Impediments to Logistics Performance

Executive Summary

The LPI is a comprehensive index created to help countries identify the challenges and opportunities they face in trade logistics performance. The World Bank conducts the LPI survey every two years.

The key document for this is the the second edition of Connecting to Compete:Trade Logistics in the Global Economy,which was first published in November 2007. The Logistics Performance Index was based on a survey of operators on the ground worldwide - global freight forwarders and express carriers - who provided feedback on the logistics “friendliness” of the countries in which they operate and those with which they trade. Sri Lanka’s Logistics Performance Index is 2. 29 and ranked 137.

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In spite of prevailed security condition in the first ecade of this millennium Sri Lanka was able to lay a good foundation for implementing trade facilitation measure over the years. The Pathfinder Foundation says that Sri Lanka’s LPI ranking also reflects logistics-related problems with road and rail infrastructure, including congested road access to the Port of Colombo and poor trucking and rail services; costs of both trucking and rail exceed those of Bangladesh and India.

The railway sector accounts for only about one percent of freight movements in Sri Lanka, and is characterized by a large cost structure. In addition, the report says that the logistics sector has been slow to provide value added services for transshipment through the Colombo port. The Pathfinder Foundation says that the government can encourage this by providing free zones and customs procedures that enable the efficient provision of services.

Failure to do this can make Colombo vulnerable to losing market share to Indian ports that are being upgraded; particularly as pure transshipment cargo is foot-loose Sri Lanka needs to advance its export competitiveness by developing its logistics, and plugging into Asian supply chains is of vital importance. Especially with the significant opportunities that lie with Sri Lanka’s close proximity to the South Indian markets of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu, Sri Lanka needs to become open to such international supply chains.

Even if she can’t actually attract the companies to set up large plants here on the island, the country can be a part of a model, where some components could be manufactured here and shipped across to bigger plants in other countries for the assembly of finished products - that would be the paradigm shift. Overcoming the impediments the area of trade related infrastructure will play a pivotal role in the increase of the LPI ranking of Sri Lanka. This can be catogorized as physical infrastructure requirements and business processes.

The following areas should be considered in priority for this purpose:

• Trading through Electronic Documents
• Introduce online payment of Customs Levy
• Development of Road/Rail/Canal transport
• Upgrade Handling Equipments in the Port and increase handling capacity
• Development of areas within close vicinity to the airport and sea port.

Quality and Supply of Logistics Services

As Logistics is the backbone of trading of goods the quality of trade will depend upon the quality of logistics services available in an economy. There are many factors which affect this. These can be broadly categorised into three areas as people , Process and systems and Physical Infrastructure.

Although this can be also inter related with other areas of determinants of the LPI this is an encompassing factor covering all the areas as Quality is a philosophy which embodies all the functions of the determinants of the LPI. In order to set and maintain standards and guidelines in the area all industry related organizations should be monitored by one body which will see to the fact that all these groupings are governed in a way that it will maintain the highest quality standards amongst its members and all stakeholders in the industry are involved in one of these organizations to ensure compliance.

These Organizations are as follows:

• SLAFFA (Sri Lanka Freight forwarders Association)
• SLACA ( Sri Lanka Air line cargo Association)
• SLLPA (Sri Lanka Logistics Providers Association)
• CASA (Ceylon Association of Ship Agents)
• ACT (Assiciation of Container Transporters).

There should be strong recommendations for companies involved in Logistics services to be a member of their respective grouping and also have a minimum number of professionally trained staff from these bodies.

This will also facilitate the quality service provision through these skilled employees in this sector. Another important area is to recognize top performing logistics providers by way of introduction of an awards scheme to motivate the companies involved in the industry and to take the industry standards into new heights which in turn will benefit the customers in the long run. There can be benefits obtained also by Interlinking domestic freight forwarders ystems with International Freight forwarders or their agents to provide better info flow to the customers in order to track their shipments through the entire supply chain.

Core Customs Modernization

This can be identified as the main area of consideration for improvement in affecting the LPI ranking. As mentioned at the beginning of this report the last LPI survey was at the peak of the Sri Lankan war against terrorism. This meant stringent security measures in the country and strict surveillance on all goods that entered the country.

According to the LPI, Sri Lanka’s performance is particularly weak in clearance by border control agencies (particularly customs), logistical competence and ability to track and trace consignments. There has been slow progress in implementing customs reform. Sri Lanka has made less progress than other countries in South Asia, such as Bangladesh and India. There is a strong case for attaching high priority to customs reform, including full use of the ASYCUDA system and development of a computerized system of risk management.

