21777 January 2001 Forging Subregional Links in Transportation and Logistics in South Asia Uma Subramanian John Arnold r='~~t' 1~ 2xt;' '~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Forging Subregional Links in Transportation and Logistics in South Asia Uma Subramanian John Arnold The World Bank Washington, D.C. Copyright ©O 2001 The International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, N.W. WVashington, D.C. 20433, USA All rights reserved Manufactured in the United States of America First printing January 2001 1 2 3 4 03 02 01 00 The findings, interpretations, and conclusions expressed in this book are entirely those of the authors and should not he attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The W'orld Bank does not guarantee the accuracy of the data included in this pLiblication and accepts no responsibility for any consequence of their use. 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For permission to reprint individual articles or chapters. please fax a request with complete information to the Republication Department, Copyright Clearance Center, fax 978-750-4470. All other queries on rights and licenses should be addressed to the Office of the Publisher, World Bank, at the address above or faxed to 202-522-2422. Cover design by Debra Naylor, Naylor Design Inc. ISBN 0-8213-4885-X Library of Congress Cataloging-in-Publication Data has been applied for. Contents Foreword v Acknowledgments vii Executive Summary 1 Emerging Trends and Implications for the South Asia Subregion 1 Linkages with Other Bank Strategies 2 Methodology for the Study: Selection of Strategic Commodities and Routes 3 Highlights of the Commodity Flows Study 3 Highlights of the Comparative Route Analysis 4 Need for Public-Private Partnership 7 Preliminary Agenda for Action 7 Bank Group Involvement 13 The Report's Audience and Its Structure 14 1. Connecting a Subregion: A Strategic View 15 Profile of the South Asia Subregion 16 Potential for Growth: The Need for a Shared Vision 26 Approach 28 Structure of the Report 31 2. Reducing Logistics Costs 33 Transport Components 35 Analysis of Logistics Costs and Times 46 Implications of Logistics Constraints and Characteristics of Goods 51 3. Route Selection: Applying a Logistics Viewpoint 55 Commodities, Modes, and Routes: Selected Case Studies 57 Highlights of Case Studies 66 Damages, Delays, and Corruption 68 Variations in Transport Logistics Performance and Cost 70 Conclusions 73 iii 4. Improving Private-Public Partnerships in South Asian Transport and Logistics 75 Delegates' Views of the Private Sector Role 78 Expectations about Government Action 78 Organizations for Innovative Private-Public Investments 79 Organizations for Private Operations of Transport Infrastructure and Operations 82 Future of Private-Public Partnership in the Region 84 5. Setting a Dynamic Process in Motion 87 Strategic Linkages and Areas for Development 89 Policy Reform and Improved Transit Protocols 92 Modernization of Transport Networks and Services 93 Changes Affecting Future Logistics 97 Possible Implications for Bank Group Involvement 99 6. Next: Proposed Change 103 Preliminary Agenda 108 Regional Capacity Building 115 Bibliography 117 Background Notes 117 Other References 118 Maps: South Asia Intermodal Transportation Network 121 1. Key Subregional Routes 122 2. Cross Border Points of Interest: India. Nepal, Bhutan, and Bangladesh 123 3. Cross Borcder Points of Interest: India and Bangladesh 124 4. Cross Borcler Points of Interest: India and Bangladesh 125 5. Cross Borcler Points of Interest: India and Nepal 126 6. Transport Logistics Cost Model 127 7. South Asia Region 128 8. Transport of Carpet from Kathmandu to Europe 129 9. Transport of Tea from Karimganj, Assam to United Kingdom 130 10. Transport of Freights of all Kinds from Calcutta to Agartala 131 11. Transport of Cement from Calcutta to Agartala 132 12. Transport of Agricultural Produce from Kathmandu to Dhaka 133 iiv Foreword o fight poverty with passion and professionalism for lasting results.' This is the very essence of the World Bank's Mission Statement that has a special place in South Asia, a region that harbors a lion's share of the world's poor. Development strategy for poverty alleviation must be rooted in transformation of society by the society. For this, individu- als in society must be energized with a vision for their own betterment, and through shared knowl- edge, resources and capacity building, be helped to translate the vision into reality. Societies that have discovered the magic of individual and collective empowerment are the ones that have discov- ered the link between political and economic stability and poverty alleviation. We are rapidly moving to an era of globalization where countries are increasingly connected by markets, trade, finance, resources, transport, information and communication. South Asian countries face a unique opportunity to participate competitively in this global production and trading system. However, this opportunity will be realized only if they can meet the market demands that call for high quality products and services and just-in-time delivery. This report focuses on a poor sub-region of South Asia covering Bangladesh, Bhutan, Nepal and Eastern India. As the South Asian countries are positioning themselves to participate in global and regional markets in light of recent liberalization policies, their efforts and opportunities to find markets within and outside the region are severely limited due to serious transportation and logistics impediments. These impediments significantly raise the cost of doing business affecting critical economic sectors. In turn, they have an adverse impact on economic growth, low skilled employ- ment and poverty in the sub-region. The landlocked countries or regions are in particular, severely constrained by poor access. The issues involved in efficient regional transport logistics systems are complex and often politically sensitive. They cut across not only physical infrastructure related bottlenecks, but also policy and v procedural issues in the logistics chains-such as red tape and corruption in customs, highly restric- tive bilateral protocols on cross-border movement of vehicles, delays and pilferage in ports, and poor modal interfaces. Through the innovative analytic framework that would support more open and rational dialogue among countries and among public and private sector groups in the region, this report would contribute to the process of helping forge partnerships and collaboration in the sub-region, promoting trade, investment, growth and employment. Let us continue to strive through these and other on-going efforts in the region in our mission to fight poverty. Mieko Nishimizu Vice President, South Asia Region The World Bank ri Acknowledgments he principal authors for this report are Uma Subramanian (task team leader) and John Arnold (consultant). Shunso Tsukada (Transport Specialist) and Peter Yee with S.M Matin (consultants) contributed to the analytic framework and logistics cost data. In addition, Peter Yee, Manmohan Parkash and S.M Matin were responsible for several key back- ground thematic notes that contributed to this report. ALK Associates prepared the logistics cost model, Geographic Information Systems data and maps. Mohammad Iqbal Karim, Surendra Joshi and Harald Hansen provided important inputs as team members. The team is especially grateful to allies and friends from the private and public sectors from the South Asia region who generously shared advice and inputs. Peer reviewers that include Frannie Leautier, Colin Gannon, Marc Juhel, Anil Bhandari, Thampil Pankaj and T.R. Lakshmanan provided invaluable insights and guidance. We are grateful for guid- ance from Sadiq Ahmed and input from several colleagues including Eva Molnar, Graham Smith, Ken Gwilliam, Carlos de Castro, Joelle Chassard, Chingboon Lee, Ken Ohashi, Alok Bansal, Stein Lundebye, Guang zhe Chen, Fabio Galli, Mohi Uz Zaman Quazi, Zhi Liu, Uwe Deichmann, Stephan von Klaudy, and Jeffrey Lecksell. The report was prepared for the South Asia Infrastructure Sector Unit under the management of Vincent Gouarne (Sector Director). Administrative assistance was provided by Gladys Stevens. Halima Samey, Luis Vasquez, Irene Christy, Johana Thapa, and Razia Sultana helped with various aspects in the production and distribution of the report. vii he area of study in the South Asia subregion consists of Executive Bangladesh, Bhutan, Nepal, Eastern India, and the seven Northeastern Indian states. The states included in East- Sum nnary @ . ern India are West Bengal, tJttar Pradesh, Bihar. and Orissa. The Northeastern Indian states include Assam, Mizoram, Nagaland, Arunachal Pradesh, Tripura, Meghalaya. and Manipur. (See Maps 1 to 5 at the end of the report for the key routes considered and the important cross-border points of interest). The subregion, home to half a billion people, is among the poorest regions in the world. This report synthesizes the work and background reports prepared as part of the sector work under the B3ank's South Asia Regional Initia- tive on Transport Integration. One of the fundamental objectives of this report (in line with the objective of the regional initiative on transport) is to use an analytic framework to identify key transport and logistics impediments that have left the subregion lagging behind in economic growth. A closely linked objective is to improve the access of the landlocked areas in the South Asia subregion, specifi- cally Nepal, Bhutan, and Northeast India, to regional and interna- tional markets. The intention is to share the framework and logistics cost model developed with the countries in order to allow stakehold- ers to continue the process of analysis and dialogue based on up- dated data as markets, trade, and transport services in the subregion and elsewhere change. EMERGING TRENDS AND IMPLICATIONS FOR THE SOUTH ASIA SUBREGION Recent trends in globalization that enable decentralization of produc- tion and distribution activities worldwide offer tremendous economic opportunities for employment and growth in poor countries. The ability of countries to grow rapidly depends on their capacity to link with global and regional markets. In turn, this capacity depends signifi- cantly on connectivity, and the efficiency and speed with which goods and services can be moved from production centers to final markets. Improvements in transport logistics therefore have important implica- tions for poverty alleviation by offering new econonmic opportunities I 2 Forging Subregional Links in Transportation and Logistics in South Asia through better market linkages, expanded em- commercial level (Map 6 at the end of this re- ployment possibilities, easier and cheaper de- port). We think that the framework would help velopment of the resource base, and reduced lead to improved and rational dialogue in key damages and losses due to inefficient storage sectors among and within the countries on sub- and multiple handlings. The rationale for improv- stantive issues in the area of transport, logistics, ing transport logistics among countries and with and regional connectivity. the outside world can also be applied to internal trade between the rural areas and urban mar- LINKAGES WITH OTHER BANK STRATEGIES' kets. Improved transport logistics are very im- portant for small and medium industries in rural The approach reflects several of the principles areas that must deliver a quality product within under the Bank's Comprehensive Development an acceptable time and at a competitive cost. Framework, including: As in other parts of the world, regional and sub- * The interactive approach to Advisory and Ana- regional issues are addressed with a great deal lytic Activity adopted through continual of sensitivity in South Asia. Given the sensitivi- subnational, national, and regional consulta- ties of regional issues, the Bank study team sought tions with stakeholders from various sectors to promote dialogue among key regional stake- in order to build ownership in the countries. holders and provide for a better understanding of key issues and options by learning from ex- * Partnership building with and among govern- periences in other parts of the world. Its goals ments, private sector groups, research institu- were to create a greater popular awareness of tions, and other development organizations. the mutual benefits of cooperation and establish The task team therefore focused on building a high level of commitment for improved trans- allies as well as creating broad coalitions of port logistics, both in the government and the national stakeholders and development part- private sector. The Bank team sought to provide ners from the government, private business technical inputs and a framework to evaluate groups (such as chambers of commnerce, the broader regional implications of proposals freight forwarders, exporters, and shippers), generated by the participants. and donor and development organizations (such as the United Nations and the Asian The report includes a set of analytic tools that Development Bank.)2 include a geographic information systems (GIS) database for the region and a logistics cost model * Knowledge sharing and consultations in or- developed in collaboration with stakeholders in der to help develop a joint vision for the sub- the subregion. The report is not aimed at offer- region that will enable the evolution of ing a master plan for a regional transportation national to regional strategies. Toward this network, nor is it envisioned to be a regional transport sector strategy. The broader objective of the report, in line with the objectives of the 1. These other strategies include Country Assistance Strate- regional initiative, is to provide an analytic frame- gies and the Comprehensive l)evelopment Framework of work and a user-friendly decision support tool the World Bank. to address improved regional movement of goods 2. For more information on the summary proceedings of and services and allow for moving issues from a the Private Sector Consultative Workshop Transport and purely political realm to a more economic and Trade Facilitation in the subregion, see Background Note 1. Executive Summary 3 objective, a regional technical workshop was the rest of India. The routes included those con- held to offer international experiences on re- necting Nepal and Bhutan to international and gional integration.3 regional markets through Calcutta and other In- dia ports, as well as routes linking Northeast In- The Regional Initiative on Transport is consis- dia to the rest of India via Bangladesh and on to tent with country assistance strategies (CAS) for international markets via Chittagong port. the relevant countries and reflects client interest in the regional dimension for sectoral activities. The analytic framework applied in the evalua- This was noted in the CAS for India (dated De- tion of commodity movements on existing and cember 19, 1997), the CAS for Nepal (FY98) and proposed transit routes took into account both Bhutan (FY99), and the forthcoming CAS for the cost and time associated with the entire lo- Bangladesh. The results of this study can pro- gistics chains, including the time and cost for vide information for transport sector strategy cross-border procedures and moving cargo updates, such as the Bangladesh and India trans- through seaports (Map 6 at the end of this re- port sector updates. It can also provide poten- port). It enabled two types of analysis: tially relevant data for ongoing lending and technical assistance projects, including the Nepal v Identifying critical impediments along a Multimodal Transport and Transit Facilitation logistics chain. Detailed information on project and the Bangladesh Export Diversifica- physical gaps and constraints, policies, pro- tion project. cedures, commodity type, and market condi- tions helped determine where improvements in the short term can bring about significant METHODOLOGY FOR THE STUDY: SELECTION returns in terms of efficiency improvements. OF STRATEGIC COMMODITIES AND ROUTES Comparing alternative routes (and The core set of strategic commodities and routes modes) as a means toward the more cost- selected for this study were chosen for two rea- effective route. Existing routes were com- sons. First, they provide opportunities for land- pared with alternative routes that were either locked areas to reach markets and, second, they already proposed by the private sector or are critical commodities that link the subregion under consideration by the relevant govern- to the global market. Accordingly, the study ex- ments, or with those that have some potential amined Bangladeshi exports of garments to Los for growth. The comparative analysis not only Angeles and imports of yarn from India; Nepali provides information on the potential savings exports of carpets to Europe and imports of wool if these routes were operationalized, but it from Australia; fruit and processed products from also allows for a dynamic analysis of how Bhutan to regional markets; and essential con- improvements in the components of both lo- sumer commodities to Northeastern India from gistics chains would affect overall benefits and route selection. 3. Specifically, the South Asia Regional Technical Workshop HIGHLIGHTS OF THE COMMODITY FLOWS STUDY on Transportation and Transit Facilitation, held in April 1999 in Bangkok. It was sponsored by the World Bank and the None of the routes provided logistics that could United Nations' Economic and Social Commission for Asia be considered fast and reliable, though some of and the Pacific. them were more cost effective than others. This 4 Forging Subregional Links in Transportation and Logistics in South Asia is important as the region moves toward more of coordination in operations cause serious regional and international trade in higher-value, congestion at the busier crossings, such as finished goods. International markets are increas- Petrapole (India)-Benapole (Bangladesh). It ingly demanding tighter and more reliable de- also leads to long delays at the less devel- liveries. It is clear that improved logistics are oped crossings where there is no customs essential to remain competitive. Without improve- office or official in residence, such as at the ments, the region will not only miss out on new Banglabandh border crossings in Bangladesh markets, but it will also suffer a decline in mar- for Nepalese trade cargo. ket share in existing markets. Limitations on routes for transit cargo, The most important constraints in the logistics regardless of which country the trucks chains include: belong to. This is a significant problem be- cause it prevents the shippers from taking the * Excessive delays in moving cargo through routes that offer the best balance of time and the ports of Calcutta and Chittagong for cost and from selecting the port that offers international trade. The problems include the least-cost shipping to the overseas destina- congestion within the port that leads to ineffi- tion. This is also true for regional movements. cient handling of the cargo, cumbersome cus- toms procedures, and delays that stem from HIGHLIGHTS OF THE COMPARATIVE ROUTE ANALYSIS waiting for vessels that cannot operate to a fixed day-of-the week schedule because of The routes from Nepal, which could use Nhava the uncertainty regarding the turnaround time Sheva rather than Calcutta as a gateway port, in the port. This adds to the time for ocean would require an initial transfer from road to rail shipment of containers because the movement at Moradabad and, later on, at new inland con- of the feeder vessels cannot be coordinated tainer depots (ICDs) located closer to the origin with that of the mother vessels, and contain- or destination of the cargo. The longer land trans- ers in Singapore have an average waiting time port distance to Nhava Sheva would be more of a week." than compensated for by short sailing times to Europe and the potential for direct shipments * Ineffitciencies at land border crossings. from Nhava Sheva or transshipment along the Significant time delays and logistics costs are route to Europe (instead of backtracking to due to a combination of impediments. The Singapore, as in the case of Calcutta port). basic constraints are the lack of efficient cus- toms operations, which cause unnecessary The shipment of Assam tea on its traditional route queuing delays for inspection and customs through Chittagong is not possible under the cur- clearance; and a lack of adequate facilities rent bilateral protocol. Even if there is bilateral for the transfer of cargo between vehicles and agreement on this option, this route offers rela- for the storage of cargo that is consolidated at tively small savings over the long route around the border. Poor physical planning and lack Bangladesh through Siliguri to Calcutta because of the delays at the Akhoura-Agartala border crossing and at the port itself. 4. Haldia was not includled in the selected rotites, although its role in handling the cargoes studied, such as tea, is in- The road route between East India and North- creasing rapidly. east India through Bangladesh reduces transport Executive Summary 5 distance by more than 60 percent in comparison lack of transparency of procedures for inspec- to the current route around Bangladesh through tion all reduce efficiency and create animos- Siliguri, but it is not open under current protocol. ity. With simplified procedures, standardized If access for transit cargo to or from Northeast- documents, and limited inspections, especially ern India were permitted through Bangladesh, for transit cargo, the congestion at the border the transshipment requirements (the transfer of could be substantially reduced or eliminated. cargo from Indian to Bangladeshi trucks, and back to Indian trucks) and the cross-border process- * The constraints at land border crossings would ing delays at the two borders would offset any be significantly reduced if protocols were es- potential benefits from the reduced distance. tablished for unrestricted movement of cargo However, if border-crossing procedures were across borders in-bond. Instead, there is a significantly reduced and if transit access for provision preventing Indian, Nepalese, or Indian vehicles were allowed, there would be Bhutanese trucks from moving across the significant savings in time and cost. Bangladeshi border. India has agreements with Bhutan and Nepal that allow trucks to move The rail route between East India and Northeast across the border, but their movements within India through Bangladesh, though also not avail- the country are restricted. These restrictions able under current agreements, may be a fea- add to the cost of transport, not only because sible one in the medium term as the Indian and of the labor and losses involved in transfer- Bangladeshi railway systems are increasing ring cargo between vehicles, but also because compatibility and connectivity. the shipper cannot chose the least-cost pro- vider and the transport companies cannot Among the route-specific observations resulting position themselves to obtain backhaul cargo from the comparative analysis are: other than at the border. S Seaports are very important factors in deter- * High-value exports from Nepal to the Pacific mining route selection because of the large Rim require faster handling at Calcutta, delays and high costs for transferring cargo Chittagong, and Haldia. whereas shipments through the ports. The elimination of unnec- to Europe and the east coast of the United essary customs procedures and delays in cargo States require direct (intermodal) connections handling will cause cargo to be routed through to the Jawaharlal Nehru Port Trust (JNPT). Both more efficient seaports. types of shipments require containerization of the cargoes at the earliest point in the lo- * Customs clearances lead to unnecessary de- gistics chain. The ability to ship in containers lays and informal payments. However, they will be substantially improved with the opera- do not have as great an impact as other pro- tionalization of the three ICDs on the Nepalese cedures at border crossings and ports. The border. A direct rail link from Birgunj to the uncertainties associated with the delays and JNPT would provide the greatest efficiency costs of clearing customs can often be traced gains among the alternatives considered. to inadequate preparation of customs docu- ments by the shipper. Customs limitations on * Truck routes via Bangladesh can offer reduc- working hours, the low supply of officials at tions in time and cost for medium-value goods the border to clear consignments, the limited moving between East India and Northeast In- number of gates for receiving cargo, and the dia if the cargo can be moved in-bond and 6 Forging Subregional Links in Transportation and Logistics in South Asia there is coordination between customs check- ness, the hauling of low-value bulk commodi- points at border crossings on both sides of ties, because of the higher costs for trucking Bangladesh to significantly reduce delays and and the longer transit times for inland water. eliminate transshipment. The savings to the shippers should be sufficient to support tolls * Inland waterways could play a more promi- to cover the cost for road maintenance result- nent role in the transport of the low-value ing from the increase in transit traffic. bulk cargoes that move between Calcutta and north and east Bangladesh, which is not yet * For trade in high-value goods between India served by broad-gauge rail. The inland water and Bangladesh, trucks will be the dominant, transport network in Bangladesh is of consid- if not the exclusive, mode. Travel time will erable importance for domestic shipments, but be the major concern and route selection will it is less relevant for the movement of transit be based on reducing door-to-door delivery traffic. Very low travel speeds could be com- time. Significant improvements in rail opera- pensated for by improvements in channel tions would be needed if this mode were to markings to allow for nighttime navigation and capture some of this traffic. by improvements in port operations to reduce turnaround time. However, this mode is ex- • Intraregional shipments of fruits, vegetables, pected to continue to attract only low-value and other perishables from Bhutan and Nepal cargoes that can afford long delivery times. to India and Bangladesh require much better An exception is the proposed container-on- logistics. This can be achieved by allowing barge service between the proposed Patenga the cargo to move in a single truck from ori- port and Dhaka that would take advantage of gin to destination and by ensuring that clear- the poor rail container service and lack of ance time at the border on both sides does efficient road connections for containers on not exceed six hours. this major corridor. Another exception would be the countries agreeing to route Numaligarh T The extension of the broad-gauge network in refinery (Assam) products through Bangladesh India and the development of a dual-gauge to West Bengal. network in Bangladesh will offer much broader coverage with much fewer delays. If the In- * Investments in the transport network are nec- dian and Bangladeshi railways continue to essary to improve the quality of logistics ser- integrate their systems and extend their broad- vices, but these were given a lower priority gauge networks, they might capture some than the procedural problems. The lower rank- medium-value break-bulk cargoes. However, ing is due in part to the recognition that these delays will continue at the border unless com- are long-term problems and will require ma- patible rolling stock is introduced and the short- jor capital investment and increased private age of locomotives ends. If these capital sector participation if they are to be solved. It investments can be combined with more effi- is also because of expectations that current cient operations, as the Indian organization efforts to improve the transport network in Concor has achieved, there is the possibility the subregion will yield measurable results that the railroads can provide the quality of over the next five years. logistics services required by higher-value goods. At a minimum, the railways will be able * Trucking is provided almost entirely by the pri- to maintain market share in their core busi- vate sector. Truckers use older vehicles with Executive Summary 7 relatively low power-to-weight ratios, suitable * Amending transit treaties and protocols to al- for short-haul traffic but not for the long-haul low for a freer choice of transport routes and movements of bulk and unitized cargoes. The service providers; rates for trucking services are competitive, both within the countries and between the coun- * Instituting a program of modernization for cus- tries, although India has the competitive ad- toms and cross-border facilities; vantage of not needing to import trucks. The rates are held down by an emphasis on low * Increasing the use of container transport by labor costs and inexpensive equipment rather removing institutional impediments, such as than by efficient utilization of more expen- the protocol between India and Bangladesh; sive, higher-capacity equipment. This is un- likely to change until the road network is * Constructing ICDs in the region to encourage improved and regulations regarding truck container transport outside the main India rail loads and safety are enforced. transport corridors; and NEED FOR PUBLIC-PRIVATE PARTNERSHIP * Improving access to credit and financial in- termediation services. The private sector is pursuing improvements in trade relations and transport logistics to ensure a smoother flow of goods and more cost-effective PRELIMINARY AGENDA FOR ACTION services among the countries in the region. The chambers of commerce of the four countries have The actions recommended in this report build established a joint forum called the Emerging upon the general theme of consultation with the East Initiative to examine and promote invest- private and public sectors, and would require ment, trade, and the economic growth of the action at national and regional levels. Table 1 subregion. Participants expressed strong dissat- summarizes short-term and medium- to long-term isfaction with the state of freight transportation actions at the national and regional levels. The for regional and international markets and the preliminary agenda focuses on three areas: (a) lack of consultation with users in bilateral and trade facilitation, (b) coordination of transport multilateral discussions on cross-country route sector reform and investment, and (c) develop- and mode choices. In their view, the private sec- ment of business-to-business e-commerce. Sev- tor can plan an increased role in the operation eral actions under the agenda would require and management of landports and logistics ser- action at national levels. Others, such as trade vices facilities; the development of container facilitation and improved procedures at the land transport, container operations, and facilities; border crossings, would need a regional mecha- cargo-handling facilities and services; and freight- nism to create regional consistency. At the na- forwarding, customs clearance, financial services, tional level, the recently established national storage, warehousing, general transit, and ship- Transport and Trade Facilitation Technical Com- ping services at seaports and land border cross- mittees (TTTCs), which comprise key ministries ings. The private sector delegates' proposals for and agencies and private sector representatives, government action in trade facilitation included: could be the nodal point in Bangladesh, Bhutan, and Nepal. A possible coordination mechanism * Harmonizing government trade and transport that has been suggested is a regional technical policies and regulations in the subregion; forum, which would include not only the l3 Forging Subregional Links in Transportation and Logistics in South Asia TABLE 1 MNAIONALC AND REGIONALATIONS: SHORT TERM AND MEDIUM XTO LONtl TERM National ~~~~~~~~~~~~~~Reaional Short 1Ann 1. Strengthen the Transpot andTradeFacilitation Tcnicalmttesi 1. Eetablishca regional technical king committee to (a) identify ( TTTCs) recentlyestablished in Bangladesh, Shutan, andNepal tht methodsforniprovig loisticsfointraegiobnal and are aimed at sustaining interaction between the public agencies and e0Sxtraregional trade, b) set pnoritles and, short-termtte tsS for the private se Thesecommitteesnowinclu derepres ention frm achievingthegratestenefits,ancdMevlop afior l and ministries or departments of com Smere, cstoms, and transport or gsustainable program for improving log}fflesLIn the region.The communication, and iprivate setor represenitation from chambers ofSa ;0 4 Wcommitewill induded;i $i 0f0 c0 commerce, transport service providers associations, and Ctradej0000000 *000 Gtsovernment representatie of therelevEant trade transport, assocations. Examine similar instittional options for increasdW and customs ageniesntoeprovidefte poliy and pblic effective idalogue on transport, logitic,and trade fcilitation issues infratructure persp¢etive. in India in the public and prive secto Private setore tativsfrm shippers,consignees, ; : : S S f: f ;d4; 0;;: ; f t }StS 00 E t 0: 00;: ichambers of commer,;and logisticsproiders to bring a Speidalists fromaotherountriesd academiarepresentatives X 0 00 0 0;Xt0 0$0 ; 000 ;0 0 0a; X 0 0 0 0 i0 0 0000 i 0 i; to prvide best patcsknowldge oftradeffaclithato, :supply-chainmanagement,and logisticsservices,as well as ~pratcllmttoso eom xeine by ter regional 2. Technical assistance should beproided tassisttransport miistries, 2. Regionl workspscould be usdtoshare inatn among development banks, planning minitres, freightfrrders,major tranportposionassersand onsignees,andforwarders shippers,anexertinltichi thetuesi of sppy -chain to imp supplychinlissin te reaionrd,hiswoul be and adaptable to o riigsaeodr.Poeue hudb rd,priual o adokdrgos developed for inoroaigspl-hnanlssntdesos regarding investments in t inrsrutr and change in procedures for cross-border movems could be used to inWorm tanspot p s fowres of te te chniques uedin suplychaini management.000;0 00i 00 0f 3. Port reform andm i r nce ad 3. Bilateral and multilatral) dialogueand agreemenscan logistics is a priori ocni gu ports. For giobal Markets. Th esrswudicue ntne otn ag hog oeefcetprso he *00 Bette corinto of000j000 0 moemnt betwee feeder00 and0 0 mainlin ve if ::tsselst f 00 by imrvin por pefonnnc t:0: so the feeder vesselsd00ft000i000X0i aa:0 t fEStS fiC:S) d lyiC;0\0St;:t0 Executive Summary 9 National Regional 4. Improve the physical design of land border aossings In high traffic 4. Coordination among relevant countries in effectively improving aossings to reduce congestion and delays, with strategic investments the physkat design of strategic high-traffic land border crossings in place of the current practice of ad hoc investments.Support private so that current congestion and delays are reduced dramatically. sector involvementt in development of superstructure and operaons at border crossings. 5. Simplification of import and export cargo dearance procedures 5. Hanmonization and standardization of cross-border cargo within the countries, induding introduction of Automated Systems dearance procedures across countries. for Customs Data (or compatible) docunentation. 6. Improved communication systems and adoption of automated 6. Compatibility of automated systems for effective electronk technology for electronic transfer of information, interchange of informatiom. 7. EGiminate requirements for transshpment of cargo by trucks at 7. Revisions of bilateral transit protocols to facilitate uninterrupted border crossings and move toward increased tansit access for movement of transit. Important changes include: vehides from neighboring ountries,so that multiple cargo handling * Replacement of the movement of transit cargo in truck and associated costs and delays are avoided. In addition, introduce: convoys to flexible movement against spedfied time linits * Automatic weighing of vehides at border points wit in-bond goods; - Simpified procedwes and risk-assessment strategies to replace * The use of secure seals for rail cars or containers carrying current cargo inspection practices transit cargo with very few or no inspections of cargo at the * Round-the-clock clearance of cargoes at high-density interchange border, other than checking seals; points like Petrapole-Benapole and Gede-Darsana. * The Transports Internationaux Routiers (TR) system for the carriage of goods approved by customs authorities from the transport of sealed conbiners using the TIR carnet; and * Common vehidce inspection and icensing procedures for trucks used to transport cargo across borders. 8. Monitoring/tracking systmes for cargo movement. 