provisions of Articles 6 or 7 hereof the goods were handed over to the consignee. shall be limited to the lesser of The date of notification to the Forwarder shall (i) the loss incurred, or be deemed to be the date of receipt. (ii) 2 [8.33] SDRs per kilo of the gross Article 14. Forwarder’s lien weight of any goods subject to the 1. Unless otherwise agreed in the Contract, the Contract, or] Forwarder shall have a general lien to distrain (iii) 25,000 SDRs [50,000] [75,000] on goods, and any documents relating thereto, that are in its possession for any amount due at 6. The value of goods shall be deemed to be any time to the Forwarder from the Customer in their Invoice value. relation to Services provided to the Customer. In this case the Customer shall also pay the Article 11. Loss of the right to limit liability expenses associated with the distraint on the 1. The Forwarder shall not be entitled to the property, including but not limited to storage benefit of the limits of liability provided in this costs. Law if the Customer proves that loss, damage Article 15. Claims and Actions Made against or delay in Delivery resulted from an act or the Forwarder omission of the Forwarder done with intent to cause such loss, damage or delay or recklessly 1. The right to make a claim and action against and with knowledge that such loss, damage or the Forwarder shall be enjoyed by: delay would probably result. (i) the Customer or a person authorized Article 12. Agreement on Changing the by him to make a claim and action, Measure of Liability of the Forwarder (ii) the consignee indicated in the 1. The Contract may stipulate increases in Contract, the responsibilities and limits of liability of the (iii) the insurer that has acquired the right Forwarder compared to those established by of subrogation. this Law. 2. The claim shall be made in writing. Documents 2. Any agreement on the elimination or reduction confirming the right to make a claim and of the liability of the Forwarder established by documents confirming the quantity and value this Law shall be null and void. of the goods (originals or copies thereof attested according to established procedure) must be CHAPTER 4. CLAIMS AND ACTIONS attached to the claim. Article 13. Notification of Loss or Damage to 3. The value of the Special Drawing Right (SDR) the Goods in units of the [insert national currency] shall be calculated in accordance with the method 1. Unless notice of loss or damage, specifying An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 85 for determining the value applied by the the UNCTAD/ICC Rules, FBL terms and so on. International Monetary Fund. The conversion into This should enable forwarders to offer liability [insert national currency] shall be effected on options to their customers and would enable the date of the rendering of a court judgement insurers to set premiums according to the level or on the date established by agreement of the of risk accepted by the forwarder. The liability parties. of the forwarder for errors and omissions is also limited to an amount which should be capable Article 16. Limitation of Action of being insured. 1. The time-bar set for all purposes of this Law Options left for further discussion shall be one year. In Article 10.2, the proposed general limit 2. In the case of loss, damage or delay to goods, is 2SDRs per kilo, following the precedent time shall begin to run for the purposes of the found in the UNCTAD/ICC Rules and in many time-bar on the day following the day of delivery European forwarding conditions. This is based of the goods or the date when the goods should on the maritime precedent of The Hague Visby have been delivered. With respect to other Rules and reflects the fact that a substantial losses, time shall begin to run from the date of proportion of Western international trade the event or occurrence alleged to give rise to includes a maritime element. In Cambodia, the a right to make a claim against the Forwarder. relative importance of land-based transport is probably higher and for this reason it could CHAPTER 5. ENTRY INTO FORCE be appropriate to consider a limit of 8.33 SDRs Article 17. Entry into Force per kilo based on the CMR Convention limits. However, the insurance costs of forwarders’ 1. This Law shall enter into force from …. [enter liability insurance would be higher with the provision according to Civil Code] higher limit and further research on this issue is 2. The provisions of this Law shall be applicable recommended before a decision is taken. to those rights and obligations which arise after In Article 10.5, dealing with compensation for its entry into force. professional errors and consequential losses, Explanatory memorandum on Model it is considered necessary to set a very clear Forwarding Law maximum limit so that the liability can be insured at a realistic cost. The suggestion has been Liability under the proposed Model law made of 25,000 SDR as the upper limit, which would be one third of the limit found in some The model law makes a distinction between Western European examples such as the UK and the forwarder acting as an agent with an could be considered more appropriate to the obligation to place the Customer into direct present circumstances of Cambodia. However, contractual relationships with service providers even this limit may be thought too high and and the forwarder acting as principal exercising should be verified for suitability by each state. its discretion on how the contract will be If the square brackets on 9(5)(ii) were removed performed. The forwarder as agent is only so that the provision was definitely included in liable for its failings in carrying out professional the model law, the effect would be to reduce services. The forwarder as principal is liable the limit still further in the case of small quantities for failure to deliver the service package it of goods carried (less than a container-load). has offered and in particular the delivery of Counterparts may feel that one overall limit of a the goods to the consignee. Whatever the maximum sum is more appropriate to these kinds role undertaken there is, however, a common of loss than one based on a limit per kilo. A further basis for compensation of the Customer based option would be to retain only a limit per kilo, either on full compensation for loss or damage but this would result in very low compensation (where the value is declared) or alternatively indeed for professional errors when only small on limited liability broadly compatible with An Assessment of the Legal and Regulatory Framework for 86 the Logistics Sector in Cambodia quantities of goods were involved. It should be is so long as to be liable to encourage fraud by stressed that this section of the model law deals customers and for that reason would not be with situations other than loss or damage to the recommended by the Contractor. A period of goods themselves, where a weight-based limit is 7 days as provided for in the CMR Convention usually considered fair. might be considered as a good workable solution and the 15-day period in the Hamburg In Article 13.2, various options for the time limit Rules UNCTAD/ICC Rules as a compromise for notification of loss or damage are left for solution. Again, it will be necessary for individual decision. The UNCTAD/ICC Rules suggest 6 states to decide on their priorities. days, the Hamburg Rules 15 days, and so on. It is suggested that a notification period` of 30 days An Assessment of the Legal and Regulatory Framework for the Logistics Sector in Cambodia 87 CHAPTER THREE A MONITORING AND EVALUATION FRAMEWORK FOR LOGISTICS IN CAMBODIA A Monitoring and Evaluation Framework for Logistics in Cambodia 89 TABLE OF CONTENTS EXECUTIVE SUMMARY........................................................................................................................... 93 1. INTRODUCTION.................................................................................................................................. 97 2. CONCEPTUAL FRAMEWORK FOR MONITORING AND EVALUATION OF LOGISTICS...................... 99 3. APPROACH TO LOGISTICS PERFORMANCE MONITORING IN CAMBODIA................................... 109 METHODOLOGY AND DATA COLLECTION .............................................................................. 110 3.1  CAMBODIA LOGISTICS COST OVER SALES............................................................................... 111 3.2  4. LOGISTICS PERFORMANCE IN CAMBODIA...................................................................................... 114 COMPARING THE RESULTS AGAINST THE WORLD BANK’S LPI................................................. 115 4.1  5. OUTSOURCING AND LOGISTICS SERVICE PROVIDER CAPABILITY................................................. 117 6. LOGISTICS HUMAN RESOURCES....................................................................................................... 120 7. MONITORING AND EVALUATION FRAMEWORK FOR CAMBODIA LOGISTICS MASTER PLAN....... 121 8. SUMMARY AND RECOMMENDATIONS............................................................................................ 130 REFERENCES........................................................................................................................................... 132  ROPOSED INTEGRATED M&E FRAMEWORK....................................................................... 133 ANNEX 1: P  SERS OF LOGISTICS SERVICES SURVEY............................................................................. 139 ANNEX 2: U  OGISTICS SERVICE PROVIDER SURVEY.............................................................................. 145 ANNEX 3: L LIST OF FIGURES Figure 1: Logistics system components..................................................................................... 100 Figure 2: Costs and time to export............................................................................................ 113 Figure 3: Decomposition of land logistics costs between Bangkok and Phnom Penh...... 113 Figure 4 Decomposition of land transport costs between Sihanoukville and Phnom Penh................................................................................................................. 113 Figure 5: Logistics performance dimensions............................................................................ 114 Figure 6: Outsourcing ratio......................................................................................................... 117 Figure 7: Service-Level Agreement........................................................................................... 117 Figure 8: Most common problems faced by LSPs................................................................... 119 Figure 9: Logistics skills development in Cambodia perceived by manufacturing firms.................................................................................................... 120 Figure 10: Logistics skills development in Cambodia perceived by LSPs............................... 120 A Monitoring and Evaluation Framework for Logistics in Cambodia 91 LIST OF TABLES Table 1: Scope of macro-level indicators for a logistics M&E system...................................... 101 Table 2: Cambodia’s baseline performance............................................................................. 102 Table 3: Existing baseline indicators in 2017 for Cambodia’s logistics M&E framework........ 104 Table 4. High-level indicators for Cambodia.............................................................................. 105 Table 5: Cambodia SMART Logistics 2025 focal themes........................................................... 106 Table 6: Cambodia logistics development strategies............................................................... 107 Table 7: M&E system KPIs............................................................................................................... 109 Table 8: Logistics costs over sales by components (%)............................................................. 111 Table 9: Logistics costs over sales by sectors (%)........................................................................ 112 Table 10: Value of logistics costs (US$)........................................................................................ 112 Table 11: Comparing KPIs of logistics.......................................................................................... 114 Table 12: Comparative assessment of DIFOT............................................................................. 115 Table 13: Perceived performance of Cambodia’s logistics performance............................. 116 Table 14: Level of outsourcing (%)............................................................................................... 118 Table 15: Comparative assessment of logistics performance of service providers............... 118 Table 16: M&E framework for the proposed Cambodia Logistics Master Plan...................... 122 Table 17: Improvement target scores for Cambodia................................................................ 125 Table 18: Improvement targets for firm- and industry-level logistics performance................ 126 Table 19: Cambodia’s M&E framework with targets................................................................. 127 Table 20: Action plans for sustainability of Cambodia’s logistics M&E system...................... 131 Table 1.1: Four key dimensions..................................................................................................... 133 Table 1.2: Key monitoring indicators for M&E framework......................................................... 135 A Monitoring and Evaluation Framework for 92 Logistics in Cambodia EXECUTIVE SUMMARY averages. Irregular payments and bribes remain a serious issue in obtaining permits, certification, and inspections for industry traders and service providers. Despite huge investments in customs modernization and automation, the burden of Cambodia faces serious challenges in logistics customs procedures remains high and at the performance with indications that costs are alarming level for traders and services providers. higher and quality of logistics services lower than There are limited data available to monitor the regional peers. Establishing an accurate picture performance of logistics service providers (LSPs) of the logistics performance is hampered by a and shippers and consignees. In general, the lack of readily available data to monitor the logistics system of Cambodia is perceived as sector. Given that Cambodia has leveraged archaic, inefficient, ineffective, and costly to integration into the global marketplace with users. The available macro-level data are not continuous growth of trade volumes, there is a detailed enough to allow the assessment of much stronger need for a proper monitoring and the actual logistics services in a country. There evaluation (M&E) system to support transport is therefore a need for establishing a baseline and logistics strategic planning, evidence- of the logistics performance of manufacturing based policy making, and the monitoring of the firms and service operators in the Cambodian implementation of policies related to logistics. supply chains. Monitoring and evaluation are integral parts Measuring the performance of a logistics of policy development and implementation system from the user perspective offers valuable in the logistics sector. Monitoring focuses on insights. The users of logistics in a country are the activities and outputs, and evaluation the exporters, importers, manufacturers, and focuses on the outcome and goals through a traders. A monitoring framework with key set of appropriate indicators. Typically, at the performance indicators (KPIs) is designed to macro level, indicators are defined to cover keep track of the actual logistics performance four dimensions of a national logistics system: in the country. These KPIs focus on the actual (a) quality of transport and communication logistics capability of both users of logistics infrastructure, (b) efficiency and effectiveness services and LSPs covering three performance of public institutions and policy framework for dimensions: logistics cost, time, and reliability. trade and logistics, (c) quality and reliability However, obtaining data on these parameters of logistics services, and (d) performance and of performance often requires surveys of (a) competitive advantages of industry actors: manufacturers and other generators of demand shippers and consignees. and (b) freight forwarder and LSPs. Based on the available data, Cambodia has The results of the logistics user and service made some progress in improving logistics provider surveys conducted for this background performance. For instance, data from the study on M&E confirmed that Cambodia suffers 2017–2018 World Economic Forum (WEF) Report from significantly high logistics cost over point to improvements in the quality of road sales compared to Vietnam and Thailand. transport infrastructure (scored at 3.2 on a scale Cambodia’s logistics cost over sales is estimated from 1 to 7), port infrastructure and air transport at 20.52 percent, higher than Thailand (11.1 infrastructure (3.7) but also little improvement percent) and Vietnam (16.3 percent). In in the quality of railroad transport (1.6). The Association of Southeast Asian Nations (ASEAN), performance of institutional and policy Thailand has the lowest logistics cost over sales dimension remains relatively poor, especially while the Philippines has the highest logistics in terms of the legal framework for resolving cost at more than 27 percent. It is possible that disputes (2.9) and accessibility of regulations the archipelagic nature of the Philippines and (2.8). Efficiency and effectiveness of policy and Indonesia has a negative impact on logistics rules implementation also lag behind regional A Monitoring and Evaluation Framework for Logistics in Cambodia 93 cost as logistics activities tend to be more Reliability is the most important concern for expensive in islands countries. Logistics cost over export-oriented manufacturers in Cambodia. sales is defined to have four components: (a) Reliability is the primary concern of transport cost over sales, (b) warehousing cost manufacturing in the country with a share of 38 over sales, (c) inventory carrying cost over sales, percent of the overall logistics performance that and (d) logistics administration cost over sales. also includes time and cost dimensions. Lack In 2017, the value of logistics cost in Cambodia of reliability in a national logistics system has a can be estimated at US$1.96 billion of its total negative impact on the overall performance exports. of logistics in a country. Poor reliability forces manufacturers, producers, and traders in the Transport costs are the highest component of country to carry more inventory. The higher the logistics costs followed by inventory carrying inventory level, the higher the tied-up