Lack of progress in this area place our exporters in a disadvantageous position from competing in time-sensitive markets, thereby undermining the growth and employment prospects of the country. There are many areas to be considered in the process of customs modernization in Sri Lanka which includes the following:

• Round the clock & 365 days work.
• Change attitude to understand that the customs is not only regulator but also trade facilitator.
• Online cargo clearing.
• Abolish age old regulations.
• Introduce pre – arrival clearance.
• Release goods against guarantees. Post – clearance audit method.
• Re introduction of Green Channel - Customs decided implementing green channel for 10% out of identified 75 top importers (Sunday times 04th Sept 2011)
• Restrict custom’s activities to main areas such as Border Control /Tariff functions & Inspection.
• WTO Guide Lines should be adopted
• Take positive steps to eliminate corruption
• Introduce an effective review and appeal procedure Methods such as Green Channel and Risk Management should be introduced in order to reduce the clearance time wasted as a result of 100% examination at present.

Today all 28,000 TEUs in a month are examined of which 18,000 TEU's are examined at Rank Container Terminal alone. But it was noted that while authorities intend on using an automated system, the industry pointed out that while there are a number of dynamics involved in the assessment of the products a manual check would prove to be a better procedure though. ” – Sunday times.

Integration of Border Management

Sri Lanka’s rank in “Trading Across the Border” is 65 out of 183 which is above the South Asian average but below OECD Average.

Regional Facilitation and Transit Drawbacks in Connection with the Logistics Performance of Sri Lanka Sri Lankan shipping officials have questioned the validity of a recent World Bank ranking on logistics that placed the island even below landlocked Uganda, despite Colombo's position as a container transshipment hub. The criticism came at a videoconference discussion connecting audiences in Bangladesh, India, Pakistan, Nepal, Sri Lanka, and Washington on trade logistics in the global economy to discuss the findings of the study.

Rohan Masakorala, former chairman of the Sri Lanka Shippers' Council, raised doubts about the study and LPI index and questioned whether the research had got it wrong. "The study's credibility is at stake and [such] findings can seriously damage the country. " It was mentioned that Sri Lankan businesses were concerned about misleading representation in such studies as it could affect foreign investment which the island needed to develop the economy.

The World Bank study called the Logistics Performance Index (LPI) 2007 ranked Sri Lanka at 92 out of 150 countries with a low overall score of 2. 0 out of five, even below India, Pakistan and Bangladesh. Singapore was ranked No 1 while Uganda scored 2. 49, more than Sri Lanka, whose Colombo port is south Asia's hub for container transshipment. The LPI consists of both perception and objective measures and evaluates performance along the logistics supply chain within a country, the World Bank said. An USAID study last year had placed the island ahead of other south Asian states like India, Pakistan and Bangladesh.

An alternative suggestion to be included in the survey was to ask buyers of Sri Lankan exports what their impression is – who buy apparel from different Asian countries The Sri Lankan shippers' council and freight forwarders association were also not consulted in the survey. The following news article from The Daily News with Prominent Shipping Personality Mr Rohan Masakorala also gives many insights into this ; “ Sri Lanka has been ranked 137th in the World Bank released Logistic Performance Index (LPI) for 2009.

The country secured the 92nd place according to LPI 2007. The LPI has not given a true picture of the country’s capability and the list and the criteria, and Sri Lanka has been pushed from 92 to 137, it is unfair as the country has an efficient air and ocean shipping sector, Sri Lanka Shippers’ Council former Chairman and Asian Shippers’ Council Secretary General Rohan Masakorala told Daily News Business. The index was arrived at by considering the strengths in rail, road, ocean shipping and air systems in a country.

The World Bank team is looking at the overall picture. However, the Shippers’ Council or the freight forwarders have not been consulted for these LPI interviews this time as well. “They are doing a fundamental mistake by placing sea, air, road, rail and inland waterways in one basket, ignoring the strengths of different countries and territories,” he said. Courtesy – Daily News Another suggestion given in the abovementioned article is that “The LPI gives a wrong signal to investors and buyers.

It could have been agreed upon if the World Bank had a chart separating sea, air, and road and rail rankings and then combining the four against the overall performance with other criteria such as customs practices. Then at least one would see each country’s SWOT (strength, weakness, opportunities and threat).

It is not proper to compare a landlocked country and a maritime nation. This is one reason to be critical of the position of Sri Lankas Ranking in the LPI. Furthermore the LPI is one among many comparative rankings globally. Converting the LPI to a ranking out of 100 places Sri Lanka would rank at 88 (137/155).

Conclusion

By analyzing the logistics related performance of Sri Lanka through various trade statistics it can be identified that Sri Lanka as a whole had a comparatively bad year due to the prevailing situation in the country at the time.

Reference

1. List 1. Connecting to Compete – Trade Logistics in the Global Economy 2010. The World Bank Publications
2. Export growth: The challenge of poor logistics – Article of e research by the Pathfinder Foundation, Daily News 21st June 2011 3.
3. Doing Business 2011 – Comparing Business Regulation in 183 Economies, a Co Publication of The World Bank and International Financial Corporation.
4. Sri Lanka Ports Authority official website 5. Sunday Times 4th September 2011, Business Section – “Customs to Open Green Channel for 75 Companies”
5. Daily News 9th February 2011, Performance Index gives wrong signal to investors - Rohan Masakorala
6. Daily News 4th August 2011, ACFA wants Green Channel examination reintroduction.

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