8. More effective mechanisms for mnonitoring the movement of the cargo, instead of the existing practice of using fixed routes and truck convoys, These could include: * Joint ecking of cargoes at the origin and destination; * Bectronic data interchange (EDI) between mstoms adites within the country and across borders; * Identfiation nutmers, bar codes, or other fofns of electronk identfication for trucks and cargo containers; * The use of a freight operation information system for real- time moiorin0"g of trains, rail cars, and cargo; and * Tradcing systems for transit cargo carried by trcks. (Table nlwe n t e foloigpgeJ 10 Forging Subregional Links in Transportation and Logistics in South Asia TABLE 1 (continued) National Regional 9. Assignment of liability for the caniage nods within the country 9. Assignmentofliablltyforthe arriageofgoodsand harmoniaa- to encourage more effidentnniftiinodal transpoit. lion of this liability scheme across regional md intetial bord.rL 10. Development of fun raire sidings for rail, night unloading fadlitles, andtenuidlltiesatmajooadingandunloading points. 11. tofnightnavigalioufaclities onselected ininedwater ways in Bangladesh and in the waterways linking Northeast india and West BengaL 12. For Bangladesh,a cohesive plan identifying key bridges that need upgrading along high-traffic corridors, taking into account ongoing efforts to strengthen bridges on the Ohaka-Chittagong highway. Medium and Long tem 1. investments in road network infrastructure, including widening 1. investments at bovler crossings to facilitate easier two-way roadways and constructing divided highways. Bangladesh would flow of tratk asethisonareview aidupdateoftheexistingroadmaster plan. India would incorporate planned and ongoing road projects, including the Golden QMadrllateral arid West Bengal north-south highway,andamedium-terut plan for less congested road links to and among the Northeastern states. 2. Increased movement of containerized goods, particolarly high-value 2. atendthentovenientofcontainerlzsd goods, particularly high- commodities]t would be useful to review (a) the Container Corpora- value commodities such as yam, across national and regional tion of india(CONCOR)experienceand (b)theeqeuienceof Nepal borders. ICDs,inck.ding efforts to integrate private sector operations and prepare recommendations 11w making the process more efficient1 ifective, and transparent. 3. StrengthenIng and widening bridges where necessarypartiwlady along selected roadwaysfor Bangladesh and Northeast lodia. Executive Summary 11 - , ..... ~Natioal - eg'onal 4. heTTT(s coauld owvsee a eiew of the psand plans for 4. A view of the progrss and pla forhmiaon of ail - aunzto n ofril netwrk o deterine ntheilikelyimpat on metworksto detemn the lklImat onrgoatraltcflws naioa trafi flows. - er- lbe w should indudeways nto inte, epsand imrv Oeritemsntherailagendawodnd dep tandards . blcktrainopetnsandrailbed toserveadoe fo rlng sto has the cofguaioof t war i c te areascpfor rivaesetoreraon Identifi sysemfr ricasand theIoductionfairb s and sei-uoatc oplrsforte fregh cars crossing the border : betw da a Bangles.Fay the revw cmmee would eseallypXropsal frsping linesad other oitipovidersto ... operafteransfrthemovmnt of cotainersiland. S. ~ ~ ~ ~ ~ ~ ~ ~ 5. Modem laws and reguain oeing dereraasignmentof liabRiitis 5. Harmoniaton oflaws and regltonntheregionto enable for te arageof cargopermitting tightertegration ofieo - dear assignment ofab esfor ca of go and pemit mvement and reig baies to etyfpotential tr-party tightrinteaon of kenodal met across natinl and logistic providers. - : - intenational bordersThe is considale interateional - - - . . . - . ~~~~~~~~~~experienceiand legal precneionernigteis- issue.) 6'.xpandmere opportnuem broad*trem esec, 6 wsystems ae need forimrov voe and data amis- dasdeand regionsowthatsall and med#umentprises can sions between caomsdcepo atthe bordercosingsand m iettheir products r y akus; nesse and kets.Ismwoul an ealcts o'fc and i E:a ofaW - seaportsInitiallyathis could be accmpl,haed tough a valueo * Access to asrddata comnctosand Internetservice- adde network used by cutrsTiscud ie expandedto the * Supportie legisatonto allohiadltrasatins over the IU:Ds and other border crsig htwudat as a center of; :nere thatare both reand ealyinding- . effldentandeetfkve comuitons frscheulngand * incresed piaiaiof telcmmuicans n Itret servies cordnaing ovmnswtther acitesonthe lgstc * Establishmentofa uli-piateparnrhp to ensure a : clnAUltmatelyit oudallb wtheusersto input data coptt- enromn f ore-omre services, and elcrncly hog utple ports an& evnull,trugh: * Tr g f1small and mem busiese fr e Ivuse w t anddeont of serv 1. In the longten,stematial itrodemeaue o movtowrd 7.int 1ongter n gsseaialintue maues tomv offeing shippers door-o-do cnmcl Js-nm e delivery toward ofeing shippers door-todoor ecoomica ut-in-time service,wh is mportf the ount to gai he deivery serice,whch is fta for the regio to gai go m -t psitn nthegobalmaket -. -m-menat - - a smatcardsystemfexpeditingalthe transactios -assodae wit aoss-bd movent. 12 Forging Subregional Links in Transportation and Logistics in South Asia government and private sectors, but also inter- with port and ocean transport time can be re- national expertise. duced by routing cargo through more efficient ports and by better coordination between feeder The analytic framework developed in this re- and mainline vessels. port could be used to evaluate other routes as a basic tool for evaluating investments in trans- The transport sector reforms, including increased port and trade facilitation. The framework should private sector participation in the seaports and be broadened to consider the impact of delivery railways and the improvements in road capacity time on the perishability of cargoes and the im- and maintenance, are issues that are already un- pacts of uncertain delivery times on inventory der consideration by individual governments. The requirements. TTTCs could push for action on these improve- ments by coordinating private sector advocacy There is need for both short- and long-term im- of these reforms and by adding international best provements. The short-term improvements would practices and benchmarks to the discussion. address problems related to: Bilateral transit protocols have not provided ef- * The exchange of goods between East and ficient mechanisms for handling transit cargo, and Northeast India; they instead treat them like import or export cargo. There is a need to end the remaining pro- ) Bhutanese and Nepali trade with both inter- hibitions on cross-border movements of cargo, national and regional markets (in the case of both for regional and international trade. The the latter, many commodities have short shelf next step would be to eliminate the remaining lives); and requirements for transshipment of cargo between the vehicles at the border. Then it would be nec- * The trade between Bangladesh and neighbor- essary to introduce the various procedures used ing areas, including Northeast India, and stra- in different trading blocs for the efficient move- tegic improvements for Bangladesh transport ment of transit cargo. and logistics to improve global trade. Simplification of customs documents and proce- These improvements would also have significant dures and the introduction of electronic data inter- implications for improved logistics in the indi- change (EDI) systems for direct input by shippers vidual countries. The long-term improvements and logistics providers is another important area would focus on the region's capacity to meet to reduce constraints at border crossings. Some of the logistics requirements for trade in higher the more important reforms that need to he intro- value goods. duced to facilitate cross-border movement of transit traffic as well as bilateral trade are: The priority problems relating to seaports have to be addressed primarily at a national level. Ef- * Replacing the movements of transit cargo in forts to reform the port sector in India and truck convoys to flexible movements based Bangladesh are longstanding but have not on specified time limits. achieved much, other than private sector initia- tives in western Indian ports and the proposed * The use of secure seals for rail cars or contain- Patenga port in Bangladesh. Port reform is criti- ers carrying transit cargo to eliminate most bor- cal for the subregion. Inefficiencies associated der inspections, other than checking the seals. Executive Summary 13 * Common vehicle inspection and licensing pro- * The use of freight operation information sys- cedures for trucks that transport cargo across tem for real-time monitoring of trains, rail cars, borders. and cargo; and * Automatic weighing of vehicles at border * Tracking systems for transit cargo carried by points. trucks. * The Transports Internationaux Routiers (TIR) The committee should evaluate the alternatives system for the carriage of goods approved by and select those that can be implemented in the customs authorities from the transport of next five years. The committee should also look sealed containers using the TIR carnet. at the longer-term implementation of a smart card system for expediting all the transactions associ- * Simple procedures and risk-assessment strat- ated with cross-border movements. egies to replace current cargo inspection prac- tices. BANK GROUP INVOLVEMENT • Round-the-clock clearance of cargoes at high- density interchange points like Petrapole- A fundamental role for the Bank in the regional Benapole and Gede-Darsana. transport initiative has been that of a convenor, bringing in global knowledge and experience - Development of full rake sidings, night un- on regional transport and logistics issues, and loading facilities, and terminal facilities at helping to promote more effective dialogue major loading and unloading points. among the relevant countries and between the public and private sectors. * Clearer assignments of liabilities to permit tighter integration of intermodal movements Four elements of an effective transportation and and reduce barriers to entry for potential third- logistics system for the subregion would be: (a) party logistic providers. This also encourages trade facilitation and logistics improvements, (b) railroads and trucking companies to improve provision of flexible and strategic routes and quality of service to limit their exposure due modal choices, (c) promotion of greater private to loss or damage of cargo. sector participation, and (d) rationalization of bilateral and regional protocols. For elements (a), In addition, better mechanisms for monitoring (b), and (c), most of the Bank's instruments are the movement of the cargo would include: critical and add value. Some of these issues are being addressed through ongoing country op- * Joint checking of cargoes at the origin and erations and technical assistance (such as the destination; India National Highways project, the Nepal Multimodal Transport and Trade Facilitation * EDI between customs facilities within the Project, and the Bangladesh Export Diversifica- country and across borders; tion project). The strategic impact of country operations, particularly on poverty, could be * Identification numbers, bar codes, or other enhanced if the regional dimension could be forms of electronic identification for trucks and more effectively and consistently integrated in cargo containers; country strategies. 14 Forging Subregional Links in Transportation and Logistics in South Asia Rationalizing regional and bilateral protocol is a The first chapter provides an overview of the historically sensitive issue in South Asia, as in socioeconomic and economic growth profile of other parts of the world. The Bank's role in this the subregion, the challenges faced by land- aspect would naturally be small; but this role locked regions in accessing regional and inter- could be a critical one in providing a more ob- national markets, and regional and international jective and rational basis by bringing in analyses trade patterns in light of the transport and lo- of options and international best practices, and gistics constraints. It also presents the rationale in supporting greater private sector participation. for the Bank team's role and participatory ap- The tools and analysis usedl in this report could proach adopted for the sector work. The sec- contribute toward this purpose. ond chapter examines specific impediments in the transport logistics chain of selected strate- In meeting the requirements of the four ele- gic commodity movement in the context of re- ments, the opportunity exists for strong part- gional and international trade. It focuses on nerships with other development agencies, constraints with line-haul movement and im- including the Asian Development Bank, the pediments at border crossings and at ports. The U.N. Conference on Trade and Development, third chapter provides a framework for a com- World Customs Organization, Japanese Inter- parative analysis of existing routes with alter- national Cooperation Agency, and United Na- native ones, both for the movement of tions Economic and Social Commission for Asia commodities within the region and to interna- and the Pacific. All are involved in regional tional markets. It takes into account all trans- transport, logistics, and trade facilitation projects portation and logistics costs and the availability in South Asia. of physical links. It also addresses issues of modal choice, based on factors such as time sensitivity of the market and the value and per- THE REPORT'S AUDIENCE AND ITS STRUCTURE ishability of the commodity. This report and the complementary outputs are The fourth chapter presents highlights of the con- aimed at several audiences: straints faced by private businesses, freight for- warders, exporters and importers, and shippers * People from both governmental agencies and in the subregion. the private sector (such as transport opera- tors and service providers, intermediaries, and The fifth chapter summarizes the key constraints other private business officials) in the relevant and suggests short-term and long-term options. region, and It also attempts to outline the role that the Bank could play in assisting the subregion to reduce - Within the Bank, the individual country work the transportation and logistics constraints. programs for the South Asia subregion and the thematic groups concerned with regional The sixth and final chapter of the report outlines a transport. preliminary agenda for discussion in the subregion. 1 T P his report synthesizes the work and background reports Connecting that were prepared as part of the interactive policy dia- Subregion: logue under the Bank's South Asia Regional Initiative on a Subregion: g L Transport Integration.' It provides a spatial assessment of A Strategic Vie v key transport and logistics issues faced in opening up a region that is lagging in economic growth. The area of study in the South Asia subregion consists of Bangladesh, Bhutan, Nepal, and four Eastern and seven Northeastern Indian states. The Eastern Indian states are West Bengal, Uttar Pradesh, Bihar, and Orissa. The Northeastern In- dian states are Assam, Mizoram, Nagaland, Arunachal Pradesh, Tripura, Meghalaya, and Manipur (see Maps 1 and 7 at the back of this report). The focus of this report is on (a) the costs of doing business within the subregion and with international markets that result from trans- portation impediments and other logistical issues; (b) an analytic frame- work to evaluate alternative and cost-effective regional routes; (c) the scope of increased public-private partnerships in the provision, man- agement, and use of transportation services; and (d) identification of priorities for improving regional transportation and logistics services and related policies in the subregion and a discussion on the possible use of World Bank instruments in supporting subregional linkages. Recent trends in globalization, supported by technological advances in information, communication, and transportation, facilitate increas- ing decentralization of production, distribution, and supply processes. Outsourcing of component economic activities across multiple coun- tries is becoming more and more common. This process of outsourcing offers economic opportunities to all countries, particularly develop- ing ones, by allowing them to participate in providing value-added services and low-cost raw material or human resource skills. In turn, these countries benefit from improved market access for their ex- ports, acquisition of new technology through international knowledge 1. See the list of background notes prepared for this report under the South Asia Regional Initiative on Transport in the bibliography. 15 16 Forging Subregional Links in Transportation and Logistics in South Asia transfers, efficiency gains in the economy result- in trade-not only international and intraregional ing from increased competitive pressures on trade, hut also domestic trade between rural and domestic economic activities, and increased urban areas. employment opportunities. The growth of South Asian trade, both withi ex- Globalization thus presents economic opportu- ternal markets and within the region, is critically nities. However, the capacitv of a country or a dependent on the time and monetary costs of region to participate in the global economy and goods movement and cross-border transit of derive concrete benefits is dependent on national cargo. As the countries are positioning themselves and regional policies. Global trade and the asso- to participate in global markets, the transporta- ciated economic growth of a country or a region tion and trade logistics costs must he reduced to depend critically on the efficiency and speed with at least ensure their current position in the \vorld which goods and services can be delivered from market. Logistics inefficiencies translate into production centers to final markets. Since one- higher costs of their commodities ancl, m)ore third of world trade in the mid 1990s occurred importantly, have serious implications for the witlhin global prodluction networks (World Bank credibility and position of these countries in the 1999), the ability of countries in Mercosur, the international market. Southern African Development Community (SADC), or South Asia to link with these net- PROFILE OF THE SOUTH ASIA SUBREGION works and to he more responsive to demand depends on developing an efficient transport and The subregion, consisting of Bangladesh. 1hutan, logistics system, which can provide just-in-time ancl Eastern and Northeastern India, is home to and reliable delivery, and ensure quality of cargo. almost a half-billion people. it is among the most These are important parameters in the emerging densely populated regions in the world. More global market because market expectations have than half the population lives on less than tiSSI risen substantially in the last few years. a day, and socioeconomic indicators SUChI 'as in- fant mortality, life expectancy. andl adult and Within regions or countries, efficient transport female literacy are among the poorest in the and logistics systems offer increased possibili- world. Over the next 25 years this population is ties for linking isolated and landlocked regions expected to double, exacerbating problems of to markets and new economic opportunities. The poverty, social tension, and environmental deg- systems also offer easier and cheaper develop- radation, unless strategies for encouraging faster ment of the resource base and increased em- economic growtlh are conceivecl and imple- ployment opportunities. By facilitating access to mented. See Table 1.1 and Table 1.2 for social a larger regional market, they can help countries and economic indicators. benefit from economies of scale. By providing market access to rural areas, they enable rural Paradoxically, this region is endowed with1 abun- producers and small industries to cleliver quality dant natural resources-fertile soil, water, miner- products within an acceptable time and at a com- als, and energy resources-which are essentially petitive cost. Improved transport logistics sys- untapped because of poor connectivity and lack tems within the region would encourage growth of market access. Although the resource poten- tial is large, the interdependencies among the countries are also significant. 13oth Nepal ancd 2. Vorld Development Indicators 1999, The WXbrld Bank. Bhutan are landlocked, as are the seven Nottlh- Connecting a Subregion: A Strategic View 17 TABLE 1.1 SOCIOECONOMIC INDICATORS Percentage Percentage Infant Under-5 of popula- of populah mortality mortality Life Adult iliWacy rate, GNP per tion living on living rate, per rate, per expectancy %ofpeople capita onlessthan onlessthan 1,000, 1,000, atbirth, 15orabove,1997 Area (1998 US $) US $1/day US $21day 1997 1 1 Males Females Su India 430 47 87.5 71 88 63 33 61 Banladesh 350 50Q3 86.7 75 104 58 50 73 Nepal 210 n.a. n.a. 83 117 57 44 79 Bhutan 430 n.a. n.a. 63 n.a. 61 ,a. n.a. Other Countries Indonesia 680 7.7 50.4 47 60 65 9 20 China 750 22.2 57.8 32 39 70 9 25 Argentina 8,970 n.A na. 22 24 73 3 4 Brazil 4,570 23.6 43.5 34 44 67 16 16 Burkina Faso n.a. n.a. n.a. 99 169 44 n.a. n.a. Namibia n.a. na. n.a. 65 101 56 n.a. na. Regions East Asia & Padfic 990 na. na. 37 47 69 9 22 LatinAmerka & Caribbean 3,940 na. na. 32 41 70 12 14 Sub-Saharan Africa 480 n.a. n.a. 91 147 51 34 50 South Asia 430 n.a. n.a. 77 100 62 36 63 Note: South Asia includes all the ontiies in South Asia as categrized in the Worfd DevelapmetRepdrt. Aa. = Not avlawhn. Soumre1999 World Deekpmet h7dktors, WorMd Bank. Wo Devef dm nt Reportl 999/2000, WolW Bank. eastern Indian states. In fact, the Northeastern Europe via Calcutta port. The transportation cost region of India is connected to the rest of the includes a trucking route of more than 1,400 ki- country by a land corridor between Bangladesh lometers through the land corridor around and Nepal that is as narrow as 22 kilometers. Bangladesh to Calcutta port. The traditional tea This landlocked region, a natural hinterland to route for Assamese tea via Chittagong port would Chittagong port, trades with the rest of India and cut the distance down by almost 60 percent. the world through this congested land corridor, Third-country trade for both Nepal and Bhutan with high transportation costs. For instance, con- is also routed through Calcutta port, with associ- sider tea exports from Assam that are shipped to ated delays and costs. 18 Forging Subregional Links in Transportation and Logistics in South Asia TREl t2 oNOWNDIGRW$ WAT . ... .... ... ... .. . .. .. -^ - -- - 1- 1 199 984 12 2. ' 0 .80S 0 'S g A-erapmnnu4gmwtkrate (percent) 1997 - 3-- 53 2.7 4-2 444 350~~~~~~~~~4. 21047 1970 A jj- (- -i - .. 0 17. t- 0 0 130t0. 0 00. 00 .n.a.00t:00 40 -998 25;0 - 3.V I - 0 Co a iN3 ... . ...... .... ... Historically, South Asian countries have had re- independence. The rate of growth in exports strictive trade policy regimes with stringent bar- within the South Asian Association for Regional riers to cross-border trade, quantitative restrictions Cooperation (SAARC) region as a percentage of and steep tariffs, restrictions on foreign capital total exports has been historically low and has investments, and a predominant role of the pub- stayed low in comparison with other trading blocs lic sector in the direct production of goods and such as Mercosur and the SADC (Figure 1.2). services and in regulating the private economy. Consequently, the role of trade in the national This pattern is reflected within the subregion, income of South Asian countries has been his- with intraregional trade accounting for only a torically low. Foreign direct investment flows to fraction of total third-country trade in each of the South Asian region have risen in the last the countries (Figures 1.3 to 1.6). Trade among decade but remain lower than other regions in the four countries is concentrated in a few key the world (Figure 1.1). commodities and has not demonstrated much diversification in the last few years. Table 1.3 Trade among countries in South Asia has been presents the top 10 commodities traded among traditionally low during the decades following Bangladesh, Bhutan, India, and Nepal. Connecting a Subregion: A Strategic View 19 The low official trade figures should also be ex- amined in the context of significant informal trade FIGURE 1.1 FOREIGN DIREC INVESTMENT, 1"0 AND 1997 among the countries concerned. It is estimated US$ mUilions that unofficial exports from India to Bangladesh 70,000 _199 are approximately equal to official exports. The 60I)_0 composition of unofficial trade flows is gener- ally complementary to, but markedly different 50,000 from, official flows. A large portion of the unof- *00 ficial exports (85 percent) that take place through West Bengal are comprised of food items, live 30000 * animals (cattle), and consumer goods. The un- official flow from Bangladesh into India is domi- 20,000 nated by a few major products, including 10 000 synthetic yarn, electronic goods, and spices. A __ sizeable portion (44 percent) of the unofficial 0 - - - _ 1_ _ imports consists of gold and Bangladesh currency so East Asia Lakfn Sub- Middle East EuWe& to pay for Indian goods that are then smuggled Asia KPadfic America Sahaan &ANofh Asil into Bangladesh. There is also an unofficial flow Reonal Moc of consumer items, such as ready-made garments, from Bangladesh to Tripura. By some estimates eWldOa*Wodd me t katm, 1999. this flow is eight to ten times higher than the official flow. The borders between India and Nepal are also porous. According to one esti- mate, the informal trade between the two coun- tries during the late 1970s and early 1980s could FIGURE 1.2 EXPORTS WITHIN REGIONAL TRADE BLO(S have been eight to ten times higher than the AS A PERCENTAGE Of TOTAL EXPORTS, 1980-97 officially recorded trade. Percent 80 As in other regional trading blocs, such as the 70 APEC ones established by the North America Free Trade , Agreement (NAFTA) and Mercosur, regional col- 60 E laboration in South Asia is complicated by dis- O - EU trust among countries, political agendas that focus on domestic issues, bureaucratic inertia and in- 40 stability, and infrastructure and logistics con- 30 M straints. The low levels of mutual trust are 20 - reflected in the transport and transit arrangements among the countries in the region. 10 - - - - - - SAX SAARC For example, no foreign vehicle is allowed on 1980 1985 1990 194 1995 1996 1997 Bangladeshi roads. As a result, all products trans- Year ported by road to Bangladesh from the neigh- boring countries are transferred onto Bangladeshi 5outneWorid anrk WoddO t5kpmetors, 19K. trucks at the border, adding to the transportation 20 Forging Subregional Links in Transportation and Logistics in South Asia co0sts and delays at the border crossings. Corn- FIG RE ti KG4A~Z TUt WITh INPA, NZ#A11modities between the Northeastern Indian states 'l~~200 Export dor (referr~~~h, edoause the "chnticknsneck inve the onglykon adedicthed roue within India, andIn tashiportt aConttaioner foroman Dhelh to Dhaka. 0, - ~~~~~~~~~~~~angldDesh, ol becauserted containe movesre tov E I 1! ~~~~~Tuhlakaba,ten toeMuabae India, andBagdehlca Sigpropre Fgroemen Sigaore thve container trfis. Thes distance oflu2,000 klmther bnefficenesn Dhak andbDehioualdtrbe covteremi twot reuto three days- Thdla Nep4 efiuta by r~eqail, acordingotoxestenimates.aBu this doesonot SouehnnaUnaMoiy4(99VNetkrofradatiUc'arllnadnalproeragreementst.oecotie tafc FkimrMl Statis*s ~ ~ These.delays.illustrate.the.inefficiencies atbre rsig,w inh theul source of constraints in the subregion. The key for instance, through which more than 80 per- cet of trade gets routed, is severely congested. There are long lines of trucks on both sides of the border (up to 1,500) and waiting times of one to five days. The delays are caused not only by protocol requirements requiring transshipment at the border, but also because of two other im- 200 ~~~~~~~~~~~~~~~~portant factors: procedural inefficiencies for cus- toms clearances and physical infrastructure a constraints (such as poorly designed warehouses Bangladesh ~~~~~~~~and narrow access roads) that do not support Country ~~~~~~~efficient utilization of existing capacity. 5wcet~imlone¶qfuntlWy0~$Tr4e$ttisdaiWltenafoniPorts in the subregion pose a serious constraint FUaniaISpIiscsYobeo 'WIshtN,0, to international trade, affecting both national and Connecting a Subregion: A Strategic View 21 regional economies. Exporters from South Asia cannot guarantee just-in-time deliveries in the FIGURE 1.5 NEPAL: TRADE WITH INDIA, BANGLADESH, global market. Carpet exports from Kathmandu AND BHUTAN, 19M8 to Germany, for instance, take almost 50 days to U5$ millions reach a European port. Similarly, the average - _Exp' time to move time-sensitive ready-made garments Import from Dhaka to Los Angeles is about four to five 400 - weeks. In both cases, the delays at the port play a predominant role. Improving port performance 300 - would bring direct benefits not only for regional commodity movements but, more importantly, 100 - for national economic development. The critical importance of an efficient gateway port for Bangladesh is obvious. The performances of 100 _ Calcutta and Haldia ports have strong implica- tions for the revitalization of Calcutta and West a Bengal. Baadesh Bh Country Perhaps more problematic than the total time is SourcelntematicaMnetari999).TireXofTradeStsf artdlrdernator the uncertainty of the actual time of the ship- FmaniW StasYeacwOlWangtom D.C ments due to the unreliability of the system. Effective infrastructure links that offer conve- nient access to markets, supported by rational transport and transit procedures across borders and progressive trade facilitation policies, would FIGURE 1.6 BHUTAN: TRADE WITH INDIA, BANGLADESH, offer significant options for this region to de- US$millons AND NEPAL, 1997 velop and enhance intraregional and third coun- 12 try trade. _ Exprt 10 _ Imprt Impediments to transport and trade facilitation in the South Asian region can be classified as 8 follows: 6 * Documentation and procedural inefficiencies. The procedures involved in customs inspec- 4 tions, excessive documentation requirements, multiple signatures, lack of transparency, and 2 informal payments lower the efficiency of goods movement and set back regional com- 1 petitiveness. India Bangladesh Nepal pehtitveness. * Impediments caused by protocol. These in- 5ource:Irterna 8aMoetnyFund fl99O rekn ofTTadeStatistkseandntenatIona1 clude the various restrictions on cross-border Fimncial Statists Yearbook, Washington, DC travel of trucks and route choice. 22 Forging Subregional Links in Transportation and Logistics in South Asia :: ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .. .... . .. ..... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -2 --.--- - •,Knowledea t ic . sch p ial gaities Pset p Becus eficen traefcltato n csos ingk antorae at bodrcosignorts; em 04 Tmag e. is - and and a ,c of, temn falties caaftM4ww hmancaptal-ntnsve3tetcqistin f uc D eThese inclue p or i quatoncopa- al 1 s t ere hs be a ca sf fo iBlecauyseficie tradesfacitationl ; ad ackustos ip rotetv torade r ea. Morr crssings Asand coun managemen prac ices Mre knwlege-and analcko tsermiu nalW failtis human capitl-intensive the acquistion of suc T*$#MO ~ ~ ruia comptenc Tin th1orfrc0s*a fbI~~~~fSijo,callngeforth membe countrie6s. REEN DEVELOMET INTESURGO Other m*bqforn These~ inld0or ndeut,o nopa- ery19s theree has benacea hf fo h Knoledg pyiand irnstituationa lineffi lcinies suotchiv phsiald ailtesa warehMot ouses psarkou- Connecting a Subregion: A Strategic View 23 tries have adopted policy reforms that have made their economies more open to the rest of the Fi6URE 1.7 REAM EXPORT6ROWTH IN SOUTH ASIA, 19#1-95 world, and they have promoted greater interest in intraregional trade. India, Pakistan, Bangladesh, 18 _ 981-0 Sri Lanka, Maldives, Nepal, and Bhutan estab- lished SAARC in 1985. The agreement began with the SAARC Preferential Trading Arrangement 14 (SAPTA). The countries now are pursuing initia- 12 . tives to establish the South Asia Free Trade Area 10 . (SAFTA).3 At both the regional and subregional levels, there 6 has been further interest in the last decade in 4 improving links among the countries. Relations 2 have begun to thaw both because of the politi- cal leadership of the respective countries and 0 Nepal because of SAARC and the planned creation of SAFTA in the near future. . So. Memw 5 and O994 As in other parts of the world, this drive toward regional cooperation in South Asia is occurring in the context of major changes in the economic institutions in these countries-growing liberal- ization, deregulation and decontrol of industries and markets, reduction in the economic role of FIGURE 1.8 SHARE OF MANUFACTURING EXPORTS IN TOTAL the state, and an expanding role for the private MERCHANDISE EXPORTS, 19 AND 199 sector. Although these processes are still nascent, there has been a steady increase in the share of 100 _ 1985 trade to GDP, and a growing economic dyna- 9go _19 mism that is reflected by the robust income 80 growth in the last decade, which is second only 70- to that of East Asia (World Bank 2000).' The share of trade to GDP is 25 percent. Figures 1.7 to 1.9 60 _ show the improvement in export performance 50 consequent to trade reforms, with Bangladesh's 40 export growth particularly impressive. The share 30. of manufactured exports as a proportion of total 20 goods exports also shows rapid growth. _ Wodd b*de*a 3. A proposed World Bank study is examining regional inte- (OM" gration in trade. W , 4. World Development Report 2000. the World Bank. 24 Forging Subregional Links in Transportation and Logistics in South Asia Though intraregional trade is only a fraction of tFIGUlRE 1.90 0 RATIO OFiTOTAL TRA$DE ;TO GDP, total trade, and the growth rate of intraregional 1975-790 AN 1 k ,8i) :0|00000 00t0000000 ; ;};;i: itrade as percentage of total trade has been slow, Percent i~~~~~~~~~~~~n terms of absoluite valuie there has been a 60 1975-79;; t00 0000 0000000 l0 ;000000t 0 t 0 0 00 0000 ; 0 0 multifold increase in intraregional trade in the 1990-94 last decade (FiguLres 1.10 to 1.12). Between 1988 50 ~~~~~~~~~~~~~~~~and 1998, India's exports to Bangladesh increased in value terms by over six times, while exports 40 ~~~~~~~~~~~~~~~~from Bangladesh to India increased fouir to five 30 ~~~~~~~~~~~~~~~~times. A similar pattern has emerged for Nepal- India trade. Trade between Bangladesh and Nepal 00 0200- 00002000000 - 0<0 - 0 0 0 000 2 0 000|00;000 30 j f and Bangladesh and Bhutan has also begun to rise, though not so steeply. With economic liberalization, there is slowxly 00 Wold °ED Developing Latin East Asia South Asia mounting domestic and international private sec- countries America ~~tor interest in the region. The tndo-tU.S. Joint Council Summit in December 1997 in Calcutta Region ~~~~~~brought prominent private sector grouips fromn Source: aidara McGillNiy196. the United States and South Asia to examine opportunities for investment.' On january 15, 1998, the prime ministers of Bangladesh, Paki- stan, and India, accompanied by business del- egations from each of the COuLntries, net at a FIGURE1.10 NPAL EXORTS T INDIA BANGLDESH,business summit in Dhaka to discuss issues re- USS millions AND BFIUTAN, 1988-98 latedt to the establishiment of regional energy grids, as well as improvements in trade rela- 150 ISO I_ ndia00 0 $ (00000 000000j000000 0 00 0 0 0 Q t stions and transport logistics to e asmoother Bangladesh ~~~~~~~~flow of goods and services am-ong the coun- 120 Bhutan tries. Local business communities are pursuing improvements in trade and transport logistics 90 to improve the flow of goods and services and enhance communications among the countries in the subcontinent. 60 In the area of transport and trade facilitation in 30 particular, there have been several important developments in the last two or three years that 0 ~~~~~~~~~~~~~~~~clearly indicate the beginnings of change. The 1998 1989 1990 199 1992T9 l 199K;30 1994 1995 1996' 1997 1998 following need to be supported: 000 ;0Finlancial Statistics YearboolCWashingtan,D(.( 0;0 5. The bvrtdd Bank was representedl by the India CoLulltlry imanagement team member. Connecting a Subregion: A Strategic View 25 * The Emerging East Initiative is a key private sector development within the subregion to FK6URE .1I INDIA EXPORTS TO BANGLADESH, BHUTAN, promote economic growth, development z AND NEPAL, 1988-98 -US$ millions through improved investments, trade, and transportation in the subregion. In 1998, the 1,200 Bangladesh chambers of commerce of Bangladesh, Nepal Bhutan, India, and Nepal signed a joint memo- 1,000 Bhutan randum of understanding to this effect. .00 * A 'subregional quadrangle" consisting of Bangladesh, Bhutan, India, and Nepal was formed in 1998 under the auspices of SAARC 4 to examine development opportunities in sev- eral sectors. 200 M • India and Bangladesh renewed the Inland Waterways Transit Treaty in October 1999. 