capital cost. Transport and warehousing cost in cost, thus affecting the overall logistics cost Cambodia is even higher than in Indonesia. This in the country. As such, reliability has to be means that reducing logistics cost in Cambodia given priority when policies are designed to is not just an issue of reducing transport cost. improve logistics performance. If reliability is not The high cost of inventory is a by-product of improved, then cost issues cannot yet be given unreliability in the Cambodian logistics system. priority in the country. At the end of the day, Another key issue is that logistics cost is driven by high costs tend to be further transferred back the sector in which the responding firm operates. to either customers or suppliers. In improving Firms that operate in high-value sectors will often logistics, cost is still important but the level of cost have lower logistics cost over sales compared is highly affected by the obtained reliability. with firms in lower-value sectors. Cambodia is performing relatively well in cash The survey also confirmed that informal charges conversion cycle (C2C) and delivery in full and levied by government agencies remain on time (DIFOT). A comparison of these KPIs significant. Informal charges were estimated at against selected ASEAN countries shows that about 48 percent of the logistics administration Cambodia’s C2C is shorter compared to other cost or represent about 4.38 percent of total countries. It is possible because the country is annual logistics costs in 2017. A decomposition still a cash economy where payment is often of these informal charges has been attempted made upon delivery of goods and services, to improve understanding of informal payments thus shortening cash flows. The country’s DIFOT as a burden to the trading community. These capability is slightly better than Indonesia. informal charges were confirmed by industry However, it is still one of the key weaknesses of stakeholders and logistic services providers and the Cambodian logistics system. The DIFOT level operators. Based on this estimate, the informal for automotive is the highest in Cambodia. This charges related to exports in Cambodia can is probably due to the nature of the automotive therefore be estimated at US$85,720,800 in industry where just-in-time practices are the 2017. Among others, trucking costs in fact norm. It should also be noted that the textile are competitive compared to neighboring and garment sectors have a relatively low DIFOT countries. Local logistics providers, however, level compared with Indonesia and Thailand have allegedly consolidated opaque practices but higher than Vietnam. This is interesting as this whereby they produce formal invoices to sector is still relatively competitive compared also cover the informal costs they incur when to Vietnam even though there is not much clearing goods at the border. The informal costs difference in terms of logistics costs/sales. Food are often hidden in lump-sum service contracts produce suffers from lower DIFOT compared between industry and services operators by with other selected ASEAN countries. which services operators would absorb all informal payments in their final prices presented An M&E framework for Cambodia’s logistics in the service contracts. strategy has to be prepared based on the abovementioned baseline data to populate key A Monitoring and Evaluation Framework for 94 Logistics in Cambodia defined indicators at two levels: (a) macro-level different class of users, both public indicators and (b) KPIs at the sector/firm level. and private. The following recommendations are highlighted (ii) Collection, management, and timely to elaborate the selection of indicators for the processing of data on logistics are implementation of the M&E framework in the important to the success of the Cambodia Logistics Master Plan: strategy. (a) The macro-level indicators are defined (iii) There is a need for a logistics data to monitor and assess (i) national policies system to allow continuous monitoring and interventions at the sector and and in-depth analysis that will support country level and (ii) global comparisons the development of more targeted and benchmarking. These indicators are logistics policies. mainly synthetic, combining several sub- indicators into a single indicator and can (iv) It is important to automate data be obtained from secondary sources as management, including big described hereunder. Firm- and industry- data techniques for the General level indicators are defined to capture Department of Logistics (GDL) under and monitor sector strategies, supply the Ministry of Public Work and chains solutions, intervention modes, and Transport (MPWT), the lead agency facility improvements. These indicators and focal point for the logistics provide in-depth M&E of firm-level logistics sector—including the planning and performance and need to be obtained development of the logistics-related through automated data streams policies. capturing real-time transactions through an automated logistics statistical system (d) A draft design of the M&E framework for and surveys. the Cambodia Logistics Master Plan has been prepared and aligned with five (b) The existing macro-level indicators should strategic areas (see table 19). The M&E be used—through global indicators such framework includes some proposed as the WEF - Global Competitiveness macro-level indicators and KPIs. Indicators, International Institute for Management Development (IMD) - (e) In moving forward, it is necessary for World Competitiveness Yearbook, World GDL to continuously use the M&E system Bank’s Doing Business, and the Logistics proposed here. There is a need for GDL Performance Index (LPI)—to measure to not only have institutional authority Cambodia’s logistics performance. These over the M&E system but also to develop include quality of infrastructure, time to a logistical statistical system that will export, control of international distribution, compile the data and highlight areas for institutional capacity, ability to track and improvement. The purpose of M&E is not trace, and competence and quality of only to monitor and evaluate the national logistics service. Based on some of these logistics master plan but also to collect indexes, it is apparent that Cambodia is key data that will be used for further policy making progress in many areas but still decision making related to transport and performs below the regional average on logistics issues. most logistics indicators. (f) In terms of data collection frequency, GDL (c) The designing of KPIs needs to be realistic, will need to collect the firm-level data at implementable, and relevant. Key least once per year to reflect the ever- recommendations for KPI include the changing logistics situation in Cambodia. following: The first six months of the year could be used to collect data from users of logistics (i) Indicators have to be tailored to services and the last six months of the A Monitoring and Evaluation Framework for Logistics in Cambodia 95 year could be used to collect LSPs’ data. Memorandums of Understandings (MoUs) GDL may consider collecting logistics with key private sector associations performance data from specific sectors and academia to be successful in the based on national priorities. collection of the necessary data. (g) GDL will be the secretariat of national (h) Collecting data will not be sufficient logistics council (NLC) and national in itself and the development of a logistics steering committee (NLSC) and computerized system for logistics statistics the lead agency and focal point for the will enable further in-depth analysis that logistics sector, including the planning will support the development of more and development of the logistics-related targeted logistics policies. GDL would policies. Therefore, GDL responsibilities need to further explore the possibility of should include the maintenance of a establishing an information technology (IT) logistics database that will reflect the system for transport and logistics-related developed M&E system. GDL will have statistics. Table E.1 describes the list of to compile data from the WEF and the key actions needed for GDL to be able Doing Business database on an annual to monitor and evaluate the Cambodia basis, collect data from the LPI on a Logistics Master Plan and other logistics- biennial basis, and conduct their own related policies in a sustainable manner. surveys related to the performance of This table provides indications related users of logistics and LSPs in the country on to which actions will have the highest an annual basis. For the data collection impact on the sustainability of the logistics to be sustainable, GDL should establish M&E system for Cambodia. Table E.1: Recommended action plans for short-term and medium-term implementation of the M&E framework of the Cambodian logistics system Benefit Cost Short Term (2020) • Train GDL staff to understand LPI methodology High Low • Train GDL staff to understand WEF methodology High Low • Train GDL staff to understand Trading Across Borders (TAB) meth odology High Low • Train GDL staff to deliver and analyze ‘Users of Logistics Survey’ High Low • Train GDL staff to deliver and analyze ‘LSP Survey’ High Low • Assign focal person for M&E system deployment High Low • Establish MoUs with key business associations for data collection High Low • Establish MoUs with other government agencies (such as Ministry High Low of Commerce, Customs) • Train GDL staff to understand IMD methodology Medium Low • Roadshow of Cambodia’s 2017 logistics performance data Medium Medium Medium Term (2025) • Establish Cambodia Logistics Statistical System (CLSS) High Medium • Collect updated logistics statistics for CLSS High Medium • Develop IT system for CLSS High High • Revise and update Cambodia Logistics Master Plan High Medium • Publish Cambodia’s logistics report High Medium • Establish MoU with IMD for inclusion in Competitiveness Report Medium High A Monitoring and Evaluation Framework for 96 Logistics in Cambodia 1 INTRODUCTION services and Cambodian manufacturers usually suffer from low levels of logistics performance and high logistics cost. The World Bank Group’s 2017 Systematic Country Diagnostic (SCD) report highlights that poor quality of transport infrastructure and logistics services is Over the last 15 years, Cambodia has leveraged a constraint to Cambodia’s international trade integration into the global marketplace to and economic diversification. The Industrial achieve economic growth. Cambodia’s Development Policy (IDP) paper of the Royal exports of merchandise at US$8.5 billion in 2015 Government of Cambodia (RGC) also identified stood at almost 50 percent of gross domestic the transport and logistics sector as an important product (GDP), reaching 159 destinations. supporting industry in the implementation of the Export performance was supported through IDP. integration into global value chains (GVCs), The logistics sector is important for the with substantial foreign direct investment (FDI) Cambodian economy in two significant ways. from East Asia and Pacific sources, and strong First, logistics is a major business expenditure, trade links with the United States of America thereby affecting and also affected by other and China. Exports, however, have been economic activities. Second, logistics supports concentrated in textiles and garments, with the movement of many economic transactions; little sophistication and technological content. it is an important aspect of facilitating the sale Indeed, exporters in Cambodia are specialized of all goods and services. Improved logistics in the cut-make-trim phase of the garment value enable the seamless flow of goods, services, chain—a segment with low profit margins. With, and persons. on the one hand, labor costs increasing and, on the other hand, prospective trade agreements Assessing and measuring logistics performance between developed countries and several in Cambodia is challenging because there Association of Southeast Asian Nations (ASEAN) are no readily available data on the system. countries potentially eroding preferences Data on logistics system performance in and diverting trade, the competitive edge of Cambodia are limited and are not regularly Cambodia is at stake. This makes it compel collected. Only some secondary data that for the country to seek new drivers of export capture components of the logistics system growth in more sophisticated activities. The are published by international organizations, connectivity provided by the logistics sector has typically for country benchmarking purposes. been and continues to be an important part of These include the Global Competitiveness the Cambodia’s growth storyline and global Report (GCR) by the World Economic Forum market integration. (WEF), World Competitiveness Yearbook by International Institute for Management The logistics sector plays a leading role in Development (IMD), and World Bank’s Logistics facilitating, linking, and supporting the country’s Performance Index (LPI) and Doing Business socioeconomic development and can Report. A lack of data compromises the quality enable Cambodia to take advantage of these of planning by both public and private sector opportunities. However, local logistics service stakeholders. It is on this basis that the public providers (LSPs) are at a disadvantage when it and private sector in Cambodia has long called comes to offering modern logistics value-added for the development of a logistics monitoring A Monitoring and Evaluation Framework for Logistics in Cambodia 97 and evaluation (M&E) system based on sound • Agreed indicators of logistics performance data collection, management, and reporting and guidelines for the collection, systems. A robust M&E system would support processing, and reporting of logistics data exporters and importers by enabling them to on an annual basis have a better understanding of the current • Published annual report on logistics market situation and promote evidence-based statistics based on the survey result decision making. • Enhanced capacity within General The purpose of this background paper is to design Department of Logistics (GDL) at the an M&E framework for the proposed Cambodia Ministry of Public Work and Transport Logistics Master Plan. The framework is intended (MPWT) for collecting and reporting to support transport and logistics strategic logistics data planning, evidence-based policy making, and the monitoring of the implementation of policies The Government of Cambodia attaches related to logistics strategy. The success of the a high priority to the Logistics Master Plan M&E system would be achieved through the Development. The process is led by the MPWT. establishment of a national system for collecting, The aim is to elaborate the main components processing, and publishing logistics statistics on of infrastructure, institutions, LSPs, shippers/ an annual basis in Cambodia. This background consignees, people, processes, and systems paper is intended to provide the following: working together to support efficient and effective logistics. • Reference to the logistics statistical system in policy and strategy documents on logistics in Cambodia A Monitoring and Evaluation Framework for 98 Logistics in Cambodia 2 CONCEPTUAL The integration of the four dimensions is not yet fully mapped to build a good understanding of how the national logistics system performs. A FRAMEWORK FOR holistic approach to the collection of logistics statistics must be developed. These logistics MONITORING AND statistics would need to address local firms’ logistics capability, LSPs’ expertise, infrastructure EVALUATION OF capacity and performance, and trade and transport facilitation institutional framework to LOGISTICS understand current logistics capability. Currently, Cambodia does not have any logistics statistics; required performance data were collected to analyze the country’s logistics performance on the four dimensions. Cambodia has attempted to analyze its national logistics system covering all four dimensions in the exercise to develop a Logistics Master Plan. In Cambodia, logistics from a national An extensive assessment of the infrastructure perspective is much more than just transport quality and requirements is covered with the infrastructure development. Logistics at the support of Japan International Cooperation national level is often referred to as the national Agency (JICA). A gap analysis of the legal and logistics system and it can be described as regulatory framework is also included in the having four key dimensions: (a) shippers, traders, master plan development. These assessments and consignees who are the users of the national also respond to an update of Cambodia’s logistics system; (b) public, private sector LSPs; (c) trade competitiveness, while participating provincial and national institutions, policies, and in the global and regional value chains. The rules; and (d) transport and communications assessment of the logistics performance is infrastructure. The integration of these four covered in this report through the collection of dimensions will reflect the logistics capability of necessary performance statistics for the design a country. These four dimensions can combine of an M&E framework as inputs into the Logistics to determine the performance of each part of Master Plan. the logistics system in terms of cost efficiency, responsiveness, reliability, and security. The The definition of logistics policy, coined by sum of these dimensions will need to be Banomyong (2008), is “the policy that involves the integrated to reflect the logistics performance planning, facilitating, implementing, integrating of the region(s) under study. Having high level and controlling the efficient, effective flow and of logistics performance would also mean that storage of freight, people and information within connectivity would be facilitated. It is therefore and between logistics systems, for enhancing important to acknowledge that higher levels of traders’ competitiveness in order to increase logistics performance would lead to improved national competitive advantage.” This definition logistics connectivity (Banomyong, Thai, and of logistics policy with its accompanying model Yuen 2015). describes the overall scope for the M&E system to be developed in Cambodia. A Monitoring and Evaluation Framework for Logistics in Cambodia 99 Figure 1: Logistics system components Infrastructure Service LOGISTICS Institutional Providers SYSTEM Frame work Shippers/ Consignees Source: Banomyong 2008. Cambodia does not have an M&E framework to can be separated into two different levels. keep track of its actual logistics performance. The first level will be based on existing macro- Broadly, there are secondary sources of data level indicators which are high-level indicators and indicators capturing logistics performance available from secondary sources while