Transportation costs, the largest direct logistic costs in Bangladesh, would be up to 35 percent lower if there were no congestion on roads, said a World Bank report.
Bangladesh needs to improve its transport and logistics systems to meet the needs of its growing economy and to boost export growth, said the report titled “Moving Forward: Connectivity and Logistics to Sustain Bangladesh’s Success” unveiled yesterday.
Congestion on roads and at seaports, high logistics costs, inadequate infrastructure, one-sided logistics service markets, and fragmented governance hamper manufacturing and freight, further eroding Bangladesh’s competitive edge and putting its robust growth path at risk, the report said.
The country could significantly boost export growth, maintain its position as a leading garment and textile manufacturer, and create more jobs by making logistics more efficient, it said.
The carrying costs represent 17 to 56 percent of logistic costs. Inventory affected by inconsistent deliveries and congestion ranges between 53 and 75 percent depending on industries, it said.
Logistics costs in Bangladesh is high for most sectors. It is 4.5 percent of sales for leather footwear and 47.9 percent of sales for horticulture products.
“Bangladesh’s congested transportation and often unsophisticated logistics systems impose high costs to the economy,” said Mercy Tembon, World Bank Country Director for Bangladesh and Bhutan.
By making its logistics more efficient, Bangladesh can significantly optimise its connectivity, business environment and competitiveness, and put the country on the right path to become a dynamic upper middle-income country, she added.
Bangladesh ranked 105th among 141 countries in WEF Global Competitiveness Index 2019 and 100th among 161 countries in the World Bank Logistics Performance Index 2018.
Efficient logistics has become one of the main drivers for global trade competitiveness and export growth and diversification, the report said.
For Bangladesh, improving its logistics performance provides an opportunity to increase its world market share in garment and textile, which accounts for 84 percent of its total exports.
It would allow the country to expand into new markets and diversify its manufacturing and agriculture products.
Road transport rates in Bangladesh are high, the report said.
The most commonly used truck in Bangladesh is the seven-tonne truck.
The average cost of carrying a tonne a kilometre here is $0.095, which is higher than many developing and developed countries, including the US, France, Australia, India, and Pakistan.
The report on high cost of transport blamed inefficiencies in the system, low truck utilisation (35 percent empty trips), extreme levels of congestion on roads and ports, and limited competition among transport modes.
It mentioned average dwell times at Chattogram Port to be four days for an export container and 11 days for an import container.
Cutting down dwell times would reduce logistic costs significantly, the report said.
The social cost of annual carbon dioxide emission from road freight transport in Bangladesh is equivalent to 1.2 percent of the GDP, with almost 60 percent of the emission caused by congestion, it said.
Transport expert Shamsul Haque said the high dependency on road transport (about 84 percent) should be cut to change the situation.
Although multi-modal transport system was in the government’s plan, it has not been implemented yet.
The government should put emphasis on railway and riverine transport to change the situation, he added.
The WB report said improving logistics requires a system-wide approach. It needs greater coordination among public institutions and private sectors involved in logistics.
It said the one-sided logistics service markets, heavily dependent on roads, need to be addressed to reduce costs and improve quality.
At a regional level, harmonising logistics systems and aligning Bangladesh’s customs with that of its neighbours could turn Bangladesh into an important node for regional freight flows and further boost its trade, it said.
“There is no doubt that reforms and investments for better transport and logistics will yield Bangladesh substantial economic benefits and strengthen its competitive advantage,” said Matías Herrera Dappe, senior economist at the WB and author of the report.
But the solution to logistics is not just to invest more but to invest better, by focusing on the service gap, and creating the incentives for high quality and competitive logistics services, Dappe added.
Mashiur Rahman, economic affairs adviser to the prime minister, said the government has emphasised on infrastructure development, which is now visible, but their effective management is also important.
More practical and optimum solutions to the problems highlighted by the report need to be found.
“The government has to move fast to become a developed country.”