1988 1989 1990 199 1992 1993 1994 1995 1996 1997 198 They removed some of the anomalies that Yesr have existed for the last few decades, allow- ing for a more equitable transit opportunity Fan5tsemaMr*toyFuW(199onDea that should benefit both countries.'a * Bangladesh and India launched a direct bus service between Dhaka and Calcutta in March 1999. FIGURE 1.12 BANGLADESH EXPORTS TO BHUTAN, INDIA, AND NEPAL, 1988-98 . US~~~~~~~~~~~~~3$ millions * Transshipment for Indian cargo through v Bangladesh is being debated in Bangladesh. _ ldia If well conceived and regulated, this effort 50 Nepal could benefit the eastern and northeastern Bhuan parts of India and Bangladesh. This debate has been ongoing since fall 1999.7 * India and Bangladesh are engaged in sustained 3 efforts to integrate their railway systems. Both 20 railways have completed the work for open- 10 6. The Numaligarh refinery in Assam is already examining 0 options to move refinery products via Bangladesh inland 1988 1989 199 1991 192 19 1994 1t5 1996 1997 198 waterway route to Calcutta. Year 7. The Bangladeshi government has commissioned a study SocrcntenatbalMDnetayFurd(1999)orofTrdeStatttics emainat to examine transshipment options under the Bank's Export FinnialStatltiksYearbook'Washkigton,DC Diversification Project. 26 Forging Subregional Links in Transportation and Logistics in South Asia ing the entry through the Petrapole-Benapole ing well linked to global and regional markets, border crossing, in addition to the three exist- and upon the efficiency and speed with which ing crossings on the western side of Bangladesh. the countries are able to move goods and ser- On the eastern side of Bangladesh, plans to vices from production centers to final markets. connect rail links between Akhoura, Bangla- Improvement of transportation networks and desh, and Agartala, India, have already been logistics not only facilitates these links to global agreed to by the two countries. and regional markets, but it also increases the potential for cross-border integration of manu- * The governments of Bangladesh, Nepal, and facturing and service activities and the potential India signed the Phulbari treaty in 1998 to for exploiting the economies of scale in a larger allow Nepalese goods access to Bangladeshi regional market. These changes would have sig- markets. nificant implications for opening up one of the poorest regions in the world. - Bangladesh introduced preshipment inspec- tion on a mandatory basis in the spring of An example of expanding to regional markets is 2000. that of Bhutanese fruit and fruit products finding markets in Bangladesh and India. Nepal is also trying to expand its market for agricultural prod- POTENTIAL FOR GROWTH: ucts (such as jhumla apples) to Bangladesh and THE NEED FOR A SHARED VISION India.5 The Northeastern Indian states have good potential to find markets in Bangladesh for hor- As illustrated by such developments as the es- ticultural products that are currently confined to tablishment of the subregional quadrangle, the local markets or informally traded across bor- stakeholders in the subregion clearly see that ders for low prices. Similarly, the Northeastern development would be effectively realized by: states could obtain fish from Bangladesh instead of having it transported from Andhra Pradesh, * A long term vision in which the economies Bihar, West Bengal, and Uttar Pradesh. It is esti- are more closely integrated, and are charac- mated that the Northeastern states get 90,000 tons terized by global and intraregional transport, of fish per year from these other states.9 Accord- trade, and investment activities; ing to the report of the Committee on Clause Seven of the Assam Accord (1990), Assam was * New economic opportunities that provide spending almost as much to transport essential employment, attract domestic and foreign in- commodities such as grains, fish, and edible oils vestment, and provide the essential basis for from "mainland" India as for the commodities more rapid economic growth; * Optimal development and management of the rich natural resources of the region; and 8. The Phulbari treaty that allows Nepalese cargo access to Bangladesh via a new route through Banglabandh was sup- posed to facilitate this trade. Though there are physical and logistical constraints that impede free flows, Nepal is keen environment. to extend the treaty. 9. The estimate comes from B.G. Verghese's 1996 book, India's NVortheast Resurgent: Ethnicity, Insurgency, Gover- ability of the countries to grow rapidly. In turn, nance, and Development, published by the Centre for Policy this ability is dependent upon the countries be- Studies, New Delhi, India. Connecting a Subregion: A Strategic View 27 themselves.10 The Indian-Bangladeshi trade rapidly lost market share. The extent and alloca- groups, as well as policy research groups in the tion of benefits would, of course, be affected by: countries, have identified a number of possibili- - How well the isolated or landlocked regions ties for collaborative ventures in such areas as fertilizer, cement, and gas-based industries.'1 For both Nepal and Bangladesh, ready-made gar- * The extent to which the new economic ac- ments are the top export commodity for interna- tivities are labor-intensive; tional markets. * How the charges are structured (who pays and who benefits); and In discussing regional transport and logistics sys- a tems, a fundamental question that is often asked * How efficient are the logistics systems that is: To what extent does the economy of the tran- will help minimize cost to the economy. sit country benefit from improvements in trans- port and logistics systems? The country providing The experiences of countries in other regional the transport infrastructure could, in principle, trade blocs such as Mercosur, NAFTA, and SADC recover its investinent through appropriate could provide insights to South Asia, because charges to the transit vehicles and cargo while the region is looking increasingly toward both deriving added value from complementary ser- global markets and greater trade and investment vices provided to these transport activities. The relationships within the region.'2 An example for value added is greatest when the transit country South Asia is that of Rotterdam port, which has provides an efficient international seaport gate- maintained its position as one of the world's larg- way and some of the trucking or rail services est ports for four decades. There are clear les- used in the logistics chain. sons in Rotterdam's experience for managers of ports and airports in developing countries as they A more critical question that is of direct relevance organize their trade and transport chains. to our work in South Asia is: To what extent do Rotterdam has retained its prominent position in transport logistics improvements benefit the the global transportation networks by: poorer members of society? The more immedi- ate benefits would be better access to domestic * Acquiring the knowledge and competency and foreign markets for local products and in- necessary to offer its customers and industrial creased employment associated with upgrading tenants state-of-the-art trade and transport the transport infrastructure. The medium- and long- chain services; and term benefits are the continuity and even expan- sion of employment in economic activities or * Engaging in strategic scanning of the larger industries that, without better logistics, would ei- economic and transportation environment, ther not have been established or would have identifying adaptive future paths in the con- text of emerging change trends, and keeping up to date by implementing the relevant physi- 10. Ibid. cal, human, and institutional investments. 11. The possibilities were discussed at the 1995 meeting, Indo-Bangladesh Dialogue: Economic and Trade Coopera- tion. The Center for Policy Dialogue, India, and the Center for Policy Dialogue, Bangladesh, hosted the meeting as part 12. For a more detailed discussion of global case studies on of an ongoing dialogue between nongovernmental and re- regional integration, please see publication, Integratio7z of search groups. Transport and Trade Facilitation, 2001, World Bank. 28 Forging Subregional Links in Transportation and Logistics in South Asia APPROACH stakeholders from the government and pri- vate sector were able to draw lessons for South As this chapter mentioned earlier, the countries Asia from international experts on global re- in the subregion are only slowly beginning to gional integration cases. The proceedings and open up to each other and to external markets. the recommendations that emerged from in- As in other parts of the world, regional and sub- tensive discussions among the delegates at regional issues are still addressed with sensitiv- the regional workshop were discussed in na- ity. Given the political sensitivities of regional tional consultative meetings in the countries issues, the study team did not adopt the stan- to determine priorities for the countries.>4 dard models in sector work or project prepara- tion for the work under the Regional Initiative * Partnership building with and among govern- on Transport. Instead the approach adopted un- ments, private sector organizations, research der the Regional Initiative on Transport sought institutions, and other development organiza- to build confidence among key regional stake- tions. The task team therefore focused on holders, support increased dialogue, provide for building allies as well as broad coalitions of a better understanding of key issues and options national stakeholders and development part- by learning from experiences in other parts of ners from the government, private business the world (such as NAFTA, the European Union, grs (such asvchamersvof commere Mercosur, and the SADC), create a greater popu- freight forwarders, exports, and shippers), lar awareness of the mutual benefits of coopera- donor and development organizations (such tion, and establish a high level of commitment donorited Natiopmentiesgandzthe (such in both the government and private sectors. as United Nations agencies and the Asian iDevelopment Bank). Private sector represen- tatives of the four relevant countries were in- The approach reflects several of the principles vited to participate in a consultative workshop of the Bank's Comprehensive Development at a regional meeting in Kathmandu to dis- Framework: Frar *ework: cuss the principal constraints they face in their * The interactive approach to advisory and ana- operations and examine options for improv- lytic activity adopted through continual ing transport links and trade in the subregion.15 subnational, national, and regional consulta- tion wih stkehlder frm vaiou secors * An integrated and cross-sectoral approach that tions with stakeholders from various sectors in order to build ownership in the countries. takes a comprehensive view while identify- ing specific short- and medium-term solutions * Knowledge sharing and consultations in or- for a region that could well be one of the der to help develop a joint vision for the sub- world's poorest pockets. region that will enable moving out of national strategies to regional strategies. To move to- ward this objective, a regional technical work- shop on transport and transit facilitation was held in Bangkok in April 1999.13 Regional 14. Proceedings of the Regional Technical Workshop on Transportation and Transit Facilitation can be found on the World Bank website at: http://www.worldhank.org/html/ fpd/transport/publicat/twu-34.pdf. The presentations are 13. The April 1999 Bangkok workshop w>as called the Sooth availahle in pdf format at: http:/'/www.wvorldhank.org/html! Asia Regional Technical Workshop on Transportation and fpd/tanspdrt/trfac/penthtm. Transit Facilitation. The World Bank and the United Nations Economic and Social Commission for Asia and the Pacific 15. Please see Background Note 1 for a summar'y of discus- sponsored it. sions at the regional private sector meeting in Kathmandu. Connecting a Subregion: A Strategic View 29 In its country operations, the Bank and the coun- commodities for regional and international trade, tries themselves are confronting development and, more importantly, a transparent and user- issues that have regional implications. The Re- friendly analytic instrument that will allow im- gional Initiative on Transport is consistent with proved and more information-based dialogue CAS for the relevant countries and reflects client among countries and between the public and interest in the regional dimension for sectoral private sectors on regional and bilateral trade, activities as noted in the CAS for India (dated transit, and transport protocol. December 19, 1997), Nepal (1998 fiscal year), and Bhutan (1999 fiscal year) and the forthcom- Consistent with the overall approach of the re- ing CAS for Bangladesh. There is significant syn- gional initiative, this report does not purport to ergy with the transport sector strategies, such as offer a master plan for a regional transportation the Bangladesh Transport Sector update and the network, nor is it envisioned to be a regional forthcoming India Transport Sector update, as transport sector strategy. The broader objective well as with relevant ongoing lending and tech- of the report, in line with the objectives of the nical assistance projects (such as the Nepal Regional Initiative, is to provide a strategic frame- Multimodal Transport and Transit Facilitation work for improved and rational dialogue among project and the Bangladesh Export Diversifica- the countries, as well as among key sectors in tion project). The work has strong synergy with the countries, on substantive issues in transport, the transport and trade facilitation work per- logistics, and regional connectivity. Instead of formed by other development agencies, includ- single solutions, it offers an analytic framework ing the Asian Development Bank, United Nations and a user-friendly decision support system to Conference on Trade and Development, and address improved regional movement of goods United Nations Economic and Social Commis- and services, allowing for moving issues from a sion for Asia and the Pacific. purely political realm to a more economic and commercial level. As the countries are privatiz- This report contains a set of analytic tools that ing and reaching out to global markets, it is include a Geographic Information Systems data- becoming more apparent that intrinsic depen- base for the region and a logistics cost model dencies and comparative advantages must be ex- developed by the Bank study team in collabora- ploited so that the subregion can open itself to tion with stakeholders in the subregion (Map 7 new economic activities. The analysis starts with at the end of this report)."6 Together they pro- the premise that strengthening the linkages vide a strategic framework for identifying key among the countries is not a zero-sum game. impediments ranging from physical infrastruc- ture gaps, gaps and inefficiencies in services at This report and the complementary outputs are transshipment points and border crossings, con- aimed at several audiences: straints at border crossings and ports, an analy- sis of alternative routes for moving strategic * People in both government agencies and pri- vate sector organizations (including transport operators and service providers, intermediar- 16. In addition, a report that compiles international case ies, and private business officials) in the rel- studies of transport and trade facilitation arrangements in evant countries and regions. selected regional trading blocs is also available. Please see publication, Lakshmanan, T. R., U. Subramanian, B. P. Anderson, F. A. Leautier (eds.). Integration of Transport * Within the Bank, the report complements the and Trade Facilitation: Selected Regional Case Studies. The individual country work program. At the net- World Bank, 2001. work and thematic groups level, the work and 30 Forging Subregional Links in Transportation and Logistics in South Asia the analytic approach and tools developed The report does not attempt to define specific add to the knowledge management base, investment projects, nor does it attempt to quan- contributing to the regional transport work tify the larger benefits to the economy from im- being done in other regions of the Bank. proved regional transport and logistics. The analysis provides insights into cost savings to For the analytic framework we took a microeco- the private sector for specific routes and com- nomic, practical hands-on approach that evolved modities through transport and logistics efficiency with close work with the private sector in the improvements and different route choices. The subregion. The analytic approach helped us not savings from improved transport logistics sys- only determine distance and transportation costs, tems can produce significant cost savings to the but also time, reliability, and cargo safety, includ- private exporter, importer, and shipper. How- ing market and commodity characteristics. ever, as a percentage of the costs of delivered goods in the final market, the logistics costs in In order to understand how well the markets the studies in this report-although higher than and transportation of commodities work, we international standards-are not outrageously chose strategic routes and commodities. Because higher. The reason, of course, is that transport our larger objective was to open up a subregion logistics costs are a small part of the overall de- that had been lagging, the selection of the stra- livered costs of goods, except for very low-value tegic routes and commodities took into account goods (such as cement and limestone). The im- the regional development aspect as well. From portant point to note here is the underlying and the sample route and commodities studies, we more dynamic implications of poor logistics and get an in-depth understanding of impediments higher associated transport costs. The real ben- in transportation and other logistics in moving efit of improved transport logistics are reduced commodities on existing routes to regional and delivery times, more reliable deliveries, and in- international markets. creased cargo security, all of which are critical parameters in the emerging global market in We then looked at promising route linkages to which market expectations have risen substan- understand what makes some routes more cost- tially in the last few years. effective than others, whether they could be fur- ther improved, and why the more cost-effective Though the countries in the region (to varying routes were not being used. The results of the extents) have started to liberalize trade, make analysis allow us to point to specific problems their industrial sectors more efficient, reduce regarding specific commodities and routes, as government involvement in commercial activi- well as to more general problems affecting the ties, and improve transportation networks and subregion: institutions, they have not been as assiduous in improving the logistics systems to the same ex- * Border crossings that include ports are a criti- tent. Failure to address logistics inefficiencies not cal cause of delays and logistics costs. only compromises the extent and depth of other reforms, but it also threatens loss in market share * There is a need for greater flexibility in trans- and could weaken the current competitive edge porting cargo between routes and between of these countries in providing low-wage work modes of transportation, not only because of forces. Examining the garment sector alone, the the characteristics of markets and commodi- implications include (a) fold: loss of employment ties, but also because of fundamental changes to a large unskilled and semiskilled workforce, occurring in international trade and logistics. and (b) denial of the same workforce opportu- Connecting a Subregion: A Strategic View 31 nities to upgrade skills and income as the mar- What we have attempted to do is provide a ra- ket dictates higher-grade products. tional framework under which such decisions can be made in a participatory transparent man- ner, in which those who will be affected can STRUCTURE OF THE REPORT move beyond purely political considerations to commercial and economic considerations. This first chapter has provided an overview of the socioeconomic and growth profile of the The fourth chapter highlights the constraints faced subregion. It examined regional and international by private businesses, freight forwarders, export- trade patterns in light of the transport and logis- ers and importers, and shippers in the subre- tics constraints. The second chapter examines gion. The constraints and options that we present specific impediments in the transport logistics reflect the views of the private sector partici- chain of commodity movement in the context of pants from the subregion at the regional consul- regional and international trade, focusing on tative meeting hosted by the Bank in February constraints with line-haul movement and on im- 1999 in Kathmandu, which we mentioned ear- pediments at border crossings and ports. The lier.1I In addition, the chapter also presents some analysis draws heavily on origin-to-destination innovative private sector initiatives in the subre- studies of selected strategic commodities for each gion in the area of transport. of the concerned countries. The fifth chapter of the report summarizes the The third chapter provides a framework to ex- key constraints in transportation and logistics. It amine alternative routes for the movement of discusses the broad set of options for consider- commodities, either within the region or to in- ation in the countries. It also attempts to outline ternational markets. It takes into account all costs the role that the Bank could play in assisting the of transportation and logistics and the availabil- subregion reduce its transportation and logistics ity of physical links. Issues of modal choice based constraints. on factors such as time sensitivity of market, commodity value, and commodity perishability, The sixth and final chapter oudines the next steps are also addressed. Although the chapter pre- that would be important to consider for national sents the key constraints and opportunities in and regional action in the short and long terms. the subregion in terms of strategic linkages and areas for priority attention, it does not advocate one physical route over another. We believe that international routings are best determined by the 1 Summar proceedings of the Consultative Workshop concerned stakeholders that include govern- Transport and Trade Facilitation in the subregion. Please ments, network users, and service providers. see Background Note 1. fforts to facilitate trade among India, Nepal, Bhutan, and Bangladesh, and between these countries and the rest of Ren i the world, must look beyond improvements in the trans- Logistics C osts port network to a general strengthening of entire logistics chains.' These chains include the complete set of services needed to move cargo from its point of production to points of sale or consump- tion. An effective trade regime requires a full range of efficient logis- tics services with tight integration between them. Each link of a logistics chain must have sufficient capacity and a simple and effective inter- face with the preceding and following links. The type of logistics services required for cross-border trade varies depending on the goods that are being transported and the markets for these goods. High- value, time-sensitive goods require more sophisticated logistics so that they can be delivered to the market in good condition as quickly as possible. Low-value, time-insensitive goods require simple logis- tics that reduce the overall cost of transport and provide reliable con- sistent service. In both cases, the objective is to reduce transaction costs as much as possible-which involves a balancing of the cost, time, safety, and reliability of delivery. The following analysis of the shipments within the region divides logistics into the following three basic services: Line-haul transport. This may be by road, rail, inland water and ocean, and it may include intermodal transfers.2 1. Over the last 50 years, the scope of analysis of transport services has been expand- ing. In the 1950s and 1960s, engineering analysis was used to examine specific com- ponents of a transport system, such as a port, a road link, or an airport, or sucI subcomponents as a berth, intersection or runway. In the 1970s, systems analysis was used to evaluate the interaction hetween the links and modes of transport networks. The emergence of multimodal transport in the 1980's extended this analysis to multimodal routes and intermodal interchanges. Toward the end of the century, the growing emphasis on door-to-door movements and just-in-time shipments shifted attention to logistics and to market analysis. 2. Air transport was not included in this analysis although it is of increasing impor- tance in the movement of high-value goods. 33 34 Forging Subregional [inks in Transportation and Logistics in South Asia TABLE, 2.1 CHARACTERISTIC Of" SELECTDl AQOUTES No. ROuteinksMdonad Comm odit 1 actkdta-auai-AM r Jndian ril Cement 2 Cakutta-Siliguui-Agartal Indian tuick Generalfreight Rgoaltta M ~4 Kahad-hiaiDaaNepalse-Bngadehl truck Agricutura produce S Thi~MP"-Bmm,Dhk Bhutaese4-angadeshti tuk Lietn 6 ~~~Cakcuta-enaO 61-Dhka IndiAn-BOangldesb trudc Yam Thirdcount 7 Nw Zeacicuu-auxK*manu Indian-Npaise ruc WOol 8 KaignjClutadni indmIdintruc Tea 9 I(AtmAndu-aualCaartaGem e aleeIndian truck C-arpet 10 SingaoeCactaIalan-hmuIndian truc Polprpyene SourcLogk cost study data ordBak • Border crossings. These are at seaports and in the region, the study team condiuctedl inten- land borders. sive interviews with freight forwarders, clearing and forwarding agents, shippers, and tntickers to • Complementary services. These include both obtain data on charges for logistics services, timie phyvsical services, such as storage, consolida- to complete different activities, and specific im- tion and repackaging, and commercial ser- pediments on each of the routes for selected vices, such as trade finance and insurance, commodities. customs clearance, transfer of shipping docu- ments, and interhusiness communications. The routes are divided into domestic routes that are restricted to a single countrv, regional rouItes The analysis is supported by a detailed exami- that involve cross-horder movements among the nation of the logistics components for the com- four countries, and third-country routes that in- modity-route comhinations listed in Table 2.1. volve ocean shipping to couintries ouitside the The routes were selected because they include region. The first group has an advantage because strategic commodities, emphasize cross-horder it does not face any cross-border delays.3 The movements, and serve landlocked countries and second group has prohlems associated with cross- isolated areas such as Northeast India. Using the logistics cost model developed by the Bank team 3. %We have not included constraints in crossing state or pros- in close consultation with private sector groups ince borders within countries. Reducing Logistics Costs 35 border movements and transshipment between the vehicles of two countries. The third group TABLE 2.2 CHARACTERISTICS OF UINE-HAUL TRANSPORT has the additional problem of moving cargo through the seaports. Maps 1-5 at the end of Nationalwads india Bangladesh Nepal this report present some of the routes and the border crossing points. 15 11 12 ly dtruck 6VW (ton) . S 11 . 12 Typicaltruckpayload 10 7 9 TRANSPORT COMPONENTS Ridbad Eliad NEWndia Banladesh Rai gauge Broad (BfMG) WI/MG Line-Haul Transport Typkal engine (BHP) 2,600 2,6001U,350 2,00-2,3001 Because most of these routes involve cross-border 1,350-1,650 movements, and half involve shipments to coun- Max.axle load (tOf* 20.3 20.3/12.7 2.5/1340* tries outside the region, it is essential to look at Car paoad (ton) 58.8 58.8 40.0 the modal interface. This requires an understand- Typialtrain ltfet) 2,00 2,200 1,800 ing of the capacity and performance of individual Typal train length (car) 40 bogke 40/35 bogie 35 bogle modes within a country and their compatibility Avg.travelspeed(kph) 23.7 237118.1 11.0/12.3 with bordering countries. India and Bangladesh Axtra s1ped(kph) 100 100/65 8$072 have all four modes of transport, whereas Bhutan Train contrl Block telecom Block tulecom Tokenless blok and Nepal have only road transport. *Umk duetolawBarWdge 18A Road Transport n.a.= Not avaabl. sw: coilant estkatm The primary mode for freight movements is road transport. Medium-size trucks (seven to ten ton payload) operate over two lane asphalt roads (5.5 meters wide in Bangladesh, 5.5 to 7 meters in India) at relatively low average speeds. Table 2.2 shows the characteristics of road transport. Only small portions of the major corridors are is limited not only by the design and condition dual carriageways, and few of these are outside of the roads and traffic congestion but also by the large cities. Only recently has India begun to nonphysical barriers to moving containers out upgrade its four major intercity roads to dual of the port. Tractor-trailers are also rare because carriage ways (Box 2.1). Many of the major roads of their cost, as well as road conditions, conges- are poorly maintained and congested. The re- tion, and weight limits. In Bangladesh, the weight sult is relatively low average travel speeds, in limits on the bridges between Chittagong and the range of 200 to 400 kilometers per day. The Dhaka, the main corridor for containerizable movement of containers4 on the Indian roadways goods, prevent the use of tractor-trailers. Most of the trucks used in cross-border move- 4. These containers adhere to standards set by the Interna- ments are two- to three-axle (six- or ten-wheel) tional Organization for Standardization, which is based in trucks carrying payloads up to 18 tons. Trucks Switzerland. carrying bulk cargoes are generally overloaded, 36 Forging Subregional Links in Transportation and Logistics in South Asia For-hire trucking services in all four countries &&X 2. INDI'S '~QJJflI4JJAI*AWRJ&! ~ ~4TW#W( are provided almost entirely by the private sec- tor. Most of the trcking companies are relatively ThefftloellllgwysAbw#yfludiba4vaptteftyt* .4 small, with fewer than 10 trucks. Strong compe- adMdu6~0mec*~tbemajord$nefMa~. ft$hLWa**&aml tition produces relatively low freight rates. These OwsiatmtGaWeu Msa~~t*~&o4m~6A~ ,gf rates and the lack of strict inspection standards which about,se4f*ise~t*er no4arcauw%o#~a$m~dtrtw- discourage the use of new trucks. As a result, q.MuKoft~~~~~~pt ~the average age of the fleet in Bangladesh is 15 ubthigtwNm*hu4s~flhwit~a Ws~M1eSkSnw*\1pwt$rn. years. The fleets in India and Nepal are slightly coflwdwo ofthe link btwee. Delh .wd(juma.younger, with long-distance trucks less than five Xnh$tlowt.*wa~DetenLtheath.ftytphf,*19i30l0wuetersof years old, on average. Most of the trLcks are nort-smih aneastistnguiae Abstow-twtis ethermanufactured in India or Japan and have rela- comp4etedww*cwfl&Th~~~~cti J43 a tively low power-to-weight ratios. The combi- natione Hof the age and condition of the vehicles, market conditions, slow travel speeds, and short carrying containerls,garments. orote hg-cb travel distances creates relatively low average (lovv-ensity cargs he roads areofxpee 10mes beween tnnick utilization-about 50 thousand loaded ki- th.m4rdanti~awhradamatWnas inievesn conaines by lometers per year. Or lmentsarehminated.Theess. d Howeever,o athe.cmo ,As Table 2.3 shows, the cost of road transport Nm1lwastIndla,aodfihunt.dwi~vpmtsbftda.per kilometer is relatively low because of a com- bination of low labor costs and less expensive axle.~ ~ ~ ~ ~ ~~~~~~ehce (inta term ofpa capita ratherr thants mainte-d nance). However the lack of backhaul cargoes and the small payloads of the trucks increase causing additional damage to the road. Those operating costs. The capital costs for Indian trtick- carrying containers, garments, or other high-cube ing are significantly lower than for neigh boring (low-density) cargoes have payloads of 10 tons countries because the trucks are locally produced. or less. However, as Table 2.3 indicates, the neighbor- The load limit for Indian roads is 10 tons per axle. Bhutan and Nepal have similar limits. Bangladesh currently applies a limit of 8.2 tons TAL23 ESITDTRKOEAIN per axle, but this is expected to increase to 10 9O;TS tons. The size of vehicles is limited by the ca- pacity of the bridges, many of which are old, OBT narrow, and in need of strengthening. The limits Ida-5tn$3 O.4 on total gross vehicle weight vary among the ld-fon 03 00 countries, but are below the level required for Bahda-1ti $.7$04 efficient operation of larger trucks and tractor- KMs0e 83 04 trailers. The combination of weight limits and road conditions make it expensive to move bulk LAS1I9B01hM commodities long distances by road unless the i truLcks are overloaded. Reducing Logistics Costs 37 ing countries are able to compete on routes within has predominantly broad gauge. The construc- their own countries. tion of the rail link across the Jamuna Bridge and the extension of dual-gauge operations to Despite the differences in road dimensions and Dhaka are expected to he completed next year, national limits on gross vehicle weight, there are substantially improving the coverage of the no physical hindrances on the movement of broad-gauge system. Several other harmoniza- trucks between the countries. Any constraints on tions are either underway or being planned which cross-border movements are caused by insuffi- will provide additional linkages between the cient capacity on the roads approaching the bor- western and eastern parts of the country.3 In der, inadequate waiting area and customs addition, the planned introduction of dual-gauge checkpoints, and the lack of effective transit pro- track between Chittagong, Akhaura, and Tongi tocols. For example, Bangladesh does not allow will provide a direct link between Chittagong trucks from other countries to travel on its roads. and both Nepal and northeast India. Although India reciprocates but does allow trucks from the strength of the track and type of sleepers Nepal and Bhutan to operate on designated transit differs between the two countries, this does not routes. Indian trucks are allowed into Nepal and prevent the movement of rail cars across the are given a limit of 72 hours to carry cargo and border. return to India. Additional data on truck trans- port is provided in Background Note 2. The Indian and Banglacdesh railways are pub- licly operated. Despite recent efforts to improve Rail Transport performance, they continue to suffer from over- staffing, poor maintenance, and old rolling stock. The rail networks in India and Bangladesh are a Bangladesh Railways also suffers from poor uti- mix of broad (1.68 meters) and meter gauge lization of equipment (Table 2.4A and B). In (Table 2.2). In India about one-third of the sys- Bangladesh there is also a significant problem tem is double tracked, whereas in Bangladesh with track maintenance, especially in areas prone the percentage is much smaller. India has made to flooding. Although rail is the second most a concerted effort to convert its network to broad important mode of transport in both countries, it gauge and Bangladesh has undertaken some has suffered a declining market share due to conversions to dual gauge. The network in East- operational problems. Rail traffic has been de- em India is mainly broad gauge. However, the clining in both relative and absolute terms. In connecting links with Nepal are meter-gauge rail Bangladesh, the tonnage declined by about 40 with the exception of Birgunj (which is a broad- percent over 25 years while market share de- gauge link). The rail link between Radhikapur creased to 7 percent of total tonnage. The mar- and Birol is also a meter-gauge line. The net- ket share is continuing to decline but the traffic work in Northeast India is meter-gauge, except tonnage has flattened out. Rail share in India, for a broad-gauge line extending to Lumding. The next section to Kumarghat is currently be- ing converted to broad gauge. The section ex- tending from Kumarghat to Agartala is being 5. Two other projects under consideration are the linking of constructed as a broadl-gauge alignment. Akhaura and Agartala, which the Indian and Bangladesh Railways are undertaking, and a proposal to link Tongi and Akhaura utilizing German funds. A link hetween Dhaka and The network in eastern Bangladesh is meter Joydepur is expected to be completed next year with dual- gauge whereas the western part of the country gauge connections between Joydepur and Parhatipur. 