the at the macro level, but these indicators are not second level will focus more on the actual defined for its use in a more comprehensive performance of the national logistics system framework. An M&E framework for logistics with actual empirical data. often refers to a set of indicators measuring key At the macro level, these indicators are logistics quality and performance of the national defined to focus on the four dimensions of the logistics system. From international experiences, national logistics system. The indicators cover statistics for these four logistics dimensions of (a) quality of transport and communication the national logistics system need to be defined infrastructure, (b) efficiency and effectiveness and collected. An analysis of logistics quality of public institutions and policy framework for and performance relies on these basic statistics. trade and logistics, (c) quality and reliability Because logistics has drawn much attention in of logistics services, and (d) performance and countries and at the global level, there already competitive advantages of industry actors: exist a number of global indicators developed shippers and consignees. Through the literature, by institutions such as the WEF or the World these indicators are commonly used and Bank to broadly measure logistics quality and reported from the four most common sources performance across the board. These indicators in assessing the quality and performance of a are already used by countries around the world national logistics system from a competitiveness for benchmarking purposes. The M&E system perspective. A Monitoring and Evaluation Framework for 100 Logistics in Cambodia Some existing secondary data are useful data are relevant for an annual assessment of and can be used to update and analyze the logistics performance except for the LPI data aforesaid four broad dimensions of logistics which are published on a biennial basis. These performance. Major internationally recognized secondary data are mainly compiled and used databases, including the GCR by the WEF1, World for cross-country benchmarking purposes. The Competitiveness Yearbook by IMD2, and LPI3 only source of data that is missing is IMD’s World and Doing Business by the World Bank4, provide Competitiveness Yearbook as it currently does some basic measurement to define macro- not have data on Cambodia. Nonetheless the level indicators for a logistics M&E framework. framework is valid and would be useful for the For the Cambodian context, most existing RGC to request IMD to include the country. Table 1: Scope of macro-level indicators for a logistics M&E system Dimension Data Source Infrastructure Quality of roads 2nd Pillar: Infrastructure Quality of railroad infrastructure GCR-WEF Quality of port infrastructure Quality of air transport infrastructure Roads density of the network Basic Infrastructure Railroads density of the network IMD World Competitiveness Yearbook Quality of air transportation Distribution infrastructure Logistics management Water transportation Quality of trade and transport infrastructure LPI Institutional and Irregular payments and bribes 1st Pillar: Institutions Policy Framework Burden of government regulation GCR-WEF Efficiency of legal framework in settling disputes Efficiency of legal framework in challenging regulations Transparency of government policy making Tariff barriers: Tariffs on imports: Most favored Government Efficiency nation simple average rate IMD World Competitiveness Yearbook Customs’ authorities: Customs’ authorities do facilitate the efficient transit of goods Prevalence of trade barriers 6th Pillar: Goods Market Efficiency Trade tariffs GCR-WEF Prevalence of foreign ownership Business impact of rules on FDI Burden of customs procedures 1 GCR by the WEF at https://www.weforum.org/reports/the-global-competitiveness-report-2016-2017-1. 2 World Competitiveness Yearbook by the IMD https://worldcompetitiveness.imd.org/. 3 LPI by the World Bank at https://lpi.worldbank.org/. 4 DB by the World Bank at http://www.doingbusiness.org/ A Monitoring and Evaluation Framework for Logistics in Cambodia 101 Dimension Data Source Time to Export (Border Compliance) Trading Across Borders (TAB) Cost to Export (Border Compliance) Doing Business Time to Export (Documentary Compliance) Cost to Export (Documentary Compliance) Time to Import (Border Compliance) Cost to Import (Border Compliance) Time to Import (Documentary Compliance) Cost to Import (Documentary Compliance) Efficiency of customs and border clearance LPI LSPs Competence and quality of logistics services LPI Timeliness LPI Shippers/ Local supplier quality 11th Pillar: Business Sophistication Consignees State of cluster development GCR-WEF Nature of competitive advantage Value chain breadth Control of international distribution Production process sophistication Ease of arranging competitively priced hipments LPI Ability to track and trace consignments LPI Sources: Authors compiled from the GCR by the WEF; World Competitiveness Yearbook by IMD; and LPI and Doing Business by the World Bank. Some baseline data are drawn from these the proposed scope in table 1. In the GCR by secondary data to populate macro-level the WEF, the indicators are constructed from indicators in the M&E framework. By using surveys and always expressed as scores on these indicators and sources, it is important to a 1–7 scale, with 7 being the most desirable understand the scaling used in the various reports outcome. The LPI is also expressed on a 1–5 to better understand what each score means. scale, with 5 being the highest score. The data Tables 2 and 3 define the current baseline score in the Doing Business’ TAB database illustrate of Cambodia’s national logistics system as per actual values. Cambodia is not included in the World Competitiveness Yearbook by IMD. Table 2: Cambodia’s baseline performance Dimension High-level indicator score Baseline score Infrastructure WEF5 Quality of overall infrastructure 3.4 out of 7 IMD 6 Distribution infrastructure No score for Cambodia Logistics management LPI7 Quality of trade and transport infrastructure 2.36 out of 5 Institutional and WEF8 Policy Framework Irregular payments and bribes 3.0 out of 7 Burden of government regulation 3.4 out of 7 Transparency of government policy making 3.2 out of 7 5 2nd Pillar: Infrastructure, GCR, WEF. 6 Basic Infrastructure, IMD World Competitiveness Yearbook. 7 LPI by the World Bank. 8 1st Pillar: Institutions, GCR, WEF. A Monitoring and Evaluation Framework for 102 Logistics in Cambodia IMD9 Tariff barriers No score for Cambodia Customs’ authorities WEF10 Prevalence of trade barriers 4.1 out of 7 Burden of customs procedures 2.9 out of 7 TAB11 Time to Export (Border Compliance) 48 hours Cost to Export (Border Compliance) US$375 Time to Export (Documentary Compliance) 132 hours Cost to Export (Documentary Compliance) US$100 Time to Import (Border Compliance) 8 hours Cost to Import (Border Compliance) US$240 Time to Import (Documentary Compliance) 132 hours Cost to Import (Documentary Compliance) US$120 LSPs LPI Efficiency of customs and border clearance 2.62 out of 5 LPI Competence and quality of logistics services 2.6 out of 5 Timeliness 3.3 out of 5 Shippers/ WEF 12 Consignees Control of international distribution 3.0 out of 7 LPI Ease of arranging competitively priced shipments 3.11 out of 5 Ability to track and trace consignments 2.7 out of 5 Sources: Authors compiled from the GCR by the WEF; World Competitiveness Yearbook by IMD; and LPI and Doing Business by the World Bank There are two types of macro-level indicators. still below average. In the dimension for Most identified macro-level indicators are based quality of infrastructure, Cambodia performs on perception scores, which offer a qualitative relatively at the average level but falls behind assessment of the situation. These scores are on railroad infrastructure. The institutional based on either a Likert type scale of 1–5 or 1–7 and policy dimension is assessed to have with 1 being the lowest score and 5 or 7 being relatively poor performance with serious issues the highest. The 1–5 scale is used in the World related to governance and transparency. Bank’s LPI while the 1–7 scale is used by the WEF Efficiency and effectiveness of policy and rules in their GCR. The only indicators that are based implementation still need further improvement. on actual data are the ones provided by the Irregular payments and bribes remain a serious TAB in the Doing Business annual database. issue in obtaining permits, certification, and However, the numbers provided by TAB have inspections for industry traders and service often been challenged from a methodological providers. Despite huge investments in customs perspective. modernization and automation, the burden of customs procedures remains high and at an Cambodia has made some good progress alarming level for traders and services providers. in these indicators but its performance is 9 Government Efficiency, IMD World Competitiveness Yearbook. 10 Sixth Pillar: Goods Market Efficiency, GCR, WEF. 11 TAB, DB by the World Bank. 12 11th Pillar: Business Sophistication, GCR, WEF. A Monitoring and Evaluation Framework for Logistics in Cambodia 103 The dimension for LSPs and industry traders such data describe the actual time and fee for as shippers and consignees is not captured fully border crossing in Cambodia and should be at this high level of indicators. used as an initial baseline. LSPs’ competence and timeliness, when combined, are again From an infrastructure perspective, the close to the mean, which indicates that much is obtained average score is slightly under the still needed to improve the competence of LSPs mean of each scale, thus indicating that in the country. The same can be also said for infrastructure is perceived to be slightly below the shipper/consignee dimension. par and would need further improvement to obtain higher scores. The same could also The overall observation of indicators and be said for the institutional environment where baseline data confirms that Cambodia has an the average score is close to the mean for average score on all the high-level indicators, each scale. Irregular payment or bribes and thus indicating that the overall baseline burden of customs procedures under the WEF performance is not so bad, but much more highlight that this is a challenging environment can be done to improve the various dimension from an institutional perspective with lack of scores. Cambodia has made some progress, transparency and complicated government but a more in-depth assessment of its logistics procedures not conducive to the establishment performance is needed, especially in the two of a facilitating business environment. dimensions that require more performance data at the company and industry level: LSPs The LPI score is only slightly over the mean, and logistic service users (LSP and shipper/ which also reflects the limited efficiency consignee dimensions). Table 3 provides more of customs and border clearance. Much details on the available indicators that can be is needed to improve the various scores in used for the baseline assessment of Cambodia’s this dimension which require political will and logistics system based on the proposed scope implementation capabilities from related for M&E in table 1. government agencies in Cambodia. The TAB Table 3: Existing baseline indicators in 2017 for Cambodia’s logistics M&E framework Dimension Data Score Rank Source Infrastructure Quality of overall infrastructure 3.4/7 99/137 2nd Pillar: Quality of roads 3.2/7 99/137 Infrastructure Quality of railroad infrastructure 1.6/7 94/137 GCR 2017– Quality of port infrastructure 3.7/7 81/137 2018-WEF13 Quality of air transport infrastructure 3.7/7 106/137 3.5/7 106/137 Quality of trade and transport infrastructure 2.36/5 99/160 LPI14 Institutional Irregular payments and bribes 3.0/7 113/137 1st Pillar: and Policy Burden of government regulation 3.4/7 68/137 Institutions Framework Efficiency of legal framework in settling disputes 2.9/7 108/137 GCR 2017– Efficiency of legal framework in challenging 2018-WEF regulations 2.8/7 96/137 Transparency of government policy making 3.2/7 120/137 Prevalence of trade barriers 4.1/7 93/137 6th Pillar: Trade tariffs (% duty) 9.3% 96/137 Goods Market Prevalence of foreign ownership 4.5/7 68/137 Efficiency Business impact of rules on FDI 4.4/7 77/137 GCR 2017– Burden of customs procedures 2.9/7 127/137 2018-WEF 13 The score for the GCR-WEF is on a scale of 1–7 and the number of economies assessed is 137. 14 The score for the LPI is on a scale of 1–5 and the number of economies assessed is 160. A Monitoring and Evaluation Framework for 104 Logistics in Cambodia TAB (including hereunder) n.a. 108/212 TAB Time to Export (Border Compliance - Hours) 48 Doing Business15 Cost to Export (Border Compliance - US$) 375 Time to Export (Documentary Compliance - Hours) 132 Cost to Export (Documentary Compliance - US$) 100 Time to Import (Border Compliance - Hours) 8 Cost to Import (Border Compliance - US$) 240 Time to Import (Documentary Compliance - Hours) 132 Cost to Import (Documentary Compliance - US$) 120 Efficiency of customs and border clearance 2.62/5 77/160 LPI LSPs Competence and quality of logistics services 2.60/5 89/160 LPI Frequency with which shipments reach consignees 3.30/5 72/160 LPI within scheduled or expected delivery times Shippers/ Local supplier quality 3.6/7 122/137 11th Pillar: Consignees State of cluster development 4.0/7 48/137 Business Nature of competitive advantage 3.2/7 90/137 Sophistication Value chain breadth 3.6/7 90/137 GCR 2017– Control of international distribution 3.0/7 115/137 2018-WEF Production process sophistication 3.1/7 114/137 Ease of arranging competitively priced shipments 3.11/5 52/160 LPI Ability to track and trace consignments 2.70/5 82/160 LPI Sources: Authors compiled from the GCR by the WEF; World Competitiveness Yearbook by IMD; and LPI and Doing Business by the World Bank. These macro-level indicators reflect four and monitored are described in table 4. These dimensions of the national logistics system. high-level indicators are sufficient to provide However, it is not necessary to compile all a snapshot of the current logistics capability these indicators for a rapid assessment of the of Cambodia without being submerged by logistics performance of Cambodia. The high- numerous indicators. level indicators that need to be compiled Table 4. High-level indicators for Cambodia Dimension Indicator Source Infrastructure Quality of overall infrastructure (3.4 out of 7) WEF Institutional and Policy Efficiency of customs and border clearance (2.62 out of 5) LPI Framework LSPs Competence and quality of logistics services (2.6 out of 5) LPI Shippers/Consignees Ease of arranging competitively priced shipments (3.11 out of 5) LPI Overall LPI score (2.8 out of 5) LPI 15 The DB database has 212 economies. A Monitoring and Evaluation Framework for Logistics in Cambodia 105 It can be observed that the majority of the high- higher logistics scores in the LPI. However, the level indicators come from the World Bank’s LPI. interpretation of these scores still needs to be The data are published once every two years. done carefully as all these scores are based The infrastructure data come from the WEF and on respondents’ qualitative assessment and are published annually in their GCR. therefore they may vary highly depending on the respondents and their experience with the To monitor these high-level indicators, it is logistics system in Cambodia. The better the necessary to understand how to interpret the experience the higher the score. meaning of the score for each of the indicators. The infrastructure score is based on a scale of It is important for the M&E system to focus 1–7, with 7 being the highest score. It is expected on tracking the impacts of measures and that over the next few years, this score will interventions that are part of the Cambodia improve and be higher than the current score Logistics Master Plan. It is therefore critical of 3.4 out of 7, which is slightly under the mean. for the M&E framework to be aligned with The institutional, LSPs, and shippers/consignees Cambodia’s SMART Logistics 2025 strategies. scores are based on a Likert scale of 1–5, with The focal themes for SMART Logistics 2025 are 5 being the highest level. The expectation is described in table 5 while table 6 provides the that these scores will increase in the future and development strategies. continue to increase to achieve an overall Table 5: Cambodia SMART Logistics 2025 focal themes Short Term (2018–2019) Medium Term (2020–2022) Long Term (2023–2025) Theme Debottlenecking logistics Reaching global standards Activating logistics businesses Strategy 1 Unblocking physical Capacity and variety of Capacity and variety of bottlenecks transport mode to meet transport mode to meet Early harvest to keep various transport demand various transport demand transport efficiency Strategy 2 Unblocking physical Improving border Achieving CCA/SSI16 and bottlenecks at border management and developing regional areas and development of logistics logistics forming logistics complex complex complex Strategy 3 Preparing toward National Progress of NSW and trade NSW and ASW Single Window (NSW) and facilitation trade facilitation Strategy 4 Human resource in logistics Enhancement of logistics Expansion of variety of business logistics services under market mechanism Strategy 5 Strengthening logistics Building regulatory Building regulatory administration environment to realize above environment to realize Unblocking regulatory above obstacles to realize above Sources: Draft report on proposed Cambodia Logistics Master Plan by JICA study team. A Monitoring and Evaluation Framework for 106 Logistics in Cambodia Table 6: Cambodia logistics development strategies Strategy 1 Development of Economic Corridors and International Gateways Goal Strategy 1 aims at preparing efficient flow of goods and decreasing the transportation cost and time from physical improvement aspect. For this purpose, sufficient capacity of transport infrastructure and transport services should be prepared to meet future logistics demand. And, transport infrastructure should function well. Programs Road Transport Capacity Enhancement (P11) Promotion of Railways as an Emerging Mode (P12) Inland Water Transport Improvement (P13) Sihanoukville Port Development (P14) Phnom Penh Port Development (P15) Strategy 2 Development of Logistics Hubs for Multimodal Transport Goal Strategy 2 aims at accelerating seamless cross-border transport at Bavet and Poipet to meet increased transport volume and attract more factories at the border areas. For this purpose, cross-border transport should be improved to reduce negative factors of congestion and less flexibility in border. It supports to maintain comparative advantages to locate factories in Cambodian side. In addition, logistics complex, which is the designated area to integrate logistics activities such as dry port, ICD, truck terminal, supporting services including financing service, residence, and shopping, should be formed in major cities to optimize transport efficiency and cost. Programs Bavet Border Area Improvement (P21) Poi Pet Border Area Improvement (P22) Logistics Complex Development (P23) Air Cargo Development (P24) Urban Transport Facilitation (P25) Regional Development Support (P26) Strategy 3 Realization of Seamless Border Management Goal Strategy 3 aims at preparing convenient and simplified export/import procedure toward NSW and ASW. The Government of Cambodia carries out computerization of export/ import documentation and procedures. It is necessary for further acceleration of NSW with proper guide and support to respond to the speed and size of increased volume and variety of import/export goods. Programs Port Management Enhancement (P31) Introduction of Cambodia National Single Window (P32) Trade Support (P33) Trade Compliance Improvement (P34) Optimization of CamControl and Procedures (P35) Strategy 4 Capacity Enhancement of Logistics Service Providers Goal Logistics infrastructure improvement (Strategy 1), logistics hub development (Strategy 2), and logistics efficiency improvement (Strategy 3) will exploit more business opportunity in logistics. Participants in the logistics market should be increased to generate reasonable competition to diversify the services and improve quality of services. At the same time, local logistics firms are relatively weak in terms of technical and financial capacity. It is accordingly important to take certain actions to support local firms to have more competitiveness in the market. 