Transport infrastructure not functioning at acceptable level

Syed Ershad Ahmed and Forrest Cookson | Published: June 01, 2018 20:42:53 | Updated: June 02, 2018 20:25:51


There are mounting transport problems facing the economy and more particularly the ready-made garment (RMG) sector.    We identify several such problems and suggest solutions.  The focus is on short-term solutions.  The urgency of these actions is driven by the growth of imports and exports as well as the changing nature of the garment industry.  The buyers are trying to reduce their inventories to as close to zero as possible while responding rapidly to fluctuations in demand.  For example, suppose the estimated sale of a woman's top is 120,000 and the marketing study shows 40,000 green, 40,000 orange, and 40,000 blue.  The factory order is for 120,000, with equal shares of each color.  The retailer puts the tops on sale and observes the orange is the more popular and sells out.  At the end of the season the buyer is left with 10,000 greens and 20,000 blue, i.e. 25 per cent unsold.  This is the old way.  The new way is to order 30,000 with 10,000 of each colour.  The sales report shows orange is the most popular, so a second order goes in for 90,000 with 60,000 orange and 15,000 green and 15,000 blue.  End of the season the buyer has 3,000 orange, zero green and 5,000 blue, i.e. 8,000 unsold.  The buyer can do this only if the manufacturer can react quickly.  Time becomes central.  In this example under old ways the buyer pays for 120,000 tops but is left with 30,000 unsold.  In the fast fashion model the buyer is left with only 8,000 unsold.  If a Vietnamese manufacturer can deliver fast, but the Bangladeshi manufacturer cannot, then the buyer can afford to pay the Vietnamese buyer more and still be better off. In this example, if the retail price is four times the Bangladesh price, the Vietnam maker can get 50 per cent more than the Bangladesh maker!

Buyers are increasingly looking for speed and flexibility with price becoming less important.  Bangladesh has prospered by being a low cost, bulk producer but with slower delivery times due to inadequate infrastructure.  The industry is now demanding speed and is prepared to pay for that.  Can the Bangladesh RMG sector respond to this changing demand management by buyers?  Delays of one or two days in each step of the production cycle add up to critical delays.  Managing the transportation related to manufacturing, particularly the garment sector, is key.  There is a lot that can be done to make things better.

Our assessment is that some parts of the transport infrastructure are not functioning at an acceptable level.  We are concerned here with practical, modest investments and improved procedures that will have a powerful impact in improving the transport sector, particularly for exports.   In this article we cover air cargo and the key land port.  The second article covers ocean transport and the Dhaka - Chittagong highway.

    OUTGOING AIR CARGO:  At present the situation is messy. All outgoing cargo (containers and pallets) are stuffed inside the airport, where facilities are very crowded.  This results in delays, shipment errors and pilferage.  The growth of air cargo exports is rapid as can be seen in Table 1.  The rate of growth of dry tonnage is 8.5 per cent per annum: Perishable cargo stagnated due to inability to export directly to UK ethnic market, but that should change now.  Outgoing air cargo related to manufacturing includes RMG and footwear samples, products of the pharma industry, fresh fruits and vegetable, and RMG products that need rapid shipmentwhen too late for ocean transport.  Table 1 reports the recent growth of export air cargo.  As industrial development continues air cargo will be essential for shipping high value industrial export products.  The present situation is unacceptable for a modern manufacturing economy.

The air cargo export problems can be easily solved following the same approach as was carried out at Chittagong Port.  When the port congestion had reached unreasonable levels the authorities authorized off-dock facilities established by the private sector; exporters would bring their products to these facilities and stuff containers outside the port.  Customs officers are on duty to seal the containers and approve the paperwork for the export.  When the ship is ready the truck takes the container into the port for loading.  In this way the congestion in the port was greatly reduced and the capacity of the port increased as ships could be loaded more quickly. 