38 Forging Subregional Links in Transportation and Logistics in South Asia ~~~~~~~~~~~~~~~~~~cros,bth iquid an Adry. < ft-00 <0-0 23.5 040000 respectively. The routing of neo-bulk cargoes is fiStingapore-G$ttaqon$akutta Po030000ropy1ene 975 0100;0000 i; generally determined by the availability of rail- Ct a ap 2 road and inland water access to the port having adequate depth. Sowwffog& dci slwlytintW.MDtat ~The protocols for handling transit cargo from other countries appear to be well established for Reducing Logistics Costs 41 these ports. The principal barriers to efficient transfer are the slow handling rates, restrictive TABLE 2.6 MAJOR BORDER CROSSINGS labor practices, poor operational controls, and cumbersome customs procedures. Bangladesh is Border Crossing Points Modes currently implementing a preshipment inspec- Bir4/Raxal R Ran tion and valuation for selected imports at their Road port of origin in order to reduce the time re- R quired for customs inspection. Although this Kalrahalf Road should improve transparency and reduce infor- KakaigauJ Road mal payments, it will not significantly reduce the PWomJaRoad time required for customs clearance because Bhu hflfda k n e Rad many of the delays are associated with the prepa- bail 80 DarshanaGede RaR O6V ration of customs documents and inspections. Blrol/Radilkapur Rail MG Border Crossings Shahbaur/Mahishasan RalMb There are three types of border crossings: road, Batadha/Phulbart Road ChIlhati/Naldlbarl Rail (potential) rail, and seaports (Table 2.6). The road cross- ings consist of a customs checkpoint for vehicles WlMarah d Road moving across the border, a truck waiting area, THmIbW taukl Road and an area for cargo inspection. Where cargo Raad must be transshipped, additional space must be KMmasn2akki j Road provided for storing cargo and for unloading and ,MJAMn Rgmta Road, Rail loading trucks. The rail crossings consist of sid- AlttauOcean ings or rail yards where locomotives are ex- Iza Ocan changed from those of one country to those of hit Ocean the next. No storage is required because the cargo remains in the rail cars rather than being trans- a.Opemaualby2001. ferred. The seaports provide a full range of ser- b. gro$awe. vices, including loading and unloading facilities, C.Metergae : vehicle fleeting areas, and cargo storage and &dPhned. consolidation, as well as transfer to and from Badwo dlNtes3and6. ocean transport. Currently the transit protocols limit not only the border crossings but also the number of routes cargoes could remain in the sealed container box that can be used for transporting cargo. Some of even when the cargo has to be transshipped) the protocols require that the cargo be trans- with ICDs and other facilities established at the shipped from the vehicles of one country to those border to expedite movement across the border. of another, which increases not only the time The regional border crossings vary in their level and cost for transport but also the damage to the of development. The crossing at Benapole is the cargo and the variance in travel time. These prob- most developed. It has warehousing, parking lems could be reduced if cargo were allowed to areas, and a well-developed market with logis- move in-bond (meaning that the containerized tics services. Despite all these facilities, Benapole 42 Forging Subregional Links in Transportation and Logistics in South Asia suffers from severe congestion, and cargo must unloading ramps, warehouses, telecommunica- be diverted to other crossings (see Box 2.3). tions, and other logistics services. Among the least-developed crossings is the Phulbari corri- The facilities at the Birol, Hili, Sonamasjid dor linking Kakariatha, Nepal via India to Rohanpur, and Burimari border crossings are Banglabandh, Bangladesh. The Banglabandh much simpler. The crossings have customs fa- crossing lacks even basic customs facilities. Table cilities and roadside parking, but they lack truck 2.7 provides information on problems at major border crossings. For transit cargo between India and Nepal, thiree BOX 2.3 0 B EAtOLE: BOTLENECK AT THE DIAN border point ICDs are being construicted to ex- t 0 00 00 i t BANGLADESH i0BORDERS 0 2 l l!0 0 g 00 :pedite handling and storage." These are intended to provide efficient transfer of containers on Benapoie istepInpaIb 0orrs siogbend1aandBgI$eshTe trucks or, in the case of Birgunj, on rail cars. The fadlityqiscaldWaMl dpotibfimtoareflmftedto rolnga o Birgunj ICD will be equipped with reach stackers depo intand bOndd waiiow:t h"aalaimbeo ligenwho to allow efficient transshipment of cargo between 0;malntanfficsonthe1amltlweaeadequateiecomuu$calonseices. trucks and between rail and truck. withnsagladshwileeportraflcitranshdtowaelwn50As Table 2.8 shows, customs clearance proce- m.ns t rad dures can add significant costs and delays even load dihaqfr gle ndtwkwbuofrmaawIas though they represent a relatively small part of 2,DOopassengeis.lfroughputisconsb'ahiedbyasbiglewstonulaneinsi < the logistics chain. The existing procedcures are dircton orearngvehclsan eiyansAsaesl~*reIs evre oneston both cumbersome and time-consuming, and they w#nesofuptol,Se0twp mdv"+- akingtinwsofmne'Wflvede heareas - reflect the conservative trade policies that have alarecomlexowasdowesndmawtsstitswnsuiftdbyamrowoedcharac terized the region for decades. Poodly de- IeadlngtotlwborderandatadefparinngspacaThenlnB~apoefor fined or complex procedures and documents tranlppngpodsfrornhliSdiwflwdrstoBrn4adeM~Ittu*czacconuu te ; reduce transparency, especially where a large oMy25OoOOtwdn.npswtsaeWp~tobneMttieelays~.number of people are required to give approvals. reachedsuchaleveltbt traffichasbeendlveut# tdhIonhfSlI*bU*flThSSlIS Table 2.9 shows the documents that are submit- whmtheelslesrigorounforsluteftstflhBmtiom.ted to customs at the border crossings. Many are ThefacIkya1soh0qr*ionafpv*frn.The3I?-phaswarehwsnpwhledby the same as those commonly required at other the*MonglaPortfrhodtyhw adequa^capucIt~t ahoutZS 15,OPO'eu4otih0M international borders, such as invoices, packing islowutlslizationfdui topomaintnmce,iffktttmwzuukqoatenr lists, certificates of origin, letters of credit, and andnunnlgw*rr _aitinfadu$esthe< -ciItyl*4sa* M un V quarantine forms for plants and foods. Some of hudtngevipntXrnesieinoercedlionierenoina$wtah the documents, such as import licenses, export depots and nofwovision forrecelvlngand deflwdngcatgot.*ipphigllnes. permits, and various certificates, are less com- Inord;rtoftducecongesdh,anwbudctwvdn*hnbeencw5twIledln mon. These are intended to meet local require- Bempoeinadkotabassoadango*eroslng,Oithen4asId~a ments. They supply information that should paMngareafor40Oto50tidsisteh0 In toneivp4e =m already be available to the customs officials and kwolwmstlnoperationshawyettobead&essed. i ,The World Bank assisted Nepal Multilnodal Transport and Trade Facilitation Project." Reducing Logistics Costs 43 not submitted with each shipment. Other docu- ments, such as equipment interchange certificates TABLE 2.7 CHARACTERISTICS OF MAJOR BORDER CROSSINGS for containers and railway cars and registration forms for vehicles and drivers moving across the Border aessing Mode Prfbkms border, are required because simplified proce- Ch.on W#a ' e ra^^^""opera dures for in-bond movements and modern regu- M of ~esessive deIWaWd cos lations for the carriage of goods have yet to be utta Watr IeMft mana oeaiow, developed. la.c ofeqipme, exe deaand cst The basic customs documents, such as transit, Bw Rawga Ra Inotto export, and import declarations, create problems BhEgwauXaI Rall iCKItyoperatioral because they vary from country to country and BikJogbWI Road iCDuotyetatlal must be prepared separately for each side of the DarsaPa/ede Ral Long pyoW mes border and submitted in multiple copies. A stan- Dakafviaedae a Ri Road Lornflpesonsts borSde no suts dardized format would not only reduce the paper- offdes oanblaond work but also encourage more consistent 8 ra n Road Insffkeientinatucbire,lackof customs procedures and greater coordination between KfRed badfroadtacess customs officials on either side of the border. The problem of standardization has been hampered Simm godw s6,7,8,and9 by India's decision to develop a separate trade classification system while its neighbors adopted the ASYCUDA automated systems format. The document problem is not limited to the num- ber of documents that must be submitted, but also includes the procedures used for verifying TABLE 2.8 COSTS AND TIME FOR CUSTOMS INSPECTiON and approving documents. The number of cop- AND CLEARANCE ies that must be submitted and, more importantly, the number of signatures required, add consid- Mode Commodity US$/ton Time t(rs) erably to the cost. Although the requirements for the Nepal-India movements have been re- Ceeent 0-07 24 duced in the last few years, considerable im- Tnttdt A.7 24 provements are still needed. Tnud Lueftope 6.0S 32.5 Truckerr Yam 6.55 205 Ports I h The ports represent the critical border crossing Tr"d Wool 894 63 in terms of costs and time. The time the cargo Trudt Tea 14.29 12 spends in port is determined by four factors: the Tiudk Ca" 27.00 20 complexity of the customs clearance procedures, Truck Polyprop 6.54 55 the frequency of vessel arrivals, the efficiency of Trck Cotogam 5.94 . 36 the cargo handling and storage operations, and the efficiency of the shippers and consignees. The latter depends on the level of coordination 44 Forging Subregional Links in Transportation and Logistics in South Asia argo mute oc nt eqie MOdi lvto Mtnglade' Ml asomCsosept4x.o,NOfIdlng WopadU fmpofl4!gp Of credit. rAi hwtodougpdkilstterfrdi lton- f*rn% risk and dutybont 0 $Mo Ntpa{tIndla orPMpawstoms-Cu stamJtdn st.msa ortCDecartO* ut Tranit argoiusncectflzlnvicepackng istcertficte o orgbvzrtilcats o regstrtio (lncue t; viue-adedtax,campnyt ettR redit"r' A in proessingshippig doimorlientsean lttero crei- seuth/queranThe tiert nd cotsquxetinferdocanboretas ity of the hippera rdcns anee dty tinsrne coherageport cotaners.veces h iefr adtas Banglsoaesh nor ts uepots-export fo i t ofrying e akiglseport evnw ere ithe undtertaingolby ex ort lems wih all fur com omnent outhass castaemthexos preermit,ris bond. itpoidsacest renaivel Por gts medel mportscustomsn torast dearageo, bmlofrde enficie,t packin tist certibcter of n For import andexport origine,,thepoftelicenese letr ourdt, Asiat pojuratsn ceriiat e ,eqoupent into her- ev in procteissn shippingh documdents and the abil- l o services. The time andgcost fovl roceanborn trans- Reducing Logistics Costs 45 shipment hubs that have frequent sailings by large cost of the larger vessels calling at the port to shipping lines offering scheduled services to dif- transfer relatively small cargo loads. Economi- ferent regions of the world. These services typi- cally, they are able to provide more frequent cally operate on a day-of-the-week schedule so service to the transshipment hubs. that importers and exporters can time their ship- ments to minimize the time in port. The only The status of Chittagong, Calcutta, and Haldia as major transshipment hub in the immediate re- feeder ports is unlikely to change because of gion is Colombo. It has obtained this status by limitations on the volume of cargoes, their dis- virtue of its proximity to the major markets of tance from the main shipping routes, and their South Asia, its location along the equatorial rout- low cargo handling productivity. Chittagong has ing of the larger liner services, and its efficiency no container gantry cranes. This, together with relative to the ports in southern India. The other labor problems, reduces the handling productiv- transshipment ports serving the region are ity below five containers per vessel-hour. In ad- Singapore, which handles most of the feeder dition, vessels are forced to wait for berths for services to Chittagong and Calcutta, and Dubai/ two to seven days. Total turnaround time can Aden, which serves the west coast of India. range from five to thirteen days for an activity that would require less than one day in most The second level of ports are regional hub ports ports. The performance in Calcutta and Haldia is such as Nhava Sheva and Port Kelang. Although not much better.9 If a new, privately operated located away from the major shipping routes, port were developed in Patenga, Bangladesh, or they have day-of-the-week calls by major ship- along the east coast of India, it should be able to ping lines that have a portion of their voyages divert substantial traffic from existing public ports call at these ports.8 The number of regional hubs and generate some additional traffic-which has will increase with the growth in traffic. The Thai happened at the Jawaharlal Nehru Port Trust on port of Laem Chabang is approaching hub sta- the west coast of India.'° However, it would be tus, and there is likely to be a regional hub on unlikely to achieve regional port status because the east coast of India during this decade. of the limited import-export traffic generated by the region. The third category of ports are regional seaports such as Calcutta, Chittagong, and Haldia. These Improvements in port performance through faster, attract feeder services from the major transship- more reliable equipment and better management ment hubs that operate on a flexible schedule, of labor will increase berth productivity and re- so it is difficult to schedule cargo movements to duce delays to vessels. If this were combined connect with major shipping lines. This intro- with guaranteed availability of berth space, day- duces delays at both the feeder port and the of-the-week sailings could be introduced. At transshipment port. It also creates an additional cost for a second handling. The smaller feeder vessels have higher operating costs per unit of cargo, but this additional cost is lower than the 9. For additional discussion of impediments to port effi- ciency, see Background Notes 8 and 9. 10. The success of private port operations in improving pro- 8. Large container shipping lines and alliances serving ma- ductivity, diverting traffic from public ports, and attracting jor routes increasingly operate with variations of their main new traffic is well documented. Examples include Laem route called strings. Each voyage or string will call at a cer- Chabang in Thailand, Giao Tauro in Italy, Manzanillo in tain number of secondary ports as well as the main ports. Panama, and Nhava Sheva in India. 46 Forging Subregional Links in Transportation and Logistics in South Asia present, any attempt to introduce a fixed sched- ton-kilometer to take account of differences in ule would require excessive slack time in the vehicle size and mode. For truck transport, an sailing schedule because of the uncertainties in additional calculation was made for the charges port performance and would result in inefficient per kilometer. For loading the cargo at its origin use of vessels. This is a common problem in and unloading at its destination, the costs differ regions with underdeveloped ports, such as from less than US$1 per ton to over USS25.1' Southeast Asia and the east coast of South The higher costs were due to the packaging re- America, but there are attempts to overcome this quirements of higher value cargoes, specifically problem through investments in modern cargo- textiles, tea, and freight of all kinds (FAK). Since handling equipment and privatization of port wool and polypropylene are imports, the pack- operations. The results have been a significant aging was performed at foreign origins (New reduction in port costs, freight rates, and times Zealand and Singapore), and these charges are for ocean shipment. not included in the table. The cost for the line-haul movement depends ANALYSIS OF LOGISTICS COSTS AND TIMES on the mode. The rates for rail and barge trans- port were lower than for trucking when calcu- The times and costs for moving cargo along the lated on a per ton-kilometer basis. For trucking, 11 routes listed in Table 2.1 were estimated from the rates range from US$0.029-US$0.058 per ton- information provided by cargo owners and for- kilometer, depending on the size of the ship- warders based on typical shipments. We ana- ments and whether the trip is short distance or lyzed the information to determine the relative long distance. Limestone, tea, and FAK were contributions of the various logistics activities as carried in eight-ton loads, whereas the other car- follows: goes have consignments about twice that size. The rate per truck-kilometer was relatively con- • Loading at the origin and unloading at the sistent, between USS0.45 and US$0.50, except destination, for agricultural products, which had an excep- tionally low rate for movement to the border * Line-haul movements, crossing at Kakarbhitta. These rates are signifi- cantly higher than the estimated trucking costs * Intermediate handling at the border crossings presented in Table 2.3. This is because of fewer- and ports, and than-expected backhauls, increased delays en route, and the informal costs paid at various * Customs inspections. police checkpoints. The analysis included the land movement and Intermediate handling occurs where there is trans- the transfer across the border through the sea- shipment between vehicles, a change in cargo port, but it did not include ocean transport. form, or a transfer of cargo to and from storage and from one mode to another. The amounts Table 2.10 summarizes the costs for the indi- paid ranged from US$1.6 per ton to over US$31. vidual activities. The costs for initial loading and final unloading and the intermediate cargo han- dling were computed per ton of cargo handled, and the line-haul transport was computed per 11. These costs do not include the cost of time. Reducing Logistics Costs 47 TABLE 2.10 UNIT COSTS FOR MOVEMENT OF CARGO BY ROUTE AND COMMODITY Inital load Inter- and final mediate Custom unload Line hau& haudlingb procedues Origin/dstinatio Mode Cargo (US$/ton) (US$1 ton-km) (US$/km) (US$/ton) ( value) Domesti 1 Cakutta-Argatala RaI Cemnent 0.46 0.016 n.a. n.a. n.a. 2 Ca(utta-SiIiguri-Argatala Truck Freight, all kinds 34.75 0.059 0.47 n.a. n. Reional 3 Calcttta-SheikhbariaArgatala Barge Cement 0.46 0.022 n.a. 1.60 0.11 4 Kathmandu-Kakarbitta-Dhaka Truck Ag.produce 3 88 0.033 0.28 4.24 4.60 5 Thimpu-Jaigon-Bwimad-Dhaka Truc Limestone 3.33 0.058 0.43 4.80 12.11 6 Calcutta-Benapole-Dhaka Trauck/ferry Yarn 35.47 0.097 n.a. 5A1 0.26 Internatonal 7 NewZealand -Cakutta-Raxaul- Kathmandu Truck Wool 2.35 0.044 0.37P 25.82 0.45 8 Karimganj-Siiguri-Calcutta- Liverpool Truck Tea 28.57 0.053 0.45 2738 0.60 9 Kathmandu-Raxaul-Calcutta- Bremen Truckrai Carpet 18.33 0.031 07 16.40 0.45 10 Singapoe-Callcutta-Jaigon- Thin"pu Truk Polyproene 1.56 0.031 0.50 31.31 1.28 11 Dhaka-Chittagongwest toast of the United States Truck Cotton garments 2D.56 0.029 0.46 10.38 0.20 aL twgor movements by uck, rail, or baWge. bLlransshipment of cargo at border crossingspadcing and npaing of containers,and other hnding of cargo in port, c Fomal and infonnal charges for cargo dearance and inspection. d LAssmes that O trucks are required for l7 tons because of hig volume. n.a.= Not aWaible. Soer Lo*gitls cos stud4Word Bank. These amounts were less a function of the value ages varied inversely with the value of the cargo, of the cargo and more a function of the number indicating that a significant part of these costs and type of border crossings involved. are related less to the value of the cargo than to the volume of cargo. The major exceptions are Customs clearance procedures, exclusive of du- the agricultural products, which incur an ex- ties, accounted for less than 0.5 percent of the tremely high cost for the customs procedures at cargo value for most of the routes. The percent- Phulbari (Map 3). 48 Forging Subregional Links in Transportation and Logistics in South Asia The costs for these different componenits were toms procedures are not significant wlhen coIII- compared as a proportion of the total costs for pared to the value of the cargo, as shown in the different logistics activities (see Figures 2.1 Table 2.10. The exceptions are agricultural pro- and 2.2). This comparison does not include the duce, as mentioned above, and limestone, which charges for handling at the origin and destination has a very low product value. Overall the cus- because these are imputed costs based on the toms procedures had a greater impact on de- time spent by regular employees in the produc- lays than on costs. tion process.'3 When this cost is excluded, the line-haul costs should account for at least 85 The time spent on individual components of the percent of the total for regional shipments and logistics chain is influenced by a number of fac- at least 75 percent for foreign shipments with tors. For example, the time spent loading at the the exception of short distances. For the first three point of production is more dependent on pro- routes (regional routes 3 to 5), the cost for line- duction schedules than on the productivity of haul transport was dominant. However, for the the physical handling. Figure 2. 1, which excludes shipment of agricultural products, the other costs this component, shows the relative importance were more than one-third of the total because of of the remaining logistics activities. With reason- the relatively high costs for customs clearance in ably efficient operations, it should be expected crossing from the Nepali and Bangladeshi that line-haul movements would account for 80 borders.'2 to 90 percent of the time for regional movements and 75 to 80 percent of the total time for inter- For the international routes, (Routes 7 to 11 in national movements for all but the shortest routes. Table 2.10), the costs other than line haul ac- In fact the percentages are much lower due to count for 40 to 60 percent. Customs procedures inefficiencies at the border crossings. were significant in both Calcutta and Chittagong ports because of inefficiencies and informal pay- For the regional routes, the line haul accounts ments. The costs for intermediate handling were for 57 to 65 percent of the logistics time, exclu- about 20 to 25 percent of total costs because sive of loading and unloading at the origin and they included all handling costs in port other destination. Customs procedures account for than loading and unloading the vessel. These most of the additional time on the routes from numbers are reasonable except in the case of Bhutan and Nepal to Dhaka. These routes re- polypropylene offloaded in Calcutta, which in- quire two border crossings and one transship- curred exceptionally high costs for handling and ment, with the majority of the time lost in storage. clearing the cargo through customs. The move- ment of cement by barge does not involve sig- Customs clearance procedures add a relatively nificant border checks, but it does require small amount to the logistics costs with the ex- transfers to trucks at both ends, which adds a ception of agricultural products, which incurred significant amount of time. high costs at Phulbari customs, and carpets, which experienced high formal and informal The international routes require a lot of time in fees at Raxaul and Calcutta. The costs for cus- port. This includes time spent clearing customs, but it is primarily the time spent waiting to en- ter the port, loading and unloading the vessel, 12. There are also significant costs for damages that have and in storage waiting for the vessel. The pro- not heen incloded. portion is greatest for Route 11 because of the Reducing Logistics Costs 49 short travel time between Chittagong and Dhaka. Although the movement of polypropylene is FIGURE 2.1 COMPARISON OF LOGISTICS COSTS BY ROUTE much longer, the exceptionally long delay in the port of Calcutta accounts for a large part of Pre the logistics costs. 80 - The last route, the domestic shipment of yarn from Calcutta to Dhaka, highlights the extremely 60 long waiting times for customs at Benapole. Table 2.7 shows the times associated with customs pro- 40 cessing on both sides of the border. The delays at crossings other than Benapole appear to be, if 20 not justifiable, at least manageable. 3 4 5 7 8 9 10 11 6 As Table 2.11 shows, overall route performance Route no. can be compared using two performance mea- Lie Lus m lntete&late m Eustoms sures: average speed and unit cost. The average speed of the journey compares the land route SXce LogMcs cost study, World Bank distance and travel time for the line-haul move- ment. The unit cost for the journey is equal to 3 8 TeaKmla-0acutta4iepool the logistics costs for the land movement divided 4 P oeiba 9 Caretklwnanducutnteu by the product of the route distance and con- S Lhnesone ThIWpu-DhIa tO PoypropeeneSligap ore-Cut-Thmpu signment size (for example, S/ton-kilometer). 6 Yarrc.kutt- 11 karmt n t es 7 WoolewZealaMntkcutnandu The average speed was less than 400 kilometers per day because of the congestion on the roads and the delays en route for the railway. The FIGURE 2.2 COMPARISON OF LOGISTICS TIME BY ROUTE speeds are higher in Bangladesh because there Percent is less traffic congestion. The cost per ton- 100 r kilometer is lowest for all-rail and all-barge ship- ments and highest for short-distance truck 80 - movements. 60 Four general conclusions can be drawn from this route comparison. The first is that the overall 40 - logistics costs, although significant for some com- ** modities, is not all that great when measured as a percentage of cargo value. The inefficiencies O of the transport services are offset by low labor 3 4 5 7 8 9 10 11 6 costs and older, fully depreciated transport equip- Rote no. ment. As a result these percentages are compa- Line haul me It (Cusm rable with those experienced elsewhere. The problem is not the cost but rather the time, reli- e: st cW t ,S ability, and safety of the logistics services. 50 Forging Subregional Links in Transportation and Logistics in South Asia ;>.-,, 'k'~~~~~~~~re 'h,aR d 2 't 0.0$ eB ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-- --3- --- t .- t 3 ..~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.... .. ....... . -.. ...3 The second conclusion is that the border cross- portantly, they create uncertainty concerning the ings are a major cause of higher costs and longer delivery time for and condition of the cargo. delivery times. The critical bottlenecks are the seaports, the Benapole crossing, and the Nepal The fourth conclusion is that the priority should border crossings. The problems at the crossings be given to improving procedures in the short are being addressed through the provision of term and infrastructure in the medium term. additional infrastructure. They are also being addressed through changes at procedures at the The border crossings can add considerable un- Nepal border crossings. certainty to the time involved and damage in- curred in transporting the cargo; especially where The third is that the customs clearance proce- border-crossing procedures are complex or re- dures are a problem in terms of unnecessary quire frequent inspections. Manufactured prod- delays and unofficial costs. However, they do ucts are increasingly sensitive to this problem not have as great an impact as other procedures because tighter logistics are required in modern at the border crossings and ports. Customs can commerce. The inability to guarantee delivery and should be more efficient, but the protocols schedules requires the recipient of the cargo to are the major source of inefficiency. Customs maintain extra inventory to prevent a shortfall limitation on working hours, supply of officials due to late deliveries. The inability to guarantee at the crossing, the number of gates for receiv- the condition of the cargo adds to the cost for ing cargo, and the transparency of procedures insurance and makes it more difficult to sell the for inspection and valuation not only reduce ef- product. Variances in the costs for crossing the ficiency but also generate animosity. More im- border place the profitability of shipments in jeop- Reducing Logistics Costs 51 ardy. The product price must be increased to cost is measured relative to value of the cargo. take into account the upper range of costs. The second item is also linked to the delivered cost because damages or losses during transit increase the delivered that cost. The third item IMPLICATIONS OF LOGISTICS CONSTRAINTS is linked to the delivery time because it limits AND CHARACTERISTICS OF GOODS the acceptable time for delivery. Table 2.12 shows the relationship between the physical and com- The efficiency and effectiveness of different mercial characteristics of the cargo and the type routes depend on both the characteristics of the of logistics required. route and the nature of the cargo being moved. Cargo is typically characterized as break bulk, Commodities can be categorized according to unitized, neo-bulk, or bulk. Each requires spe- the level of logistics services required. The first cialized handling systems if the goods have to category is high-value, time-sensitive cargoes compete effectively for market share. The type that are vulnerable to damage. These must be of cargo and the markets in which it is sold de- moved quickly, generally in unitized form, with termine the type of logistics services required to a minimum amount of transfers. Typical reor- compete effectively for market share. The im- der times are 1.5 to 2 months, implying a maxi- portant cargo characteristics include: mum travel time of 25 to 35 days. The price of transport is less important than the time and i The value of the cargo per unit volume or reliability of deliveries. Higher-value cargo can weight, afford a higher cost of transport. Among the cargoes in this category are fruits and vegetables, * The susceptibility of the cargo to damage while meat, fish (both fresh and frozen), and other in transit and when handled, and food products. The shipper chooses the fastest mode of transport with a preference for the route - The physical and commercial life of the cargo. that has the least number of handlings. Road transport is generally preferred unless transship- The third item has both physical and commer- ment can be avoided through the use of rail cial dimensions, as Chapter 1 discussed. Some transport. For high-valued perishables, air freight commodities-most notably, fruits and veg- is preferred. etables-have a relatively short physical life. Others have a short commercial life. For example, Four other commodities-consumer goods, wood garments and footwear are affected by changes products, seasonal garments, and textiles-are in season and fashion. often included in the first group. These can be divided between upscale products such as elec- The competitiveness of the markets in which the tronics, fashion garments, and designer furniture cargo is sold also affects the logistics require- that have a shorter shelf life and tight delivery ments. Market sensitivity to the delivery times schedules, and low-cost products such as appli- and variations in those delivery times, as well as ances, basic clothes, and general furniture that to delivery costs and variations in those costs, tend to have a longer shelf life and much looser are particularly important. delivery schedules. These sets of characteristics are linked. The first These low-cost goods are part of the second item is linked to the delivered cost where that category: medium-value commodities with 52 Forging Subregional Links in Transportation and Logistics in South Asia a .;gs h l O . n, ' susjute,tibtonqadamager vices that balancer itw een cost a t petrochemicals. Delivery timnes are longer, about and fewer handlings. Reducing Logistics Costs 53 The remaining category includes low-value com- modities with long shelf lives that are relatively TABLE 2.13 LOGISTICS COSTS AS % OF CARGO VALUE impervious to loss or damage. These are typi- cally bulk cargoes such as grains, cement, and Land Pert limestone. Their logistics emphasize low-cost, distince cargo reliable transport. Because these commodities Mode Commot value tend to be handled in large volumes, the logis- tics are less concerned with minimizing delivery time and more with maintaining a reliable deliv- ery schedule. The greater the variance in deliv- Yutk Awki"pdo IJ94 4 ery times, the larger the inventories that must be Trudc ektal i 1,615 4 maintained to avoid outages. The shipper will prefer the mode that handles large consignments Medim Sue but minimizes the number of handlings. Rail is Tr#d re 1,380 12 the most popular mode, followed by inland wa- Trudt Wool 1,215 8 ter transport. Where these are not readily avail- Truck Polypropyne 820 25 able, road transport will be used, especially for WUdt Capet 1t26 3 petroleum products. Lorale U&k Limestone 786 119 For all three groups, there will be a preference CO1,M53 44 for routes that do not require border crossings with significant delays or transshipments. Table 2.13 shows the impact of the logistics costs on the delivered cost of the cargo. These logistics costs, including the ocean freight for imports and exports, are divided by the delivered cost of the sumer goods. The cargo value has a greater im- cargo. Not surprisingly, the percentage is great- pact than the distance shipped, as can be seen est for the low-value cargoes, such as cement by comparing the local shipment of agricultural and limestone, and least for the high-value car- products with the export of cotton garments to goes, such as carpets, garments, yarn, and con- the west coast of the United States. 3 he choice of routes for trade flows is made based on four R oute Selection: factors: the total logistics costs, time required for door- to-door movement, reliability of delivery, and condition Applying a of the delivered goods.' Chapter 2 analyzed components Logistics of the logistics chain for major trades and routes currently in use in order to explain their impacts on cost and time. This chapter will V iew point expand the analysis by comparing the time and costs for these exist- ing routes with those of alternative routes that are not currently in operation, either because of protocol restrictions or infrastructure gaps. The comparative analysis demonstrates how the components of the logistics chain contribute to the competitive advantages of one route over another. The analysis provides a framework for evaluating pro- posed improvements in a specific route. The impact of these im- provements depends on the change in logistics time and cost, as well as the potential for cargo damage, for the route relative to competing alternatives. Similarly, comparative analysis provides a basis for iden- tifying and evaluating new routes by considering their advantage in terms of time, cost, or condition relative to currently used routes. The Bank study team, in collaboration with private sector stakeholders from the subregion, developed the logistics cost model used for the comparative analysis (see Map 6 at the end of this report). The framework provides a tractable and easy-to-use tool for stake- holders that will help in two types of decisionmaking: (a) to deter- mine which of the routes available is less inefficient and (b) to determine which of the components of the transport logistics chain on a particular route are problematic, where improvements in the 1. The exports and imports analyzed in Chapter 2 are sold either cost-insurance freight (cif) or ex-factory/farm gate. The imports of polypropylene and wool are bought on a cif basis. The intraregional shipments are sold either cif or ex factory/farm gate. In all cases, the responsibility for the logistics rests with either the shipper or the consignee, not both. Therefore the selection of a route will be based on the complete logistics time and cost. The alternative would be to sell exports at the port on a free on board (fob) basis and to purchase imports cif at the port. When the logistics stop at the port, the selection of a route is decided by both the shipper and the consignee. 