Imperative of revitalising logistics sector

It is time to prioritise the development and seamless operation of inland waterways and railways as key components of a balanced and efficient 

multimodal logistics network

writes

Atiqul Kabir Tuhin

At a recent seminar hosted by the Dhaka Chamber of Commerce and Industry (DCCI), experts and business leaders highlighted how Bangladesh's outdated logistics system is undermining the country's global competitiveness, hampering export growth and overall economic momentum.  As the country prepares to graduate from the United Nations' Least Developed Country (LDC) category, addressing these logistical shortcomings must be a top priority. Upon LDC graduation, Bangladesh will lose numerous preferential trade assistance and benefits under International Support Measures (ISM) for LDCs. These include crucial advantages like duty-free quota-free (DFQF) market access (like the EU's Everything But Arms scheme), relaxed rules of origin, and flexibilities under the TRIPS Agreement for intellectual property, especially for pharmaceuticals. At the same time, the country will see gradual withdrawal of "Special and Differential Treatment" (S&DT) provisions from various World Trade Organization (WTO) agreements, while new trade-related obligations will be imposed. These changes will drive up the cost of trade and investment. For example, one study projects that LDC graduation will result in an 8-12 per cent increase in duties on Bangladesh's exports to EU countries, directly raising overall export costs. In this context, the importance of strengthening the country's outdated logistics sector cannot be overemphasised to offset these anticipated increases in international trade costs and safeguard the nation's global trade competitiveness.

An efficient logistics system that reduces lead time and cost is what keeps the wheels of the commerce turning. From the delivery of raw materials to manufacturers to the final product reaching consumers, both domestically and globally, logistics plays a crucial role in ensuring that goods and services are delivered without a hitch, and in a cost-effective and timely manner. The global logistics market is valued at $10 trillion and it is inextricably linked to every economic activity. The sector is particularly vital for export-oriented countries like Bangladesh.  Regrettably, the country is among the countries where logistics costs are among the highest. It was revealed at  the DCCI seminar that logistics costs in Bangladesh is roughly 15 to 20 per cent of GDP, far above the global average of 8 to 10 per cent. This aligns with an earlier World Bank Group report titled 'Moving Forward: Connectivity and Logistics to Sustain Bangladesh's Success,' which showed sector-wise logistics service expenses in the country ranges from 4.5 per cent to a staggering 48 per cent of sales, which is far higher than that of other competing countries.  

Bangladesh's stark inefficiency in logistics is also reflected in global rankings. Bangladesh currently ranks 88th out of 139 countries in the World Bank's Logistics Performance Index (LPI), trailing significantly behind regional competitors like India (38th) and Vietnam (43rd). Its performance is even more concerning in the "trading across borders" category, where it is ranked 176th out of 190 countries. The World Bank report projected that mitigating Bangladesh's excessive logistics cost via targeted short-term and mid-term reform measures could increase its export earnings by as much as 20 per cent. Even a modest 1 per cent reduction in transport costs or dwell time alone could raise exports by over 7 per cent.

Bangladesh's poor ranking at LPI stems primarily from weaknesses in its trade and transport infrastructure, including congested ports and poor road networks, which collectively lead to high logistics costs. Further hindering its performance are significant inefficiencies in customs and border management, insufficient adoption of digital tracking and tracing systems, and procrastination of shipments. These factors, alongside fragmented governance and an over-reliance on road transport, collectively undermine the country's logistical efficiency and global competitiveness. 

To address this shortcomings, experts at the DCCI seminar called for modernising Chattogram and Mongla ports since about 92 per cent of the country's export takes place though the ports. They have also proposed some key reforms such as digital platforms to connect shippers and transporters, warehouse automation, digital customs solutions, and greener logistical practices to improve the overall performance of the sector. Moreover, the construction of a dedicated expressway exclusively for trucks and lorries from Chattogram port to Sitakunda was suggested as a potential game-changer for streamlining the transport of import and export goods.

An efficient logistics system, however, goes beyond just building better roads and transport system; it requires an integrated multimodal logistics network that seamlessly combines road, rail, and waterways. In Bangladesh, 77 per cent of goods are transported by road, 16 per cent by waterways, 6 per cent by railways, and 1 per cent by other means. Such an overreliance on roads is a major drawback.  If a significant portion of goods loaded or unloaded at ports could be transported via launches or barges, rather than being almost entirely loaded onto trucks, it could reduce both transportation costs and logistical complexities, easing pressure on the road network while enhancing overall efficiency.

The National Logistics Policy, introduced in 2024, aims to significantly reduce this dependency on roadways to 60 percent by 2041, while increasing the share of goods transported via river routes and railways to 25 percent and 14 percent, respectively. But the policy remains unimplemented. 

Bangladesh is crisscrossed by hundreds of rivers that could be used to transport goods in a cheap and environmentally friendly way. But this natural resource remains underutilised. Historically, rivers have been intertwined with the country's culture, trade and development. Almost all the major cities and industrial hubs have grown around the country's vast network of rivers and natural water resources. However, over time, this landscape has changed dramatically. The number of active rivers has dwindled, many have lost their vitality, and waterways - once the arteries of the nation's transport system - have gradually been replaced by roads as the dominant mode of transporting people and goods.  This overreliance on road transport has come at a significant cost, reflected in growing traffic congestion, escalating road construction and maintenance expenses, and increasing environmental pollution.  It is, therefore, time to prioritise the development and operation of inland waterways and railways as key components of a balanced and efficient multimodal logistics network.

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