16 Common Control Area (CCA)/Single Stop Inspection (SSI). A Monitoring and Evaluation Framework for Logistics in Cambodia 107 Programs Establishment of Logistics Technical Training Center (P41) Public-Private Dialogue (P42) Logistics Business Modernization (P43) Introduction of Modern Logistics Technology (P44) Market Mechanism Enhancement (P45) Strategy 5 Strengthening of Legal and Institutional Framework Goal Provision of solid legal background for logistics improvement Provision of self-sustained mechanism for implementation of master plan and future logistics improvements Programs Capacity Development of GDL (P51) Facilitation of Trade Agreements (P52) Enhancement of Borderless Transportation (P53) Optimization of Logistics Costs (P54) Sources: Draft report on proposed Cambodia Logistics Master Plan by JICA study team. The detailed list of actions under each strategy program there will be a number of actions needs to be monitored under the M&E system. that will need to be implemented. However, In total, there are 25 programs that will need it is not necessary for the M&E system to track to be implemented under five key strategies. the implementation status of each actions as Table 6 provides the title, the goals, and related the M&E system should focus on the outputs programs that will enable improved logistics in and outcomes of each logistics development Cambodia as per the master plan. Under each strategies. A Monitoring and Evaluation Framework for 108 Logistics in Cambodia 3 APPROACH associations in business dialogues. However, data on actual logistics performance in the TO LOGISTICS country still remain limited and unclear to assess logistics capabilities in the country. Measuring PERFORMANCE and assessing logistics performance in terms of costs, time, and reliability is critical to pinpoint MONITORING IN weakness and opportunity for improvement. Cambodia does not have a clear baseline of CAMBODIA its actual logistics performance. It is therefore necessary to establish a baseline reference related to the logistics performance of manufacturing firms and LSPs and operators. This baseline will facilitate firms, industry Despite the use of macro-level indicators, there representatives, and policy makers to work are still important gaps in the data for monitoring together in addressing the actual logistics the performance of logistics in Cambodia. This weaknesses and sustaining strengths that may particularly applies to data on service providers have been already existing in the logistics of and shippers. The obtained macro-level data manufacturing firms in the country. from these secondary sources are not detailed Cambodia requires a performance monitoring enough when trying to assess the actual logistics framework that can capture actual logistics performance of a country. To assess logistics performance by both users and providers performance, it is important that a baseline of logistics services. The users of logistics is obtained from the perspective of users of in a country are the exporters, importers, logistics services as well as the actual capability manufacturers, and traders. Table 7 describes of LSPs in the country. Currently, such data are the M&E framework that keeps track of the not available for Cambodia and it is important actual logistics performance in the country. to obtain an initial reference for further policy The illustrated key performance indicators (KPIs) development purposes. in table 7 are defined to capture the actual Based on the results of a pilot survey, the logistics capability of three key performance logistics system of Cambodia is perceived dimensions: logistics cost, time, and reliability. as archaic, inefficient, ineffective, and costly These data are not available through secondary to users. Several complaints of users were sources and they have to be obtained through reported through business and manufacturers’ surveys. Table 7: M&E system KPIs Target Respondents KPI Source Users of Logistics Services • Logistics cost/sales Annual Survey • Weight of logistics performance dimensions • Delivery in full and on time (DIFOT) • Damage rate • Customer complaint rate • Ratio of returns • Forecast accuracy • Cash conversion cycle (C2C) • Outsourcing ratio • Service-level agreements (SLAs) • Warehousing, storage, and inventory costs A Monitoring and Evaluation Framework for Logistics in Cambodia 109 LSPs • Weight of logistics performance dimensions nnual Survey • Average order cycle time • Transportation lead time • DIFOT • Damage rate • C2C • Most common problems Sources: Banomyong 2008. To establish a baseline of Cambodia’s current is impossible with low reliability and another sign logistics performance, two sets of surveys were of low reliability is high logistics costs. If data conducted, which are presented in table 7. related to these performance dimension are Even though many studies on the logistics sector not available, it will be impossible to know the have been conducted in Cambodia, almost all logistics capability of firms in Cambodia. the empirical data were collected on an ad hoc basis to specifically serve the need of each METHODOLOGY AND DATA 3.1  study. The existing data are therefore scattered COLLECTION depending on the funding agency behind the study. Because logistics does not fall under the From an extensive literature review, two jurisdiction of one government institution, the sets of questionnaires were designed and RGC has never collected logistics-related data used to collect key data on Cambodia’s due to its confusing nature. There was no effort logistics performance in three aspects: from the Government of Cambodia to establish logistics costs, time, and reliability. The a logistics database in the past, but the first set of questionnaires was designed to development of the national logistics plan has capture an overview of manufacturing included the requirement for logistics statistics. firms’ logistics performance and costs. These include garments, electronic and electrical The logistics data collected will focus on the components, and agro-processing firms. performance of key logistics activities that The second set of questionnaires was reflects actual logistics performance of LSPs and designed to capture an overview of users based on three performance dimensions: freight forwarders and LSPs’ logistics cost, time, and reliability. Cambodia needs to performance and costs. Representatives have such kind of data to illustrate the actual from key professional organizations including logistics capability of LSPs when providing their GMAC, CAMTA, and CAMFFA in Cambodia services as well as to understand the logistics were also involved in the validation and performance of shippers and consignees in the collection of the data. country. Data collection involved a total of 55 The logistics cost over sales reflects the logistics manufacturing and agro-processing firms expenditures over the total sales. Even though and 43 LSPs responding to the questionnaires there are caveats in its usefulness, this indicator in Phnom Penh, Cambodia. Data collection provides a strong reference on how expensive benefited from a strong collaboration with the logistics is in Cambodia for the key industries. Cambodian Chamber of Commerce (CCC), The time dimension is important as time- CAMFFA, CAMTA, GMAC, rice exporters’ based competition has become the norm for association, and so on. The data were collected enhanced competitiveness and it is important through a workshop format in collaboration with to know how quickly LSPs and shippers/ the main related professional organizations in consignees are able to respond to customers’ the country. The majority of respondents were request. The reliability dimension reflects the small and medium size enterprises (SMEs). The stability of the logistics system. Logistics planning data were collected during September 28 A Monitoring and Evaluation Framework for 110 Logistics in Cambodia and 29, 2017, and on December 22, 2017. A If the warehouse activity is outsourced, then total of more than 100 manufacturing and again, the identification of the cost becomes ago-processing firms and over 100 LSPs were easier but if done in-house then an estimate approached based on a purposive approach of the expenses of running the warehouse focusing on the key strategic sectors of will be required. The third major component Cambodia. is the inventory carrying cost over sales and is probably the most challenging to gauge as CAMBODIA LOGISTICS COST 3.2  it is the cost of having the physical inventory OVER SALES instead of using that money for other purpose, often referred to as the ‘opportunity’ cost. Measuring the logistics cost over sales for key logistics performance in this study has four main The fourth component is logistics administration components. The first major component is the cost over sales. This last component is a proxy transport cost over sales, which includes both that is imputed by summing up the transport, outbound and inbound costs of the surveyed warehouse, and inventory carrying cost. The manufacturing and agro-processing firm. The logistics administration cost is equivalent to transport cost is relatively easier to find, as firms 10 percent of the sum. This is derived from the tend to outsource their transportation activities literature (Banomyong 2007), where it is stated thus making the cost identification simpler. that if transport, warehouse, and inventory Warehousing cost over sales is the second main carrying costs are obtained, then 90 percent of component, which covers all the activities the total logistics cost is available. related to the operations in the warehouse. Table 8: Logistics costs over sales by components (%) Activity/Sales Cambodia Vietnam Thailand Indonesia Philippines Transport 8.95 7.04 5.57 8.81 10.71 Warehousing 3.69 3.78 2.49 3.45 5.20 Inventory carrying 6.00 4.00 2.04 7.19 8.78 Logistics administration 1.87 1.48 1.01 1.95 2.47 Logistics cost/sales 20.52 16.3 11.11 21.40 27.16 Sources: Survey data. Cambodia suffers from high level of logistics cost Transport and warehousing cost in Cambodia is over sales compared to Vietnam and Thailand. even higher than in Indonesia. This means that Thailand has the lowest cost (illustrated in table reducing logistics cost in Cambodia is not just 8). The Philippines has the highest logistics cost, an issue of reducing transport cost. The high at more than 27 percent. It is possible that the cost of inventory is a by-product of unreliability nature of the Philippines and Indonesia has a in the logistics system in Cambodia. Another key negative impact on logistics cost as logistics issue is that logistics cost is driven by the sector activities tend to be more expensive in island in which the responding firm operates. Firms that countries. operate in high-value sectors will often have lower logistics costs over sales compared with The transport cost has the highest ratio followed firms in lower-value sectors. by the inventory carrying cost in Cambodia. A Monitoring and Evaluation Framework for Logistics in Cambodia 111 Table 9: Logistics costs over sales by sectors (%) Sector Cambodia Vietnam Thailand Indonesia Philippines Automotive 15.83 33.55 14.75 16.84 23.08 Chemical products 16.50 27.14 10.09 27.01 43.3 Food 20.38 17.60 10.32 20.97 32.72 Textile and garment 13.06 14.30 8.55 16.01 20.35 Sources: Survey data. Overall, logistics cost by sectors in Cambodia Informal charges levied by government is higher than in Thailand (table 9). However, agencies were estimated at about 48 percent compared with Vietnam, there is just one sector of the logistics administration cost or represent with higher logistics costs over sales which is about 4.38 percent of total annual logistics the food sector. Thailand is more industrialized costs in 2017. A decomposition of these informal with more value added in the final product charges has been attempted to improve and therefore benefits more from lower overall understanding of informal payments as a logistics costs over sales. burden to the trading community. These informal charges were confirmed by industry stakeholders In 2017, the value of logistics cost in Cambodia and logistic services providers and operators. was estimated at US$1.96 billion of its total Based on this estimate, the informal charges exports. According to the latest statistics in Cambodia can therefore be estimated at from the Cambodian Ministry of Commerce, US$85,720,800. Among others, trucking costs in Cambodian exports grew by more than 19 fact are competitive compared to neighboring percent in 2017, reaching US$9.55 billion in countries. Local freight forwarders, however, value17. Compared with 2016 (last year), the have allegedly consolidated opaque practices total value of Cambodian exports increased whereby they produce formal invoices to by more than US$1.5 billion. Table 10 provides also cover the informal costs they incur when a component breakdown costs for each key clearing goods at the border. The informal costs logistics activity. are often hidden in lump-sum service contracts between industry and services operators by Table 10: Value of logistics costs (US$) which services operators would absorb all Activity Cambodia informal payments in their final prices presented in the service contracts. Transport 854,725,000 For example, large garment exporters cannot Warehousing 352,395,000 deal with any informal payment transactions because they have to be compliant with Inventory carrying 573,000,000 international buyers’ standard of garment Logistics administration 178,585,000 sourcing. This practice seems to have been formalized to ensure that garment exporters Logistics costs 1,958,705,000 could not be scrutinized by auditing and compliance controls by independent third-party Sources: Calculated from table 8 and Cambodia 2017 export value. 17 Press Article by the Ministry of Commerce in Khmer Times at http://www.khmertimeskh.com/5098372/exports-19-percent-2017/ (accessed January 1, 2017). A Monitoring and Evaluation Framework for 112 Logistics in Cambodia organization, often nominated by international Figure 3: Decomposition of land buyers in the garment supply chain. These, logistics costs between in fact, are suppliers of major international Bangkok and Phnom Penh brands, which operate often in legal and social environments sanctioning corruptive practices. Different scenarios of logistics land transportation costs: Bangkok - phnom penh 2,500 Figures 2, 3 and 4 show that it cost US$2,170 to transport a 40 ft container over land from 2,000 Bangkok to Phnom Penh. This high cost could -35% -44% -56% be substantially reduced if a combination of 1,500 reforms could be implemented, including the US$ option for trucks to travel across the countries 1,000 without transloading the goods at the border, the consolidation of border control, and the 500 implementation of a single inspection scheme. Likewise, customs clearance and CamControl clearance accounted for a share of 52 percent Base case No consoldation of Single inspetion Free trade case transshipment & border control in an overall cost for a container imports to and exports from Phnom Penh through Sihanoukville. Sources: : Estimated by authors. Figure 2: Costs and time to export Figure 4 Decomposition of land Trade facilitation transport costs between Sihanoukville and Phnom Penh 2000 1841 25 1800 22 21 22 1600 20 17 Number of days to export 1400 15 Costs per container through Sihanoukville to and from Phnom Penh (2017) Costs to export 1200 14 15 1000 11 60.0% 795 823 755 800 10 8 8 572 595 50.0% 600 525 6 6 460 5 6 40.0% 400 4 4 5 3 30.0% 200 20.0% 0 0 Cambodia China Indonesia Malaysia Philippines Singapore Thailand World avg 10.0% 0.0% Customs CamControl Truck costs Certificate, Port handling KAMSAB Cost Cost to export at the border ($ per container) - Left axis clearance Clearance License and and scanning Time to export at the border (number of days) - Right axis Permit Documents to export (number) - Right axis Imports Exports Sources: Authors compiled from the Cambodia Enterprise Sources: : Estimated by authors. Survey database by the World Bank. A Monitoring and Evaluation Framework for Logistics in Cambodia 113 4 LOGISTICS Reliability is the most important issue for manufacturers in Cambodia, at 38 percent of PERFORMANCE IN the overall logistics performance. Cost is also important but high logistics cost is a by-product CAMBODIA of low logistics reliability. If reliability is not improved, then cost issues cannot yet be given priority in the country. At the end of the day, high costs tend to be further transferred back to either customers or suppliers. In improving Logistics performance is composed of three logistics, cost is still important but the level is main dimensions: cost, time, and reliability. The highly affected by the obtained reliability. combination of these three dimensions reflects Reliability is the main driver of logistics the overall performance. The survey respondents performance in the country and must be were asked to weigh which dimensions were given priority when policies are designed to the most important based on a multicriteria help improve logistics performance in the decision-making technique. Figure 4 illustrates country. Table 11 describes the overall logistics how respondents in Cambodia consider overall performance of the respondents. A number logistics performance. of KPIs have been selected to reflect overall Figure 5: Logistics performance logistics performance in the country. The dimensions main KPIs are DIFOT, damage rate, customer complaint rate, ratio of returns, forecast accuracy, and the C2C. A comparison of these KPIs against selected ASEAN countries shows that Cambodia is Time Reliability performing relatively well. Cambodia’s C2C 32% 38% is shorter compared to other countries. It is possible because the country is still a cash economy where payment is often made upon delivery of goods and services. The country’s Cost DIFOT capability is slightly better than Indonesia. 