55 56 Forging Subregional Links in Transportation and Logistics in South Asia short term can bring significant returns in terms This same technique can be used to assess fu- of efficiency improvements. Shippers and con- ture requirements for logistics services. Already, signees can use this analytic framework to se- liberalization of trade and the restructuring of lect routes. Governments and other stakeholders international and domestic transport industries can use it to evaluate policies and investments have raised expectations regarding the quality intended to improve performance on one or more of logistics. Future changes in trade and the trans- routes. port network will raise not only expectations but also requirements for new routes with lower lo- The objective here is not to recommend any one gistics cost and time, and with greater reliability. particular route over others or to suggest that These trends are discussed briefly at the end of any one of the routes analyzed here is the most the chapter. They are important to anticipate since efficient. The routes analyzed all have inefficien- the logistics industry in the region has largely cies, some more than others. Rather, the focus is been in a catch-up mode and has acted as a on trying to encourage further probing and in- constraint rather than as a catalyst for growth in formed dialogue among stakeholders on the trade and economic development. routes where efficiency gains can be achieved in the short term, and where more long-term The planned improvements in the regional trans- interventions would be required. The focus is port network will raise expectations and lead on the information that stakeholders have avail- to a diversion of freight movements to the more able when selecting routes for shipping cargo. efficient routes. The end of this chapter dis- The objective is to identify those improvements cusses the impact of these improvements on in infrastructure, services, and trade facilitation route selection. The type of commodities being that allow shippers to offer their goods to se- shipped are expected to change from predomi- lected markets at a lower delivered cost with a nantly raw and semiprocessed materials to delivery time and reliability that is acceptable to semifinished and finished manufactured goods. that market. The trend toward the production of high-value goods must be complemented by better logis- It is important that shippers have options. The tics if producers are to compete in international choice of route will vary with the type of com- markets. modity being shipped and the market for that commodity. Reductions in cost, time, and dam- A more precise indicator of logistics performance age on one route will cause some of the cargo is the variance, rather than the average value, of to be diverted from alternative routes. These di- the times and costs of transportation. It is diffi- versions are not instantaneous, but they can oc- cult to obtain data on this variable. This chapter cur rapidly if cargoes are traded in competitive also includes a brief discussion of the impact of markets. Lower logistics costs allow shippers to variance on the costs to the user. It then looks at compete on delivered price. Faster travel times the relative importance of the condition of the allow shippers to compete for markets that re- cargo following shipment and the impact of losses quire shorter delivery times. Less damage allows and damage on route choice. Losses and dam- shippers to compete where the quality of the age not only increase the delivered cost but also product is a major concern or where restocking add to reorder time and increase inventory cost times are long. The following analysis suggests to cover potential shortfalls in the delivery of that relatively small changes in the logistics chain acceptable goods. The number of intermediate can have a big impact on route selection. transfers is important for cargoes that are sus- Route Selection: Applying a Logistics Viewpoint 57 ceptible to loss of damage. The form of shipment for the landlocked regions of Nepal, Bhutan, and is important because it affects both time and Northeastern India. damage. Containers and bulk cargoes can be moved more quickly with less damage if handled Case 1: Exporting High-Value Goods from a Landlocked with appropriate equipment. Several of the se- Country to an International Market lected routes involved container movements, but part of the transport was in break bulk because Carpet is exported from Nepal to European mar- of physical or regulatory constraints. Bulk cargo kets via Calcutta port. The carpets are container- is often bagged at a port or transfer point be- ized at Birganj, which is 165 kilometers from tween rail and truck transport, thereby increas- Kathmandu. The container trucks are cleared by ing losses and delivery times. Nepalese customs and, after an overnight wait at the Nepal-India border, enter Raxaul for clear- This chapter begins with a comparative analysis ance on the Indian side. The entire trip by road of five of the routes that the previous chapter from Kathmandu to Calcutta port, plus the time discussed. The analysis is based on current in port, averages eight days. This includes a two- charges and performance. Comparisons are made day wait to enter the port. It takes an additional with alternative routes that have been suggested four days for clearing customs and loading the by users and other stakeholders, or are in the cargo on the vessel. The cargo is then shipped process of being made available because of on- east to Singapore for transshipment to a larger going bilateral or multilateral negotiations, up- ocean vessel heading west to Europe. grades to the physical infrastructure, or both factors. These alternatives have specific advan- The freight forwarders in Nepal are proposing tages that may or may not be significant when the use of the port at Nhava Sheva (Jawaharlal placed in the context of the total costs for move- Nehru Port Trust, or JNPT) on the western coast ment of the cargo. Using the same contest, the of India as an alternative to Calcutta once the chapter reviews various proposals for improv- Bhairawa ICD becomes operational (Map 8 at ing the efficiency of the logistics for the existing the end of this report).2 This would allow direct and proposed routes. Based on the result, a se- shipments to Europe instead of feeding through ries of initiatives are proposed for improving the Singapore. The new route would be by truck selection of routes available by building on the from Kathmandu through Bhairawa to Nautanwa, recommendations of the previous chapter. India, where the cargo would be packed into containers. The containers would be transported to the ICD at Moradabad and placed on rail cars COMMODITIES, MODES, AND ROUTES: for shipment to Mumbai and the JNPT container SELECTED CASE STUDIES terminal. Although the land transport distance is three to four times as far as the distance to The five cargo flows selected for comparative Calcutta port, the ocean portion offers consider- analysis were presented in the previous chapter. able savings in freight rates and shipping times. Three are extraregional trade in carpets, tea, and general cargo (or FAK), and two are intraregional trades in cement and fruits. The comparisons also consider routes through other countries, espe- 2. Nepalese cargo has access through the ports at Kandla cially Bangladesh and India, which are shorter and Nhava Sheva on the western coast of India in addition and may offer potential savings in cost and time to Calcutta port. 58 Forging Subregional Links in Transportation and Logistics in South Asia t-TABLE 3.1' tM1 hIfV tr IPo#sFOI >KKE W R O RP CONSIGNMENT ATTRIBUTES Commodity type Carpet Shipment size 1 TEU Origin Kathmandu, Nepal Destination Munich, Germany Via Bremen Port, Germany Shipment value $90,000 ,,~~~~~~~~~1A ROUTE -1 ATTIBUTESROUTE32ARIUS 0 KEY RESULTS ;; Transport logistics cost (US$) 5,343 4,629 ;00 00 Transport logisticsctimet(hours) 903 623 Cj Cargo handlbw'V 26i04000'iSW050000 74S 4600;00:ED 155 f \ It has the additional advantage of better produc- Although there is about a 14 percent reduction tivity and fewer delays at Nhava Sheva than at in cost for the route via the JNPT, the more sub- Calcutta port. Table 3.1 shows the cost and time stantial benefit is a 30 percent reduction in travel comparison of the two routes. time from nearly 38 days to 26 days. The land Route Selection: Applying a Logistics Viewpoint 59 route to the JNPT is more costly because of the This case also suggests that efficient train opera- longer distance, but the travel time is reduced tions can play a role in the movement of high- by more than one day because of the higher value cargoes over long distances. More speed on the rail connection between Moradabad importantly, it shows that inefficient ports can and the JNPT. The three-day time for transfer- have a major impact on route selection. Even if ring cargo from truck to rail at the Moradabad the time in Calcutta could be reduced to four ICD and 1.5 days in Nhava Sheva port is compa- days and the cross-border movement could be rable to the six days spent at Calcutta port. The reduced to one day (especially once the Birganj reduction in ocean transport time is substantial ICD is operational), the route through the JNPT because the route from Calcutta is assumed to would still be nine days shorter for shipments to include a three-day voyage to Singapore and a Europe. five-day wait at Singapore for connection to the mother ship. The JNPT route time could be re- Case 2: Exporting Medium-Value Goods From duced by one day through tighter coordination a Landlocked Region To a Third Country in the packing of containers and loading on the rail cars. Further efficiencies could be obtained The second case concerns tea shipped from if the transshipment from road to rail could be Assam to Europe. Tea produced in Assam is ex- avoided altogether at Moradabad. With the ported to foreign markets through an all-India operationalization of the rail ICD at Birganj, it route, either by rail from an ICD at Gauhati to would be feasible to ship containerized carpets Haldia port or by road from Assam to Calcutta all the way by rail from Birganj across India to port. Let us consider the latter case. The tea is the JNPT. crated at the exporter's premise and trucked to Calcutta port. The 1,380-kilometer trip via Although the new route through Nhava Sheva Shiliguri requires about seven days. In Calcutta, offers substantial savings in time and cost for the cargo is checked by customs and loaded into cargoes shipped to Europe, the same does not containers at the port's container freight station. apply for shipments to Asia. The latter would It is drayed to the container terminal and subse- require shipping the cargo from Nhava Sheva quently loaded onto an oceangoing vessel. The back through Singapore. Surprisingly, the differ- total processing time on average is 6.75 days. ence in costs and time with this doubling back The ocean route involves transshipment via Co- would not be that much greater than the route lombo or Singapore before continuing on to through Calcutta. Europe, taking a total of 23.5 days. The major avoidable delays occur at the port of Calcutta. Carpets are high-value commodities, and ship- pers are interested in minimizing the number of An alternative route for Assamese tea exports handlings. This is better accomplished by ship- could be through Bangladesh via the port of ping containers through Nhava Sheva. Although Chittagong. This route is not one that is in use carpets do not have short order times, they do because of the absence of a bilateral agreement have a high carrying cost so that a one-month between Bangladesh and India providing transit reduction in delivery time will produce a saving access to cargo from Northeastern India. If the to the shipper of about $1000 per container ship- two countries were to come to an agreement on ment. More importantly, the faster route allows this issue, then a possible routing could be from Nepal to compete in markets that require tighter Assam south to Agartala (Tripura), crossing over logistics and shorter order times. to Bangladesh at Akhaura and on to Chittagong- 60 Forging Subregional Links in Transportation and Logistics in South Asia TABLE 3.2 CAS 2-MEDIM-ALUE EPORTSFO AA LADOKD BMl04 TO EUOE CONSIGNMENT ATTRIBUTES Commodity type Tea Shipment size 8.4 tons Origin Karimganj Destination Liverpool, United Kingdom Via Liverpool, United Kingdom Shipment value $20,000 ROUTE 3-5 ATTRIUTES ROUTE 3-6 ~ATTIUTES Kadgan-Gahat-Sfigu- KrqmgnjAgartalaCNttagong Cos 15)Tm hwos t st (15$ Time (hors 1Inlan transport 620.00 168 117.00 29 Cargo hapndln 20.00 16 32800 37 Ocean freight 1,250.0 564 1,5.00 585 Cargo transer 26.00 15078017 C stom isectin 12.0 1 0.039 time cot ogod 280.48 267.23 Insuac opifrg&dage200.00i 200.00 Documettin&fowrin 0.0 0.0 Bank prcs Ingfrlte of cei 80.00 80.00 KEY RESULTS Transport logistics cost (US$) 3,120 2,520 Transport logistics time (hours) 910 867 soww Loitscs t4 Wodd Dank. a distance of about 530 kilometers (Map 9 at the ferredl to Bangladeshi tnicks from Indian trucks end of this report). if the current policy of pro- at the border. Assuming that there is flo conges- hibiting foreign vehicles into Bangladesh tion, the processing time at the border WOUld he continues, this wouild mean that the cargo is trans- about 19 h1ours and cost US$-172, or $8.60 per Route Selection: Applying a Logistics Viewpoint 61 ton. At Chittagong, it would require an average of the transshipment requirement at the India- of nine days for the cargo to clear customs, be Bangladesh border would provide savings in time loaded into a container, and wait to be loaded and cost, but more importantly would reduce onto a vessel. The ocean voyage from Chittagong the cargo damage. This alone would lower the to Europe is similar to that from Calcutta (via logistics cost by about 0.25 percent of the value Singapore). This route would save about 19 per- of the cargo. cent in total cost, as Table 3.2 shows, but the savings in time is insignificant because of the With the changes in the long-term road and rail dominance of the ocean movement. The shorter transport network envisioned in the subregion, road route (by over 60 percent) would save about (or even with the current networks), it would be 5.5 days, but the time for cargo transfer and cus- possible to send tea containerized all the way to toms clearance at the border would add about 3 JNPT if the choice of land routes were expanded days. Because Chittagong has less efficient han- to include the rail connection to Nhava Sheva. dling, the time the cargo spends in port is about Initial estimates indicate reduced travel time of 2.5 days longer. Overall, the shorter route through an additional 1 to 1.5 weeks and reduced ship- Chittagong port produces transport time savings ping costs of about US$200 compared with the of less than 2 days. Chittagong route. The potential advantage of a shorter route Case 3: 1ntraregional Movement of Break-Bulk Cargo through Chittagong is compromised by delays at of Essential Commodities to a Landlocked Region the border and the requirement to transfer cargo to Bangladeshi trucks. Since the cargo is not con- Northeast India obtains most of its essential com- tainerized, the contents are sensitive to damage, modities from the rest of India. The third case even though tea exporters limit the potential for examines the transportation of general cargo damage by packing tea in relatively sturdy crates. (freight of all kinds or FAK) from the warehouses The choice of route is also affected by the de- in Calcutta to Agartala, Tripura (Table 3.3). The lays at port, which in turn are a function of port goods are carried on trucks in break-bulk form performance and frequency in sailings. It is likely from Calcutta, the closest major market supplying that a choice would be made based on the avail- these goods, through Shiliguri to Agartala in Tripura. ability of sailings to Europe. The delays on both The 1,615-kilometer journey from warehouse to routes could be significantly reduced with im- Tripura requires about eight days. Because this proved port performance. The time in Calcutta is a direct movement, there are no international could be reduced to four to five days, while the border crossings and no delays for customs clear- time in Chittagong for packing and waiting for ances or handling cargo along the way.' the vessel could be reduced by two to three days. With these improvements the route through There have been recent debates in Bangladesh Chittagong would be faster and less costly, and on possible options for providing Indian cargo the delivery time would be reduced to about 40 days. 3. Container movement on road within Bangladesh is non- existent. The main mode for moving containerizable goods Additional time savings could be achieved if In- in the Dhaka-Chittagong corridor is by rail, which also is dian trucks were allowed to carry the cargo to underutilized. See Background Note 4. Chittagong and if the tea could he transported in + Constraints in state horcler crossings within India are not containers through Bangladesh.3 The elimination included here. 62 Forging Subregional Links in Transportation and Logistics in South Asia T0j0ABELE 033 0CAE-M;E flMVAU ;PRT WIHr THE R - 000 14 N I CONSIGNMENT ATTRIBUTES Commodity type FAK Shipment size 8 tons Origin Calcutta Destination Agartala Shipment value $24,000 ff~ ~~~~~~~d6iht. Caiqitta- e4)afdatdi GhtAi0 0- - - 00F.ny Traspot ogitis (st US) 15t Tie76 1,363 Ti2e Ct Tm0 e Transport ~ ~ US logistic cost) (US$)s (1,507 1,376s 1,363 1,22 r) : Transport logistics time (hours) 198 247.5 151.5 73 Ocean freight - - - - . - .- ' '..-. '. ., %'.,2 (ffargo0X0tranfer09 - N< ;' ' L Sl - ' f - 106 35 1t06 35 0 t;t VSA tt A0 l t;;0 S Route Selection: Applying a Logistics Viewpoint 63 transshipments access through Bangladesh. An would be customs clearance at Akhoura and at alternative routing would be for the cargo des- Agartala (over two days) and transshipment re- tined to the Northeastern Indian states to be routed quirements at both sides. It must be emphasized through Bangladesh, thereby reducing the land that these are average estimates that do not in- route by 1,000 kilometers. A possible routing for clude strikes and other incidents that are com- the cargo could be via the Petrapole (India)- mon to the subregion, which can increase delays Benapole (Bangladesh) border crossing on the by 60 to 100 percent. western side and enter Northeastern India at the Akhoura (Bangladesh)-Agartala (India) crossing If the delays for waiting in line at the Petrapole- (Map 10 at the end of this report). The route would Benapole border crossing were eliminated, and include ferry crossings at Aricha and Bhairab. the procedures at both sets of border crossings between Bangladesh and India were simplified, With the current policies of not allowing foreign the time for the transit route could be reduced trucks into Bangladesh, this would require trans- by four days. This would make the route two fer of cargo at the Petrapole-Benapole border days shorter than the route through Siliguri, but crossing to Bangladeshi trucks on the western there would not be a significant reduction in cost. side and again at the Akhoura- Agartala border (Table 3.3, column 3). crossing to Indian trucks. The route could re- duce trucking time by about six days, but the A scenario to consider would be along the lines cross-border procedures and transshipment of of practices in other parts of the world, includ- cargo at both sets of border crossings (Petrapole- ing Europe and developing countries in Central Benapole and Akhoura-Agartala) add back eight Asia. It would allow Indian trucks transit access days. The savings in trucking costs (over 50 per- to a dedicated corridor across Bangladesh. In this cent) would be offset by the increased costs for case, there would be no transshipment between cargo inspection, transshipment, and document Indian and Bangladesh trucks at the borders. If processing at the two border crossings. There the cargo was allowed to move in-bond in In- would also be the potential for additional dam- dian trucks across Bangladesh, an additional 3.25 age during the transfer of cargo from Indian trucks days would be saved because the trucks could to Bangladeshi trucks and back to Indian trucks. move quickly through customs. The provision In this situation, the shorter route through for in-bond movement would reduce both cargo Bangladesh is not significantly different in cost transfer costs and the costs for clearance so that (less than 10 percent cost savings) and, in fact, the logistics costs would be 19 percent less than requires 50 hours more logistics time, as shown the route through Siliguri. The savings in time in Table 3.3 (column 2). The routing through would be five days (Table 3.3, column 4). Bangladesh with transshipment would reduce the line-haul transport time by over 75 percent, but This case demonstrates the importance of bor- there would be a significant increase in the total der crossings as a source of delay. More efficient logistics time due to the border crossing prob- border crossings and protocols could produce a lems. Taking average estimates provided by pri- dramatic increase in transit traffic. Although the vate sector members in the subregion, the biggest transit through Benapole introduces extreme problems are at the Benapole-Petrapole border delays, all cross-border movements are delaved crossing. They include two days of waiting in at least one day per border crossing. Efficient in- line at the border, and over 2.5 days for cross- bond clearance procedures will significantly re- border clearance at customs. Furthermore, there duce trip times. 64 Forging Subregional Links in Transportation and Logistics in South Asia Case 4: Intraregional Movement of Low-Value transshipment and customs clearance was as- Commodities to Northeast India sumed to add a half-day, hut this could easily increase to four to five days with a missed con- Cement is an important commodity that is trans- nection between Indian and Bangladeshi trains. ported from Eastern India to Northeastern India. Consider the movement of cement from NWest The cost for rail transport would he 43 percent Bengal to Agartala in Tripura. It is moved in bags less on the alternative route, while the handling on broad-gauge rail from Calcutta through and clearance would add back only 2 percent. Gauhati and Lumding and then down to There could be additional offsets related to de- Karimganj and Agartala. This is a total distance lays and damage. This route would require ad- of 1,635 kilometers with no border crossings, ditional handling-and handling of bagged assuming that the supplier and the customer have cement inevitably involves significant losses. direct access to the rail sidings (Map 11 at the Missed connections at the border and losses dur- end of this report). The trip takes 2.5 days and ing the transfer from broad to narrow gauge could costs about US$26 per ton (Table 3.4). create shortfalls in deliveries. On balance this route would be considerably less costly due to The alternative would be to move the cement savings from the considerably shorter line-haul through Bangladesh by rail, a route that is not distance. However, this assumes that gauge con- currently in use due to the lack of agreement versions are completed, particularly the Akhoura- betvw;een the two countries. The current broad- Agartala link that is still at a preliminary stage of gauge rail connection from India extends into planning. If not, the portion of meter gauge re- Bangladesh (at Darshana-Gede and Petrapole- quiring a transshipment, either between rail cars Benapole) and stretches across the Jamuna bridge or to and from trucks, would substantially in- as a dual-gauge line. The broad-gauge link is crease the handling costs and the damage to the being extended to Joydepur and Tongi (Back- cargo. ground Note 3). A meter-gauge link connects Tongi to Akhoura. There are tentative plans to An inland water route from Calcutta to Ashuganj link the broad-gauge rail between Akhoura, by inland waterways transport was also consid- Bangladesh, and Agartala. India, on the eastern ered. This route is available for transiting through side of Bangladesh's border with India. If we Bangladesh to and from the Northeaster-n Indian assume that the two countries agree on protocol states because of a bilateral protocol that was to allow cargo movement for the Northeastern revised in October 1999. The route would re- Indian states by rail via Bangladesh, this route quire trucking the cargo from the cement plant Wouldl require one shift fi-om broad gauge to to Calcutta, loading it on the barges, and ship- meter gauge at Tongi ancl then back to broad at ping it to Ashuganj, where the cement would he Akhoura (assuming that the other broad-gauge loaded on trucks for delivery. links are in place and completed as planned). This route adds 10 days to the line-haul time This alternative route would reduce the total dis- and several days for loading and unloading the tance by more than 1,010 kilometers, but it would barges (Table 3.4, column 3). The result is a nine- require an exchange of locomotives at both bor- fold increase in logistics time compared to the ders. If this exchange is efficient, the route has a railway transit route. Furthermore, the logistics competitive advantage in time and cost. The line- costs would increase by about 23 percent, not haul time would be shorter by 1.25 days. The counting the substantial increase in cargo loss Route Selection: Applying a Logistics Viewpoint 65 TABLE 3.4 CASE 4-INTRAREGIONAL MOVEMENT OF LOW-VALUE, BULK COMMODITIES TO LANDLOCKED REGION CONSIGNMENT ATTRIBUTES Commodity type Cement Shipment size 2,200 tons Origin Calcutta Destination Agartala Shipment value $133,000 ROUTE 3-9 ATTRIBUTES ROU1TE 3-10 ATTRIBUTES ROUTE 3-11 ATTRIBUTES Cak:utta-NewJalpaiguri- Cauttadab - Cakutta-Narayangani- UmigaigonGauhat- Ishurdi-Jaydevpur4Xh Ashuganj by barge and Lumdingralimgarn Tongi-Akhaura- tala Ashuga-Agartata by trk Cost Time cost Tine Cost Time (US$) (hours) (US) (hours) (US$ (hours) Tmsport & handli hiland tmsport 58,400 48 33,468 18 4,30 3 Cargo handlng 1,022 12 2,237 24 9,774 108 Inland waterway tnspott & hadling - - - - 29,314 264 Cross borderp snf Cargo transfer - - - - S11 48 Customs inspetion - - 400 17 300 120 rade-rd ogists TimeCostofgoods 123 121 1,113 Insurane or plferage & damage 1,330 998 1,330 Documentation & forwarding 665 665 333 Bank processing for letter of credit 532 532 532 KEY RESULTS Transport logistics cost (US$) 62,072 38,421 47,507 Transport logistics time (hours) 60 59 543 Smow: Logistos cst study,Wod Rank 66 Forging Subregional Links in Transportation and Logistics in South Asia during the transfer between trucks and barges. trucking time is about three days. Another 1.75 However, the inland waterways transport route days is spent in crossing the borders and trans- remains preferable to the route through Siliguri ferring cargo between trucks. The time and cost in terms of logistics costs-it is 23 percent less of transferring the cargo between trucks is a rela- by inland waterways transport than by the long tively small part of the total logistics time and all-India rail route around India's so-called cost, but this does not include the damage to the chicken's neck. The disadvantage in logistics time apples as a result of the transfer. Also, the im- could also be reduced through the introduction pediments faced in the process of clearing four of navigation aids, including those for night navi- customs points (at the two border crossings) and gation. the absence of a customs office at Banglabandh do not provide positive incentives for trade. Case 5: Movement of Perishable Commodities from Nepal: 8.5 Tons of Apples from Kathmandu to Dhaka The inefficiencies could be reduced if Nepalese trucks were permitted to carry the cargo all of The final case analyzes the movement of apples the way to Dhaka. The impact in terms of travel from Kathmandu to Dhaka (see Background Note time and direct costs would be relatively small, 7 for a full report). For both Bhutan and Nepal, but the reduction in damage could be signifi- the most important trade goods with the region cant. A reduction in losses of 1 percent of the are vegetables, fruits, and related produce. The cargo value would be equivalent to the savings analysis does not concern alternative routes but from handling costs and produce a total savings rather the importance of simplified border cross- of 10 percent. A similar kind of analysis could ing procedures. The recent Phulbari corridor be done for Bhutan, which also supplies perish- agreement among Bangladesh, India, and Nepal ables such as fruit and fruit-based products to allows Nepalese goods, particularly agricultural Bangladeshi markets. These commodities are produce such as jhumla apples, to find a market transported from Phuntsholing, Bhutan, through in Bangladesh. The apples travel from Nepal to Jaigon and Changrabandh in India. They enter Dhaka as loose cargo on trucks. The initial move- Bangladesh at Burimari, where they are trans- ment is to the border with India in a Nepalese ferred to Bangladeshi trucks to be carried to truck, a distance of 619 kilometers. The truck Dhaka markets. For sustained and improved re- crosses Nepal at Kakarvitta and travels through gional markets for agricultural and horticultural Panitanki and Phulbari in India to enter products from Nepal and Bhutan, improved lo- Bangladesh at Banglabandh, a distance of 43 ki- gistics would be key to reducing damage. lometers (Map 12 at the end of this report). The Nepalese consignment is escorted by In- HIGHLIGHTS OF CASE STUDIES dian police over this route. When it crosses over to Bangladesh, the cargo is transferred to The accuracy of the comparative analysis is lim- Bangladeshi trucks and carried 532 kilometers ited because performance on existing routes is to Dhaka. The Banglabandh border crossing is a being compared with expected performance on fledgling one, and it does not have a formal cus- new routes that are not in operation, either be- toms office or an official in place. The nearest cause of the absence of bilateral protocols and customs office is in Panchagarh, about 58 kilo- agreements or because of infrastructure inadequa- meters away. It has to be informed every time a cies. However, these examples clearly demon- Nepalese consignment is expected to arrive. Total strate the importance of being able to select Route Selection: Applying a Logistics Viewpoint 67 among alternative routes. A fixed number of require containerization of the cargoes at the border crossings may be appropriate because the earliest point in the logistics chain. The abil- resources required to operate these crossings are ity to ship in containers will be substantially limited, but there is little justification for limiting improved with the operationalization of the the routes between these crossings.5 The free- three ICDs on the Nepalese border. dom to choose alternative routes can also help to reduce congestion at the major crossings. See * Truck routes via Bangladesh can offer reduc- Table 2.6 for a list of current and alternative tions in time and cost for medium-value goods routes. moving between East and Northeast India. This will require an effective protocol for in-bond Route selection is affected by the bottlenecks at movements and coordination between cus- the border crossings and seaports as well as by toms checkpoints to significantly reduce de- the condition of the links. The reaction of ship- lays and eliminate transshipment. The savings pers to the growing congestion at the Benapole to the shippers should be sufficient to sup- crossing is a case in point. The situation deterio- port tolls to cover the cost for road mainte- rated to the point that shippers rerouted through nance resulting from the increase in transit remote and unmanned border crossings rather traffic. than wait for days at the border, especially if they were carrying perishable cargo. This issue * For trade in high-value goods between India is now being resolved through an expansion of and Bangladesh, trucks will be the dominant, the border crossing (discussed in the previous if not exclusive, mode. Travel time will be chapter). the major concern and route selection will be based on reducing door-to-door delivery time. Based on the comparative analysis, the follow- Significant improvements in rail operations will ing route-specific observations can be made: be needed if this mode is to capture some of this traffic. • Intraregional shipments of fruits, vegetables, and other perishables from Bhutan and Nepal * Low-value goods, especially bulk cargoes, will to India and Bangladesh require much better move primarily by rail because of the higher logistics. This can be achieved by allowing costs for trucking and the longer transit times the cargo to move in a single truck from ori- for inland water. However, inland waterways gin to destination and by ensuring that clear- could play a more prominent role in the trans- ance time at the border on both sides does port of the low-value bulk cargoes that move not exceed six hours. between Calcutta and north and east Bangladesh, which is not yet served by broad- * High-value exports from Nepal to the Pacific gauge rail. With improvements in night navi- Rim require faster handling at Calcutta, gation aids, the transit times by inland Chittagong, and Haldia, while shipments to waterways could be reduced. Europe and the U.S. East Coast require direct (intermodal) connections to the JNPT. Both * If the Indian and Bangladesh railways con- tinue to integrate their systems and to extend their broad-gauge networks, they might cap- 5. There are many reasons for restricting the use of routes ture some medium-value break-bulk cargoes. by international traffic, including issues of security and safety. However, delays will continue at the border 68 Forging Subregional Links in Transportation and Logistics in South Asia unless compatible rolling stock is introduced ferage and damage was assumed to be 1 per- and the shortage of locomotives ends. cent of cargo value for longer routes and 0.75 percent for shorter routes. Insurance covers only Seaports are very important factors in deter- part of the losses because the existing legisla- mining route selection because of the large tion regarding carriage of goods does not clearly delays and high costs for transferring cargo assign liabilities. through the port. More cargo would be routed through efficient seaports that eliminate un- In order to understand the impact of damages, necessary customs procedures and delays in comparisons were made between the reported cargo handling. logistics costs and typical costs for damages. It was assumed that the losses per intermediate transfer average between 0.25 and 1.5 percent DAMAGES, DELAYS, AND CORRUPTION of cargo value, depending on the type of com- modity and cargo form. The lower rate applies In this and previous chapters, frequent references to containerized cargo and the higher rate to have been made of the cost of damages; how- agricultural products shipped in break-bulk form. ever, data were not available to determine how Table 3.5 shows the number of intermediate damage varied by route. The insurance for pil- handlings and expected losses per handling. TARLE 3.5 ESTIMATEO IMPACI OF DAMAGE :E (:S ;) E :S aytCS0;d0ii0M:a:U l:fSSStiit00 liSS;04 EdASSiS edtAESS000 t:AS:DEiSf::00SE C W;000000-00 l0 02 tES ;Cd0gtSaDam age perff; ;:St;|00 ' 0 :~~~~~~~~~~~~~~~TtlitreIt Route Selection: Applying a Logistics Viewpoint 69 TABLE 3.6 IMPACT OF DAMAGE AND DELAYS Loistic cost Delaycose Damage' (as per age (as percentae (as perentage OrigWdestinaton argo of cargovalue) ofcargovalue) ofcargovalue) Domeic Cakutta-Argataa Cement 44.7 0.39 1.00 Cakutta-Argatala General cargo 4.3 0.17 0.50 Regional Kathmandu-Dhaka AItural produre 18W1 0.59 1.50 Thimpu-Dlaka limestone 119,3 0.11 0,75 Cakutta-Dhaka Yarn 3.2 0.45 0.50 CalkluttaArgatala Cemt 58,? 0.76 1.50 Intermnonl KanW Cacutta-Liverpool Tea 123 2.25 0.5 New Zealand-Calcutta-Kafthandu Wool 8.0 0.67 1.00 Singapoe-Calcutta-Thimpu Polypropylene 24.6 0.59 1.00 Ohaka-Chittagog-United States Cotton garnents 4.1 0.69 0.25 Kathmaudu-Calcutta-Bremen Carpets 2.9 0.78 0.50 a. Additional tcostfor thec onsinventoiy, assuming delay equal to 15%of total travel time. ba xcludes it loading and final unloading. Source.:Loisticscost study es mates, Worl Bank. The costs of delays to the shipper were included cremental inventory required. multiplied by the in the logistics costs presented above, and they annual rate of interest paid by the consignee.7 are based on the estimated carrying costs to the This additional inventory is then related to the shipper for the value of cargo while in transit. annual shipment of goods to obtain a percentage This assumes that the shipper borrows against the of cargo value. For the purposes of comparison, letter of credit for the time the cargo is shipped to the reorder rate was assumed to be 3 months for when it is received. The other cost of delay de- textiles and carpets, 1.5 months for building ma- rives from the uncertainty of the period of ship- terials, 1 month for tea, and 2 weeks for agricul- nient. The consignee must maintain sufficient tural products. Table 3.6 summarizes the results, inventory to prevent an outage if goods are not which assume the delays are 15 percent of the delivered in the maximum delivery time. The cost expected transit time, including ocean transport. of financing this inventory is the value of the in- The net impact of the uncertainty in delivery time is that the 6. if the product is reordered every x weeks and maximum consignee must maintain an extra y weeks worth of inven- 6.~ ~ ~ ~ ~ ~ ~~~~~~~~~tr or the prouc is reordere shipmxentk ad axmu delivery time is y weeks greater than the average, then the ry or x'y of a typical shipment. minimum stock at the time of order must be the amount 7. The prevailing commercial interest rate is used. The proper consumed during the average delivery time plus y weeks. rate, the consignee's cost of capital, is larger. 