Why Bangladesh needs a comprehensive logistics policy

Ctg port. File Photo: Mohammad Minhaj Uddin/TBS

Bangladesh's economic success has been recognised by all. However, concerns about insufficient local and overseas investments to continue the journey of economic development have risen. Good logistics is one of the criteria for  attracting investment from home and abroad. 

The logistics sector includes ports, all freight transportation modes, warehousing and storage, and third-party logistics, including freight forwarders and ports. Logistics services are a precondition for economic development. Logistics enhances private investments and export diversification which will require a dynamic system.

Bangladesh has come in the 88th place among 139 countries in the Global Logistics Performance Index (LPI) 2023. The country came in third among the five South Asian economies assessed in the 2023 index, behind India (38th) and Sri Lanka (73rd). 

The LPI is a crucial part of global efforts to better understand logistics performance in the context of increasingly complex supply chains. The survey-based LPI provides country-wide assessments of six aspects of logistics performance: trade- and transport-related infrastructure, customs and border management, logistics service quality, timeliness of shipments, ability to track and trace, and the availability of competitively priced international shipments. 

Transport represents the largest share of direct logistics costs, and road transport is the dominant transport mode. In one survey, it has been  found that road transport rates in Bangladesh range from $0.06 for a 16-ton truck to $0.12 for a trailer. Shippers and service providers take costly actions to cope with congestion and unreliability in the logistics system. These expenses are higher than that in many developing and developed countries.

Due to less efficient logistics services, industries hold large inventories of raw materials and finished goods. Inventory carrying costs represent 17–56% of logistics costs; in most industries the figure exceeds 30%. The shares of inventory affected by inconsistent deliveries and congestion are very high, ranging from 53 to 75%, depending on the industry. 

Shippers typically work with more than one service provider to complete each shipment in a multimodal transport system. Most logistics service providers are active in only one service category of logistics such as road, water etc. The integrated multimodal transport is extremely limited. Among other constraints there is an over-reliance on road-based freight movement. 

Most container freight movement occurs between Greater Dhaka and Chattogram, where 95% of the modal split is concentrated on the road. 

Inland waterways are Bangladesh's second-most-utilised mode of transport by volume, but the industry's focus on containers is still nascent. There is also poor intermodal interconnectivity and capacity constraints at the river ports. 

Bangladesh has 10,000 km of river routes that can be used efficiently in a technologically innovative manner to transport goods across Bangladesh, which could ease the burden on roads  and highways. A multimodal logistics service provider using multimodal transport can reduce logistics cost. 

According to the calculations of the World Bank, Chattogram seaport is recognised as the 64th busiest port in the world. However, due to lack of efficient port management in terms of container handling, shortage of facilities and modern equipment, this port is far behind among Asian seaports.

The use of modern equipment and information technology, the improvement of the quality of logistics services, the formulation of national logistics policies, the enhancement of coordination among the relevant stakeholders and the revision of customs policies are also important. 

Fragmented service providers are characterised by low skills, poor quality of assets, and limited use of information technology (IT) tools, which are increasingly prevalent in many other countries. 

No nation can alone create a competitive logistic infrastructure without overseas investment. 

Bangladesh does not allow 100% foreign investment in specific logistics sub-sectors such as warehousing and storage and temperature-controlled logistics. 

Moreover, foreign investors must establish Joint-Ventures (JVs) with local logistics firms if they wish to operate in Bangladesh, where the equity share can be at most 40% for the foreign companies. Such restrictions obstruct healthy competition and discourage higher investment in the logistics sector.

The poorly performed logistics has reduced competitiveness in the home and global market. The local consumers pay higher prices for goods and services and the nation loses stakes in global markets. For example, logistics costs of horticulture products account for 47.9% of sales, and leather footwear products for 4.5% of sales. 

A World Bank study suggests that a decrease in the logistics cost by 26% could boost $55.55 billion in Bangladesh exports by 19%. Hence, improving logistics performance has become a strategic priority for the government. Bangladesh authorities give subsidies, incentives to keep our products competitive in the global market.

Textile is our major export product, having more than 80% of total exports. According to a study, the top five textile manufacturing countries are China, Bangladesh, India, Turkey and Vietnam. Bangladesh has the highest cost of logistics around $1,833.2 per 100 kg compared to the remaining four countries. Vietnam has the lowest logistics costs at $717 per 100 kg, while India, Turkey, and China have logistics costs of $1,080, $792, and $980 per 100 kg respectively. 

After LDC graduation in 2025 and subsequent loss of GSP facilities, Bangladeshi exports will face between 8 to 11% tariff in EU markets. Bangladesh will have to withdraw the cash incentives and subsidies after the graduation. Efficiency gains in trade and investment climate, including logistics, will help Bangladesh offset the effects of increased taxes. 

Besides, reducing domestic logistics costs by 17% would increase exports by 7.4%. Moreover, currently Bangladesh is missing out on at least 20% of its export potential due to poor logistics and clearance services in the country's ports and highways.

There is a need and an opportunity to rethink and improve the paradigm governing the provision of infrastructure services by allowing the private sector to play a larger role in the financing, management, and operation of infrastructure. 

The public sector will continue to play an important role in infrastructure provision and management. There is therefore a need to improve its management and implementation capacity, in order to get more out of scarce resources.

The strategy should ensure coordination among all public institutions involved in logistics and be co-developed with private sector shippers and service providers. Improving the quality and management of infrastructure requires strengthening the regulatory framework and its enforcement. Services can be upgraded by ensuring competition in markets.  

It has been revealed that in the logistic sector, nine ministries and more than 20 government agencies play roles in setting policies and regulations, planning, operating infrastructure, and providing services. Such a fragmented governance of the logistics sector exacerbates the coordination problem intrinsic to infrastructure development, leading to transport modes that developed basic mismatches of infrastructure standards. 

Overlapping mandates and shared ownership have made the planning, construction, and maintenance of transport infrastructure more complex. These complex policies and management should be overhauled considering their negative effects on the entire logistics system.

A Comprehensive National Logistics Policy is needed for efficient management in the port logistics sector. The draft Logistics Policy published for the opinion of stakeholders has rightly identified the sectors of logistics to improve but did not recognize the weakness of present logistic infrastructures.  Bangladesh needs a coherent, integrated logistics strategy and master plan that leverage the strengths of each of the elements of the system. 

Logistics improvement will enhance Bangladeshi products' competitiveness in global markets. 

National Logistic Policy can propose for the development of the road, rail and river connectivity infrastructure with ports, and the modernization of the customs structure. It can propose digital operations, establishment of bonded warehouses in the private sector and above all, implementation of an integrated logistics platform. 

Bangladesh can leverage its strategic location in South Asia to serve as a regional logistic hub. It may be a logistic hub for  road, sea and air transportation with a dynamic policy and huge investment from overseas investors with capital and knowledge. 

M S Siddiqui is a non-government adviser to the Bangladesh Competition Commission. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.