30% However, it is still one of the key weaknesses of the Cambodian logistics system. Sources: : Source: Authors’ estimates based on data from Logistics Users and Service Providers’ Surveys in 2017. Table 11: Comparing KPIs of logistics KPIs Cambodia Vietnam Thailand Indonesia Philippines DIFOT (%) 82.32 90.99 87.84 81.92 89.62 Damage rate (%) 3.46 2.18 4.16 2.01 3.7 Customer complaint rate (%) 5.80 6.65 2.64 6.61 5.97 Ratio of returns (%) 3.68 2.26 3.58 3.55 5.15 Forecast accuracy (%) 81.25 75.53 84.40 81.68 80.15 C2C (days) 9.49 20.29 n.a. 19.00 21.77 Sources: : Survey data; World Bank logistics performance surveys; Banomyong, Huong, and Ha 2014. A Monitoring and Evaluation Framework for 114 Logistics in Cambodia Cambodia’s ratio of returns is the second It is important to have the overall logistics cost highest, with the Philippines having the highest and performance of the country but logistics at 5.15 percent. The accuracy of forecast in cost and performance is dependent upon the Cambodia is better than in Vietnam but worse industrial sectors. One of the main components than in Thailand. The various KPIs reflect different of logistics performance is DIFOT. Table 12 aspects of logistics performance. However, the compares DIFOT capability of key industrial focus of these KPIs is output based and they sectors in Cambodia and selected ASEAN do not reflect inputs or processes. The C2C is countries. DIFOT is a critical KPI that reflects the the only indicator that reflects the financial output of a given logistics system. dimensions in logistics while the other KPIs are all outputs of logistics activities. Table 12: Comparative assessment of DIFOT DIFOT in % Cambodia Vietnam Thailand Indonesia Philippines Automotive 95.25 98.00 82.45 83.75 97.18 Chemical products 85.00 100.00 87.57 81.17 85.71 Food 74.92 100.00 89.41 91.14 88.02 Textile and garments 84.38 80.00 90.66 93.75 91.55 Sources: : Survey data; World Bank logistics performance surveys; Banomyong, Huong, and Ha 2014. The DIFOT level for automotive is the highest in countries. The LPI is based on a worldwide survey Cambodia. This is probably due to the nature of operators on the ground (global freight of the automotive industry where just-in-time forwarders and express carriers), providing practices are the norm. It should also be noted feedback on the logistics ‘friendliness’ of the that the textile and garment sector has a relatively countries in which they operate and those with low DIFOT level compared with Indonesia which they trade. and Thailand but higher than Vietnam. This Based on the surveys in this study, there is a is interesting as this sector is still considered difference in perception between the outsiders competitive compared to Vietnam even though who provided data for Cambodia’s LPI score and there is not much difference in terms of logistics the respondents in this study who are physically costs/sales. Food produce suffers from lower located in the country. The respondents were DIFOT compared with other selected ASEAN asked the same questions in these surveys countries. as those in the World Bank’s LPI survey. The objectives are to explore if there are gaps COMPARING THE RESULTS 4.1  between the external and internal perception AGAINST THE WORLD BANK’S of logistics performance. It is important to note LPI that the LPI score for Cambodia came from respondents who are outside the country while The LPI is a benchmarking tool created to the obtained results in this report came from help countries identify the challenges and respondents who are physically located and opportunities they face in trade logistics and operating in Cambodia. The highest score is 5 what they can do to improve their performance. out of 5. The LPI 2016 allows for comparisons across 160 A Monitoring and Evaluation Framework for Logistics in Cambodia 115 Table 13: Perceived performance of Cambodia’s logistics performance World Bank LPI 2016 Domestic respondents on Domestic respondents on perceived by respondents international performance domestic performance in major trading partners of Cambodia Logistics score 2.80/5 3.47/5 3.31/5 Country (equivalent Cambodia Malaysia Bahrain based on scores) Sources: : LPI database and data from the logistics users and services providers’ surveys. On average, the Cambodian respondents’ respondents’ better familiarity and knowledge scores (3.47 for international and 3.31 for in handling these logistics performance domestic logistics) are higher than Cambodia’s dimensions compared to those that are outside LPI score of 2.8. The highest gap is related to the the country. In the case of international logistics, effectiveness of customs and other authorities the obtained score enables the country to in customs services as well as the quality of be at the same rank as Malaysia, which is logistics services and competence of service considered a logistics-friendly country and is providers. The perception from respondents the second highest ranked ASEAN country. The outside the country in the World Bank LPI is that domestic logistics perception is at the same these performance dimensions are low while level as Bahrain, which has been classified as the Cambodian respondents tend to assign a ‘consistent’ performer in logistics. This means higher scores for each performance dimension. that the domestic logistics system is adequate The variation may be explained by the survey but could still be further improved. A Monitoring and Evaluation Framework for 116 Logistics in Cambodia 5 OUTSOURCING AND LOGISTICS SERVICE PROVIDER CAPABILITY The ratio of logistics outsourcing in Cambodia Figure 7: Service-Level Agreement is as high as 68 percent. The management of logistics can be done either in-house or outsourced. The trend in Cambodia is to outsource logistics activities (Figure 3). This is in line with the data obtained from Vietnam and Yes, all Thailand where outsourcing is the common way None Providers of managing logistics. The rationale behind 27% 26% outsourcing may be varied such as trust in the capability of LSPs from the perspective of users or because the administrative procedures are too complex to be done in-house. Outsourcing Yes, some does help firms focus on their core business and Providers use LSPs as partners in sustaining competitive 47% advantage. Figure 6: Outsourcing ratio Sources: : Authors’ estimates based on data from Logistics Users and Service Providers’ Surveys in 2017. In Cambodia, the most outsourced logistics activities are international transport, customs brokerage, and domestic transport. Transport- In-house related activities are the most outsourced 32% activities as it is a burden for the manufacturers to manage their own vehicle fleet and ocean vessels. However, value-added logistics services Outsource 68% and logistics information technology (IT) systems are mostly done in-house. International logistics activities tend to be more outsourced as respondents do not own the main means of transport whereas domestic logistics can often be handled in-house. Table 14 describes the main outsourced logistics activities and the Sources: Authors’ estimates based on data from Logistics extent of their outsourcing. Users and Service Providers’ Surveys in 2017. A Monitoring and Evaluation Framework for Logistics in Cambodia 117 Table 14: Level of outsourcing (%) Dimensions/Percentage of 0 percent 1 to 25 26 to 50 51 to 75 76 to 100 outsourcing percent percent percent percent Domestic transportation 9.5 20.6 15.0 24.1 16.3 Domestic freight forwarding 9.5 20.6 5.0 13.8 17.0 International transportation 5.4 5.9 10.0 17.2 22.7 (including international freight forwarding) Warehouse and inventory 24.3 14.7 30.0 10.3 9.2 management Value-added services, such 24.3 14.7 20.0 6.9 7.1 as product finishing and customization Logistics IT systems 18.9 14.7 10.0 6.9 12.1 Customs brokerage 8.1 8.8 10.0 20.7 15.6 Total 100 100 100 100 100 Sources: Survey data. The results are quite surprising as more than one performance of LSPs in Cambodia and selected quarter of respondents do not have any type of ASEAN countries. The most important KPI is the SLAs with their service providers. It is important DIFOT KPI, which reflects the overall capability for users of LSPs to have SLAs in the provision to deliver in full and on time as per customers’ of logistics services. However, this is probably instructions. The C2C for Cambodia is 6 days because outsourced logistics is often done on and this seems to be even better than in other an ad hoc basis based on the current need and countries. However, the trend is that this C2C is not considered of strategic value but more of will increase in terms of time due to higher levels an expense that needs to be reduced. Figure 6 of customers’ expectations in the provision of also describes that one out of four respondents logistics services. LSPs in Cambodia are subject has SLAs with all his/her service providers. This to a number of constraints that affect their ratio is quite low. Almost half have SLAs with capability to provide their services efficiently and some of their providers. effectively. This is described in figure 7. Survey data show that delays in customs processes are The capability of service providers in Cambodia considered the most problematic. is not so different from other ASEAN countries. Table 15 details information on the logistics Table 15: Comparative assessment of logistics performance of service providers KPIs Cambodia Vietnam Thailand Indonesia Philippines Average order cycle time 6.48 6.35 7.13 10.27 8.71 (days) Transportation lead time 4.16 4.35 n.a. 9.06 4.97 (days) C2C (days) 6.03 16.10 13.09 13.85 12.29 DIFOT (%) 85.84 93.70 86.6 81.13 85.12 Damage rate (%) 2.86 n.a. n.a. 3.71 2.37 Sources: Cambodia LSP survey data; World Bank logistics performance surveys; Banomyong, Huong, and Ha 2014. A Monitoring and Evaluation Framework for 118 Logistics in Cambodia Other inspection delays when combined with performance of surveyed providers. These are customs delays represent almost a third of issues that are outside the control of the service the most common problems faced by local provider; some are fabricated such as delays LSPs. Apart from delays in processes, traffic but some are natural such as the weather. congestions and the weather also affect the Figure 8: Most common problems faced by LSPs Other Checkpoints 1% 6% Delays in receiving cargo 12% Weather 8% Additional costs Accidents 12% 7% Congestion 9% Damage of Delays in Cistoms cargo process 18% 6% Availa belity of logistics services / problems Inspection delays coordinating transport (other tham 9% castomsrelated) 12% Sources: Cambodia LSP survey data. A Monitoring and Evaluation Framework for Logistics in Cambodia 119 6 LOGISTICS HUMAN Figure 9: Logistics skills development in Cambodia perceived by RESOURCES manufacturing firms Continuing Professional development (i.e. external None, certificate or diploma or not couses relevant 3% 4% Logistics human resources development in Cambodia is not considered a major issue from External development programme both manufacturing and LSP respondents. When (i.e.outside seminars On the job training or workshops) 40% asked about the availability of finding logistics 19% talent, most respondents perceived that most Internal development logistics skills were easily available (illustrated programme with external trainers in figure 8 and figure 9). This is quite interesting 10% Internal development as in most of the ASEAN countries, logistics programme with internal trainers human resource is difficult to find, especially 21% those who are qualified. However, observation Sources: Manufacturing survey data. on the ground and discussion with specific LSPs highlighted some human resource issues as in Figure 10: Logistics skills development the case of truck drivers. It is true that there is in Cambodia perceived by an availability of truck drivers in the country but LSPs they are not skilled and one of the identified None, or not Other priorities is to professionalize the logistics labor relevant 1% 1% force. Even though this is based on anecdotal evidence, logistics jobs are still considered more Continuing professional operational than strategic and therefore are development (i.e. external certificate or On the job training less attractive to the workforce. It is interesting diploma courses) 25% 15% to note that most firms still have to provide External on-the-job training to their logistics-related development staff, which means that that there is a lack of programme (i.e. outside seminars or Internal development formalized logistics training in the country and workshops) 21% programme with internal trainers more is needed to further develop the logistics 22% Internal development competency of the Cambodian workforce. programme with external trainers 15% Sources: Source: LSP survey data. A Monitoring and Evaluation Framework for 120 Logistics in Cambodia 7 MONITORING output should be undertaken in such a way that shortcomings can be identified and AND EVALUATION corrected. Evaluation should also feed into the planning process continuously so that the FRAMEWORK planned method of the intervention can be modified to take into account realities and FOR CAMBODIA conditions on the ground. Evaluation provides a tool for management to ensure that focus is LOGISTICS MASTER maintained. PLAN Box 1: Definition For GDL at the MPWT, M&E may be defined as follows: Monitoring. To review on a continuous basis the degree to which the logistics action plan The Cambodia Logistics Master Plan should is completed and if targets are being met. This include infrastructure, institutions, LSPs, allows corrective actions to be taken. shippers/consignees, people, processes, and systems working together to support an efficient Evaluation. To analyze progress toward meeting and effective logistics system in the country. established objectives and goals. It can be done Controls are normally put in place to monitor on an ad hoc or yearly basis. Evaluation provides weaknesses, poor designs in implementation feedback on whether strategies have been met strategies, and improper actions. Based on and the reasons for success or failure. It should continuous monitoring, these weaknesses or also provide direction for future strategies. shortfalls against targets or objectives set can then be corrected or revised to continually Performance management should align the improve logistics performance. This reduces the performance metrics to the objectives and the risk of exposure and strengthens the response to strategies of the Cambodia Logistics Master Plan. needs. Together monitoring and evaluation provide the basis for performance management. Monitoring and evaluation are integral parts of Aligning performance metrics ensures that M&E policy deployment and provide a link between is targeted and does not disrupt the program. planning and implementation. While monitoring Without alignment, it is difficult to know what to focuses on the activities and outputs, evaluation monitor or how to evaluate it. focuses on the outcome and goals. Monitoring needs to be initiated during the conceptual Box 2: Objective of monitoring and phase of the Cambodia Logistics Master Plan and needs to be built into the design of the evaluation assessment and planning phases of each Monitoring and evaluation has several purposes: logistics development strategies. It focuses on • To provide information to policy makers on inputs and outputs and tracks and assesses the logistics capability of Cambodia implementation of the five logistics strategies. It • To make an objective evaluation of logistics is the continuous process of gathering logistics services and activities and strategy deployment information to • To identify problems in the national logistics system measure against preset KPIs, benchmarks, or • To determine what measures are needed previous baseline indicators that are aligned for improving logistics to the goals and objectives of the Cambodia • To understand the need to increase or Logistics Master Plan. decrease resources • To evaluate performance of individual Evaluation, like monitoring, is a continuous logistics performance dimensions process. The evaluation of the quality of the A Monitoring and Evaluation Framework for Logistics in Cambodia 121 The obtained KPIs are used to measure the empirical KPIs need to be aligned with the key proposed five strategies18 developed for the developed logistics strategies. Table 16 aligns Cambodia Logistics Master Plan. By doing this, the identified indicators to be used in the M&E both quantitative and qualitative measures can system as per the strategies developed for the be monitored for the national logistics system. Cambodia Logistics Master Plan. The high-level secondary indicators and the Table 16: M&E framework for the proposed Cambodia Logistics Master Plan Baseline indicators’ score Source Strategy 1 Development of Economic Corridors and International Gateways Programs Road Transport Capacity Quality of roads: 3.2 out of 7 2nd Pillar Enhancement Quality of railroad infrastructure: 1.6 out of 7 GCR-WEF Promotion of Railways as Quality of port infrastructure: 3.7 out of 7 an Emerging Mode Road fatality rate19 (%) (2013): 17.4 World Health Inland Water Transport Organization Improvement (WHO) Sihanoukville and Phnom Access to road transport networks (%): tbd MPWT Penh Port Development Fuel cost as a percentage share of total transport costs (%): tbd CO2 emissions from transport (% of total fuel World combustion) (2014): 63.61 Development Container port traffic (TEU: 20-foot Indicators equivalent units: thousand): 482 (WDI Strategy 2 Development of Logistics Hubs for Multimodal Transport Programs Bavet Border Area Quality of overall infrastructure: 3.4 out of 7 2nd Pillar Improvement GCR-WEF Quality of air transport infrastructure: 3.7 out Poi Pet Border Area of 7 Improvement Logistics Complex Development Air Cargo Development Urban Transport Facilitation Regional Development Support Strategy 3 Realization of Seamless Border Management 18 The five strategies are presented in table 6. 