by Khandaker R Zaman | Published: 00:00, Aug 07,2022
I RECENTLY attended a policy dialogue on ‘Logistics Sector of Bangladesh — Opportunities and Concerns’, organised by the American Chamber of Commerce in Bangladesh. A well-researched and very academic keynote paper was presented by professor M Mamun Habib of Independent University, Bangladesh at the event that was enlightening for the audience. The American Chamber of Commerce in Bangladesh appears to have been working on the subject of logistics for some time and the policy dialogue was definitely a timely event that should draw the attention of our policy makers and regulators alike for a serious assessment of the sector so that necessary measures may be undertaken to address and improve this vital component of world commerce to make Bangladesh external trade more efficient and cost effective.
The concept of logistics has been very much in practice since the early civilisation perhaps in different forms or ideas but it took its modern commercial form in 1960 after the advent of containerisation and fine-tuned in later days with the invention and implementation of mechanisation, automation, digitisation and artificial intelligence.
LOGISTICS today has become the most prominent factor in trade and commerce, more important than the commodity itself. The origin of the word, however, lies in an amalgam of the words ‘logic’ and ‘static’ from the Latin language. Some opine the origin of the word comes from the ancient Greek language and comes from the word ‘logos’, meaning ‘proportion, account, reason, speech’. Logistics is, nonetheless, primarily a military term because the first application of this term was found within military use. The birth of logistics can be traced back to the old war times of Greek and Roman empires when military officers involved in the duties of providing services related to the supply and distribution of resources were assigned. This has been done to enable soldiers to move from their primary location to a new advanced location efficiently, which maybe a determining factor in determining the outcome of war. One of the most efficient logistic systems ever known was that of the Mongol cavalry armies of the 13th century. Its basis was austerity, discipline, careful planning, and organisation.
Widespread military use for the word logistics, however, came during the Second World War when countries realised how important it was to maintain the flow of arsenal to the infantry on the ground. It was defined to be a branch of military science that deals with the management, transport and preservation of materials, individuals and media. In other words, logistics was a part and parcel of military expeditions where transportation, movement, preservation and organisation of troops and supplies were of utmost importance for a successful military campaign. In the aftermath of WWII, reconstruction and developments created a demand for a service similar to the military concept and the US enterprises initiated the introduction of the discipline in trade and commerce to facilitate an improved supply chain management system.
In the earlier days, traditional freight forwarding companies played the role but in the aftermath of WWII, the traditional freight forwarding companies took the opportunity to improve themselves to take up the role of ‘global logistics providers’. The US companies took the lead with Europeans quick to follow suit. Today, most of the leading logistics companies are either American or European. The developing countries are lacking far behind in knowledge, skills, infrastructures, work practices etc and thus companies in the developing countries are relegated to the status of mere agents or sub-contractors.
Bangladesh is a fast developing country and expected to graduate from a least developed country to a developing country in 2026. Although it will raise the development status of Bangladesh but it also comes with challenges, especially the preferential treatment that Bangladesh exports get under GSP facility as an LDC country will be lost with the graduation and our exports will become subject to imposition of a duty structure between 8–12 per cent that will make Bangladesh exports lose its competitive edge. So our immediate concern is how to tackle and address the scenario when it occurs and explore avenues to make exports more efficient and cost effective and logistics present one such avenue to meet the challenge.
It is estimated that improvement of all the components in the logistics channel can increase the cost effectiveness of our exports by 18.3 per cent with contribution of 7.4 per cent from adequate number of ICDs at production intensive zones, 3.5 per cent from improvement of local haulage and a further 7.4 per cent from efficiency improvement of customs clearances. Bangladesh is reportedly missing out on its real export potential by 20 per cent due to poor infrastructures, inefficient logistics services and a cumbersome and time consuming customs clearance procedure. Dr Masrur Reaz, chairman of the Policy Exchange expressed that Bangladesh earned $52 billion in the 2020-21 financial year which could improve to $63 billion with an efficient logistics services. Moreover, the BGMEA sets an export target of $100 billion by 2030, but all these optimisms will only come into fruition if we can successfully improve our capabilities. So, with expanding trade and infrastructure developments, it is all the more important to understand the role of logistics and its importance in our trade and commerce.
WITH the advent of containerisation and successful digitisation of trade, the concept of logistics evolved to meet the demand of trade and definitions of the concept kept changing. Today the definition reads, ‘the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.’
The definition has much wider implication and is inclusive of demand forecasting, production scheduling, inventory management, documentation, distribution etc.
IN THE context of Bangladesh, the subject of logistics is gaining its prominence not only in the seaborne trade but also in the developing connectivity programmes under the Comprehensive Integrated Multimodal Economic Corridor Network including Bangladesh, China, India, Myanmar Economic Corridor or connectivity programmes under the auspices of Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, South Asia Sub-Regional Cooperation. The connectivity programmes present both extraordinary opportunities and challenges to Bangladesh for her active participation in the regional and sub-regional trade logistics as well as in global logistics.
