Learn how the World Bank Group is helping countries with COVID-19 (coronavirus). Find Out

Skip to Main Navigation
publication November 27, 2018

Transport Costs and Prices in Lao PDR: Unlocking the Potential of an Idle Fleet

Image

Key Findings

Transport costs and the quality of logistics services play a key role in the ability of firms in Lao PDR to connect to regional and global value chains.  High transport costs can undermine the competitiveness of the Lao private sector.

In the past, it has often been claimed that the cost of transport in Lao PDR is higher than in neighboring countries, but with a lack of evidence.  This report aims to fill the gap by investigating the costs and prices along several domestic transport routes. Transport operators and users were interviewed as part of this research.

Based on actual cargo weight, transport prices are very high compared to other countries in the region. 

  • Prices are high particularly for those priced by cargo weight rather than based on vehicle capacity. The prices range from 2966 LAK to 882 LAK per ton-km respectively.
  • Prices vary depending on the direction of transport, with lower prices for southern routes compared with routes in the north.
  • These prices differences are also attributed to the probability of getting a return load, and foreign competition.
  • When trucks manage to run a full-container load, prices are actually more reasonable, with capacity-based pricing three times less expensive per ton-km than prices based on weight.

These trends in pricing suggest several limitations in the transport sector.

  • Part of the reason for this is that the transport sector in Lao PDR can be described as thin with only 12 large companies (those with 50+ trucks) and many small firms, many of which work in the informal sector.
  • As a result, productivity levels are generally low, with an average of only 55,000km/year per truck, although this is comparable to other landlocked developing countries.
  • Operating standards are low, in part due to a large number of small firms with little operating capacity. Smaller firms tend to be less efficient than larger ones, despite much smaller overhead costs.
  • High prices based on cargo weight suggests that Lao transporters do not fully use their carrying capacity.
  • Lao transporters also use available trucks than those that are most suited to cargo and route.
  • Companies do not invest in more expensive but cost-effective vehicles due to low annual mileage, low profit margins, and high cost of capital.Many Lao transport companies deploy vehicles at the customer’s request, and the relationship between the two parties is of higher importance than market competition.
  • Due to the importance of personal and family relationships operators are not willing or able to redirect activities, compete for work, or break into new routes and markets. There is little interest in competing beyond their main routes, resulting in a fragmented and territorial trucking sector.

The route between Vientiane and Boten (Chinese border) serves as an example of how competition and market liberalization could reduce domestic transport prices.

  • International carriers are currently not allowed to ship on domestic routes.
  • Direct shipping from China and Thailand, rather than transshipping with Lao trucks has reduced transport prices on those routes. For example, average shipping price per ton-km from Vientiane to Luang Prabang is 2.5 times higher than to Luang Namtha bordering China, despite being located along the same route with similar road conditions.
  • Reduced prices from foreign operators are positive for consumers, and increases the export competitiveness of Lao products.

Going forward, Lao operators will need to modernize and enhance the use of trucking fleets.

  • The absence of high domestic demand, overcapacity, and underutilization of vehicles can trigger a departure of domestic firms, unless they can secure international cargo.
  • In order to effectively compete in the regional market, however, existing or new firms would have to invest in newer, fuel efficient fleet and annual mileage of at least 75,000 km.
  • Lao transporters currently have business opportunities in the regional market, if they are able to increase standards. By embracing international movements rather than protected their market and engaging in regional trade, Lao operators could offer services across the region.
  • However, this window of opportunity may be limited in time, given the increasing logistics capacity in Thailand and Vietnam.

Download the full report for more in-depth analysis of the transport sector and policy recommendations.