LANDLOCKED COUNTRIES: EVALUATING ALTERNATIVE ROUTES TO THE SEA. Jorge Rebelo

Transcription

1 September 1992 Transport No. OT-2 TRANSPORTATION, WATER AND URBAN DEVELOPMENT DEPARTMENT THE WORLD BANK LANDLOCKED COUNTRIES: EVALUATING ALTERNATIVE ROUTES TO THE SEA Jorge Rebelo Landlocked countries (LLCs) must negotiate agreements with their transit countries (TCs) to gain access to the sea. An economic evaluation of alternative transit routes based on the concept of generalized costs which takes into account out-of-pocket plus transit time related costs, trade facilitation procedures and trade logistics practices, will provide negotiators with crucial data on benefits and costs to both LLCs and TCs. Landlocked countries (LLCs) normally depend on more than one transit country (TC) for their overseas exports and imports. Since they do not have seaports, LLCs must seek agreements with their adjacent and coastal neighbors to gain access to the sea. Consequently, LLCs' trade competitiveness is reduced when the transportation costs of their imports and exports are burdened by either charges over which they do not have direct control, such as port charges, road tolls, freight forwarding fees, or TC's customs duties, or by bilateral or multilateral trucking and shipping agreements which set quotas for the percentage of traffic to be transported by carriers of the LLC or the TC. In most cases, LLCs have more than one exit to the sea. Some Sub-Saharan examples are Mali, Burkina- Faso, Niger (West Africa), which are dependent on Senegal, Côte d'ivoire, Ghana, Benin and Nigeria. Zimbabwe (East Africa) depends on Mozambique and South Africa. Bolivia (South America) depends on Peru and Chile. By contrast, Nepal is totally dependent on India, through the port of Calcutta, since alternative routes via Tibet and Bangladesh are not feasible. Since its trade volume is negligible, Nepal file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ot2.htm (1 of 6)07/17/2005 9:56:17 AM

2 has very little leverage to negotiate terms of access with India. If the LLC has more than one route to the sea, via different TC's, it can avoid becoming a "captive" shipper of one single country and negotiate better terms. To guarantee access to the sea, agreements between LLCs and TCs must be worked out. LLCs must analyze carefully their access corridors and determine the generalized costs incurred by using each of these corridors. By generalized costs, it is meant the overall economic cost which includes transport cost, loss and damage, inventory costs due to delays in transit, and the shipping costs to the ports of exit/ entry that are incurred when there is an important shipping rate differential between the ports serving each route (see Annex 1). The so called "under the table" charges (informal charges), which are common place in several countries, should be added to the list. If those are not paid, customs clearance can be delayed and trucks indefinitely stopped at road block and borders, making the route unattractive due to very high transit times. Therefore, it is crucial to determine transit times (see Annex 2) from origin of goods to destination and especially the "dwell time" at ports, customs borders and any transfer terminals. Every day wasted in transit adds to inventory costs, i.e., since goods are already paid, the consignee (the person to whom the goods are destined) is either out of stock or he could have been earning interest with the money invested in the goods which are en route. Any costs incurred by the LLCs in TCs' territory are generally benefits for the TC if the TC's prices are at least set at their opportunity cost. Depending on whether the transported, freight forwarder or shipping company are registered companies from the LLC, TC or a third country, there could be economic benefits for the TC or third countries. In most cases, freight shipping costs are outflows to industrialized countries since most ships are not from the LLCs. As a major bargaining chip in the negotiations, the LLC must try to quantify the net benefits generated to the TC by each dollar of import/export, taking into account not only the direct costs involved in the actual transportation of goods but also the multiplier effect, (costs incurred in related activities such as hotels, restaurants, gasoline and tire sales, freight forwarding fees, etc.). The TC must essentially be concerned with the wear and tear of its infrastructure and whether the prices (road user charges, railway and port tariffs) charged for its use are sufficient to cover the expenses incurred due to the transit movements. If the LLC's traffic is substantial and profitable, TCs strive to strike the best agreements they can to attract LLC's traffic to their routes. This is the case of Zimbabwe versus Mozambique and South Africa, where the traffic volumes of the LLC are significant in terms of the revenues generated to the TCs. Most LLCs tend to keep at least two routes to the sea in constant activity since they do no want to become "captive shippers". The private shipper, on the other hand, will always try to ship by the cheapest route available. Analysts dealing with transit assignments between routes should always examine them from both the standpoints of the individual shipper and the government, because there might be strategic factors which justify incentives or disincentives to use a certain route. However, in peace time, case studies have shown that the government's role should be to interfere as little as possible in route selection, to provide as much transit deregulation as possible, to avoid trucking quotas, to ensure the customs procedures are quick and honest, to remove unauthorized road blocks and file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ot2.htm (2 of 6)07/17/2005 9:56:17 AM

