Trade logistics plays a vital role in international trade by facilitating global exports. It is often considered a fundamental component of trade and economic development -- more so in the present-day world that has become progressively interrelated and interdependent. Efficient logistics enhances countries' competitiveness by substantially reducing cost of doing business. It is also recognised that efficient logistics has a stronger effect on trade promotion than tariff cuts. On the contrary, inefficient logistics can pose significant obstacles to trade, by making it difficult for countries to tap sufficient export earnings and other market opportunities. Therefore, there is no alternative to ensuring efficient logistics to boost export earnings and thereby export growth of a country.
Export earnings have progressively become crucial drivers of economic growth of Bangladesh, contributing to the robust growth path of more than 6.5 per cent for nearly a decade. The country's merchandise export earnings grew by 10.55 per cent to reach $40.53 billion in FY 2018-19 which were $36.66 billion in FY 2017-18. However, export earnings and therefore export growth of the country are largely dependent on garment products. Out of $40.53 billion export earnings in FY 2018-19, $34.13 billion came from garment exports accounting for around 84 per cent of the national exports.
According to World Statistics Review 2019, the country has achieved the second largest annual average export growth globally over the last decade (2008-2018). The review also shows that Vietnam, which has recently surpassed Bangladesh in garment export, topped the list with a 14.6 per cent annual average export growth while Bangladesh has attained 9.8 per cent export growth.
Rapid export growth of Bangladesh was possible because apparel and clothing exports increased more than threefold between 2008 and 2018. Despite rapid export growth during the last decade, question remains whether the country will be able to sustain or boost its export growth in the near future or in the post-LDC (least developed country) graduation phase when it will miss the opportunities of Duty-Free-Quota-Free (DFQF) market access and preferential treatment from major markets like the European Union.
It is here that among other things, trade logistics can play a decisive role in strengthening the capacity of the country to negotiate better in the rough waters of international trade in the days ahead. The country faces huge challenge in this area to boost export growth through enhancing overall competitiveness in trade.
Logistics Performance Index (LPI), conducted by the World Bank, is a useful tool for comparing logistics performance within and across countries and detecting key reform priorities. The LPI provides a score range between 1 and 5, where the score closer to 1 is the weakest and to 5 is the strongest to assess logistics performance of a country. The LPI of the World Bank in 2018 assesses performance based on customs, infrastructure, international shipments, logistics quality and competitiveness, tracking-tracing, and timeliness of shipments across 160 countries.
It can be seen from the LPI chart that over the years, Bangladesh's performance in the overall LPI score was not consistent, notching the highest score of 2.74 in 2010 and the lowest score of 2.47 in 2007. After 2007, one of the lowest score was in 2014 and then somewhat promising in 2016 jumping 21 notches to 87th position from 108th two years earlier. But then again the disappointing index in 2018 shows that the overall ranking of the country has slipped 13 notches to 100th from the previous 87th. Even performance of the country among South Asian countries has slipped to 4th in 2018 from the previous 3rd.
The country's logistics performance can also be analysed through specific indicators. Compared to the LPI rank in 2016, the rank in 2018 has only marginally improved in case of tracking-tracing and timeliness indicators. But there are other four indicators in which the country's performance is not satisfactory. The ranking relating to customs has slipped by 39 notches to 121th from the earlier 82nd. Similarly, ranking in terms of infrastructure has gone down by 13 notches from 87th to 100th, and in case of international shipments, the ranking has slid by 20 notches to 104th from the former 80th. In case of logistic quality and competence, the rank has slipped to 102th from the preceding 80th.
In Bangladesh, poor customs and border management, congested transportation, inefficient and inadequate infrastructure, high costs of logistics, poor quality of logistics services and delay of shipments are the key bottlenecks that impose high cost on the economy and thereby reduce export competitiveness in trade which, in turn, puts the country's robust growth path at risk and uncertainty. Therefore, the fundamental needs for the country's logistics sector are to ensure efficiency of customs and border clearance for export and import, adequacy and efficiency of trade and transport infrastructure, reduction in the cost of logistics and services. Engaging public and private sectors in the form of public-private partnership (PPP) in developing infrastructure can play a big role towards addressing logistics bottlenecks and facilitate trade.
Md. Tuhin Ahmed is a Research Associate at South Asian Network on Economic Modeling (SANEM).