19 Estimated road traffic death rate (per 100,000 population) by WHO: http://apps.who.int/gho/data/node.main.A997. A Monitoring and Evaluation Framework for 122 Logistics in Cambodia Programs Port Management Irregular payments and bribes: 3 out of 7 1st Pillar GCR- Enhancement Burden of government regulation: 3.4 out WEF Introduction of Cambodia of 7 National Single Window Efficiency of legal framework in settling disputes: 2.9 out of 7 Trade Support Efficiency of legal framework in challenging Trade Compliance regulations: 2.8 out of 7 Improvement Transparency of government policy making: Optimization of 3.2 out of 7 CamControl and Efficiency of customs and border LPI Procedures clearance: 2.62 out of 5 Strategy 4 Capacity Enhancement of Logistics Service Providers Programs Establishment of Logistics Competence and quality of logistics LPI Technical Training Center services: 2.6 out of 5 Public-Private Dialogue Timeliness: 3.3 out of 5 Logistics Business Modernization Introduction of Modern Logistics Technology Market Mechanism Local supplier quality: 3.6 out of 7 11th Pillar Enhancement State of cluster development: 4 out of 7 GCR-WEF Nature of competitive advantage: 3.2 out of 7 Value chain breadth: 3.6 out of 7 Control of international distribution: 3 out of 7 Production process sophistication: 3.1 out of 7 Ability to track and trace consignments: 2.7 LPI out of 5 Average order cycle time: 6.48 days LSP Survey Transportation lead time: 4.16 days C2C: 6.03 days DIFOT: 84.84% Damage rate: 2.86% Outsourcing ratio: 68% User survey SLAs: 26% DIFOT: 82.32% Damage rate: 3.46% Customer complain rate: 5.8% Ratio of returns: 3.68% Forecast accuracy: 81.25% C2C: 9.49 days Percentage of service firms (excluding World Bank retails) identifying an inadequately Enterprise Survey educated workforce as a major constraint (2016): 14.5% Percentage of manufacturing firms identifying an inadequately educated workforce as a major constraint (2016): 20.3% Strategy 5 Strengthening of Legal and Institutional Framework A Monitoring and Evaluation Framework for Logistics in Cambodia 123 Programs Capacity Development of Prevalence of trade barriers: 4.1 out of 7 6th Pillar GDL Trade tariffs (% duty): 9.3% GCR-WEF Facilitation of Trade Prevalence of foreign ownership: 4.5 out of Agreements 7 Enhancement of Borderless Business impact of rules on FDI: 4.4. out of 7 Transportation Burden of customs procedures: 3.2 out of 7 Optimization of Logistics Time to Export (Border Compliance): 48 TAB Costs hours Doing Cost to Export (Border Compliance): US$375 Business Time to Export (Documentary Compliance): 132 hours Cost to Export (Documentary Compliance): US$100 Time to Import (Border Compliance): 8 hours Cost to Import (Border Compliance): US$240 Time to Import (Documentary Compliance): 132 hours Cost to Import (Documentary Compliance): US$120 Ease of arranging competitively priced LPI shipments: 3.11 out of 5 Logistics cost/sales: 20.52% User Survey The proposed improvement targets for medium-term goal instead of being just a partial Cambodia are based on the requirements that performer as identified by the current version of by 2020, the country would need to achieve at the LPI. Improvement in the obtained score will least the mean score for each indicator that is be derived from the successful implementation under the mean. For those indicators that are of the five logistics development strategies over the mean, it is important that their score devised for the Cambodia Logistics Master Plan. increase by at least one unit. The 2025 targets These improvement targets are compiled should be based on at least another unit based on the current logistics performance of increase for each of the indicators. For the TAB key ASEAN countries with the best in class being indicators, it is necessary to reduce the time and used as a target. However, for certain KPIs it cost by at least 10 percent for the year 2020 and might not be possible to improve their score a further 10 percent by the year 2025. due to the nature of the sector or the economy. A comprehensive breakdown of the key The empirical KPI data will also need to be scores and targets that Cambodia will need collected on a regular basis. The proposed time to achieve is proposed. Table 17 provides the period between surveys should be one year baseline and proposed targets of each area and achievable targets should be devised to that Cambodia will need to review and include render logistics in Cambodia more competitive. in the Cambodia Logistics Master Plan. The Both surveys should be conducted by GDL with advantage of using this reference table is that assistance and cooperation from the key private data are available on a yearly basis from the sector stakeholders and local academia. Table GCR-WEF as well as from the Doing Business 19 is the M&E framework for Cambodia based database. The ranking data from the LPI will on the five logistics strategies of the proposed only be available every two years and the Cambodia Logistics Master Plan with targets overall objective for Cambodia is to become a to be achieved to realize Cambodia’s SMART country with ‘consistent’ logistics as a short- to Logistics Vision 2025. A Monitoring and Evaluation Framework for 124 Logistics in Cambodia Table 17: Improvement target scores for Cambodia Dimension Indicators Baseline 2020 2025 in 2017 Infrastructure WEF (out of 7) Quality of overall infrastructure 3.4 3.5 4 Quality of roads 3.2 3.5 4 WHO/MPWT: Road fatality rate20 (%) (2013) 17.4 16.50 16.00 MPWT: Access to road transport networks (%) tbd tbd tbd MPWT: Fuel cost as a percentage share tbd tbd tbd of total transport costs (%) WDI: CO2 emissions from transport (% of 63.61 62.00 61.00 total fuel combustion) (2014) Quality of railroad infrastructure 1.6 3.5 4 Quality of port infrastructure 3.7 4 5 WDI: Container port traffic (TEU: 20-foot 482 530 600 equivalent units: thousand) Quality of air transport infrastructure 3.7 4 5 LPI (out of 5) Quality of trade and transport infrastructure 2.36 2.5 3 Institutional and Policy WEF (out of 7) Framework Irregular payments and bribes 3 3.5 4 Burden of government regulations 3.4 3.5 4 Efficiency of legal framework in settling 2.9 3.5 4 disputes Efficiency of legal framework in 2.8 3.5 4 challenging regulations Transparency of government policy making 3.2 3.5 4 Prevalence of trade barriers 4.1 5 6 Trade tariffs (% duty) 9.3 8 7 Prevalence of foreign ownership 4.5 5 6 Business impact of rules on FDI 4.4 5 6 Burden of customs procedures 3.2 3.5 4 TAB Time to Export (Border Compliance - Hours) 48 43 38 Cost to Export (Border Compliance - US$) 375 338 304 Time to Export (Documentary Compliance 132 118 106 - Hours) Cost to Export (Documentary Compliance 100 90 81 - US$) Time to Import (Border Compliance - Hours) 8 7 6 Cost to Import (Border Compliance - US$) 240 216 194 Time to Import (Documentary Compliance 132 118 106 - Hours) 20 Estimated road traffic death rate (per 100 000 population) by WHO: http://apps.who.int/gho/data/node.main.A997. A Monitoring and Evaluation Framework for Logistics in Cambodia 125 Cost to Import (Documentary Compliance 120 108 97 - US$) LPI (out of 5) Efficiency of customs and border 2.62 3 4 clearance LSPs LPI (out of 5) Competence and quality of logistics 2.6 3 4 services Timeliness 3.3 4 5 Shippers/ WEF (out of 7) Consignees Local supplier quality 3.6 4 5 State of cluster development 4 5 6 Nature of competitive advantage 3.2 3.5 4 Value chain breadth 3.6 4 5 Control of international distribution 3 3.5 4 Production process sophistication 3.1 3.5 4 LPI (out of 5) Ease of arranging competitively priced 3.11 3.5 4 shipments Ability to track and trace consignments 2.7 3.5 4 Human Capital World Bank Enterprise Surveys Percentage of manufacturing firms 20.3 19 18 identifying an inadequately educated workforce as a major constraint (2016) Percentage of service firms (excluding 14.5 13 12 retails) identifying an inadequately educated workforce as a major constraint (2016) Table 18: Improvement targets for firm- and industry-level logistics performance Survey KPIs Baseline in 2020 2025 Unit 2017 Users of Logistics cost/sales 20.52 16 11 % Logistics DIFOT 82.32 85 90 % Services Damage rate 3.46 2 2 % Customer complain rate 5.80 2 2 % Ratio of returns 3.68 2 2 % Forecast accuracy 81.25 85 90 % C2C 9.49 10 10 Days Outsourcing ratio 68 75 80 % Warehousing and storage costs 9.69 7.00 5.00 % SLAs 26 50 80 % LSPs Average order cycle time 6.48 6 6 Days Transportation lead time 4.16 4 4 Days DIFOT 85.84 90 95 % Damage rate 2.86 2 2 % C2C 6.03 6 6 Days A Monitoring and Evaluation Framework for 126 Logistics in Cambodia Table 19: Cambodia’s M&E framework with targets Indicator 2017 2020 2025 Strategy 1 Development of Economic Corridors and International Gateways Programs Road Transport Capacity WEF: Quality of roads 3.2 3.5 4 Enhancement WHO/MPWT: Road fatality rate21(%) (2013) 17.4 16.50 16.00 MPWT: Access to road transport networks tbd tbd tbd (%) MPWT: Fuel cost as a percentage share of tbd tbd tbd total transport costs (%) WDI22: CO2 emissions from transport (% of 63.61 62.00 61.00 total fuel combustion) (2014) Promotion of Railways as an WEF: Quality of railroad infrastructure 1.6 3.5 4 Emerging Mode Inland Water Transport WEF: Quality of port infrastructure 3.7 4 5 Improvement Sihanoukville and Phnom WDI: Container port traffic (TEU: 20 ft 482 500 620 Penh Port Development equivalent units: thousand) Strategy 2 Development of Logistics Hubs for Multimodal Transport Programs Bavet Border Area LPI: Quality of trade and transport 2.36 2.5 3 Improvement infrastructure Poi Pet Border Area LPI: Quality of trade and transport 2.36 2.5 3 Improvement infrastructure Logistics Complex LPI: Quality of trade and transport 2.36 2.5 3 Development infrastructure Air Cargo Development WEF: Quality of air transport infrastructure 3.7 4 5 Urban Transport Facilitation LPI: Quality of trade and transport 2.36 2.5 3 infrastructure Regional Development WEF: Quality of overall infrastructure 3.4 3.5 4 Support Strategy 3 Realization of Seamless Border Management Programs Port Management WEF: Irregular payments and bribes: 3 3.5 4 Enhancement Introduction of Cambodia WEF: Burden of government regulation 3.4 3.5 4 National Single Window Trade Support WEF: Efficiency of legal framework in 2.9 3.5 4 settling disputes Trade Compliance WEF: Efficiency of legal framework in 2.8 3.5 4 Improvement challenging regulations Optimization of Camcontrol WEF: Transparency of government policy 3.2 3.5 4 and Procedures making LPI: Efficiency of customs and border 2.62 3 4 clearance 21 Estimated road traffic death rate (per 100,000 population) by WHO: http://apps.who.int/gho/data/node.main.A997. 22 World Development Indicators (WDI) at http://wdi.worldbank.org. A Monitoring and Evaluation Framework for Logistics in Cambodia 127 Strategy 4 Capacity Enhancement of Logistics Service Providers Programs Establishment of Logistics LPI: Competence and quality of logistics Technical Training Center services 2.6 3 4 LSP: Average order cycle time (days) 6.48 6 6 LSP: Transportation lead time (days) 4.16 4 4 LSP: C2C (days) 6.03 6 6 LSP: DIFOT (%) 84.84 90 95 LSP: Damage rate (%) 2.86 2 2 World Bank-Enterprise Surveys (ES): Percentage of service firms (excluding retails) identifying an inadequately educated workforce as a major constraint (2016) 14.5 13 12 Public-Private Dialogue WEF: Efficiency of legal framework in challenging regulations 2.8 3.5 4 WEF: Transparency of government policy making 3.2 3.5 4 Logistics Business User: Outsourcing ratio (%) 68 75 80 Modernization User: SLAs (%) 26 50 80 User: DIFOT (%) 82.32 85 90 User: Damage rate (%) 3.46 2 2 User: Customer complaint rate (%) 5.8 2 2 User: Ratio of returns (%) 3.68 2 2 User: Forecast accuracy (%) 81.25 85 90 User: C2C (days) 9.49 10 10 World Bank-ES: Percentage of manufacturing firms identifying an inadequately educated workforce as a major constraint (2016) 20.3 19 18 Introduction of Modern LPI: The ability to track and trace 2.7 3.5 4 Logistics Technology consignments Market Mechanism WEF: Local supplier quality 3.6 4 5 Enhancement WEF: State of cluster development 4 5 6 WEF: Nature of competitive advantage 3.2 3.5 4 WEF: Value chain breadth 3.6 4 5 WEF: Control of international distribution 3 3.5 5 WEF: Production process sophistication 3.1 3.5 5 A Monitoring and Evaluation Framework for 128 Logistics in Cambodia Strategy 5 Strengthening of Legal and Institutional Framework Programs Capacity Development of GDL Facilitation of Trade TAB: Time to Export (Border Compliance) 48 43 38 Agreements (Hours) TAB: Cost to Export (Border Compliance) (US$) 375 338 304 TAB: Time to Export (Documentary Compliance) (Hours) 132 118 106 TAB: Cost to Export (Documentary Compliance) (US$) TAB: Time to Import (Border Compliance) 100 90 81 (Hours) 8 7 6 TAB: Cost to Import (Border Compliance) 240 216 194 (US$) TAB: Time to Import (Documentary 132 118 106 Compliance) (Hours) 120 108 97 TAB: Cost to Import (Documentary 4.1 5 6 Compliance) (US$) 9.3 8 7 WEF: Prevalence of trade barriers WEF: Trade tariffs (% duty) 4.5 5 6 WEF: Prevalence of foreign ownership 4.4 5 6 WEF: Business impact of rules on FDI 3.2 3.5 4 WEF: Burden of customs procedures Enhancement of Borderless LPI: Ease of arranging competitively 3.11 3.5 4 Transportation priced shipments Optimization of Logistics User: Logistics cost/sales (%) 20.52 16 11 Costs User: Warehousing and inventory costs (%) 9.69 7.00 5.00 A Monitoring and Evaluation Framework for Logistics in Cambodia 129 8 SUMMARY AND warehouses to keep the goods directly increases logistics cost for the users. Manufacturers in RECOMMENDATIONS Cambodia require that logistics should be reliable to be able to plan efficiently and rely on a more consistent logistics system. The focus of logistics outsourcing is still on traditional logistics activities whereas the Logistics cost over sales in Cambodia is higher outsourcing of value-added activities is not compared to other ASEAN countries such as widespread in the country. This is probably Vietnam and Thailand. However, it needs to because most respondents are not familiar be understood that logistics cost over sales with the types of value-added services that depends highly on the sector under study. Low are offered by LSPs in the country. Logistics sectors tend to have lower logistics cost as it outsourcing can be expanded but this needs is not surprising to find within the same sector to be supported with LSP quality assurance a range of different logistics cost over sales scheme. due to the value-added activities included in the production of the goods. It is true that the The logistics performance of the country, logistics cost over sales in Cambodia is overall based on the same methodology as the World higher than those of other countries, but the Bank’s LPI, is perceived to be higher than the context of each country is also different. World Bank’s LPI score and ranking. This result is valid for both international and domestic This high logistics cost is not only a by-product logistics. The rationale behind the higher score of the country’s geography but also because of is because respondents who are directly logistics reliability issues. Low levels of logistics dealing with logistics issues in the country are reliability indirectly affect the level of logistics much more familiar with the logistics context in cost as it forces manufacturers to have higher Cambodia than those who are answering the levels of inventory. Uncertainties in the national World Bank’s LPI from outside the country. There logistics system have a negative impact on the is a need to harmonize the domestic’s logistics overall performance of logistics in the country. with international logistic standards to enable This forces manufacturers, producers, and seamless connectivity between domestic and traders in the country to carry more inventory. international logistics. The higher the inventory level, the higher the inventory carrying cost, thus affecting the There is a need to further explore and understand overall logistics cost in the country. supply chain issues in both the best and worst performing sectors. Lessons can be learned, There are variations in sectors in terms of logistics and best practices transferred to other less- performance and cost. This is not surprising as performing sectors. This is part of the peer group different sectors have different requirements methodology approach that enables logistics related to logistics performance. There is also knowledge transfer. The studies of domestic a need to better understand the commodity logistics corridors would also be necessary to flows to and from origins and destinations in identify waste in the system. the country to improve not only logistics but also to reduce the cost of access. A reliable The focus in terms of logistics improvement domestic logistics network is a first step in the therefore needs to be on assuring the reliability right direction. and the removal of uncertainties in the logistics system in Cambodia. If reliability of From the perspective of users of the country’s logistics improves in the country, then local logistics system, reliability is the dominant manufacturers and LSPs can design and logistics performance issue. Low level of plan more optimized logistics systems and reliability directly affects logistics capability. This consequently become more competitive. This forces the users to rely more on inventory and will also mean that logistics costs of key sectors warehouses. Relying on inventory and larger A Monitoring and Evaluation Framework for 130 Logistics in Cambodia in the country can be reduced. Focus can then planning and development of the logistics- move to time-based competition to sustain the related policies. Therefore, GDL responsibilities country’s competitiveness. should include the maintenance of a logistics database that will reflect the developed M&E To move forward, it is necessary for GDL to system. GDL will have to compile data from continuously use an appropriate M&E system the WEF and the Doing Business database such as the one proposed here. There is a on an annual basis, collect data from the LPI need for GDL to not only have the institutional on a biennial basis, and conduct their own authority over the M&E system but also to surveys related to the performance of users develop a logistical statistical system that of logistics and LSPs in the country. For the will compile the data and highlight areas for data collection to be sustainable, GDL should improvement. The purpose of M&E is not only establish Memorandums of Understandings to monitor and evaluate the national logistics (MoUs) with key private sector associations and master plan but also to collect key data that academia to be successful in the collection of will be used for further policy decision making the necessary data. related to transport and logistics issues. Collecting data will not be sufficient in itself and In terms of data collection frequency, GDL will the development of a computerized system for need to collect the firm-level data at least once logistics statistics will enable further in-depth per year to reflect the ever-changing logistics analysis that will support the development situation in Cambodia. The first six months of the of more targeted logistics policies. GDL year could be used to collect data from users would need to further explore the possibility of logistics services and the last six months of the of establishing an IT system for transport and year could be used to collect LSPs’ data. GDL logistics related statistics. Table 20 describes the may consider collecting logistics performance list of key actions needed for GDL to be able to data from specific sectors based on national monitor and evaluate the Cambodia Logistics priorities. Master Plan and other logistics-related policies GDL will be the secretariat of national logistics in a sustainable manner. Table 20 provides council (NLC) and national logistics steering indications related to which actions will have committee (NLSC) the lead agency and focal the highest impact on the sustainability of the point for the logistics sector, including the logistics M&E system for Cambodia Table 20: Action plans for sustainability of Cambodia’s logistics M&E system Benefit Cost Short Term (2020) • Train GDL staff to understand LPI methodology High Low • Train GDL staff to understand WEF methodology High Low • Train GDL staff to understand TAB methodology High Low • Train GDL staff to deliver and analyze ‘Users of Logistics Survey” High Low • Train GDL staff to deliver and analyze ‘LSP Survey’ High Low • Assign focal person for M&E system deployment High Low • Establish MoUs with key business associations for data collection High Low • Establish MoUs with other government agencies (such as Ministry of High Low Commerce, Customs) • Train GDL staff to understand IMD methodology Medium Low • Roadshow of Cambodia’s 2017 logistics performance data Medium Medium Medium Term (2025) • Establish Cambodia Logistics Statistical System (CLSS) High Medium • Collect updated logistics statistics for CLSS High Medium • Develop IT system for CLSS High High • Revise and update Cambodia Logistics Master Plan High Medium • Publish Cambodia’s logistics report High Medium • Establish MoU with IMD for inclusion in Competitiveness Report Medium High A Monitoring and Evaluation Framework for Logistics in Cambodia 131 REFERENCES Banomyong, R. 2007. “Thailand Logistics Costs/GDP.” Thammasat Logistics Research Paper 3 (1): 1–2. ———. 