Being an import-based country, Bangladesh largely depends on import of capital machinery, raw and intermediate materials for its industries. It also imports bulk commodities both dry and liquid including fertiliser, food grain, cement clinker, natural gypsum, aggregates, limestone, raw sugar etc in dry bulk and crude oil, diesel and petroleum products, crude degummed soybean oil, crude palm olein etc in liquid bulk. Most of these commodities, with exception to general cargo, are discharged at outer anchorages and into lighter vessels. So local logistics including availability of desired lighter vessels, stevedoring, prompt customs and port clearances are vital to the efficiency and cost effectiveness of the trade. The equation is not so complex, the more efficient the logistics system, the more competitive the freight rates. It is called tramp trade and ocean vessels are fixed on a certain period of port stay. Any delay on and above the contracted port stay as per stipulations of the charter party will impact costs on account of demurrage payments.
The export trade on the other hand largely consists of apparels followed by jute and jute goods, agriculture products, home textiles, fish and prawns etc. Since the commodities are all consumer items, it is called liner trade and shipped in containers. The steady growth of container traffic has allowed Chattogram port to reach the distinction of three million TEU club. It is indeed an extraordinary performance considering the fact that Chattogram is not even a main port but a feeder port for container traffic. The performance is expected to further improve with the commissioning of Patenga Container Terminal and Bay Terminal with enhanced draught that will facilitate calling of larger container vessels and bypass feedering or transhipment of containers. Once it happens, it will be a great achievement for Bangladesh and shorter voyage time coupled with scheduled sailings and reduced freight costs will give massive boost to the export trade of Bangladesh.
IN ORDER to yield the optimum benefits of the connectivity programmes, we have to address our preparedness. Capacity building is the issue that lies at the forefront of our successful participation where we severely lack a comprehensive policy, skill and knowledge in the sector, a legal framework and dominance of cartels particularly at our waterfront.
There is no alternate to education and training and our tertiary and professional institutions should take up the discipline to prepare our youth to successfully lead the sector with due professionalism desired by the trade. We need to have skill development programmes for the people and bureaucrats at policy making bodies, regulatory authorities, cross border check points and, above all, in the industry and service sectors in order to make any remarkable progress in the logistics sector of Bangladesh. As a matter of fact, Bangladesh Foreign Trade Institute was established with this objective in mind and it is about time the institute is put to its full potential to train our human resources in the logistics sector.
We also need to have a comprehensive policy on logistics including management and operations, modes of transport, border check posts, waterfront practices, etc.
A legal and regulatory framework is also absolutely necessary to determine qualifications, responsibilities and liabilities of both regulators and logistics providers and relevant subcontractors etc. One basic problem with our service providers is not having coverage to meet loss or damage claims and, therefore, in the event of a mishap, it is the importer or the exporter who most often bear the consequences while the logistics provider should have adequate coverage to meet any claim arising out of an incident.
HOWEVER, the most vital component in global logistics chain remains the transportation of goods by sea. The International Chamber of Shipping estimates that about 90 per cent of global trade is seaborne and, therefore, shipping or maritime transport is of utmost importance. The government policy has facilitated globalisation and liberalisation of our external trade whereby our industries are given preferential treatment for the import of their capital machinery, raw and intermediate materials for cost effective production. The challenges in import trade are the hurdles in legal framework and waterfront practices. Bangladeshi entrepreneurs have come a long way from the earlier days when they had very little to influence negotiations. Today they are smarter and intelligent enough to run their businesses efficiently to minimise their costs and maximise profits. In the earlier days, they used to open letters of credit giving a long shipment deadline that added costs to the procurements but businesses have undergone radical changes in concepts and practice. Today, letters of credit are opened upon confirmation of loading vessels and 30 days prior to shipment but most often much less.
Protectionist policies: The Bangladesh Flag Vessels Protection Act 2019 remains a hurdle to the trade with rules requiring the carrier to apply for a ‘flag waiver’ 15 days prior to loading. The law suffers from two deficiencies that make it inoperable. The first is the Bangladesh Flag Vessels Protect Ordinance 1982 was promulgated after Bangladesh had acceded to the UN Convention on a Code of Conduct for Liner Conferences on July 24, 1975. The convention was aimed at improving the capacity building of developing nations so they could enhance their fleet for successful participation in their seaborne trade. The idea was the convention adopted by the developing nations would increase their fleet, improve employment opportunities of their people, save hard earned foreign exchange and facilitate development of maritime entrepreneurship. Although developing nations were given the right to carry 40 per cent of their trade but Bangladesh and most developing nations did not have the fleet to carry even 5 per cent of their trade and, therefore, they waived their rights and allowed foreign carriers to carry the cargo.
