Bangladesh's trade logistic cost highest among peers: WB report

Country's logistic cost for trades may be the highest among its competing countries, producing a lower trade-GDP ratio in comparison to that of average rate of the low- and middle-income nations, the World Bank has said.

The country's trade to GDP ratio in 2019 was 15 per cent, which is lowest when compared to average of low-and middle-income countries and far lower than its main competitor Vietnam, said the global lender.

The trade (export) to GDP (Gross Domestic Product) ratio for the low-and middle-income countries is 25 per cent and for Vietnam it really is 106 %, Washington-based lender said in its Bangladesh Development Update report released recently.

The ratio of both goods and services trade-to-GDP for Bangladesh were both below the benchmark for a country at its degree of economical development, the WB added.

It said Bangladesh's exports could possibly be boosted by 19 % if its logistics cost could possibly be reduced by 26 per cent.

"Reducing dwell times at the Chittagong Port by 1 day, increasing the minimum speed along the national highways to 40km/hour, and implementing policies to tackle the low quality of logistics services, facilitation payments, and other inefficiencies, Bangladesh could reduce logistics costs by 26 per cent," the Bank said.

The WB in its Logistic Performance Index showed that Bangladesh was on the cheapest level in comparison to its competitor economies.

Based on the WB, Bangladesh scored 2.6 out of 5.0 while its competitor Cambodia bagged 2.6, Philippines 2.9, India 3.2, Vietnam 3.3 and China 3.6.

When asked, senior economist and trade analyst Dr Zaidi Sattar told the FE that absence of trade openness and higher trade infrastructure (logistic) costs were the key known reasons for the Bangladesh's trade-GDP ratio remaining low.

"It is interesting that although the country's trade has a growth of practically 11 % on an average during the last few years, but its trade-GDP ratio is not increasing at an expected rate. The above hurdles are creating setback to enhance the ratio," he added.

Dr Sattar said Vietnam was the best exemplory case of trade openness as only its export volume (US$265 billion) is higher

than its total size of GDP ($260 billion).

The economist said that whenever Bangladesh's nominal GDP grows at 13-14 %, the way the trade growth could possibly be less than 11 per cent. "It shows our poor capacity to make the country a trade competitive nation."

According to the WB development update, transport represents the most significant share of direct logistics costs, and road transport may be the dominant transport mode in Bangladesh.

Road transport rates in Bangladesh, which range from $0.06 for a 16-tonne truck to $0.12 for a trailer (in per tonne, per kilometre terms), are greater than that of all countries, a primary constraint to exporting, the report added.

The lender said: "Logistics costs in Bangladesh are saturated in most sectors. Costs range between 4.5 % of sales for leather footwear to 47.9 % of sales for horticulture. Inventory carrying costs 21 % (in per tonne, per kilometre terms), are higher than generally in most countries."

Inventory carrying costs represent 17 to 56 % of logistics costs, exceeding 30 per cent of logistics costs generally in most industries, it added.

The WB said that if the road congestion was eliminated, logistics costs would be lowered by at least 7 to 35 %, depending on the sector.

"Beyond logistics costs, congestion accounts for almost 60 per cent of the annual skin tightening and (CO2) emissions from inter-district road freight transport, the social costs which are estimated to be 1.2 per cent of GDP."

"High dwell times (the number of time which cargo or ships spend within a port), add to the high logistics costs. At the Chittagong Port, for instance, average dwell times are 4 days for an export container and 11 days for an import container," the Washington-based lender said.

Identifying Bangladesh's logistics system fragmented in conditions of both infrastructure and services, the WB said a fragmented, ineffective, and outdated framework of governance over trade logistics has resulted in inefficiencies and too little coordination in the sector.

"Logistics service markets in Bangladesh are not competitive. The logistics sector suffers from outdated policies and regulations."

The Washington-based lender has underlined the necessity for improved logistics performance for strengthening the post-Covid recovery through improved international competitiveness.