Boosting trade and economic development through better logistics
Most of the products that we consume every day wouldn’t reach us were it not for logistics — the network of services that supports the movement of goods across or within national borders: transportation, warehousing, distribution, express delivery, and much more. Producers also rely on logistics to move parts and components like keyboards and computer chips from far-flung suppliers along global value chains. So the performance of a country’s logistics industry matters a great deal for its competitiveness on export markets, and its ability to reliably and affordably secure the importation of the goods it needs for production and consumption.
Improving the performance of logistics helps developing economies engage more deeply in international trade, a powerful driver of economic growth and poverty reduction. That is why the World Bank developed the Logistics Performance Index (LPI) to help economies identify areas where logistics could be improved.
Supply chain reliability is at the core of logistics performance. The LPI measures the ease of establishing reliable supply chain connections and the structural factors that make that possible, such as the quality of logistics services, trade- and transport-related infrastructure, and border controls.
The latest edition of Connecting to Compete, the Logistics Performance Index (LPI) shows that performance around the world proved broadly resilient after three years of unprecedented supply chain disruptions during the COVID-19 pandemic. Top-rated countries – all high-income – maintained a high caliber of services, while the weakest performers were not rated any worse. Advanced economies took the top spots, with Singapore and Finland in the lead with scores of 4.3 and 4.2 on a 5-point scale. Promisingly, large emerging economies such as India and South Africa significantly improved their scores, as did mid-level performers: Many more countries are now clustered around a score of 3.5, several of them being middle-income countries in two regions—Europe and Central Asia as well as the Middle East and North Africa.
The index is based on a survey of logistics professionals around the world that was conducted from September to November, 2022, at the tail end of the global supply chain crisis. Logistics professionals provided 4,090 country assessments and rated the 139 countries with which they trade in six areas: trade- and transport-related infrastructure; customs and border management; logistics services quality; timeliness of shipments; ability to track and trace; and the availability of competitively priced international shipments. The survey is typically conducted every two years but was delayed for more than two years due to the COVID-19 pandemic.
What lessons does the LPI hold for policy makers? Countries that score highly show strength in all six areas of logistics. Broad-based strength helped some developing countries outperform wealthier ones – China and South Africa did better than the United Kingdom, for example; Malaysia outperformed New Zealand.
Viewed across all six LPI components, the “Timeliness of shipments” component tends to see the highest scores in most countries (except the ones at the top), whereas the performance of customs and border agencies shows the lowest scores in most countries. The lowest ranking countries also tend to be low income, isolated, landlocked, or beset by conflict.
For landlocked countries, addressing bottlenecks requires coordinated interventions across borders, such as transit regimes similar to Europe’s Transports Internationaux Routiers (TIR). Small island states need more reliable connections and a greater choice of competitively priced transshipment hubs. The index also showed that the highest demand for green logistics options is in countries with the best logistics performance.
Many countries are turning to digital solutions to improve supply chain visibility, and here’s where Big Data comes in. This year the LPI included key performance indicators (KPIs) based on datasets that track the movement of containers and cargo by sea, air, and postal services in real time.
Across all potential trade routes, an average of 44 days elapse from the time a container enters the port of the exporting country until it leaves the destination port , with a standard deviation of 10.5 days. That span represents 60 percent of the time it takes to trade goods internationally. The biggest delays occur at seaports, airports, and multimodal facilities.
Surprisingly, the KPIs show that emerging economies tend to have shorter delays at ports than industrialized ones. This could be because the data on container movements were collected from May to October 2022, when the disruptions in Europe caused by Russia’s invasion of Ukraine were at their height and the United States was still struggling with maritime supply chain disruptions. It could also be that emerging economies have been quicker to adopt cutting edge solutions, such as a new generation of end-to-end supply chain digitalization.
Yet digitalizing supply chain processes can pose challenges for low- and middle-income countries where basic infrastructure such as electricity can be unreliable. Building capacity, ensuring access to appropriate technologies, and supporting infrastructure are all part of the policy agenda.
The 2020s promise to be a period of transformation as countries and firms seek to improve the resilience of value chains and adjust them to trade patterns reshaped by climate change and digital technology. Rising geopolitical tensions and efforts to reshore production of goods seen as vital to national security are adding to the uncertainty. This new trade landscape heightens the importance of efficient supply chain management and logistics.