70 Forging Subregional Links in Transportation and Logistics in South Asia Table 3.6 compares the costs of delay with dam- * US$150 per consignment on imports and ex- age and logistics costs. The impact of damage ports via Haldia, and delay are greatest for the high-value car- goes because the amounts are comparable to * Rs6,000 per container and Rs2,000 to Rs3,000 the other logistics costs. For Nepalese carpets, per truck on average at the Indian border Bangladeshi garments, Indian yarn, and imported crossing points, and wool, the costs for damage and delay is equal to 25 to 45 percent of the logistics costs. For * Rs8O per ton at the Raxaul-Birgunj border Bhutanese limestone and Indian cement, these crossing, payable at the Indian side of the costs are equal to just 1 to 3 percent of the logis- Nepalese border. tics costs. For Indian FAK, Nepalese agricultural products, and Assam tea, the costs are 11 to 20 percent of the logistics costs. Assam tea is most VARIATIONS IN TRANSPORT LOGISTICS sensitive to delay because the logistics time and PERFORMANCE AND COST the reorder time are similar, whereas Bhutanese limestone is the least sensitive because the The logistics cost estimates presented earlier are logistics time is small compared to the reorder subject to variations as dictated by operating time. Damage is more important for the non- conditions prevalent at the time. Under less fa- containerized cargo with several intermediate vorable operating conditions, processing the ac- handlings. The requirement for introducing con- tivities in the transport chain can take much tainers to reduce damage is greatest for agricul- longer and therefore affect transport logistics costs tural products. The reduction in intermediate adversely. As interest in minimizing inventories handlings to reduce damage is greatest for and shortening reorder times has increased, so cement. has concern for the reliability of shipment time and cost. Each link in a logistics chain poses a The impact of corruption was also examined by risk of additional delay and, when appropriate. requesting information on informal payments. additional informal payments. Reducing the un- These include not only payments to customs of- certainty associated with the cost and time for ficials at the border crossings, but also payments delivery has already been given greater priority to police at checkpoints along the route and to than absolute cost and time for some trades. cargo handlers in port. Most of the information Unfortunately, information on this variation is collected was anecdotal, although an attempt was difficult to collect. The small sample of stake- made to relate payments to shipments as shown holders consulted during the exercise did not in Table 3.7. These indicate small costs relative allow for a reliable estimate of the variance in to the value of the cargo, with the exception of logistics time and cost. However, the stakehold- the imports of polypropylene. ers did estimate that about 10 percent of the shipments during the course of the year experi- Examples of informal costs cited by shippers ence above-average delays. These occur during include: the following: * 30 percent of invoice value for a consignment * Claiming shipment at the gateway port. on the Bangladesh-Phulbari corridor through This can occur because of late notification of Kakarvitta, ship arrival notice, long preparation time for Route Selection: Applying a Logistics Viewpoint 71 assembling documents for customs clearance, or other reasons, thereby increasing port clear- TABLE 3.7 INFORMAL PAYMENTS ance time by 14 days. Port terminal processing. Equipment break- payme downs can increase processing time by three Route ; m - 0 ty t% ofi,Iw) days and a labor strike can cause delays of more than a week. (em Oi-O.3 WA*ta-k49aa CemeritD 0.100. * Customs clearance at the port. Any of a number of issues, including incorrect docu- Regks- mentation, container inspection necessitated Ka0hmanduWhaka- AIri_prdce 12-12 by a broken seal, or uncertainty over the du- TIMPDJa Lime9ton -09 tiable amount of import item, can increase calluab Yarn U0X the clearance time by one day to (in the case CAcpAnat Cemt 0.2. of incorrect documentation) more than a week. ol-.S E Egress from and access to the port. Fre- NealaAeta1.00-4.3 quent political strikes and transport industry 0.18 strikes outside the port cause congestion and inhibit mobility, thereby increasing the transit time by one to several days. * Road-line haul between the port and the border crossing or destination. Delays of one day to more than 15 days can result from truck accidents, truck breakdown, police in- valuation of the goods subject to customs duty, spection or harassment, the driver visiting may increase the clearance time by two days home if it is along the route, truck bans in the to more than a week. city, ferry crossings, and other issues. The magnitude of the impact of these additional * Land exit or entry port in the transit coun- delays depends in many respects on how many try. Congested traffic access and egress (par- delays occur for a given shipment. Conceivably ticularly on Mondays in the Nepal-India all could occur per shipment in the worst-case border), late arrival of sealed cover, and local situation; alternatively, just one incident could political strikes may increase the processing befall a shipment. To demonstrate the high im- time by one to several days. pact on transport logistics cost, calculations for two routes have been made, using data from * Land entry or exit port in the destination exporters, freight forwarders, and importers. country. Incorrect or incomplete documen- tation or disagreement over the description The first concerns the case of yarn import from or classification of the goods, as well as the Calcutta to Dhaka. In this case, additional delays 72 Forging Subregional Links in Transportation and Logistics in South Asia are incurred through several points in the sys- The second example refers to carpet export from tem, namely: Kathmandu to Bremen. In this case, the addli- tional delays are incurred at the following points • Trucking from Calcutta to Petrapole increased in the system: to 24 hours (from 5 hours) because of con- gested traffic caused by political protests along * Nepalese trucking from Kathmandu to Birgunj the way; customs increased to 24 hours (from 12 hours) due to an accident along the way; * Waiting at Petrapole customs increased to 108 hours (from 84 hours) because of unusually * Inloading and packing cargo into a container long lines; in the Birgunj customs storage area increased to 12 hours (from 6 hours) hours dlue to equip- * Indian customs clearance at Petrapole in- ment breakdown: creased to 24 hours (from 1 hour), plus speed money (informal payments) doubled, because * Nepalese customs clearance increased to 48 of incorrect documentation that required fix- hours (from 3 hours) because of incorrect ing at Calcutta; documentation: • Waiting and unloading at the Bangladeshi cus- * Loading the container onto an Indian truck toms storage area in Benapole increased to increased to 24 hours (from 3 hours) because 96 hours (from 60 hours) because of equip- of a labor strike in the Birgunj customs stor- ment breakdown; age area; e Bangladeshi customs clearance at Benapole * Trucking to Raxaul at the Indian border in- increased to 120 hours (from 72 hours), plus creased to 8 hours (from 5 hours) because of speed money doubled, because of incomplete traffic congestion between Birgunj and the In- and incorrect documentation that required dian horder; additional documentation from Dhaka; - Line-haul trucking from Raxaul to Calcutta port * Loading cargo onto Bangladeshi trucks at the increased to 220 hours (from 100 hours) be- Benapole customs storage area increased to cause of a truck breakdown along the way; 24 hours (from 12 hours) due to equipment breakdown again; and * Waiting time to enter Calcutta port increased to 96 hours (from 48 hours) because the truck * Line-haul trucking from Benapole to Dhaka missed the last sailing and had to wait for the increased to 24 hours (from 12 hours) due to next one; delayed ferry crossing and the untimely ar- rival at Dhaka during a period when trucks * Container handling in the terminal increased were banned. to 72 hours (from 36 hours) because of labor unrest; The impact of these delays is to increase the cycle time by 64 percent and the transport logis- * Waiting for the vessel and loading it increased tics cost by 9 percent over the results obtained to 120 hours (from 60 hours) because of equip- under average conditions. ment breakdown. Route Selection: Applying a Logistics Viewpoint 73 The impact of these delays is to increase in the gards to the actual time in transit (measured cycle time by 39 percent and the transport logis- as a percentage of the average value) intro- tics cost by 10.7 percent over the results obtained duces a significant cost for importers that they under average conditions. will avoid by seeking the fastest, most reli- able route. For cargoes that are susceptible to damage, multiple handlings along a route CONCLUSIONS will be a major disincentive to using a route. Perishable cargoes are susceptible to dam- The various insights developed in this chapter age due to intermediate handlings, long travel can be summarized as follows: times, and uncertain delivery times. Shippers of these cargoes will look for reliable services * The entire logistics chain must be examined that involve a single vehicle or container. At when considering route selection. The infor- the extreme are higher-value perishables that mation on an individual component can pro- will be transported by air freight. Only for duce incorrect results. For example, relative the lowest-value, bulk commodities will ship- transport distance is not directly related to pers be concerned exclusively with logistics either the time or cost of moving cargo along costs. a route. For most of the routes, the proce- dures at border crossings introduced substan- * Truck transport normally has a competitive tial and avoidable costs and delays that made advantage over rail transport, but efficient unit the route less competitive. Requirements to trains can compete effectively for cargo mov- transfer cargo from one vehicle to another were ing over medium to long distances where there particularly expensive and time-consuming. are direct rail connections. The short-term Similarly, the seaports were the major source improvements in rail transport, such as gauge of costs and delays. This could discourage harmonization, unit train operations, and in- shippers and consignees from choosing a route creased private sector operations, are expected that relies on a port as a gateway regardless to improve the competitive position of rail of the route's advantages. transport compared to trucking, especially for containerized cargoes. However, the long-term * The problems with customs procedures in- improvements planned for the road network, clude not only the annoyance of informal such as widening roads and strengthening payments but, more importantly, the unnec- bridges, will increase the market share of essary and uncertain delays and the damage trucking relative to rail. that can result during cargo inspections. Some of these delays are due to capacity constraints * Over the next decade typical goods being or lack of cargo-handling equipment rather shipped will increase in value and thereby than inefficient inspection and clearance pro- increase the demand for better logistics. cedures. Improvements in cross-border pro- Intraregional trade for Nepal and Bhutan will cedures could significantly increase the use increasingly be in consumer goocls, pharma- of a route. ceuticals, garments, and fresh fruits and veg- etables. All these products will require better * Certain cargoes have specific problems that logistics, lower costs, and significant reduc- affect route selection. For high-value goods tions in time. if they are to compete in re- with short reorder times, uncertainty with re- gional markets. 4 his chapter examines the opportunities for public-private Im proving partnerships for developing an efficient transportation Impg system in the region. It begins with a review of the views Private-Public a nd comments presented in a discussion among private Partnerships sector transport users and operators in a World Bank-sponsored con- sultative workshop in Kathmandu on February 4, 1999 (see Back- in South Asian ground Note 1 for the proceedings). The private sector expressed strong dissatisfaction with the existing state of freight transportation Transport ana for domestic and international markets, especially the problems of Logistics route and mode restrictions, onerous cross-border procedures, and lack of consultation with users in bilateral and multilateral discussions on a cross-country route and mode choices. Private sector groups are pursuing improvements in trade relations and transport logistics to ensure a smoother flow of goods and cost- effective services among the countries in the region. The purpose of the Kathmandu consultative meeting was to discuss specific regional constraints to the movement of goods and means of facilitating ser- vices. Four specific topics were discussed: * Priority corridors, * Cost of transit formalities, * Recommendations for the role of the private sector, and * Suggestions for government actions The previous chapter discussed the first two items. The following section covers some of the specific problems identified by the partici- pants. The remaining sections discuss specific examples of private sector involvement and conclude with lessons learned from interna- tional experience in private sector involvement in public transport infrastructure. There was general agreement among the four representative groups about issues affecting regional transit and the need for interaction 75 76 Forging Subregional Links in Transportation and Logistics in South Asia between the private and public sectors to im- Many of these problems could have been avoicded prove transit of trade in multilateral or bilateral if government officials had consulted more protocols. The Nepal transit facilitation initiative, closely with business leaders and business people which included the establishment of a broad- involved in trade and transport before negotiat- based trade and transport facilitation committee, ing bilateral agreenments and protocols. was seen as a positive step toward bringing to- gether the private and public sectors, providing The representatives said that these various con- cost-effective infrastructure, and influencing the straints produced long delays and high costs for renegotiations of transit treaties while prioritiz- transport. The problems they mentioned in spe- ing the facilitation of transit formalities. cific countries included: The following issues were found to be common * Gateways in northwestern Bangladesh that to all four countries: link eastern Nepal and Bhutan are limited to Burimari for Bhutanese traffic and * Poor harmonization of documents and proce- Banglabandha for Nepalese traffic. dures between the countries; - Land ports in northwest Bangladesh have poor * Cumbersome cross-border procedures clue to road access and egress. the high rate of inspections; * Treaty or protocol agreements established on * Requirements for multiple copies of numer- a bilateral basis between Bangladesh and ous types of documents; neighboring countries require double handling of cargo at the border due to the transfer from * Manual, not automated, processing of docu- trucks of one jurisdiction to trucks of another ments; jurisdiction. * Regulatory and physical restrictions to poten- * Container transport in Bangladesh is not in- tially cost-effective transit corridors; cluded in the present transit protocol with India, thereby encouraging costly break-hulk * A failure to identify the most cost-effective handling of containerizable goods. transit corridors in multilateral and bilateral protocols, partly because of insufficient con- * Container escorts are compulsory en route to sultation with the users; Calcutta for Nepalese and Bhutanese trade with countries outside the subregion. * Customs facilities and communications in need of modernization and streamlining; * Long lines on both sides of the India- Bangladesh border result from inadequate * Custom officials in need of more training and transshipment facilities, onerous clearance export orientation before being posted at bor- procedures, and lack of truck-to-truLck and rail- ders; and to-truck transfer facilities. * Poor dialogue between the public sector in * Bribery and corruption exist at various offi- its role of facilitator and the private sector in cial levels at border crossings and ports, which its roles of user, subject of regulatory systems, makes the speedy clearance of goods a costly and potential contributor to public investment. activity. Improving Private-Public Partnerships in South Asian Transport and Logistics 77 * Roads are in poor condition in India on the Bangladeshi insurance companies should pro- routes to Nepal, Bhutan, and Bangladesh. Par- vide coverage on import cargo, and banking ticularly bad are sections of roads in Bihar and insurance norms followed by both na- and UIttar Pradesh on routes from Calcutta to tions' banks should be standardized; Nepal and Bhutan. and heavy congestion on the route from Calcutta to Benapole due to * The formats for issuing letter of credit in high traffic volume on narrow, poorly main- Bangladeshi banks are not compatible with tained two-lane roads. international informational norms, and non- fulfillment of letter of credit commitments by * Arbitrary procedures exist concerning the ex- Bangladeshi banks presents problems for In- change of goods between Inclia and Bangla- clian exporters. The FICCI and FBCCI should desh, and the prohibition of trucks of one resolve issues on a case-by-case basis in or- country entering the other. der to build the confidence of exporters and importers in both countries. * Indian railways limit the choice of corridors for cross-border movements of wagons and The representatives mentioned problems in spe- containers. cific locations, including: * There is a lack of legislation for the transport * Poor performance at Chittagong and Calcutta of containers by road in Bangladesh. ports. which increases the cost of trade to and from international markets because of poor * Transshipments are required from broad- to management, labor problems, lack of infra- narrow-gauge railroads in India and structure, rigid rules and regulations, and the Bangladesh. failure of the landlocked cargo owners to claim their shipments in a timely manner. The rail * Bangladesh railways have capacity constraints, connection between Radhikapur and Birol such as short loops and limited rail terminals, should be converted from meter gauge to which if corrected would improve the utiliza- broad gauge. tion of Indian wagon capacity. The working times at Petrapole and Benapole * Differences in wagon technology create time are not synchronized. That is, operating hours delays. This should be addressed in bilateral and holidays at the two cross-border points dif- agreements between India and Bangladesh. fer. creating inefficiencies in traffic movement. * India and Bangladesh should issue multiple * Banglabandh has no customs clearance ser- visas to genuine importers and exporters as vices unless authorities are notified in advance. recommended by the Federation of Indian Chambers of Commerce and Industry (FICCI) * Problems of work duplication at Ranaghat and and the Federation of Bangladesh Chambers Gede customs should be resolved by forming of Commerce and Industry (FBCCI) and their an Indian Export Processing Zone in constituent customers. Bangladesh. patterned after the Korean Ex- port Processing Zone. * The lack of insurance coverage for Indian goods in Bangladeshi government warehouses * Lengthy export procedures at Ranaghat should leads to large losses for Indian exporters. be reduced by posting an assistant customs 78 Forging Subregional Links in Transportation and Logistics in South Asia commissioner at Ranaghat instead of its trade associations to pass cost-effective Krishnanagar, and providing a single window transport policies, such as transit facilitation customs clearance at Ranaghat or Gede. for Nepalese cargo moving in containers to the JNPT and facilitation of Nepalese and Bhutanese cargo transiting Bangladesh and India. DELEGATES'VIEWS OF THE PRIVATE SECTOR ROLE Electronic communications and im- The delegations recognized the limitations of the proved procedures. The private sector private sector in overcoming infrastructure short- would support the introduction of new cus- comings, but they voiced the desire to be con- toms systems and procedures, especially the sulted through appropriate trade organizations electronic communications interface with us- on all decisions concerning the negotiation and ers. It would contribute to public-private train- ratification of agreements and protocols related ing programs, as are being conducted in Nepal. to regional trade. They also wanted to be con- sulted on other regulatory and trade matters. They offered the following comments about their pro- EXPECTATIONS ABOUT GOVERNMENT ACTION spective role. Historically, the governments in the region have • Management of landports and logistics fa- provided transportation infrastructure and trans- cilities. There is a need for greater private port services through state-owned corporations sector involvement in the operation of these (such as the Bangladesh Inland Waterway Trans- facilities and in the development of container port Corporation, Indian Railways, and Bangla- transport. The current experience with pri- desh Railways). In recent years, the private sector vate sector concessions in the Nepal has replaced the government in providing trick- Multimodal Project was mentioned as a good ing and inland waterway transport, but private example of this involvement. Private sector sector participation in rail services has been lim- activity should extend to the management of ited. The government continues to provide infra- landport facilities and services, cargo-handling structure, but this has slowly started to change as facilities and services, container operations, government officials accept the need for private and facilities and labor. financing, especially for ports and expressways. * Third-party logistics at the landports. The delegates made a number of proposals for There is a need for the private sector to pro- government action in trade facilitation. These vide services, including freight forwarding, proposals included: customs clearance, financial services, storage and warehousing, and general transit and ship- * Harmonize government trade and transport ping services at seaports and land border cross- policies and regulations (such as road trans- ings. This needs to be supported by port regulations, customs, and insurance and appropriate regulatory provisions and ad- liability) with transit treaty and protocol stipu- equate government contributions for basic in- lations to encourage seamless multimodal frastructure facilitation. transport. This includes the compatibility of key procedures and documents for trade, * Operations. The private sector would work transport, and fiscal transactions. This effort with appropriate government bodies through should aim at a "one-stop window." Improving Private-Public Partnerships in South Asian Transport and Logistics 79 * Amend transit treaties and protocols to allow ORGANIZATIONS FOR INNOVATIVE PRIVATE-PUBLIC for a freer choice of transport routes and ser- INVESTMENTS vice providers, such as carriers and clearing agents. Service providers should operate un- Private sector-led activities in the subregion are der the coverage of regionally acceptable a nascent but emerging force. There have been document and insurance. several interesting and innovative ways in which private sector participation has been elicited in * Institute a program of modernization for cus- the various countries. Some of these activities toms and cross-border facilities under the joint have been in predominantly public sectors. Some responsibility of national and local govern- initiatives were geared toward the creation of a ment authorities, supported as necessary by better investment environment with more active industry and trade associations. private sector participation. In other cases, the private sector is directly involved in logistic ser- * Increase the use of container transport by re- vices. Four organizations that have been estab- moving institutional impediments, such as the lished to address private sector participation in protocol between India and Bangladesh, logistics and transport infrastructure are the which does not recognize container transport, Emerging East Initiative, Infrastructure Investment and Bangladesh's trade and transport legisla- Facilitation Center, Infrastructure Development tion, which makes no provision for road trans- Company Limited, and West Bengal Infrastruc- port of containers. ture Development Corporation. • Construct ICDs in the region to encourage con- Emerging East Initiative tainer transport outside of the main India rail transport corridors. This should be the joint West Bengal, Bangladesh, Bhutan, Nepal, and concern of government and trade associations, East India have joined efforts to coordinate eco- and it should be supported by private invest- nomic development through a multicountry pri- ment as appropriate. vate sector forum under the Emerging East Initiative. This group has identified goals to * Improve the access to credit and financial in- improve trade and shipments of goods within termediation services throughout the region, the region, including the need for standardiz- particularly in the landlocked countries, so car- ing procedures and documents. This endeavor riers can finance the development of an effi- was initiated by the Indian Chamber of Com- cient trucking fleet in order to compete in merce and has the support of the various coun- cross-border transport markets. tries involved as well as that of the Asian Development Bank. The forum is comprised The public sector should view the private sec- of various industry and business leaders in the tor not only as a user but also as a potential different nations as well as chamber members investor and a facilitator. Legal instruments and from each region. Its mission statement in- bilateral agreements should reflect the public cludes the following: and private sector interaction. Government of- ficials should rely on the support of the private * To help promote subregional economic co- sector trade associations when defining the operation in the Emerging East Region, com- needs and responsibilities for operation and prising of Bangladesh, Bhutan, Nepal and shared investment. Eastern India; 80 Forging Subregional Links in Transportation and Logistics in South Asia • To accelerate economic development in this The IIFC is organized into two teams. One, which region for the mutual benefit of all the coun- works on the design phase, is comprised of con- tries and its people; cession policy and design team specialists; the other, which works on the implementation phase, • To identify joint initiatives that wtould further is comprised of transaction award and execu- the cause of subregional co-operation in trade, tion team specialists. The spectrum of partner- investment, tourism, infrastructure, services ship arrangements that are available range from and any other areas that could enhance the a service contract to management contracts to growth of the subregion; leases, concessions, huild-operate-transfer agree- ments, and, finally, divestitures. The IIFC will • To strengthen the private sector and its orga- work together with the line ministries to address nizations in individual nations of this sub- such questions as: region; * What is the goal of the private sector par- • To discuss, negotiate, promote, and under- ticipation arrangement-new capacity, new take continuous dialogue with the government technology, wider distribution, or other im- and relevant authorities: provements? * To promote the objectives of suhregional co- * Are the necessary political and stakehlolder operation and implementation of agreed ini- support systems in place, along with mecha- tiatives, such as, those under the South Asian nisms for cost recovery, knowledge of exist- Growvth Quadrangle; ing infrastructure, an adequate regulatory framework, and appropriate sources of fi- • To propagate the benefits of subregional co- nance? operation through the media to enhance the awareness of the people and the decision- o What would be the best private sector partici- makers in this region. pation option? Infrastructure Investment Facilitation Center - What is needed in terms of assistance with concession design and the tendering and ne- Bangladesh has committed itself to improvement gotiation of a formal arrangement with the through its support of such institutions as the private sector? Infrastructure Investment Facilitation Center (IIFC). This is a group that the Bangladeshi gov- Infrastructure Development Company Limited ernment and the World Bank set up to help the governnent encourage private sector participa- The Infrastructure Development Company Lim- tion. Financing and technical assistance comes ited (IDCOL) is a nonbank financial institution. in part from the United Kingdom's Department It was established in Bangladesh in 1997 as a for International Development and the Canadian government-owned limited company. The board International Development Agency. The IIFC's of directors is comprised of senior government resources include expertise in engineering. eco- officials and prominent private sector entrepre- nomics, finance, competition and regulation, neurs. A team of project financial advisors as- procurement, and contracting. sists this group. Improving Private-Public Partnerships in South Asian Transport and Logistics 81 The IDCOL's objective is to promote significant and facilitating infrastructure development in the participation of the private sector in investment, state of West Bengal in India. It began opera- operation, ownership, and maintenance of in- tions in 1997. Its equity structure is comprised of frastructure facilities. The government of 76 percent from ICICI and 24 percent from Bangladesh and the World Bank fund IDCOL, WBIDC. The board of directors includes profes- which has access to roughly US$225 million. The sionals from ICICI and the state government. I- organization has garnered interest from other WIN participates in the following activities: international agencies that are willing to provide additional funds if sufficient demand is realized. * Identifying suitable infrastructure projects for The intent of IDCOL is to participate as a lender development, including the preparation of in limited recourse project finance, based on sat- project feasibility reports and proposals for isfactory evaluation of all aspects of the projects, suitable financial structuring, mode of imple- in conjunction with the private sector. Its spe- mentation, and appropriate ownership ar- cific focus is the infrastructure sectors, including rangements (such as the spectrum between telecommunications, ports, toll roads, and other purely private and purely public). logistics infrastructure as may be approved by the government of Bangladesh. * Marketing properly packaged projects to po- tential domestic and international investors. IDCOL will finance up to 40 percent of the total costs of the build-own-operate and build-oper- * Evaluating proposals for setting up infrastruc- ate-transfer types of projects. The sponsor must ture projects and assessing the competence have 20 percent of the equity for the total capi- of sponsors. tal contribution. * Arranging finance for projects-equity, loans, Current projects in IDCOL's pipeline total an es- and guarantees from the government, private timated total US$1.1 billion, including various sector, financial institutions, banks, and mul- energy projects valued at $672 million, the $200 tilateral agencies. million Stevedoring Services of America, Bangladesh (SSAB) container port, and the esti- * Providing project management services to se- mated $200 million Bangladesh Telephone and lected projects. Telegraph Board's (BTTB) 300,000 telephone lines. * Advising the government on legal and regu- latory reforms required to facilitate the flow West Bengal Infrastructure Development Corporation of investments into projects. The West Bengal Infrastructure Development Development efforts for the transportation infra- Corporation Ltd. (I-WIN) is a joint venture be- structure are focused on the following segments: tween the All India Public Financial Institution, roads and expressways, urban transportation and ICICI Limited (formerly the Industrial Credit and integrated area development, industrial parks. Investment Corporation of India), and the state ports, waternvays. and airports. government owned West Bengal Industrial De- velopment Corporation Ltd. (WBIDC). I-WIN was I-WIN also arranges requisite financing for infra- formed in 1995 with the objective of promoting structure projects. Investments in Haldia include 82 Forging Subregional Links in Transportation and Logistics in South Asia a major water supply project, internal roads, management system, overseeing inspections ol drainage, sewerage, and solid waste management the main bridge structure and the east and wesi systems, and commercial complexes. I-WIN is also approach road, and routine maintenance inspec involved in representing the state government's tions for the main bridge, river training, and high interest in a limited-access expressway that will way structures. connect Haldia, West Bengal, to the northern gateway city of Siliguri (in the northern part of This operation and maintenance five-year con West Bengal). tract with the Jamuna Multipurpose Bridge Au- thority is based on a fixed fee to cover the provision of all defined services in the authority't ORGANIZATIONS FOR PRIVATE OPERATIONS OF area. Ownership, investment, and commercia' TRANSPORT INFRASTRUCTURE AND OPERATIONS risk reside with the government. The advantage of this arrangement for the government and the Under this emerging investment environment region is that the foreign private sector operatoi there have been several private-public partner- brings experience and foreign technology to the ships in transport infrastructure and services tra- region, which may not have been feasible in a ditionally restricted to the public sector. Examples public arrangement. of such initiatives include the contracting of op- eration and maintenance of the Jamuna Bridge Bangladesh Railway in Bangladesh, the leasing contracts between Bangladesh Railways and the private sector, and Bangladesh Railway has involved the private a proposal for private development and opera- sector in various initiatives to become more effi- tion of the port of Patenga in Bangladesh. cient, market-oriented, and financially self- sustaining. The efforts are aimed at enhancing Jamuna Bridge Toll Operations productivity, improving service quality, and pro- viding flexibility in the management of assets The concept of constructing the Jamuna Bridge through leasing and BOT arrangements with the began in 1964, seven years before the establish- private sector. Among the initiatives are: ment of the Bangladeshi republic. The bridge was completed and became operational inJune 1998 * Leasing out commercial activities of passen- and was renamed the Bangabandhu Bridge. This ger trains on a 16-kilometer section connect- is a multipurpose bridge providing road, rail, and ing Dhaka to Narayanganj. This is a passenger gas connections between the physically divided service for commuters between Dhaka and regions. Narayanganj daily. This section was leased out onJuly 7,1997, to a private operator who A tender for private operation and management took over the commercial activities of the wvas awarded to an international joint venture passenger trains running between this sec- consortium formed from South African, United tion. The result was an increase in revenues Kingdom, and Bangladeshi corporations in June of roughly 90 percent. In August 1998, the 1998. The contract involves the upkeep of all commercial activities (including ticketing and existing facilities, including roads, river, bridges, luggage booking) of Padmagarh Express, buildings, and equipment, as well as traffic man- which runs between Santahar and agement and the collection of tolls. The respon- Lalmonirhat, were also leased, producing a sibilities include providing a maintenance 368 percent increase in revenues. Improving Private-Public Partnerships in South Asian Transport and Logistics 83 Leasing onboard services of the prestigious airconditioned cars. Bangladesh Railway's nonstop Subarna Express, which runs between main constraint for modernizing its fleet has Dhaka and Chittagong. As per the 1998 agree- been inadequate funds for procurement and ment, the lessee is responsible for the clean- repairs. Intercity train distance between any liness of the coach, including toilets, passenger two main city centers is about 300 to 400 ki- comfort, and safety. The staff posted by the lometers, but none of the intercity trains have private contractor ensures that only genuine air-conditioned cars for these five-hour jour- passengers board the train, operates the pub- neys. Air-conditioned buses plying the same lic address system, and looks after any pas- routes have very competitive fares and are senger requirements during the run. The lessee able to attract passengers away from the rail- is permitted to run a pantry and buffet car, road. Under this arrangement, the private party and to serve snacks, tea, and mineral water at will convert these coaches at their cost, im- a prefixed rate to the passengers. Bangladesh prove their d&cor and interiors, and maintain Railway pays service charges to the contrac- them for the next four years. Bangladesh Rail- tor after adjusting for the revenues from the way will run the coaches in two intercity trains pantry and buffet car. This agreement has as- between Dhaka-Chittagong and Dhaka-Sylhet. sured better quality of service to the traveling The conversion of these coaches will be done public. Encouraged by the improvement in in the railway workshop where the private service quality, the railway intends to offer party will bring its own equipment, material, similar arrangements for a number of inter- and manpower. It will also train railway per- city trains running between important town sonnel in this conversion work. Bangladesh and district centers. Railway will benefit by getting state-of-the- art technology at no initial cost and will get a Leasing out of surplus capacity of Bangladesh increased revenues due to the superior class Railway's fiber optic telephone system to a of service provided to the traveling public. private phone company, Grameen Phone Ltd. (GP), on a long-term basis. As per this 1997 * The Indian Railways have made similar ar- lease, GP assumes all relevant costs for the rangements, but these have been primarily repair, replacement, operation, and mainte- limited to services on passenger coaches. nance of the railway telecommunication sys- tem, including paying the salaries of personnel Port Development engaged in this system. GP pays an annual rental for the lease to Bangladesh Railway. In the mid 1990s, Orient Maritime Limited (a lo- GP also repaired and upgraded the network cal ship chartering company and subsidiary of and paid for the redundancies to improve the OPSIN Chemicals) and Stevedoring Services of reliability of the system. The results of this America (an international terminal operator), partnership are the generation of revenues proposed developing a second container sea- from the surplus capacity of the fiber optic port terminal for the Bangladesh market in telephone system and the added social ben- Patenga south of the existing terminal in efit of increased telecommunication services Chittagong Port. In December 1997, the Ministry at better prices. of Shipping granted a concession on an unsolic- ited basis to SSAB, a joint-venture company Private sector participation in a build-operate- owned equally by Orient Maritime and Steve- transfer arrangement to upgrade non- doring Services. The terms included the exclu- 84 Forging Subregional Links in Transportation and Logistics in South Asia sive right to develop and operate the project for enabling environment that will be acceptable to a 99-year tenure with an option to renew for investors. another 99 years. As the container market for the proposed Patenga container terminal is close There are many international lessons to be to Dhaka, the consortium pursued another pro- learned, whether the project is full-scale posal to develop and operate an ICD at Panagaon, privatization, build-own-transfer, or a variation in the vicinity of Dhaka. The intent was to of the two (or based on leases or service con- complement the Patenga terminal by linking to tracts, especially after the explosion of private the ICD with an inland waterway barge system. sector involvement in infrastructure services in The Bangladesh Inland Waterwvay Transport Au- East Asia and elsewhere in the 1990s). For every thority accepted this second proposal in 1998. project that gets completed there are as many as four to five others that fail in the implementa- The proposal calls for an expenditure of about tion process.' The reasons most often cited in- $220 million to build the terminal on a 50-acre clude underestimation of corruption, bureaucratic site. The terminal will be capable of handling delays, and organized crime. 