The Civil Aviation Authority can authorize the establishment of off dock facilities for air exportcargo.  This will require an amendment to the Customs Act 1969, but this can be done quickly.  Such off dock facilities would work in the same way as those for the port in Chittagong.  Furthermore, the scanning of export containers could be accomplished at the off dock and Customs would seal the packages and containersin betterworking conditions.  The private owners of the air cargo export facility would provide the necessary facilities, warehouse management, and scanners.  Air cargo exports continue to face difficulties that slow the transport time.  None of this is necessary if the handling is shifted to off dock facilities.  Then storage requirements inside the airport could decline, easing congestion. 

The Civil Aviation Authority should take the actions necessary to establish at least two such air cargo off-dock facilities to manage air cargo exports.  Allowing two such establishments will result in competition and raise the efficiency of outgoing air cargo operations.Let the private sector provide the facilities, since the air transport authorities are slow to do so.

INCOMING AIR CARGO:  Incoming air cargo is in a state of disarray according to importers and logistics companies.  The rate of increase of incoming air cargo is rapid, more than 35 per cent in the last year.  There is no proper warehousing and locating goods for clearance is difficult.  Many goods are left in theopen strewn around the apron.  Pharmaceutical plants, garment factories, and almost all industries are dependent onair cargo imports:  Garment factories get samples, fabrics for testing, accessories, labels etc.  All kinds of spare parts for machines are air-freighted.  Most electronic components or items are air-freighted.  There are widespread complaints of harassment, trouble making and demands by the authorities for chocolates or other goodies.

How to reduce delays?  Simple!  Commission a private company to construct and operate a proper warehouse inside the airport.  For speed of start up a simple structure is sufficient with very high ceilings so items can be stacked and accessed using forklifts.  Use of a computerized warehouse management system, forklifts, and cooperation with Customs will greatly improve the management of air cargo imports.  In addition the private company would provide the necessary machinery for scanning rapidly incoming containers to the extent Bangladesh security services require this.

The availability of priority courier services is a critical part of air cargo management.  Handling of courier services small packages is currently a confused, poorly managed business.  The solutions we have proposed here will greatly improve the flow of courier service packages, reducing lost packages and speeding processing.

For both import and export air cargo the solutions are straight forward and using the private sector makes them easy to implement.  Of course, these ideas are known to many but it is disheartening to see so little progress while there are growing user complaints. The RMG sector needs such improvements immediately.

BENAPOLE LAND PORT:  The Benapole land port is greatly congested.  Most cargo is incoming from India.  An Indian truck brings the goods; these are off loaded and reloaded into a Bangladesh truck and then delivered to the enterprise that is purchasing the goods.  The land port is crowded on the Bangladesh side so reloading is very slow.  Indian trucks can wait a long time before unloading.  There is a large volume of fabrics coming from India and delay in clearing these may result in several days delay in getting the fabrics to the factories slowing down making the garments.  With volumes increasing delivery time of fabrics now takes 7-10 days from the time an Indian truck joins the queue until the Bangladesh truck departs Benapole.  This is an unacceptable situation for the crucial RMG sector. 

This situation calls for the construction of a larger parking space for incoming trucks, a warehouse facility, and proper warehouse management.  A building with a high ceiling to stack shipments using forklifts will enable prompt storage of incoming materials.  The Bangladeshi truck can come in on the other side of the warehouse to be loaded.  Once again the construction and management of the warehouse should be awarded to a private company that can finance and manage the warehouse and provide the facilities needed by Customs. With proper warehousing facilities the delay time can be reduced to two (2) days with lower costs for transport and much greater speed of delivery.

We have identified three problems with respect to prompt clearance of goods through the border in all cases due to inadequate warehousing and poor management of goods stored and waiting for import or export.  All are better handled by directing the private sector to construct and manage facilities.  Security issues can be better addressed in this environment allowing export cargoes to meet rules to prevent barring direct shipment.

All three of these longstanding chokepoints can be removed within a year if the agreements with the private contractors can be reached promptly and amendments to the customs law completed.    The pressing need of the RMG sector to be faster in delivering product, the growing demands for improved security for outgoing air cargo, and the need to support important new export industries such as pharmaceuticals all suggest that prompt removal of these chokepoints is urgent.

Syed Ershad Ahmed is a logistics and transportation specialist; Dr Forrest Cookson is an economist.

forrest.cookson@gmail.com

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