2008. “Logistics Development in the Greater Mekong Subregion: A Study of the North- South Economic Corridor.” Journal of Greater Mekong Subregion Development Studies 4 (December): 43–58. Banomyong, R., T. T. T. Huong, and P. T. Ha. 2014. “A Study of logistics performance of manufacturing and import-export firms in Vietnam.” Proceedings of the 6th International Conference on Logistics and Transport (ICLT), Kuala Lumpur, Malaysia, August 26–29. Banomyong, R., V. V. Thai, and K. F. Yuen. 2015. “Assessing the National Logistics System of Vietnam.” Asian Journal of Shipping and Logistics 31 (1): 21–58. Grant, D. B., D. M. Lambert, J. R. Stock, and L. M. Ellram. 2006. Fundamentals of Logistics Management. Berkshire: McGraw-Hill. Stock, J. R., and D. M. Lambert. 2001. Strategic Logistics Management. 4th ed. Singapore: McGraw- Hill International. A Monitoring and Evaluation Framework for 132 Logistics in Cambodia  ROPOSED INTEGRATED M&E ANNEX 1: P FRAMEWORK The development of an M&E framework is an Inputs could be raw materials, but it is hard integral part of policy deployment and provides to monitor. For monitoring the Logistics links between planning and implementation. Master Plan, the prime focus is to check While monitoring focuses on activities and that project activities are completed outputs, evaluation focuses on the outcome as originally planned or delayed. For and goals. example, feasibility study was completed or delayed; procurement was successfully Monitoring needs to be initiated during the completed or delayed. If external donors conceptual phase of the Cambodia Logistics are involved, the amount of disbursements Master Plan and needs to be built into the could be monitored. Monitoring can be design of the assessment and planning phases done through the use of a completion of each logistics development strategies. rate ratio that tracks the project over its The M&E framework will focus on inputs, life cycle. outputs, and outcomes. It will track and assess implementation of the five key national utputs. Outputs are often physical yy O logistics strategies. It is the continuous process infrastructure, such as kilometer of roads of gathering logistics and strategy deployment constructed, port terminal constructed, information to measure against preset KPIs, or any other physical facilities to be built benchmarks, or previous reference indicators with master plan projects. In line with that are aligned with the goals and objectives procurement plans, the approximate of the Cambodia Logistics Master Plan. completion date can be targeted (that is, baseline) and the success/failure can be In terms of data/information gathering, there measured against the preset target. The are four key levels to be considered. completion and usage of the obtained tangible asset can be used to monitor the Table 1.1: Four key dimensions outputs. (1) Project Level (2) Sector/Strategic utcomes. Outcomes can be the level yy O Level of traffic, volumes of cargo, time and (project inputs, outputs, and outcomes) Sector-specific factual cost reductions, customer satisfaction, data (for example, and so on. These outcome targets roads, ports, and are slightly remote from the specific railways) project. Sometimes outcome targets can be achieved without building the (3) Firm Level (4) Macroeconomic infrastructure or vice-versa (that is, Level Firms’ perceptions, outcome targets cannot be achieved logistics performance, Macroeconomic despite the project completion in time). logistics issues, proposed statistics, international This is often because macroeconomic solutions (perceptions indexes (for example, and factual) LPI, WEF, Doing Business) conditions have changed, or the level of the private sector demand was not in line with what was assumed in the feasibility 1. PROJECT-LEVEL M&E study. nputs/activities. Project inputs are often yy I financial resources and human resources. A Monitoring and Evaluation Framework for Logistics in Cambodia 133 There are two types of outcomes from projects: Cambodia such as enhanced GDP or gross national product (GNP) growth. If (a) Outcome specific to the project itself such these enhancements take place, then as increase in average speed in case of the country will become more attractive new road network to foreign investors and possibly would (b) Overall outcome such as GDP growth or lead to more manufacturing production in improved global efficiency ranking Cambodia and consequently leading to higher economic growth. Improvements SECTOR- AND STRATEGY-LEVEL 2. in the logistics system would also result in M&E more trade activities with more import and export. Such macroeconomic The detailed list of actions under each strategy statistics can be identified by industry (for needs to be monitored under the M&E system. example, agriculture, industry) and by In total, there are 25 programs that will need location (for example, exports from PoiPet to be implemented under five key strategies. and Bavet separately). Under each program, there will be a number of actions that will need to be implemented. Some yy I nternational indexes. The second strategy focuses on one sector (that is, Strategy monitoring level is international logistics 3 focuses on CIQ) while other may focus on indexes. These indexes are often more than one sector such as Strategy 1 that perception indicators by foreign logistics includes roads, railways, and ports). professionals, which may not actually reflect improvements on the ground but 3. FIRM-LEVEL M&E are still useful to monitor the changes in scores and rankings. These indicators are The logistics sector is private sector led and it is defined to cover all four dimensions of the always good to communicate with the private national logistics system. These indicators sector. Traditionally, public-private dialogue have been defined to measure focuses on key logistics issues raised by the private sector and possible solutions that both o Quality of transport and communication parties can agree to. Apart from formalized infrastructure; public-private dialogue, it is necessary to o Efficiency and effectiveness of public conduct surveys because surveys can be institutions and policy framework for conducted on a confidential basis and tend trade and logistics; to provide both quantitative and qualitative data. The sample number is important to make o Quality and reliability of logistics services; the results statistically robust rather than having and just one voice representing the whole business community in question. Performance o and competitive advantages of industry actors: shippers MACRO-LEVEL MONITORING 4. and consignees. AND EVALUATION Key indicators for the four levels can be defined Policy makers need to see the impact of logistics to rely on some existing sources to update improvements at the macro level. Results can and analyze the quality and performance of come from two different levels. a national logistics system. Table 1.2 defines key indicators and data to update them when acroeconomic indicators. It is important yy M available on an annual basis except for the LPI that logistics improvements lead to data which are published on a biennial basis. improved macroeconomic indicators of A Monitoring and Evaluation Framework for 134 Logistics in Cambodia Table 1.2: Key monitoring indicators for M&E framework Phase I Phase II Phase III Key Indicators (Monitored in (Monitored in (Monitored in 2020) 2023) 2026) Strategy 1 Outputs Outputs Key Logistics Data yy Central subcorridor upgrading (roads) yy Completion yy Reduced time of travel (by completed of central corridor) yy Intercorridor link and southern coastal subcorridor and yy Improved road safety level (by corridor (roads) upgrading completed intercorridor link corridor) yy Northern line (rail) completed and local links yy Railway cargo volumes (by line) yy Mekong River basic improvements yy Additional yy Inland water cargo volumes made with sound regulatory railway lines to yy Reduction of unit costs of framework be constructed logistics Outcomes Outcomes 2nd Pillar GCR-WEF yy Road traffic increase yy Further increase yy Quality of roads: 4 out of 7 yy Reduction of travel time of road traffic yy Quality of railroad infrastructure: yy Railway cargo traffic increase volumes 4 out of 7 yy Inland water transportation traffic yy Further yy Quality of port infrastructure: 5 increase reduction of out of 7 travel time WHO yy Increase in yy Road fatality rate23 (%) (2013): trade volumes 17.4 of rural areas/ MPWT provinces yy Increased yy Access to road transport agricultural networks (%): tbd exports yy Fuel cost as a percentage share of total transport costs (%): tbd WDI yy CO2 emissions from transport (% of total fuel combustion) (2014): 63.61 Strategy 2 Outputs Outputs Outputs Key Logistics Data yy Port investment yy Port investment yy PP logistics yy Port handling volumes implementation implementation complex yy Modal shift policy (%) yy New policy on PP without delays completed yy Land border handling volumes truck restrictions yy Expansion yy Agricultural yy Border crossing time yy New less than of air cargo logistics center yy Border crossing costs container load warehouse completed yy Transit time in PP (LCL) pilot project Outcomes Outcomes yy Transit volumes through implemented yy Border crossing yy PP local Cambodia yy Water taxi starts time reduced transportation yy Time to access main ports/land operations yy Border crossing costs reduced borders Outcomes cost reduced yy PP transit time yy Cost to access main ports/land yy Port handling to be reduced borders volumes 23 Estimated road traffic death rate (per 100,000 population) by WHO: http://apps.who.int/gho/data/node.main.A997. A Monitoring and Evaluation Framework for Logistics in Cambodia 135 Phase I Phase II Phase III Key Indicators (Monitored in (Monitored in (Monitored in 2020) 2023) 2026) yy Port safety 2nd Pillar GCR-WEF records yy Quality of overall infrastructure: yy Border crossing 4 out of 7 time yy Quality of air transport infrastructure: 5 out of 7 WDI yy Container port traffic (TEU: 20- foot equivalent units: thousand): 482 Strategy 3 Outputs Outputs Outputs Key Logistics Data yy EDI and port yy CNSW (phase II) yy Port EDI fully yy Number of documents needed management completed implemented for exports system (phase I) yy AEO fully yy CNSW fully yy Number of documents needed completed implemented implemented for imports yy Best trader Outcomes Outcomes yy Reduced time to obtain initiative yy Reduction of yy Significant government approvals improved time and costs of reduction of yy Reduced border crossing costs Outcomes crossing borders total logistics yy Improved efficiency of border yy Reduced time through CNSW costs related to control agencies of obtaining yy Increased border control yy Reduction of waiting time at approvals number of agencies the borders yy Reduction of exemptions for (official and yy Ratio of official versus unofficial errors in customs AEO traders unofficial) 1st Pillar GCR-WEF systems yy Irregular payments and bribes: yy Improved 4 out of 7 efficiency of yy Burden of government border control regulation: 4 out of 7 agencies yy Efficiency of legal framework in yy Reduction of settling disputes: 4 out of 7 waiting time at yy Efficiency of legal framework in the borders challenging regulations: 4 out of 7 yy Transparency of government policy making: 4 out of 7 yy Efficiency of customs and border clearance: 4 out of 5 (LPI) Strategy 4 Outputs Outputs Outputs Key Logistics Data yy Basic education yy Sustainable yy Grading system yy Numbers of truck drivers with programs education is established certification established system to be yy Outcomes yy Average age of trucks yy TWG (with the established yy Quality of LSPs yy Market liberalization level private sector) yy Grading system to be improved yy Number of public-private joint established established significantly initiatives A Monitoring and Evaluation Framework for 136 Logistics in Cambodia Phase I Phase II Phase III Key Indicators (Monitored in (Monitored in (Monitored in 2020) 2023) 2026) Outcomes Outcomes 11th Pillar GCR-WEF yy Increased skills of yy Quality of LSPs to yy Local supplier quality: 5 out of 7 truck drivers be improved yy State of cluster development: 6 yy Modernization of yy Increased out of 7 trucks competition yy Nature of competitive (and reduced advantage: 4 out of 7 costs) among yy Value chain breadth: 5 out of 7 LSPs yy Control of international distribution: 4 out of 7 yy Production process sophistication: 4 out of 7 LPI yy Competence and quality of logistics services: 4 out of 5 yy Timeliness: 5 out of 5 yy Ability to track and trace consignments: 4 out of 5 LSP Survey yy Average order cycle time: 6 days yy Transportation lead time: 4 days yy C2C: 6 days yy DIFOT: 95% yy Damage rate: 2% User Survey yy Outsourcing ratio: 80% yy SLAs: 80% yy DIFOT: 90% yy Damage rate: 2% yy Customer complain rate: 2% yy Ratio of returns: 2% yy Forecast accuracy: 90% yy C2C: 10 days World Bank Enterprise Survey yy Percentage of service firms (excluding retails) identifying an inadequately educated workforce as a major constraint (2016): 14.5% yy Percentage of manufacturing firms identifying an inadequately educated workforce as a major constraint (2016): 20.3% A Monitoring and Evaluation Framework for Logistics in Cambodia 137 Phase I Phase II Phase III Key Indicators (Monitored in (Monitored in (Monitored in 2020) 2023) 2026) Strategy 5 Outputs Outputs Key Logistics Data yy Institutional yy Institutional yy Topics resolved after framework for MP framework consultations implementation for MP yy Implementation status of laws established implementation and regulations yy All trade and fully functional yy Implementation status of transport yy All trade and international agreements (that agreements transport is, IWT with Vietnam) ratified agreements yy Trade volumes (bilateral and Outcomes enforced nationwide) yy Increased Outcomes yy Increased number of cross- number of cross- yy Increased border transport permits border transport number of cross- 6th Pillar GCR-WEF permits border transport yy Prevalence of trade barriers: 6 yy Reduction of permits and out of 7 state-controlled vehicles yy Trade tariffs (% duty): 7% logistics costs yy Reduction of yy Prevalence of foreign state-controlled ownership: 6 out of 7 logistics costs yy Business impact of rules on FDI: significantly 6 out of 7 yy Burden of customs procedures: 4 out of 7 TAB/Doing Business yy Time to Export (Border Compliance): 38 hours yy Cost to Export (Border Compliance): US$304 yy Time to Export (Documentary Compliance): 106 hours yy Cost to Export (Documentary Compliance): US$81 yy Time to Import (Border Compliance): 6 hours yy Cost to Import (Border Compliance): US$194 yy Time to Import (Documentary Compliance): 106 hours yy Cost to Import (Documentary Compliance): US$97 LPI yy Ease of arranging competitively priced shipments: 4 out of 5 User Survey yy Logistics cost/sales: 11% yy Warehousing and inventory costs: 9.69% A Monitoring and Evaluation Framework for 138 Logistics in Cambodia  SERS OF LOGISTICS SERVICES ANNEX 2: U SURVEY Manufacturing Logistics Survey in Cambodia 2017 M.1. Background information Name of company/institution: ____________________________ Email address (if you wish to get finding report for your company): ___________________ Year established: _____________________ Type of establishment: (i) corporation (limited liability), (ii) limited partnership, (iii) others Foreign equity participation (i) none, (ii) less than 50 percent, (iii) 50 percent and more Number of full time employees in the firm: ________________________________ M.2a. Please select in which district/city your main activity is located: __________________ M.2b. Respondent position in the firm: ________________________ M.3. Please indicate the yearly revenue of your firm for 2016: (in US$): ______________________ Percentage change __________ (%) year on year (yoy) M.4. Please indicate the main sector of your firm: _________________ M.5. Please indicate the main products manufactured by your firm: _______________________ M.6. Please indicate your main market Domestic % International % 100% Please indicate, for both domestic and international, the markets you serve (tick all that apply): 1. Phnom Penh 2. North East Asia (China, South Korea, Japan) 3. Siem Reap 4. North America (USA, Canada, Mexico) 5. Sihanoukville 6. ASEAN 7. Poipet 8. Europe 9. Other domestic: ________________ 10. Others: _______________________ M7. Please provide an overview of the customer channels used by volume of product distributed. Please indicate percentage of volume distributed by channel Direct to customer site or store To retailers or wholesalers DC Industrial customers Export Other: __________________________________ TOTAL 100% A Monitoring and Evaluation Framework for Logistics in Cambodia 139 M.8. Please indicate the primary origin location and destination of your firm’s main product Domestic Most utilised mode of transport Supplier Location Client Destination International Supplier Location Client Destination M.9. Please indicate your main load type (tick box) Domestic International a) Unitised cargo (containers, trailers), Less than Container Load (LCL) and/or Less than Truck Load (LTL) b) Unitised cargo (containers, trailers), Full Container Load (FCL) and/or Full Truck Load (FTL) c) Break Bulk (pallets, roller cages, packages, etc.) d) Air freight e) Dry bulk f) Liquid bulk g) Express freight h) mail shipping i) Other: M10. Please indicate the relative importance of time, cost, and reliability: Please choose one preference for each question yy If reliability is not an issue, what is more important? Very Important Moderate Equal Moderate Important Very Important Important Cost 4 3 2 1 2 3 4 Time yy If cost is not an issue, what is more important? Very Important Moderate Equal Moderate Important Very Important Important Reliability 4 3 2 1 2 3 4 Time yy If time is not an issue, what is more important? Very Important Moderate Equal Moderate Important Very Important Important Reliability 4 3 2 1 2 3 4 Cost M.11. Please indicate the logistics activities that are outsourced compared to in-house In-house % Outsource % 100% A Monitoring and Evaluation Framework for 140 Logistics in Cambodia M12. Please estimate how many percent of the following logistics operations are managed by an external service provider in your firm 0% 1 to 25% 26 to 50% 51 to 75% 76 to 100% a) Domestic transportation 1 2 3 4 5 b) Domestic freight forwarding 1 2 3 4 5 c) International transportation (including 1 2 3 4 5 international freight forwarding) d) Warehouse and inventory management 1 2 3 4 5 e) Value added services, such as product finishing 1 2 3 4 5 and customization f) Logistics IT systems 1 2 3 4 5 g) Customs brokerage 1 2 3 4 5 M13. Do you have service level agreements with third party service providers? This includes KPIs that are reviewed with provider (please tick box). 