300,000 TEU per year initially and, eventLally, 600,000 TEU per year. At first, a break-bulk truck- Even without these unconventional risks, typi- ing system will be used to serve the Dhaka mar- cal infrastructure projects have complicated pro- ket. But when the ICD at Panagaon is ready, a cesses and long cycle times. Project developers barge system will carrv the containers between have to: the txvo terminals. o Establish the potential of the project; So far no approval has been given to develop the project, but negotiations are currently un- * Identify the relevant decisionmakers; derway between the Ministry of Shipping and - Determine the official procedures to steer the SSAB. The Ministry receives project advice from project through the approval process; the IIFC while SSAB is receiving support from IDCOL. * Conduct economic, legal, financial, and engi- neering reviews; FUTURE OF PRIVATE-PUBLIC PARTNERSHIP * Prepare bidding documents and proposals; IN THE REGION * Obtain the relevant approvals, perm-lits, and As the economies in the subregion develop and licenses; expancl, significant capital will be required to * Strncture the ownership of the project; finance transport projects to keep pace with the demand for infrastructure. Attracting capital from * Negotiate with lenders; the private sector will be a major task. The gov- ernments need to consider more seriously the tvpe of environment needed to attract foreign type o no n e d ar fe I.The Financial Times on March 11, 1999, commented on a sources of capital. Because many of mhe projects survev of 7,500 multinational firms. of which 84 percent did call for limited recourse financing with its atten- not meet their financial targets for the last three years andl dant risks, government officials must create an 26 percent eventually failed. Improving Private-Public Partnerships in South Asian Transport and Logistics 85 * Select a contractor to build the project; and latory framework for protecting the public interest. * Choose an operator for the facility. Policy reversal that occurs when the commit- Some of the things that governments need to ments made by a previous government are avoid if they are to develop a good reputation not honored by the current government. The with the investment community include: project developer at best is forced back to the negotiating table or, at worst, faces cancella- * Lack of a strong institutional framework that tion of the contract. can lead to poor coordination and disagree- ment among government agencies whose There is no particular road map for an effective approvals and clearances are required. A par- policy framework to avoid the problems encoun- ticular problem is the absence of a single tered in a public-private partnership. Each country authority to control the process. has its own economic, social, and political cir- cumstances and must develop its own solutions. • Poor institutional capacity due to a shortfall Nevertheless, private sector projects are com- in expertise in private infrastructure projects. monly judged on the basis of the ease or diffi- Although civil servants involved in publicly culty with whiclh they are taken through the financed turnkey projects tend to he highly project cycle. The cycle consists of contract sign- skilled in the engineering aspects of the ing (such as concession or BOT), financial clo- projects, they lack the legal and financial skills sure, permit and license approvals, project to manage a complicated project structure such construction, sustainable operations, and respon- as a build-operate-transfer (BOT). siveness to consumer needs. Governments need to establish: • Lack of transparency in the selection process due to insufficient experience and political * An enabling environment that is transparent cronyism that often leads to over-reliance on and consistent, unsolicited proposals. Although unsolicited proposals that are correctly executed have * A sound legal framework to assure the in- merit, particularly in terms of speed and di- vestment community concerning the rules of rectness in developing projects, they lack the the game, transparency, market orientation, and poten- tial efficiency gains of competitive bidding. * A cadre of civil servants with the skills to implement private sector projects, * Market inefficiency that occurs when a gov- ernment privatizes a project or liberalizes a * Effective regulatory procedures to deal with sector without paying sufficient attention to market imperfections after privatization, and the type of market it is creating. Governments frequently fail to establish an effective regu- * A sustainable commitnment. 5 ecent trends in globalization that enable the decentraliza- Setting a I tion of production and distribution activities worldwide offer tremendous economic opportunities of employment Dynam ic and growth to poor countries. One-third of world trade in Process the mid 1990s occurred within such global production networks (World Bank 1999).1 The ability of countries to grow rapidly depends on in M otion their capacity to link with global and regional markets. In turn, this capacity depends significantly on connectivity, and on the efficiency and speed with which goods and services can be moved from pro- duction centers to final markets. One of the underlying objectives of this study was to develop ways to improve access to the landlocked areas of South Asia, specifically Nepal, Bhutan, and Northeast India. This objective is closely linked to opening up a region to new economic opportunity because of geo- graphic interdependencies. For this reason, the study took a regional approach and focused on multicountry routes serving these areas. The conclusions for improving the trade logistics among these coun- tries and with the outside world can also be applied to internal trade between the rural areas and the urban markets. The approach was to gather information from private sector logistics providers and ship- pers concerning the current situation on selected routes. The conclu- sions presented in this chapter for improving logistics will provide direct savings to the shippers, logistics providers, and consignees. There are two fundamental questions. First, to what extent do the economies of the transit countries benefit from these improvements? Second, to what extent do these improvements benefit the poorer members of society? There are, of course, simple answers to these two questions. First, the country providing the transport infrastructure can recover its investment through appropriate charges to the transit vehicles and cargo while deriving additional value from complemen- tary services provided to these transport activities. The value added is greatest where the transit country provides an efficient international 1. Wbrld Development Report 1999, The World Bank. 87 88 Forging Subregional Links in Transportation and Logistics in South Asia seaport gateway and some of the trucking or rail * Privatization. Expedite the transfer of respon- services used in the logistics chain. Second, the sibility for transport operations and services poorer sections of the society will derive direct (but not necessarily infrastructure) from the benefits because of better access to urban and public to the private sector. foreign markets for local products as well as in- creased employment associated with upgrading * Providers. Reduce the level of regulation of the transport infrastrticture. The indirect benefits the providers of third-party logistics in a way are the continuity of employment in industries, that will both encourage competition and al- which, without better logistics, would lose mar- low for vertical integration of such services as ket share. The more complex answers about the transpolt, storage, consolicdation, documenta- extent and allocation of benefits are dependent tion, and clearance. Modern regulations shouldl on the following issues: be introducecl to govern the liabilities associ- ated with the carriage of cargo by different • How well the isolated or landlocked regions modes. are served, - Perishability. Improve the quality of logis- * The structure of the charges (in terms of who tics by placing an emphasis on reducing de- pays and who benefits), and livery time, increasing reliahiliuy of- clelivery, and minimizing losses en route to enable lo- * The efficiency of the logistic systems that will cal manufacturers to compete for the supply help minimize cost to the economy. of perishable products. This chapter discusses the role of the Bank in * Packaging. Increase the use of containers helping to shape the outcome. for shipment of goods by developing ICDs that allow cargo to be stuffed and destuffed The previous sections made the following rec- closer to the point of origin or the point of ommendations regarcling transport and logistics destination. in the subregion: - Flexibility. Allow flexible routing for vehicles * Protocols. Establish or amend bilateral tran- carrving transit cargo or imports through de- sit protocols to allow for the movement of fined border crossings. transit cargo across borders under bond with- out transshipment or inspection. * Cyber trade. Introduce electronic clata inter- change and business-to-business e-commerce * Procedures. Simplify and standardize the to reduce logistics costs and time and overall documents and clearance procedures required transaction costs. for cargo crossing land borders or exported or importecd through the seaports. The changes that offer the largest benefits in terms of improved logistics are the revision of * Productivity. Improve the productivity of the the current bilateral transit protocols, flexibility seaports and the railway services to eliminate in transit cargo routing, ancl the increase in pro- unnecessary delays. These measures can dra- ductivitv at the seaports. Those offering signifi- matically reduce the time that cargo spends cant benefits for 0oth transit traffic and domestic in ports or on railways. traffic are improvements in the procluctivity of Setting a Dynamic Process in Motion 89 the railways and privatization of the transport The development of improved logistics within services. The improvements in packaging, de- the region will encourage the growth in interna- regulation of logistics providers, and expansion tional and intraregional trade, as well as domes- of cyber trade offer the best long-term oppor- tic trade between rural and urban areas. An tunities for reducing transaction costs and pro- example of the latter is the marketing of pump- viding the quality of logistics required for kins produced along the river in the Bogra area. high-value cargoes. The pumpkins were formerly produced by poor people on public land and traded in the local Improvements in transport logistics have impor- market. Recent improvements in transportation tant implications for poverty alleviation in one that came about because of the construction of of the poorest regions of the world. This is pos- the Jamuna Bridge are now allowing the grow- sible through opening up the region and by of- ers to sell their produce in urban markets. fering new opportunities through better market linkages, easier and cheaper development of the The recently established Numaligarh refinery in resource base, and reduced losses that result from Assam is examining ways to supply petroleum inefficient storage and multiple handling. The products to the Baghabari region in Bangladesh role of transportation in economic development by transporting them to West Bengal via includes everything from limited-access national Bangladesh by inland waterways. The Indian highways to local feeder roads in rural areas, refineries are located close to the Bramhaputra regional container transshipment terminals to river (designated as the No. 2 National Water- barge terminals, and block trains to scheduled way in India). The Inland Water Transit and Trade freight rail services. The same applies to logis- protocol between India and Bangladesh, revised tics, which covers the complete movement from in October 1999, facilitates easier and more ra- origin to destination. Improved logistics are es- tional barge movements between the two coun- pecially important for small and medium indus- tries. Baghabari would be the port of call for tries in rural areas that must deliver a quality Indian vessels for unloading petroleum products product within an acceptable time and at a com- because large storage facilities and barge unload- petitive cost. Presented below are some examples ing facilities already exist. in which the countries and states in the subre- gion are beginning to seek and find benefits of STRATEGIC LINKAGES AND AREAS improved transport logistics. FOR DEVELOPMENT Bhutan has recently explored the possibility of The previous chapters examined various routes exporting fruits and vegetables and associated requiring additional development. Other routes processed products. Although the industry has were selected based on the findings of back- had some difficulties providing products of suf- ground studies conducted under the Regional ficient quality to sell in the neighboring coun- Initiative and other projects (such as the Nepal tries, the major impediment has been poor Multimodal Trade and Transit Facilitation Project inefficient transport links. Current border-crossing and the Export Diversification Project) and ob- procedures create delays and add costs because servations of the private sector. From these, a of informal payments and damage to the perish- core set of strategic linkages or routes have been able cargo. The future development of this trade identified that would create opportunities for will depend on better marketing and improved increased economic growth and trade in the sub- logistics. region. These would include: 90 Forging Subregional Links in Transportation and Logistics in South Asia The key routes linking landlocked Nepal and lack of commercial management produce long, Bhutan to regional and international markets unnecessary, and unpredictable delays. In addi- include: tion, they add to the informal payments and the loss of cargo. These not only account for a signifi- * Kathmandu-Birgunj-Calcutta cant portion of the time and cost for land trans- port, but they also add to the ocean freight costs * Kathmandu-Bhairahwa-Nhava Sheva by delaying vessels and discouraging the use of larger vessels and scheduled shipping services. * Kakarbhitta-Phulbari-Banglbandh-Dhaka Calcutta faces the additional problems of siltation * Thimphu-Phuntsoling-Siliguri-Calcutta and a location more than 100 kilometers up the Hooghly River. Investments in container facili- * Thimphu-Phuntsoling-Burimari-Dhaka ties and equipment in recent years have not been able to offset the problems associated with low The key routes linking the Northeast states of labor productivity and limited depth at the berth. India to regional and international markets would Chittagong has problems of road access for con- include: tainers moving to and from Dhaka. It also has difficulties with labor productivity that remain = Calcutta-Benapole-Akhaura-Agartala (road despite investments in new facilities and equip- and rail) ment. Any attempt to reduce the delays and costs to cargo moving through these ports must first • Calcutta-Gede-Darsena-Jamuna Bridge- address management problems and the low rate Akhaura-Agartala of utilization of existing assets. • Agartala-Akhaura-Chittagong The second most important problem is the lack of capacity and efficiency at the border cross- The routes linking the landlocked countries are ings. It is important to establish a set of border currently used but are inefficient due to prob- crossings capable of handling trucks and rail traf- lems at the border crossings and seaports. The fic that do not cause unnecessary delays because exception is one of the more efficient ports at of inadequate facilities, poor management, and Nhava Sheva. These routes require improvements complex procedures. The number of these bor- in both roads and port operations. They would der crossings should be limited in order to re- also benefit from changes in customs procedures duce the cost of establishing and staffing these and revisions of the bilateral transit protocols. crossings and, more importantly, to ensure that The routes to Northeast India are not currently there is a sufficient concentration of traffic to used because they lack critical links and are not attract private sector providers of logistics ser- designated as transit routes in the bilateral agree- vices such as freight forwarding, customs clear- ments. These will require a combination of in- ance, and banking. Table 5.1 lists the primary vestment and revision of the agreements. border crossings and their key constraints. The most immediate problem affecting the effi- The scale of operation at the border crossings ciency of shipments of imports, exports, and tran- can be categorized as: sit cargoes is the productivity of the ports. Cumbersome operating procedures, restrictive * High-volume operations such as Benapole work rules, old and unreliable equipment, and a with a significant volume of traffic in both Setting a Dynamic Process in Motion 91 TABLE 5.1 CONSTRAINTS AT BORDER CROSSINGS AND PORTS Bordraog Mode Priem Actio Chittagong Water Ineffidentmanagement and P$vatiztof port esand opeationi0c of equIpmnt. iment eeiv* dcs and ot Cakutta Water Inerient managemen tand hzatue of portopetionsand opeisckofeqment investmentnrased use of exessiv delapand osts Nalda for Nepal BenapoletPetrapol Road Congesdon Contction; sm peodue BijWRauxal Rail Operations notw yet dedded Priize CD opeao Bhalrahwa/Nonawa Road Operations not yet dedded Prvatize ( D operaons Benapdoe/eapol Rail Soontostartoperations SiPm p nede Darsa/Gede Rai Long processing times piy esoBantand somto be avaale seven days per week Akhaura/Agartala Road/ral Notopenobrtrafi Prtoo for mrad and ral memen Kakarbhltta- Panitanki Road Poorfadtles on both bordenr Improe bolder ossg adlies; allow no uaswm at ganglaband tansit fr epale trems Bwim adngabandh oad InsuffidentinfraM mtackof ha nesrmnt customs office, bad road acass So= Lost cat study team, Wodd Bank directions, including both import/export and ther traveling in-bond under seal or has been transit cargoes. These crossings require ad- precleared. This cargo requires only a road equate parking area for the vehicles, ware- crossing from one country to the other with a housing for cargo that is stored while waiting checkpoint to verify the seal or confirm that for documents, loading platforms for inspec- the cargo has been cleared. tion of cargo and for transit shipment, and fully equipped customs checkpoint gates. The first group of border crossings is relatively expensive to develop. The crossings require large Medium-volume operations such as Burimari areas for storage of vehicles or rail wagons to that handle both import/export and transit meet demand during peak flows and periods cargoes. This crossing requires storage and when there is a disruption to normal activity at parking areas as well as customs checkpoints, the border crossing. The volume of traffic and but on a smaller scale than a high-volume the average processing time for customs deter- operation. mines the amount of warehousing and inspec- tion facilities. The customs checkpoints should * Low-volume operations such as Banglabandh have a sufficient number of parallel gates to ac- with traffic limited to transit cargo that is ei- commodate the normal weekly peak. The gates 92 Forging Subregional Links in Transportation and Logistics in South Asia should have air-conditioned offices equipped crossings and at the seaports. The resulting in- with communications equipment. Where appro- crease in productivity will minimize investment priate, they may also be equipped with an auto- in facilities and storage as well as the cost of matic weighbridge. Space should be provided staffing and operations. This simplification should for the addition of new gates as traffic increases. begin with the development of a common for- Over time, as procedures are simplified and the mat for the basic import/export and transit cargo number of inspections are reduced, the amount declarations. A common document should be of facilities required will decrease. The increas- adopted for the four countries within SAARC in ing percentage of the cargo that moves directly order to expedite the exchange of information across the border without handling or storage between officials on each side of a border. The will offset the increase in traffic. basis for this common structure has already been initiated by the decision of Bangladesh, Bhutan, The access road to the border crossings should and Nepal to use the ASYCUDA format for trade have sufficient width and the bridges should information. India has decided to use a propri- have sufficient strength to accommodate fully etary format that is supposed to be compatible loaded trtucks, including tractor-trailers. The road with ASYCUDA. should widen as it approaches the checkpoint to create a waiting area large enough to handle The common declaration form shoukl be in a the normal weekly peak traffic. Public invest- format that can be computerized so that the ment in these border crossings should be lim- data can be easily transferred between customs ited to the customs facilities, such as the checkpoints. The processing of this document checkpoint and inspection area, as well as to should be simplified to minimize the number the road or rail access. The private sector should of signatures and copies required for clearing develop the remainder of the infrastructure, such cargo. This form should be developed in con- as warehousing, office space, and, possibly, park- junction with efforts to establish a national elec- ing areas. tronic data interchange (EDI) system. Although it is unlikely that a full-scale EDI system will be Where possible, the customs facilities on both available for cross-border movements anytime sides of the border should be located in a com- in the near future, such a system will be intro- mon structure and the processing should be done duced fairly soon in airports and seaports. The at the same time. If this is not possible, the op- EDI system should also be expandable to the posing checkpoints should be established with land border crossings, and the data entry system a minimum distance between them and be linked should provide an interface for trucking compa- by dedicated telephone and data channels. These nies and railroads, as well as for airlines and would allow the customs officials on one side to shipping lines. advise the officials on the other side of informa- tion about a vehicle crossing the border. The existing bilateral agreements between each of the neighboring countries in the region are only a preliminary step toward the free move- POLICY REFORM AND IMPROVED TRANSIT ment of goods across borders and through coun- PROTOCOLS tries to gateway ports. The major problems with these agreements are that they attempt to re- It is important to simplify the proceduires for clear- strict the number of routes and impose cumber- ing vehicles and their cargo at the land border some customs procedures on both bilateral trade Setting a Dynamic Process in Motion 93 and transit cargoes. In amending these proto- is reasonable to collect a fee for the use of the cols, it is necessary to allow greater flexibility in infrastructure. It is also necessary to enforce re- the routing of transit cargo and to simplify cross- gional and domestic regulations that will ensure border procedures to reflect the efficient prac- safe operation and accountability of the transit tices achieved elsewhere in Asia. vehicles. Although there are ongoing discussions regarding these issues, it is important to acceler- The problem of existing protocols is that they ate these initiatives and to take full advantage of do not allow for unhindered movement of trucks international experience in resolving these issues. and railway wagons across national boundaries. At the extreme, they prohibit such movements. Among the procedures that have been introduced At a minimum, they subject the vehicles and their throughout the world over the last decade and a cargo to lengthy clearance procedures even for half are: transit cargo moving from border to border or border to seaport. One of the difficulties in de- * International standards for the documents used veloping better protocols is that the transit coun- for the movement of transit goods across mul- tries do not perceive any immediate benefits for tiple borders, themselves, but they do perceive security risks. Although the continuing efforts at trade liberal- * Replacement of hard-copy documents with EDI, ization and economic reform are reducing the incentives for illegal movement of goods across * New mechanisms for securing transit cargo to borders, the maintenance of secure borders re- prevent it from being sold in the local mains a priority for customs authorities. Further- economy, more, each of the countries in the region has difficulties in providing adequate transport in- * New techniques for tracking shipments to pre- frastructure for its own use and is reluctant to vent the loss of cargo equipment in transit, improve infrastructure and allow free access for adjoining countries. * New methods of inspection to eliminate de- lays and irregularities, and The procedural problems in allowing relatively unhindered movement of transit goods across * Improved communications between customs the border have been resolved by various cus- authorities both to facilitate cross-border move- toms unions and trade blocs throughout the ments and to identify irregularities. world, but the mechanism of cost recovery has not. An earlier work by the Bank2 suggested that the transit country obtains considerable value- MODERNIZATION OF TRANSPORT NETWORKS added benefits in providing support services for AND SERVICES transit movements, but the primary benefit is the participation of the transport industries in the The plans for improving the national transport transit countries. In lieu of such participation, it networks in each of the four countries need to address problems of capacity and quality of the existing networks as well as the need for expan- 2. G. Ollivier and P. N. Taborga "Development of Trade sion of the networks' coverage. Both investments Services." Working Paper, Infrastructure tJnit in Europe and and policy reforms are required. A number of Central Asia, World Bank, 1999. initiatives are planned to improve currently used 94 Forging Subregional Links in Transportation and Logistics in South Asia routes and introduce alternative ones. To date, Nepal could dramatically change the economics the efforts to develop efficient and effective trans- of all routes to and from Nepal. The role of rail- port networks in the four countries have not been roads in container transport could be greatly completely successful. However, there are en- enhanced if Indian Railways were to make unit couraging signs that recent initiatives will be more train operations available to major multimodlal successful. The proposal to develop a golden operators such as Maersk and Neptune Oricnt quadrilateral of dual carriageway roads connect- Lines (NOL). Also, if container operations could ing the largest cities in India is an important step be extended to Bangladesh, the potential for mov- toward addressing the very serious problem of ing high-value cargo, such as yarn, would in- capacity shortages on the national road network. crease quality assurance and reduce delays. The investment in broad-gauge and dual-gauge track will expand railroad services and reduce The critical investments for the rail network are rail costs for eastern Bangladesh and Northeast- gauge harmonization on the primary routes, pro- ern India. curing rolling stock for high-speed container block trains, and establishing ICDs. The former The conversion of the rail network to broad gauge would include the extension of the dual-gauge and improvements in cross-border procedures rail in Bangladesh from the Jamuna Bridge to offer the potential for a significant increase in Dhaka, Tongi, Akhaura, and on to Chittagong, rail's market share. This is strengthened by the and in India up to the Nepal border ICDs. It growing congestion and poor maintenance of would eliminate costly transshipments and en- the road network, which have already eliminated hance the comparative advantage of rail for the speed advantage of trucks. The increase in medium and long distances. The ICDs would be rail's market share will be primarily low- to me- established in Northeast India to provide con- dium-value cargo, especially cement, coal, boul- tainer movements to the rest of India. These ders, and other bulk cargoes moving in large would provide efficient transfer of containers consignments. between modes and serve as repositioning cen- ters for empty containers to be stuffed. There will also be some increase in rail's market share of container movements because of the The growing congestion on the Indian roads not growth in unit train operations and the expan- only reduces average travel speeds but also cre- sion in Concor's operations. Better rail service ates greater variance in travel times. This is ex- will attract more boxes in areas where there is pected to slow the growxth in road's share of cargo sufficient volume to justify dedicated rail ICDs. movement. The expressway proposed by the As an example, the development of a rail ICD at Asian Development Bank from Haldia and Birgunj will extend the handling of containers to Calcutta to Siliguri would reduce the travel time the border and make the route to Nhava Sheva by truck, but it would not solve the problem of more attractive. If there is sufficient traffic vol- seaport delays. If the government is able to over- ume when the broad-gauge rail connections are come union opposition and improve the perfor- completed to Birgunj, unit trains could become mance of Haldia and Calcutta, more traffic will the preferred mode for movement of high-value be attracted to these ports, especially cargo cargo to and from Nepal. If the new road from headed to Asia. Without significant improvements Kathmandu to the border that was proposed in in these ports, the expressway will provide an the 1980s were to finally be constructed, then attractive connection via the golden quadrangle the possibility for container movements into to Nhava Sheva or Chennai. Setting a Dynamic Process in Motion 95 The essential investments for the road network through Bangladesh more attractive for high- are widening the primary road links and strength- value cargo, especially as the port would not ening the bridges along those routes. This would have the problem of heavy siltation. If a private significantly reduce the cost of transport by al- port facility were available to the south of Calcutta lowing larger vehicles to operate on the roads with good road and rail connections, it would and allow the maintenance of higher average divert substantial traffic from Calcutta. speeds so that these vehicles will be better uti- lized. The major routes that are being widened The introduction of effective in-bond movement and upgraded are the Golden Quadrilateral in of cargo with minimal delays at the border and India and the expressway from Haldia to Siliguri. an end to transshipments of cargo between ve- In Bangladesh, the road from Chittagong to hicles will increase the volume of high-value Dhaka is being upgraded.] The links eastward import and export cargo to and fi-om Nepal and to Akhoura and Agartala and westward through Bhutan. It would also encourage traffic between Benapole to Calcutta are critical links that also Bangladesh and India. require upgrading. For the inland waterway network, the most fre- Investments in ICDs and landports also deserve quently mentioned infrastructure investments are special attention. This includes (a) the comple- increasing the depth in specific routes and im- tion of the ICDs along the Nepal border and proving navigational aids to allow for night navi- their conversion to private operation, (b) the gation. The latter is more achievable in the short expansion of the Benapole crossing with an ori- run and is necessary because of the very low entation toward increasing productivity and re- average travel speeds. The former would be dif- ducing delays rather than merely adding capacity, ficult to achieve because of the current condi- (c) the improvements in facilities and protocol tion of the dredging fleet. Moreover, it is not for containers moving between Bhairahwa and required for Class I routes, which include most Moradabad, and (d) the development of new of those under consideration for handling cross- ICDs to transfer import/export containers mov- border traffic. ing to and from Bhutan and Northeast India. The economic viability of an ICD at Siliguri would None of the proposed investments in infrastruc- need to be examined. Within Bangladesh, Tongi ture will be successful without a mechanism for in the east and Noapara in the west appear to be proper maintenance of the infrastructure and possible locations for ICDs. efficient operation of the transport services uti- lizing the infrastructure. Improvements in the The proposed development of a private container management of the transport infrastructure are terminal at Patenga south of Chittagong with an even more important than the proposed capital inland water connection to a Dhaka ICD would investments. The primary impediment to effec- offer a significant improvement over the slow tive use of the existing transport services is a and costly movement through the port of lack of commercial orientation on the part of the Chittagong. It would make the transit routes public sector responsible for providing services or developing infrastructure. The trucking indus- try is almost entirely private and relatively effi- 3. The Asian Development Bank is financing the upgrade. cient. However, trucks