FEATURE STORY

Landlocked Countries: Higher Transport Costs, Delays, Less Trade

June 16, 2008


STORY HIGHLIGHTS
  • Bottlenecks in neighboring countries’ ports, not road quality, main reason for trade problems.
  • Delays at border crossings also add to shipment time.
  • Bank’s goal is to simplify logistics.

June 16, 2008— High prices have hit many countries around the world, but landlocked developing countries bear an extra burden.
Afghanistan, Central African Republic, Burundi, and other countries without a port pay more and wait longer for imported oil, food, and other goods.

And they have an equally hard time exporting, with the result that they trade less and grow more slowly than their coastal neighbors.

Being landlocked is a major reason why 16 of the world’s 31 landlocked developing countries are among the poorest in the world, say three World Bank economists working on trade logistics issues.

Gael Raballand and Jean-Francois Marteau of the Africa transport division, and Jean-Francois Arvis of the trade division of the Poverty Reduction and Economic Management network (PREM), are trying to find ways to fix some of the trade problems that contribute to keeping landlocked least-developed countries (LLDCs) stuck in a low-growth pattern.

Their 2007 study, “The Cost of Being Landlocked: Logistics Costs and Supply Chain Reliability,” says that the condition of roads isn’t the main reason for inefficient and costly transport. Infrastructure improvements alone won’t solve the problem, they say.

“Many people said for many years that better infrastructure would solve the issue of the cost of being landlocked,” says Raballand. “But now we know we have to work more and more in coastal countries because the most important problem lies in ports and how to get goods out of them.”

Other problems include border delays, cartels in the trucking industry, multiple clearance processes, and bribe-taking, all of which keep transport costs artificially high.

Overcoming Geographical Disadvantages

The World Bank, United Nations, landlocked and donor countries are working together to try to reduce barriers to trade, growth, and development faced by the least developed landlocked countries. Experts met early this month in New York to assess progress in the 10-year Almaty program, launched in Almaty, Kazakhstan, in 2003. The program calls on countries to make transit and border regulations more transparent, streamline administrative procedures, and further simplify border control and procedures. It also underscores the importance of regional and sub-regional collaborative efforts in developing efficient transit transport systems.

The World Bank is helping by financing projects and technical assistance to make trade and transporting goods easier. It’s also contributing research, such as the Cost of Being Landlocked study and the Logistics Performance Index. The Bank also supports global and regional initiatives, such as the Global Facilitation Partnership for Transportation and Trade. The Bank’s work shows that landlocked economies are affected by the high cost of freight services as well as the high degree of unpredictability in transportation time. The main sources of costs are not only physical constraints but also widespread corruption and severe flaws in the implementation of transit systems, which prevent the emergence of reliable logistics services.

Goods Take ‘Twice as Long’ to Exit Ports

It can take “twice as long” for imports to exit ports than to actually travel from port to destination. In all, it can take four to six weeks for goods for goods to reach some landlocked countries from coastal countries, says Marteau..

Goods destined for landlocked countries sit longer in ports than domestically bound goods, and they also are subject to “multiple lengthy clearance systems on most corridors.”

“From what we have seen, the uncertainty in ports is extremely high, and it affects the whole rest of the trip,” says Marteau.

Goods bound for Uganda, Rwanda, and Burundi spend an average of five days more (25 versus 20 days) in Tanzania’s Dar Es Salaam port than domestically bound goods. The same is true for goods shipped through Mombasa, Kenya, says the study.

Inefficient port processes in Douala, Cameroon, contribute to the delays and high cost of transporting goods to N’Djaména in Chad, 2,000 km from the sea.

The five-week journey over rail and road requires seven documents and suffers from poor and fragmented trucking services, widespread “rent-seeking resulting in many checkpoints,” security problems, and weak customs administration in Chad, according to a 2006 diagnostic trade integration study.

In Africa and Central Asia, goods bound for landlocked countries face at least three “clearance” processes, while coastal countries face only one. The first one is the Port.

The second happens at borders. It usually takes more than 24 hours to cross the Kenya-Uganda border. In Southern Africa, border delays between South Africa and Zimbabwe reached six days in 2003. In Central Asia, trucks can face a delay of three days at the Uzbek border.

A final delay occurs when goods are finally cleared in the capital city in the landlocked country.

“Ultimately, transit goods will have gone through three to four clearance processes, while coastal countries face only one,” says the Landlocked Countries study.

Shipping Costs and Food Prices

Shipping costs are also a key component of food prices, and are “generally far higher” for many low-income countries than for industrialized OECD countries, according to a World Bank paper on rising food prices released during the IMF-World Bank Spring Meetings earlier this month.

Trucking operators in oil-importing countries, such as landlocked Zambia, for instance, were already paying as much as 50 percent more for fuel than in other countries of the region even before the recent oil price jumps.

Unpredictability a Problem

Delays increase costs and the uncertainty of delivery—and that’s as big a problem as a lengthy transport process, the study says.

The World Bank’s Logistics Performance Index, based on feedback from shippers around the world, indicates that in terms of trade, reliability is as important as how quickly a good reaches its destination.

The Landlocked Country study finds that uncertainty forces companies to turn to more reliable expensive transport, such as planes, or invest in large inventories—as much as a year’s supply.

Bank Focuses on Cutting Time and Uncertainty

Other factors drive up costs, such as cartels in the trucking industry in both landlocked and coastal countries and also bribe-taking.

“Facilitation payments” are a “serious problem” on some corridors. Roadblocks in West Africa add 10 percent to overheads and may occur every 30 km, or even more frequently.

Corruption may also be severe at border crossings, says the study. A Kyrgyz truck entering Uzbekistan has to pay up to US$700 to cross the border, a quarter of which are unofficial costs.

Streamlining the import-export process could lower costs to consumers and enhance a nation’s ability to trade, grow, and encourage investment, says Raballand. But such change faces hurdles.

“The problem with the system is you have huge vested interests. Many people extract rents in the current system—and you’re talking millions of dollars.”

Reducing customs duties could probably simplify the logistics system but isn’t easy because customs duties make up a large portion of government revenues in landlocked countries, says Raballand. The other option is to cut time and uncertainty as much as possible.

“Cutting costs implies looking at the way services are done,” says Marteau. “We know that there are ways to reduce costs, but we don’t know if the savings will be passed on to the consumer. That’s why we tried to focus more on the time issue, because that’s something that benefits everybody. Normally, this reduction in time should result in reduction in cost factors and transport costs eventually. But there are many ifs.”


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