However, the traditional shipping cartels of conventional shipping era that were officially called liner shipping conferences were declared illegal under the new legal regimes relating to price competition and became obsolete. Article 101(1) of the Treaty on the Functioning of the European Union prohibits agreements and concerted practices that restrict competition, such as price fixing and capacity control agreements. The changes introduced by Regulation 1419/2006, a new competitive regime started for the maritime industry. Article 101 became effective in its entirety on October 18, 2008 to liner shipping making anti-competitive practices of shipping conferences unlawful. The liner shipping conferences thus came to an end and the UN Convention on Liner Shipping Conferences became obsolete or redundant. The logic therefore to maintain a restrictive and protective legal regime without any economic objective fails rationale. Bangladesh is more of a trading nation and not a maritime nation as such. So creating and keeping an unnecessary hazard in the trade will not realise any benefit for the nation. So repealing the act is the way to go forward so, the trade can access a competitive and timely shipping service for an effective and efficient logistics chain that our operators can make best use of and become successful logistics providers. It is about time our policy makers had a close and serious look at the efficacy of the law with a review whether to continue with this archaic law.
Waterfront (cargo handling): We had a stevedoring system prior the Fakhruddin government that allowed ship-owners and charterers to exercise their freedom to nominate their stevedores who could protect their best interests and were fit to handle the cargo operation. The task force for Chittagong Port Reform did some commendable job but created a roster system by which the ship-owner of charterer will have to be put up with the stevedore nominated by the port authority. The system has created a dilemma for stevedores who feel they are accountable to their employer i.e. port authority while the paymaster is the ship-owners or the charterer. This is contradictory to policies of deregulation and liberalisation of the government. The government should review the system and make necessary amendments for the improvement of the waterfront.
Inland water transport: Bangladesh is a riverine country and river transport plays a major role in the movement of our imports. However, the inland water transport is ruled by a cartel under the name of Water Transport Cell at our major and principal gateway of Chattogram port. It behaves like a statutory organisation by fixing policies, pricing and removing competition. The trade, thus, has become a hostage to their monopolistic market dominance.
IWT can also play a major role in the logistics channel with an improved navigability and maintenance of our waterways. It can also help promote the sector for investments in ICT and sea-river container vessels. The country is expecting two deep sea ports at Matarbari and Payra to become operational just about the time it graduates from LDC. Once operational, the ports will allow berthing of mother vessels at their container terminals. So a demand will be there to carry the containers from these two ports to ICTs. Many people have a misconception that ICD or ICT stand for Inland Container Depot/Terminal but they actually stand for Inland Clearance Depot/Terminal where goods are stored and placed under customs control awaiting clearance.
It is unlikely that we can make a rapid and substantial progress in logistics and overcome our deficiencies in capabilities overnight. We do not have knowledge-based human resources familiar with responsibilities and liabilities of carriage, a modern legal or regulatory regime and an effective judiciary to govern the carriage of goods, lack of infrastructures, absence of discipline and law enforcement on roads, highways and inland waterways etc. Progress does not happen overnight, we have to work and work hard towards it. We can talk and discuss and write volumes on ideas but until we have a solid professional knowledge-based human resource bank in each and every facet of the industry including regulators, entrepreneurs, operators, providers and professionals, we are not going to see any real improvement in our capacity building. We have discussed that all our sectors are massively labour intensive or staff intensive or multi-authority intensive. This happens because we have not been able to develop and implement a modern time conscious regulatory framework to make it business friendly or to implement mechanisation or automation at our key logistics points including ports, terminals, ICDs or even in transport modes. We have implemented computerisation perhaps but the real objective ie interfacing of a uniform system of all concerns to make a single platform or a single point delivery is still lacking. On the highway of global trade logistics, a cumbersome and time consuming regulatory and customs regime marching with a slow and labour intensive cargo handling process lacking in mechanisation or automation cannot go far.
We are also talking about green logistics but personally, I feel it is too early for us to consider the option. We still need to mature and successfully reach the level of providing logistics services with due professionalism and then seek development in green logistics.
Nonetheless, the people of Bangladesh are highly resilient and capable of quickly adapting to changing business environment. The opportunities in economic corridors are enormous but to reap the benefit out of the opportunities, we must improve our capabilities, bring the regulatory regimes up-to-date, remove bureaucratic impediments, prepare our youth with the right education, training and skills and give them the right business environment to take the lead in providing world class services in regional and sub-regional logistic corridors and gradually expand their wings in the global commerce and come out of the status of mere agents or sub-contractors and become providers of logistics in their own right as principals.
Khandaker R Zaman is managing director and CEO of Allseas Shipping Ltd.
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