are old and small because In addition, Japanese financing has been used to upgrade of the small size of consignments, competitive some of the bridges along the route. pressure on prices, poor condition of the roads, 96 Forging Subregional Links in Transportation and Logistics in South Asia and lack of enforcement of vehicle safety regu- both countries have been unwilling to enter any lations, including annual inspections and load agreements. The rail sector requires competitive limits. The government needs to address the last services if it is to stabilize its market share. tvw7o constraints. The maintenance of the roads (in particular the primary routes) needs to be One of the more interesting proposals for pri- improved dramatically. This, combined with vate investment and management of infrastruc- wider roads, will allow larger vehicles to com- ture and related services is the proposal to pete with the older vehicles and thereby reduce establish a container port at Patenga, Bangladesh. the cost of road transport. The port would be operated with a new ICD in Dhaka and connected by a container-on-barge New approaches such as toll roads, road main- service. The proponent of the port woould pro- tenance contracts, and road funds need to be vide and operate both facilities, thereby solving introduced to address the perennial problem of three problems: excessive port delays. limitations pavement deterioration and excessive road on truck size, and inefficient unit train opera- roughness. The enforcement of existing laws tions. When the Dhaka-Chittagong highway is would produce an initial increase in transport widened, the bridges strengthened, and rail and costs as older vehicles are disqualified from op- ICD operations improved, the movement of con- erations and the amount and extent of overload- tainers could be split more evenly among the ing is reduced, but it will reduce the costs of three modes. accidents and increase the reliability of road trans- port. At the same time, it will generate mutual The four countries under discussion each have trust between countries regarding the safety of made significant advancements in liberalizing the trucks crossing over the border.) their economies and their trade policies. Both India and Bangladesh have joined the World The railroad industry remains almost entirely Trade Organization. All have made concerted under the control of the public sector. The pri- efforts to reduce the involvement of government vate sector manages some stations or train ser- in commercial activities and to create a more vices on some of the less utilized routes. At the competitive transport sector with an emphasis same time, there has been the largely successful on private sector operations. The amount of effort in India to create a parastatal container change is impressive when compared to the rail haulage company, Concor. Despite the rapicl decades during which the governments focused growth in container shipments, much more needs on protecting their economies from outside com- to be done. In Bangladesh, the use of unit trains petition and emphasizecl the role of the public for movement of containers is much more lim- sector in regulating commercial activities. Per- ited. The only service is between Chittagong and haps nowhere in the region is this change more the ICD in Dhaka. It handles a very small portion evident than in India's software industry. In a of the loaded box movements. Despite perennial relatively short time, the country has been able efforts by the major shipping lines to establish to establish a strong, internationally competitive their own block train operations, the railroads of industry by taking advantage of local skills and allowing for competitive forces to dictate the development of the sector.5 The success of this 4. The tI nited States has recently used the argument of safety to exclude Mexican trucks from tJ.S. highways despite the NAFtA agreements. This form of itnplicit protectionism. remi- 5. Recent attempts hy the government to introduce some niscent of similar U.S. arguments regarding flag-of-conve- form of regulation of the sector have met with extremely nience vessels, should be avoided in SAARC. strong resistance from all sectors. Setting a Dynamic Process in Motion 97 sector depends on efficient logistics. The soft- expected that body scanners and databases will ware industry has taken advantage of modern replace traditional measurements, thus blurring telecommunications (bypassing the less efficient the distinction between ready-made and tailored telephone monopoly) to reduce the cost and time garments. Increasingly, garments will he direct of the logistics chain, thereby significantly re- ordered by the consumer with marketing and ducing transaction costs. This has allowed pri- sales through the Internet. Although these vate industry to mobilize its considerable changes have only just begun to appear at the intellectual resources to produce, market, and upper end of the market, it is reasonable to as- sell high-value tradable goods. sume that they will be adopted very quickly across a wide customer base. In this evolving Similar changes will be required if the manufac- situation, efficient logistics will become a neces- twre of garments, textiles, and yarn, the region's sary complement to the technological innova- major export industry, is to remain competitive. tions. In addition to putting competitive pressure So far, Nepal, India, and Bangladesh have used on management, these changes will offer op- their comparative aclvantage in labor costs to pro- portunities for workers in the industry to increase duce garments for the low end of the market. their skills and to earn higher wages. They have strengthened their competitive posi- tion through experience with modern manufac- turing techniques and the mobilization of CHANGES AFFECTING FUTURE LOGISTICS domestic financing. In particular, Bangladesh and Nepal have seen a rapid growth in their exports The logistics chains that serve the external trade of ready-made garments. Although intraregional of the region are expected to undergo signifi- trade is expected to grow as these industries di- cant changes over the decade. Globalization, and rect their design and production activities toward all its implications for increased competition in local markets, the extraregional trade is expected traded goods, will require substantial improve- to face increasing competition from China and ments in logistics in order to maintain competi- underdeveloped countries in Southeast Asia. tive advantage. Both the public and private Once the international system of quotas is elimi- sectors must be involved in efforts to improve nated, future growth of exports from India, logistics. Changes in transit protocols and reforms Bhutan, and Nepal will depend on the ability to in customs require coordinated actions by neigh- move toward higher quality, limited run, and end boring governments. Changes in line-haul move- products. ments must combine actions by private sector truck operators and national railways. Improve- At the same time, the high end of the market is ments in port performance require increased undergoing dramatic change. A larger segment private sector involvement in operations of pub- of the market is requiring better quality and de- lic infrastructure. sign. Computerization of the design, pattern preparation, sewing, and embroidery of garments Changes in Commodities Shipped allows countries with higher cost labor to pro- duce better quality garments at costs that are Chapter 1 reviewed the grow-th of foreign trade comparable to production in low-wage countries. within the region. It indicated a rapid growth in It also allows efficient production of the smaller the value of trade. Data from the seaports indi- size orders with more frequent changes in de- cate a rapid growth in tonnage as well. Signifi- sign that are needed to meet the requirements cant growth was also observed in intraregional for changing fashion. In the next decade, it is trade (in terms of absolute value of trade). 98 Forging Subregional Links in Transportation and Logistics in South Asia In Nepal, the principal export-oriented indus- India are opened and road and rail movements tries are ready-made garments and carpets. The across the western border improve. Although former recently exceeded carpets in terms of regional trade in basic commodities such as ce- value of shipments. The major overseas markets ment, grain, jute, and boulders will continue to for ready-made garments are the United States be important, the future growth in trade with and Germany, although the latter has declined India is expected to be in medium- and high- in importance as markets became saturated with value goods. Better logistics are urgently required Nepalese goods. The growth of exports has been for efficient truck movements across the border. constrained by problems with quality control, If the road transport continues to suffer from availability of skilled labor, competition from congestion and the private sector participation India, and poor logistics. Nepal has undeveloped in rail services increases, rail may provide the mineral resources, but it remains a net importer improved logistics. of cement and raw materials for steelmaking. Imports include a wide variety of manufactured India has experienced rapid growth in both im- goods as well as textiles for the garment and ports and exports as a result of the liberalization carpet industry. India also accounts for about 45 of its trade policy. Traditional exports of cloth, percent of imports in terms of value. Trade with garments, fibers, leather goods, animal feed, India has increased rapidly over the last seven chemicals, and minerals have been broadened years, and India is now Nepal's third largest trad- to include fish, gems, pharmaceuticals, and soft- ing partner. ware. The primary destinations for Indian ex- ports are Europe, which receives about 25 The major exports of Bangladesh include ready- percent by value; the United States, which re- made garments, leather goods, jute and jute ceives about 20 percent; and Japan and China. goods, and frozen foods, especially shrimp. The which each receive about 10 percent. Trade with country has had problems with quality control the surrounding countries is primarily in food for shrimp exports and with insufficient textile products, construction materials, and transport production to meet the demands of the garment equipment, and it is now being supplemented industry. The major markets are the United States with other consumer goods. and Western Europe, which account for about one-third and one-fourth of the value of imports, Imports have been increasing rapidly in response respectively. Although exports have increased to boosting domestic production. The major im- in recent years, grovwth has been below expec- ports are petroleum products, which account for tations. Despite improvements in the road and more than 25 percent of the total value of im- rail network, limited coverage, poor performance, ports, precious stones and metals, which account and deterioration in service during the monsoon for over 15 percent, and chemicals, which ac- season handicap the country's transport system. count for about 12 percent. The remainder are primarily manufactured goods, most notably ma- Bangladesh imports a wide variety of manufac- chinery and instruments, transport equipment, tured goods, of which textiles and related goods textiles, and food and food products. account for about 25 percent. India provides about one-sixth of the total value and East Asia The increase in trade in higher-value commodi- accounts for about one-fourth. Improved rela- ties is already putting pressure on the logistics tions with India have led to an increase in trade, services. Containerized shipments are increas- which will continue as newv routes to Northeast ing rapidly despite the limitations of the road Setting a Dynamic Process in Motion 99 network and the ports for accommodating con- ability to deliver products from sellers to buy- tainers. Air freight is becoming more important, ers at low cost and in a timely manner requires as is electronic transfer of information technol- efficient operations, not only for transport but ogy materials. Rapid improvements in logistics also for packaging, labeling, storing/managing will be critical to sustaining this growth in trade. inventories, tracking, financing, and customs processing. In the future, it is expected that exports of tex- tiles will experience slow growth or even a de- The logistics requirements are expected to change cline as quota systems are dismantled and Indian over time as the trade changes and as the trans- manufacturers shift investments back to India. portation network evolves. New routes will be The manufacturing sectors that are expected to developed and market shares will change as the increase are pharmaceuticals that exploit local performance of different nodes and links change. medicinal plants and household consumables that The private sector participants in the major trades are sold in Indian markets. Nepal's ability to com- were asked for recommendations for new routes, pete in both export markets and trade with India which should be introduced to facilitate the will depend on its capacity to delivery higher- movement of goods from landlocked areas. Con- value goods in a timely manner. A major effort sultants' reports focusing on different modes also is needed to improve container transport and produced a myriad of recommendations. This extend the movement of boxes further into Nepal. analysis has presented a means for evaluating Past efforts to improve the performance at the alternatives. However, this becomes quite com- border and at Calcutta have had limited success. plex when considering different commodities and As a result, it is likely that there will be consider- different foreign origins and destinations. Fur- able diversion of exports to Nhava Sheva and other thermore, trade is now evolving relatively rap- seaports that offer efficient container services. idly, as are alternative multimodal routes. In this environment it is increasingly difficult for gov- Tighter Linkages between Suppliers and Buyers ernments to respond rapidly to the changes in the marketplace. More and more, designated The innovation in marketing and sales currently routes are becoming a constraint on trade rather sweeping the developed world under the aegis than a facilitator. Although government involve- of the Internet will soon make its impact felt in ment in trade facilitation remains essential, it is developing countries. E-commerce, in the form no longer beneficial for the public sector to re- of both business-to-business and business-to- strict the mode and routing of cargo moving be- customer applications, will rapidly expand dur- tween border crossings or from border crossings ing the coming decade. These applications take to final destinations. advantage of modern communications and infor- mation processing to reduce the cost of access to and transactions between buyers and sellers. One POSSIBLE IMPLICATIONS FOR BANK GROUP of the areas in which e-commerce is expected to INVOLVEMENT have the most profound impacts is in marketing and sales for small- to medium-sized enterprises The array of instruments that are available to the located outside major urban areas. Bank (and Bank Group) range from the lending, technical assistance, sector, and policy dialogue The effectiveness of e-commerce depends on the under the CAS framework to the emerging role quality of both communications and logistics. The as a knowledge bank, convenor, and partner 100 Forging Subregional Links in Transportation and Logistics in South Asia with other institutions' resource mobilization experience in global best practices in trade fa- responsibilities. cilitation, harmonization and simplification of documentation, customs systems, policy reform, We have attempted to examine how the Bank and transit procedural practices can be brought might play a role in regional or multinational to the region through initiatives such as the Glo- initiatives such as this one.. We have used a bal Trade Facilitation partnership. The B3ank also simple chart (Figure 5.1) that rates the key ele- can play the role of a convenor, as done during ments of the regional transport initiative on scales the April 1999 Regional Technical Workshop on of * (low) to * aa (high) for three main crite- Transport and Transit Facilitation, and share glo- ria: (a) constraints, (b) benefits, and (c) the Bank's bal experiences. possible role. In mode and route choice for more cost-effective Within each of these groups there are subcat- transportation, political constraints and, to a egories that provide more clarification. It is im- slightly smaller extent, institutional constraints, portant to highlight that the ratings are notional have a strong influence. As Chapter 3 discussed, ratings by the study team and are intended mainly the political constraints here are linked to those to provide the basis for discussion with Bank of protocol, and shippers are constrained in their staff and management. choices. The technical constraints in terms of compatibility of transport networks (such as rail The key constraints in the area of reducing lo- gauge and load standards) and gaps in physical gistics costs through improved trade facilitation infrastructure networks are a somewhat lesser systems, simplification of documentation, pro- problem in the subregion. This is mainly because cedures, and other such measures are mainly the roads are compatible and the rail problems institutional constraints that have the potential are being corrected in Bangladesh and India. The to have good impact or provide high benefits bigger infrastructure inadequacies require long- for increased international and intraregional trade. term measures and investments. Some of these This is one area that woulcd provide broad ben- gaps are being addressed through country op- efits to all concerned because it reduces the costs erations. The strategic impact of the operations, of doing business with low investment implica- particularly on poverty, could be enhanced if tions but high technical assistance needs. The the regional dimension could be more effectively Bank's role in its individual country operations, and consistently integrated in country strategies. as well as all of its other instruments, could have In the area of knowledge management, the Bank a strong impact. The South Asia region has lend- through advisory and analytic activity such as ing and technical assistance operations in trade this one, can highlight options and provide a facilitation in Nepal (Nepal Multimodal Trans- basis for rational decisionmaking in wlhich the port and Trade Facilitation Project), and some users of the systems can participate. aspects such as customs reform are being ad- dressed in Bangladesh through the Export Di- The third category of rationalizing bilateral and versification project. But such reforms are not multilateral protocol is a politically sensitive area being addressed in India and Bhutan. The Bank's that has historically been addressed on a bilat- eral basis. The SAARC charter does not allow for SAARC intervention on bilateral issues. However, 6. The framework, of course, could also be adapted for the we have seen that several constraints in the trans- more traditional country operations and interaction. port logistics systems would require rationaliza- Setting a Dynamic Process in Motion 101 FIGURE 5.1 CONNECTIN6 THE SUBREGION: ECONOMIC GROWTH AND POVERTY ALLEVIATION Routes and Rationalizing modes for more bilaterl/ Promoting Reducing cost-efctive regional private sector Category logistics costs tansport protocol participatin const nts Econormic *m am a Political a Rosm* Smuma :um Tedmical au auo Institutional woman nos mas muw. Ecoanoicopportunwies masso among woman mamma -ncreased international, intrareionaltrade Mason mamma *mamm Bases Promote compettion and inaease effidency means *memn Huma Samoa 8ank Gmoupt possibie roe Country operations through CAS/comprehensve develop- wment framework (lending, technical assistance, poikydialogue) Known masm a *sme Convenor ummum man Mason Resource mobilization and fidudary owns *m-- *mm Knowledge mnaWgement, best practice cases, analytk advisoryservkes gangs *mum. am aMaso NoWt: mssindkates a high athig; w..is medium; andis low.The ratingsarethose of the stutyteam and are rotional, intendedto provide the basb for dssion wih Bank staffand management Seune: Bank study team. tion of the protocols and broader consultations are significant gains, including increased trade, with stakeholders, particularly those who are greater economic opportunities and improved directly impacted (such as shippers and export- efficiency through increased competition. The ers in the case of transit protocol). When anoma- Bank's direct role is limited in this area. However, lies in protocol and agreements are reduced, there in our country operations and policy dialogue. 102 Forging Subregional Links in Transportation and Logistics in South Asia specific issues can be flagged for consideration porting private sector participation in provision of the relevant countries. With the Bank's matrix and management of logistics services can be management structure, this could be enabled with explored. On the knowledge management side, more dialogue between country management there is clear demand from the region for policy teams. Also the Bank, if requested, can help with notes and for a forum for increased dialogue. "good practice" cases and in-depth policy inputs. One of the key recommendations that the pub- lic and private delegates of Bangladesh, Bhutan, The final category of promoting private sector India, and Nepal made at the regional technical participation in dialogue with governments con- workshop (which was again reiterated at national cerns regional transport issues. The constraints consultative meetings) was to establish regional on investment and operations in transport, trans- committees with a mix of public and private sec- shipment, and logistics services are mainly insti- tor representatives to promote more consistent tutional. The critical need for involving the private and coherent dialogue. The private sector in the sector is well understood and the positive im- subregion has set up a four-country forum that pacts are undeniably large. The Bank operations would raise issues with the relevant governments. in infrastructure projects, particularly water sup- ply and sanitation, have been pushing the enve- Several international development and private lope on this for some time. In the transport sector, sector agencies are involved in the region in the experience with privatization has mainly been such aspects as trade policy reform, highway in ports rather than in the road and rail sectors. improvements, toll roads, road maintenance In trade facilitation and logistics, the attempts to funds, railroad improvements and privatization, include private sector organizations (such as port improvement and privatization, ICDs, EDI, chambers of commerce, freight forwarders' as- and improved telecommunications. A more co- sociations, and shippers' councils) in a more herent effort to work in partnership with these substantive manner have begun and can be agencies is critical for effective strategy and strengthened. Also, ways of promoting and sup- implementation. 6 he primary goal of this study was not to identify new Next: projects for investment or to provide a regional transport master plan for improved transportation and logistics net Proposed Change L works. The problems discussed in this study have been the subject of discussion at the national and regional levels for a number of years, and the conclusions derived from the comparative analysis are consistent with the issues already raised by the private sector. Rather, our objective has been to develop a mechanism whereby the best efforts of government, the private sector, and international experience can be mobilized, and regional stakeholders can use the mechanism to identify and provide direction for solutions for these problems. Summary recommendations for consideration at national and regional levels are presented in Table 6.1. The solutions are im- portant not only for improving current economic performance and developing areas where economic development has been lagging, but also to meet the challenges of the future when rapidly falling transaction costs and constantly improving logistics will change the nature of competitive advantage for both developed and developing countries. Because many of the solutions involve policy matters and coordina- tion between countries, an effective and sustainable mechanism by which such coordination can be achieved is important. One of the key recommendations of the delegates from the four countries at the World Bank/Economic and Social Commission for Asia and the Pa- cific April 1999 Regional Technical Workshop on Transport and Tran- sit Facilitation (see proceedings of the workshop)' was to establish a regional technical working committee to examine and promote key subregional issues. Regional representation is critical because many of the solutions extend beyond national and bilateral issues. Techni- cal expertise is critical because of the breadth of activities to be cov- ered and the interdependent links among issues. This study confirms 1. Proceedings of the workshop can be obtained from the World Bank. Also availabhe at the Bank's external website http://w-ww.worldbank.org/html/fpd/transport/trfacil/ present.htm. 103 104 Forging Subregional Links in Transportation and Logistics in South Asia TABLE 6.1 NATIONAL ANODREGIONAL0ACTIONS: SHORT TERM AND MEDIIM TO LONG TERM j 0 0 t; 0f: 00;0000>i00000ANationalt0 00000000S0000f0 l0000(00;:0000; Regional Short Teim 1. Strengthen the Transport and rade Facdilitation Technical Committees 1. ablish a regional technical workg committee to (a) identify (mCs) recentlestblshed in Bangladesh, Bhutan,and Nepal that S methoforimproving logisticsfor intrareional and are aimed at sustaining interaction between thepublk agees and eregionlrde,)set iorities and short-term targetsfor the prvate sector.ThbeseommiteeOw indude representation fro achithe greatestbes,and (c) develop a forceful and ministries or dpatmeits of commerce, customs, andtrn t or sustaioabrleo for Improving logistics in the region. The communication, and private sector representation fomchambers of t cmmittee willindude: commerce,transportserviceproviders assocations, and trade Government representatives of the relevant trade, transport, associations. Examine similar institional options for icased and customs agences toprovide the policy and public effectivedialogueon transport,gis and trade aclitationissues infastructure perspective. inindiainthepublicandpivatesectors. Private secor representatives from shippers, consignees, chambers of commercand logistics providers to bring a private sector and comnmial perspective. Specialis from other coutries and academia representatives to provide best practices knowledge of trade facilitation, supply-chain management, and logistics services, as well as practical limitations on reforms experined by other regional ttade blocs. 2. Technical assistance should be provided to assist transport ministries, 2. Regional workshops could be used to share information among development banks,plannng ministries, freight forwarders, major transport ssionals,shippers and consignees,and forwarders shippers, and experts in logistics in the techniques fsupply-chain toimpromvesuppl-hain logistics in theregion.Thiswouldbe analysis.Thelogisticscostmodel developedwodpridkean easy particulalyhelplforimprovingregional andintemational and adapble tool for training stakeholders. Procedures should be f itra,particulrlyforlandlocked regions. developed for inorrating supplychain analysis into deisions regarding investments in transort infrastructure and changes in procedures for cross-border movement.lo W ops could be used to inrm transport prfessionals, shippers and tOnsignee and forwarders of the techniques ued in supply-chain management. 3. Port reform and moderniationforprovedperformanceand 3. Bilateral (and multilateral) dialogue and agreements can logisticsis a prority for development of the counties' trade in facilitate routing regional cargo through more effiient ports. For global markets. The meas wlndude: instance routing cargo thrugh more efficent ports on the * Privatization of port manageentandoeions western coast of the subcontient couldrduce travel time by * Deditated private terminl operations to ei go handling, aboutr one week fr exports to Europe. * Facilitating routing cargo though more effiient pots, and * Better coordination of meentsbetween feeder and mainline c vessels by poin port pceroae. s the fer vessels can operate on a fixed scedule. ftd Next: Proposed Change 105 National Regional 4. Improve the physial design of land border crossirgs in high traffic 4. Coordination among relevant countries in effectively inproving crossings to reduce congestion and delays, with strategic investments the physical design of strategic high-traffic land border crossings in place of the current practice of ad hoc investments. Support private so that curfent congestion and delays are reduced dramatically. sector involvement in development of superstructure and operations at border crossings. 5. Simplificadon of import and export cargo dearance procedures 5. Harmonization and standardization of cross-border cargo within the countries, induding introduction of Automated Systems dearance procedures across countries. for Customs Data (or compatible) documentation. 6. Improved communkation systems and adoption of automated 6. Compatibility of automated systems for effective electronic technology for electronic transfer of information. interchange of information. 7. Eliminate requirements for transshipment of cargo by trucks at 7. Revisions of bilateral transit protocols to fadlitate uninterrupted border crossirgs and move toward inraeased transit access for movement of transit. Important changes include: vehicdes from neighboring countries, so that multiple cargo handling * Replacement of the movement of transit cargo in truck and associated costs and delays are avoided. In addition, introduce: convoys to flexible movement against specified time lImits * Automatic weighing of vehides at border points with in-bond goods; * Simplified procedures and risk-assessment strategies to replace * The use of secure seals for rai cars or containers carrying current cargo inspection practices transit cargo with very few or no inspections of cargo at the * Round-the-dock dearance of cargoes at high-density interchange border, other than checking seals; points like Petrapole-Benapole and Gede-Darsana. * The Transports Intemationaux Routiers (TIR) system for the carriage of goods approved by customs authorities from the transport of sealed containers using the TIR camet; and * Common vehicle inspection and licensing procedures for trucks used to transport cargo across borders. 8. Monitoring/tracking systmes for cargo movement. 8. More effective mechanisms for monitoring the movement of the cargo, instead of the existing practice of using fixed routes and truck convoys. These could include: * Joint checking of cargoes at the origin and destination; * Electronk data interchange (EDI) between customs fadlities within the country and across borders; * Identification numbers, bar codes, or other forns of electronic identification fortrucks and cargo containers; The use of a freight operation information system for real- time monitoring of trains, rail cars, and cargo; and * Tracking systems for transit cargo carred by trucks. (Table continues on the following pagej 106 Forging Subregional Links in Transportation and Logistics in South Asia 05 0TABLE 6.1 (c 0 ozntinued);-0tl-00 0 t4-/0$ 0^0|0g- 0t Vi5g 9.t Ass0 000<'t0' 0ignmen of000 'lblt 00 ityfrh cariag of' good withi the cottw 9.A' Asi ''" of'< liablt for' t-e car''g of' 'od an hani'a 10. Development of lull rake s,dings for' rail, 't 0 -3^ --, nght unloading f,clies an00 d West Bengal 12. For 3 t ;0 w Banladsh, cohsiv plan i"^'fkge brige that highway. t'r'g3 93 h '1 0 ig00 Me00000 0>dium ;'d '3t - '§t' 0;^3 '3>- Long'0wl '' '<0e;00 000200 l00 tenn 000' 0000000-l00 i 20< 00<00 ;4000l 1. Investments in road network infrastnicturet tt - i tt000 0t i J induding widening 1. Investments at border crossings to fa cilitate easier two-waytt ti tttt t tttt ' tt it t ^ttt tt roadways adi cont ruc;40 t |ing divfided h'-t 0ighways -;tD'. Bang00lades wold flo oft5tE|$:l :S0t.g;0 t rtw S3 S ltD;tX0affc base this a reie and pdte''3g of- 'th exis 00 ting roa mater 0 < 00 X0tt}00$003000 plan Ini woul inorort plane an on:n roa pro-;jecL0 000ts inct 0 W;l1L y*X0,0tf 0uding XC ' tu 6ode Quadrila0tea and Wes VM 0t Bega nor ESth-sou0 0 iXthS0;0t 0 hfaf i ghway,t ;0; and a00 med000t$ i um-;y t erm p00l;:0 i;00 ; 0\f lan g.000 or ; 9les coget ed ; 0Stt road tlinks0t;t g ;f02tf0.-t00 ft0t, t g33l 0 0 ttt g g t toX and ;000 00;0 000 ; i0 ;;00 0000Vamong - 8:- ---;the00-0 Nothea; s;-5 "'3tern'0 ' 0 00000' 0 states.0040 2.0 Inceaed ovmet of0 co n0 ttainerized) t0 tfttg jgoos,a r E t t 4:iculad high-va;t it,~~~~~~~~~~~~~~~~~~~~~L - JATE E MAP 4 SOUTH ASIA INTERMODAL TRANSPORTATION NETWORK \~~~~ MAJOR ROADS -t N. M~~~~~-i1g*gETER GAUE,_ o WATERWAY/ INDIA BANGLADESH < l-- ) /I 1- l /i// / \A ~~ t, I Ikll ~ ~ SW *UW swviaN+1f-- S dVW ko -2 MAP 6 Transport of Carpet from Kathnmandu, Nepal to Munich, Germany Shipment Size (TEU): I Shipment Value (US$): $90,000 E Route A -a Calcutta C RouW 8- vla Mumbai % Of Total Costs Key Transport Logistics Time Transport & Handing Costs Total . i Transpofand HandRng ° Inland Transport $40 _J 1 8.385 CrOSs BorderprocSssIg s A Cargo Handling $260 4J1 21 4.542 TradeRPeated Logislice Ocean Freight $1,200 ill _ 20.96 0 2099 4o e 00 *000 0 o SW 1¶000 600 T Transport & #andllng Time nmrerenTww ciam ruamasO. TO A4040K eWMHT Inland Transport 117 41 21 9.915 aUOD.*Va Wemacs - ts .cM Cargo Handling - 74 jj1 r 6.271 R. .AW . WR- &aW "A iuMn, Ocean Freight 817 ,Jj 21 69.24 , .: .: ' .' ~~RASLAO - "NOW GAU8C Cross Border Processing Costs Cargo Transfer -j 211 1j 4.507 Cuistoms Inspecton $46.1 17.075 Cross Border Processing lime Cargo Transfer 16 411 21 12.88 Customs Inspection 20 . :U 41 1.895 Trade Related Logistics Time Cost of Goods : AS 21 2 28.59 Insurance or Pilferage & Damage $87 42 11,79 Documentation& Fotwarding $480 _21U 21j 7.861 ?! ,L---' __Bank Processing for. -71LtZA llrtit. _~~UC Cost (USS) Time (hrs.) Total: 5725 1180 MAP 7 IBRD 27291 Turkmen-' T tUz n istan VM Kabul", lslumab Isiad China Afghanistcn , I. R. Pakistan New N i of I Pakistan'~huta °fn a<- - - s a ~Delhi XN,gl- Bangladesh, India D n Sea~~~~~~~~~~~~~~~a 128- 128 MAP 8 TRANSPORT OF CARPET FROM KATHMANDU TO MNlICH, GERMANY MAJOR ROADS WATERWAYS ..., .RAILROADS - BROAD GAUGE - ROUTE A: VIA CALCUTTA r..JRAILROAS - METER GAUGE ROUTE B: VIA MUWBh < >, _ ~~~~~RAILROADS -_HARROW GAUGE PadWAu T 5902 NhAv Shv Po t, NJ~~< %Q 0~~~ i i! II I a'~~~~~~~~~~~~~~~~~~~~L 130 MAP 10 f~~~~~~~~~~~~~~~~~RNPR OF '-A\ '*~~~~~~~~~~~~~~~~FO CACUT TOAATh 5~~~~~~~~~~~~~~AO ROADS k_X ~~~~~~~~~~~~~~~~~~RILOD RA AG . _ , __M-W_~~~~~~~~~~~~~~RILOD -NTR AG Im hg z>l X WElateSliiI~ a- c 132~~~~~~~~~~~~~~~~~~,< Xofe s5U m MAP 12 TRANSPORT OF AGRICULTURAL PRODUCE FROM KATHMANDU TO DHAKA MAJOR ROADS Z RAILROADS - BROAD GAUGE RAILROADS - METER GAUGE ; 5 ~~~~~~~RAILROADS - HARROW GAUGE A i - - ~~~~~ROUTES ...............t. .. 7,..''7+.'''" The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. Telephone: 202-477-1234 Facsimile: 202-477-6391 Internet: www.worldbank.org E-mail: feedback@worldbank.org In the wake of recent liberalization, South Asian countries are seeking to expand trade and investment links with regional and global partners. However, inadequate infrastructure combined with policy and regulatory constraints imposes significant limitations in opening up one of the poorest regions in the world. Forging Subregional Links in Transportation and Logistics in South Asia examines transportation and logistics issues in Bangladesh, Bhutan, eastern India, and Nepal and provides well-researched commentary on non-tariff barriers that impede the seamless flow of goods and services to regional and global markets. Besides offering a wealth of inforWation on regional transportation issues, the book offers an innovative analytic framework and a comprehensive analysis of the hidden costs associated with logistics barriers in South Asia. Detailed commodity case studies provide a strong quantitative argument that the flows and cost of goods traded within and outside the region are adversely affected by physical infrastructure bottlenecks as well as by policy anomalies. Written for public and private sector professionals in South Asia, the book presents policy options that would enable the subregion to compete in a rapidly changing global environment. While the book is designed to stimulate informed dialogue among key stakeholders, the unique approach and lessons learned have broad applications of interest to a wider audience. ISBN 0-8213-4885-X