OECD: Logistics key to boost trade competitiveness

By having an efficient logistics system, one can better serve its importers and exporters, and satisfy the needs of regionally integrated production facilities, an expert says


WHILE the tech sector has gained all the headlines during the Covid19 pandemic, experts said a robust logistics ecosystem is crucial to help the industry boost overall growth and expedite recovery from the negative economic impacts of the pandemic.

The Organisation for Economic Co-operation and Development (OECD) stated that the right ecosystem will attract new logistic providers that offer new services at lower prices and thus, reinforce healthy competition in the sector.

OECD senior competition expert and Asia-Pacific regional manager Ruben Maximiano said by developing an efficient logistics system, a country can enhance its connectivity to better serve its importers and exporters, and satisfy the needs of regionally integrated production facilities for reliable just-in-time delivery of inputs and outputs

“As we see in some countries, a very significant part of the price of a good or product is transport. If you manage to reduce that cost, this could boost trade significantly,” he told The Malaysian Reserve recently.

In some Asean member states, logistics costs account for up to 20% of the price of the finished goods/products, almost double the global average cost.

Maximiano said this is a de facto levy on consumers and businesses alike that could be reduced by addressing obstacles to competition in supply chains.

He believed that rethinking regulations governing foreign direct investment (FDI) in the logistics sector would help member states grow their economies as existing restrictions on FDI in the sector may limit market entry, increase consumer prices with spillover effects across the economy, impact negatively economic growth, job creation, transfer of know-how and innovation.

“It has been estimated that reducing barriers to trade and FDI restrictions to the global average could deliver a boost to GDP of up to 17% over the medium to long term.

“Additionally, pro-competitive policies have a gender dimension. Some studies estimated the removal of gender bias in the economy, including logistics, may increase GDP in the region by up to 30%,” he said.

If a number of restrictions identified by the OECD in Asean’s logistics industry were lifted, the bloc’s economies could be better off by more than US$4.5 billion (RM18.8 billion) annually.

This is a very conservative estimate as it does not take into account the spillover effects such as increased employment, lower barriers to market entry for small and medium enterprises, and improved cross-border trade.

Asean and the OECD recently launched the OECD Competition Assessment Reviews: Logistics Sector in Asean and the OECD Competitive Neutrality Reviews: Small-Package Delivery Services in Asean reports.

The reports suggest practical low-cost policies recommended to improve the regulation of Asean’s logistics industry will empower existing industry participants and encourage new entrants to identify and take advantage of fresh opportunities and lead to resulting market efficiencies.

This would in turn benefit businesses and consumers in the region and ultimately accelerate growth and development across the bloc’s economies.

Asean has prospered with globalisation and free trade with the logistics sector playing a major role.

The logistic sector now accounts for 5% of the bloc’s GDP and employment, providing jobs for around 17 million people.

However, freight rates have increased tenfold globally pushing retail prices up as consumers worldwide are trying to recover from loss in income and business due to the pandemic.

The higher rates are due to a combination of factors including soaring demand, a shortage of |containers, saturated ports, too few ships and dock workers having contributed to the situation on almost all the trade routes.

Hence, the OECD recommended lifting cabotage restrictions to allow foreign vessels to transport domestic cargo between ports within the same country.

This recommendation represents a significant change. Allowing foreign maritime service providers to enter the domestic shipping market by lifting cabotage restrictions is expected to increase competition between foreign and domestic freight transport providers and bring many benefits.

Among the major benefits would be decreased costs for users who would no longer be limited to using domestic transport services, possibly reducing the operational cost for shippers, freight rates and so positively affecting trade, according to the OECD Competition Assessment Reviews: Logistics Sector in Asean.