1.Yes, all providers 2.Yes, some providers 3.None M.14. Please assess the following performance figures for your main customer* in your company operations in 2016 * Main Customer means most important by sales generation (alternatively by weight or volume of cargo, number of truck loads/trucks, or others). a) What is your average lead time24 from the moment your company gets the order from your main customer to the delivery of your service: __________days b) What is your average lead time when transporting products to your main customer: _________days c) What is the total number of shipment per month made to your main customer? ________________ d) What is the percentage of products shipped complete25 per month to your main customer? __________% e) What is the percentage of products shipped on time per month to your main customer? ________% f) What is the percentage of shipments per month that arrives damaged to your main customer? _____% g) What was the average number of days of sales outstanding in your firm (i.e. average number of days between customer order delivery to receipt of customer payment? _________days h) What was the average number of days of payables outstanding in your firm (i.e. average number of days between supplier order receipt to order payment): ___________days i) What is the average number of days your firm holds its inventory before selling it? ____________days j) What is your customer complaint rate? _____% k) What is the accuracy of forecasts made regarding customer demand for your main product? _______% l) What is the ratio of returns for your main product? _________% m) Please estimate your total annual production/operation costs in 2016 ____________ (US$ and percentage change (yoy)_____________ (%) M.15. Please estimate the following logistics costs in your firm expressed as PERCENTAGES OF FIRM’S ANNUAL SALES in 2016 (Please circle or put in actual %) a) Transport and cargo handling cost (incl. transport packaging) 24 The order lead time is the period between placing an order and receiving the ordered item. 25 Complete means that all shipments ordered by main customer are delivered to the main customer. A Monitoring and Evaluation Framework for Logistics in Cambodia 141 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% % b) Warehousing (cost of running own warehouse or buying the service) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% % c) Inventory carrying cost (incl. cost of capital tied in inventory) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% % M16. Do you have documented logistics plan that is a subset of the corporate plan and that details objectives and performance targets? (Please tick) a) Yes, updated in past 12 months____________ b) Yes, needs updating________________ c) No, but will do in next 12 months_________________ d) No but have logistics plan not linked to corporate plan_______ e) No________ M.17. What activities occur in the development and deployment of your strategic logistics plan (Please tick all that are relevant) a. Operational workshops involving workforce b Alignment of logistics and corporate plans c. people set targets as part of planning process d. Operational Key Performance Indicators (KPIs) aligned with individual’s objectives e. Performance Appraisal f. Plans not linked to operations g. None, or not relevant h. Other (please detail): M.18. Please describe the availability of skilled logistics related staff in the Cambodia Not Somewhat Available Easily Over- Degree of Available Available Available Availability Importance* a. Truck drivers b. Forklift operators c. Warehouse operatives d. Customs brokerage e. Logistics planner f. Forecast planner g. Inventory planner h. Traffic planner i. Load planner j. Logistics/supply chain analyst k. Packing/packaging operatives l. Operations manager m. Facility manager n. Procurement & Supply manager A Monitoring and Evaluation Framework for 142 Logistics in Cambodia o. Business Development manager p. Logistics/Supply chain manager On average how long does operational level staff stay in your firm? _________days/months/year On average how long do management level staff stay in your firm? ________days/months/years M.19. Please describe your firm’s human resource policy related to logistics skills development (Please tick 1 box that best describe your situation) a. On the job training b. Internal development programme with internal trainers c. Internal development programme with external trainers d. External development programme (i.e. outside seminars or workshops) e. Continuing professional development (i.e. external certificate or diploma courses) f. None, or not relevant g. Other (please detail): M.20. Please estimate the functioning of international logistics in Cambodia (tick box): Very Poor Neither Good Very No Poor Poor nor Good Answer Good a) The effectiveness of Customs and other authorities in customs services b) The quality of transport and telecommunications infrastructure c) The quality of port infrastructure d) The quality of airport infrastructure e) The quality of road infrastructure f) The availability of logistics infrastructure (i.e. warehouse, distribution centres, etc.) g) The availability of reliable transport services h) The quality of logistics services and competence of service providers i) Possibility to track and trace shipments j) The probability of shipments arriving at the promised time M.21. Please estimate the functioning of domestic logistics in Cambodia for the following (tick box): Very Poor Neither Poor Good Very No Poor nor Good Good Answer a) The quality of transport and telecommunications infrastructure b) The quality of port infrastructure c) The quality of airport infrastructure A Monitoring and Evaluation Framework for Logistics in Cambodia 143 d) The quality of road infrastructure e) The availability of logistics infrastructure (i.e. warehouse, distribution centres, etc.) f) The availability of domestic shipping services g) The availability of reliable transport services h) The quality of domestic shipping services i) The Quality of logistics services and competence of service providers j) Possibility to track and trace shipments k) The probability of shipments arriving at the promised time M.22. Please indicate if there are any other logistics issues that are of concern to your organisation in your specific location that has not been reflected in the questionnaire or if existing logistics issues needs to be further expanded. You may provide a “wish” list of what is needed to be done to improve logistics in Cambodia ________________________________________________________________________________________________ ________________________________________________________________________________________________ ________________________________________________________________________________________________ ________________________________________________________________________________________________ ________________________________________________________________________________________________ A Monitoring and Evaluation Framework for 144 Logistics in Cambodia  OGISTICS SERVICE PROVIDER ANNEX 3: L SURVEY Freight Forwarder and Logistics Service Provider Survey in Cambodia 2017 L.1. Background information Name of company/institution: ____________________________ Type of establishment: (i) corporation (limited liability), (ii) limited partnership, (iii) others________ Email address (if you wish to get finding report for your company): ___________________ L.2. Respondent position in the firm: ________________________ L.3.Are you currently in any long term contractual relationship to provide your services? (can tick more than one box) (1) Part of a Network (2) International Shipping line (3) Domestic Shipping line (4) Domestic Freight Forwarder (5) International Freight (6) Truck operators Forwarder (7) Domestic 3PL (8) International 3PL (9) Airlines (10) Custom Broker (11) Other: L.3.1 Please estimate your annual sales in 2016: US$__________, Percentage change (YOY): ________ (%) L4. Please indicate the activity your firm outsource the most (tick box, multiple choices possible) (1) Customs Brokerage (2) Warehousing (3) Domestic Trucking (4) International Trucking (5) Packaging (6) International Air freight (7) Domestic Air freight (8) Domestic Ocean freight (9) International Ocean freight (10) Other: L.5. Please indicate your main load type (tick box, multiple answers possible) Domestic International a) Unitised cargo (containers, trailers), Less than Container Load (LCL) and/or Less than Truck Load (LTL) b) Unitised cargo (containers, trailers), Full Container Load (FCL) and/or Full Truck Load (FTL) c) Break Bulk (pallets, roller cages, packages, etc.) d) Air freight e) Dry bulk f) Liquid bulk g) Express freight h) mail shipping i) Other: A Monitoring and Evaluation Framework for Logistics in Cambodia 145 L.6. Please indicate the main commodities your firm handles (by importance to your firm): Inbound: ____________________________Main mode of transport ______________________ Outbound: ___________________________Main mode of transport______________________ L.7. Please indicate the main origin and destination of the main commodity handled by your firm (please report main transit points): Domestic Origin Transit 1 Transit 2 Destination International Origin Transit 1 Transit 2 Destination L.8. For a typical situation, please assess the following performance figures in your company operations in 2016 for your main customer* * Main Customer means most important by sales generation (alternatively by weight or volume of cargo, number of truck loads/trucks, or others). a) What is the average lead-time from the moment your company gets the order to the delivery of your service (for export/import, please use lead-time to/from main port/airport): ________days b) What is your average lead-time when transporting products to your main customer (for export/ import, please use lead time to/from main port/airport): Origin_________________________Destination_________________________Days_______ c) What is the total number of shipments per month made for your main customer? ___________ d) What is the percentage of shipments per month that arrives on time to your main customer? _% e) What is the percentages of shipments per month that arrives in full to your main customer? _% f) What is the percentage of shipments per month that arrives damaged to your main customer? % g) What is the average number of days between customer order delivery to receipt of customer payment: ______days h) What was the average number of days between supplier order receipt to order payment by your firm): _____days i) What are the main reasons you were not able to fulfil your orders (multiple answers possible)? (1) Delays in receiving cargo (2) Additional costs (3) Delays in Customs process (4) Inspection delays (other than customs-related) A Monitoring and Evaluation Framework for 146 Logistics in Cambodia (5) Availability of logistics services/problems coordinating transport (6) Damage of cargo (7) Congestion (8) Accidents (9) Weather (10) Checkpoints Other (please expand) (11) j) Please estimate your annual operation costs in 2016: US$ _____________, Percentage change (YOY): __________ (%) L9. Please indicate the relative importance of time, cost, and reliability: yy If reliability is not an issue, what is more important? Very Important Moderate Equal Moderate Important Very Important Important Cost 4 3 2 1 2 3 4 Time yy If cost is not an issue, what is more important? Very Important Moderate Equal Moderate Important Very Important Important Reliability 4 3 2 1 2 3 4 Time yy If time is not an issue, what is more important? Very Important Moderate Equal Moderate Important Very Important Important Reliability 4 3 2 1 2 3 4 Cost L10. Please estimate how many per cent of your firm’s sales was generated in 2016 from (1) Customs Brokerage % (2) Warehousing % (3) Domestic trucking % (4) International trucking % (5) International Ocean freight % (6) Domestic Ocean freight % (7) International Air freight % (8) Domestic Air freight % (9) Packaging % (10) Other: % TOTAL 100% A Monitoring and Evaluation Framework for Logistics in Cambodia 147 L.11. For the types of services you offer, when did you introduce them (please provide the year for all that apply for your firm): Service Year Introduced Service Year introduced (1) Bonded storage (10) Distribution (2) Cargo agent for air Domestic Freight Forwarding (11) transport (3) Cargo agent for rail (12) International Freight transport Forwarding (4) Cargo agent for road (13) Inventory management transport (5) Cargo agent for sea (14) Order processing transport (6) Cold chain (15) Packing, labeling (7) Consolidation Quality control, testing (16) (8) Courier and express (17) Warehousing delivery (9) Customs clearance (18) Trucking L.12. What service improvements has your firm recently introduced (please tick box for all that apply): Year (1) Introduction of IT in the firm (2) Entered new cooperation to increase domestic network (3) Entered new cooperation to increase international network (4) Training of employees and management staff (5) Get international quality certifications, e.g. ISO 9001 (6) Using Standard Trading Conditions (STC) (7) Other: (8) Other: L.13. Please estimate the functioning of international logistics in Cambodia (tick box): Very Poor Neither Poor Good Very No Poor nor Good Good Answer a) The effectiveness of Customs and other authorities in customs services b) The quality of transport and telecommunications infrastructure c) The quality of port infrastructure d) The quality of airport infrastructure e) The quality of road infrastructure f) The availability of logistics infrastructure (i.e. warehouse, distribution centres, etc.) g) The availability of reliable transport services h) The quality of logistics services and competence of service providers i) Possibility to track and trace shipments j) The probability of shipments arriving at the promised time A Monitoring and Evaluation Framework for 148 Logistics in Cambodia L.14. Please estimate the functioning of domestic logistics in Cambodia for the following (tick box): Very Poor Neither Poor Good Very No Poor nor Good Good Answer a) The quality of transport and telecommunications infrastructure b) The quality of port infrastructure c) The quality of airport infrastructure d) The quality of road infrastructure e) The availability of logistics infrastructure (i.e. warehouse, distribution centres, etc.) f) The availability of domestic shipping services g) The availability of reliable transport services The quality of domestic shipping services h) i) The Quality of logistics services and competence of service providers j) Possibility to track and trace shipments k) The probability of shipments arriving at the promised time L.15. Please describe the availability of skilled logistics related staff in Cambodia Not Somewhat Available Easily Over- Available Available Available Availability Truck drivers Forklift operators Warehouse operatives Customs brokerage Logistics planner Forecast planner Inventory planner Traffic planner Load planner Logistics/supply chain analyst Packing/packaging operatives Operations manager Warehouse manager Procurement & Supply manager Customers service manager Customer service assistant Business Development manager Logistics/Supply chain manager A Monitoring and Evaluation Framework for Logistics in Cambodia 149 On average how long does operational level staff stay in your firm? _________days/months/year On average how long do management level staff stay in your firm? ________days/months/years L.16. Please describe your firm’s human resource policy related to logistics skills development (Please tick all that apply) (1) On the job training (2) Internal development programme with internal trainers (3) Internal development programme with external trainers (4) External development programme (i.e. outside seminars or workshops) (5) Continuing professional development (i.e. external certificate or diploma courses) (6) None, or not relevant (7) Other (please detail): L.17. Please indicate if there are any other logistics issues that are of concern to your organisation in your specific location that has not been reflected in the questionnaire or if existing logistics issues needs to be further expanded. You may provide a “wish” list of what is needed to be done to improve logistics in Cambodia A Monitoring and Evaluation Framework for 150 Logistics in Cambodia The World Bank Cambodia Country Office Exchange Square Building Floor 10th IBRD and 11th IFC Streets 51-61 and Streets 102 -106 Sangkat Wat Phnom, Khan Daun Penh Phnom Penh, Cambodia Website: www.worldbank.org/cambodia