3 to create an 'enabling environment' to let the market determine the cheapest routes. Governments often interfere to prevent structural distortions in LLCs and TCs from affecting their countries negatively. For example, gasoline price differentials between Niger, Benin and Nigeria could give advantages to Nigerian truckers if trucking quotas were abolished and they were allowed to compete. Minimal regulation can be tolerated when structural distortions are being connected. Before LLCs request help from multilateral and bilateral financial agencies to improve the infrastructure of their corridors to the sea, they should examine the actions they can take by themselves, without any major investment, i.e., elimination of procedural, regulatory, customs and unauthorized bottlenecks. Only after they have overcome those obstacles, should they seek help to strengthen their infrastructure and equipment. THE CORRIDORS EVALUATION AUDITS The evaluation of transit corridors is based on five analytical audits: (a) infrastructure; (b) operations and traffic; (c) trade facilitation; (d) trade logistics; and (e) institutions. These audits form the basis for an indepth economic evaluation of the costs and performance in each corridor. The objective of each audit is described below. 'The information that is required for each audit is shown in the Annex 3. Infrastructure: The objective is to detail the physical characteristics of the infrastructure in each of the identified corridors. The survey would collect information on both movement links and interchange nodes within the transport corridors. Operations and Traffic: The aim is to understand how each mode in the corridor operates, what type of equipment is used, performance levels, operating costs and constraints. Trade Facilitation: A full understanding of the procedures and documentation necessary for the conduct of foreign trade. This would include the procedures required to obtain import/export licenses as well as the procedures and documentation required for customs clearance. Trade Logistics: The objective is to document the door-to-door movement by each available route and mode: the delays and constraints, the combined customs procedures, total number of halts or inspection stops, and all the elements that differentiate one route from another. Trade-Transit-Transport Institutions: This audit identifies the institutional environment in which the shippers, transport operators and government organizations perform. The institutional environment often has a direct and very significant effect on the cost/tariffs, capacity and efficiency of routes. It plays, therefore, a significant role in route and transport mode choices. To Learn More Rebelo, J. and K. Budin, "Corridors de Transport en Afrique Sahelienne, Le Cas du Burkina Faso". World Bank Report #8813-BUR. Roberts, P. and D. Dewees, "Economic Analysis of Transport Choice". Heath Lexington: Massachusetts file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ot2.htm (3 of 6)07/17/2005 9:56:17 AM

4 INFRASTRUCTURE ANNEX 3: Audit Informational Requirement a. Transport Movement Links: Distances between major origins/destinations, by mode and country; specification of infrastructure (e.g., paved, gravel or earth road or gauge of railway); condition of the infrastructure by main link; speed, axle loads, and other physical restrictions; number, type of location of controls and checkpoints. b. Transport Interchange and Cargo Storage Points: Port infrastructure, port equipment, storage capacity and condition, customs facilities, specific transit facilities; location, size, capacity of inland transfer terminals and handling equipment available (e.g., rail/road transfer terminals, railway yards, container terminals, bonded warehouses). c. Infrastructure Costs: Expenditure actually allocated to the maintenance of the existing corridor infrastructure; estimate of the expenditure which should be allocated for adequate maintenance of the infrastructure. OPERATIONS AND TRAFFIC a. Identify detailed time schedules for each mode. Loading, unloading and waiting times, movement times, delays at customs, checkpoints and border crossings. b. Identify the characteristics of the vehicle fleets used. Size and axle configuration of trucks/wagons, type of containers, ship type and size. c. Determine the tariffs charged by each mode or, when applicable, the door-to-door tariff. (As discounts may be common, a range of customers must be contacted. Conference rates are a reference point for ocean shipping tariffs but, given the extent of discounts used by the conference and "outsider" shipping, best estimates of average tariffs will have to be based on interviews with shippers and freight forwarders.) d. Based on the vehicle and infrastructure characteristics estimate, wherever possible, long run variable transport operating costs for each mode and corridor. e. Obtain commodity flows via each corridor for the previous five years. Regional and transit traffic should be distinguished. Regional traffic refers to trade exchanges between neighboring countries and often faces different procedures and formalities. f. Understand the organizations operating the corridors. (Ownership and control, employees, file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ot2.htm (4 of 6)07/17/2005 9:56:17 AM

5 profitability, subsidies own account versus for hire.) g. Obtain information on the operating strategies used by each mode. (Groupage services, wagonload, block movements, unit trains, etc.) h. Determine the nationality of the transport operators and whether there are formal or informal traffic sharing arrangements, national fleet protection, etc. TRADE FACILITATION a. Documentation. Identify all documents required for the import/export of each product (import license, certificate of origin, clearance papers, letter of credit. Chamber of Commerce authorization, shipping documents, etc.), the time required for each document and the difficulties need. b. Freight forwarding. Identify which firms are branches of international freight forwarders and which are local freight forwarders. c. Freight bureau. Check whether there is a requirement to use an entity in control of arranging overseas freight movement. If a national freight bureau operates the advantages/disadvantages of the system. d. Customs procedures for imports/exports in both landlocked and transit countries. (The constraints posed by the procedures, the need for and cost of informal payments to customs to expedite clearance. Do informal payments allow under-declaration of C.I.F. values.) e. Nominal and effective use of international customs procedures, such as the T.I.F. (Transport International Ferroviaire) or the T.R.I.E. (Transport Routier Inter-Etats), in the region. Use of other procedures, including police or customs controlled convoys. f. Availability and quality of telecommunications, telephone/fax/telex. Problems with the transmission of documents required for customs clearance TRADE LOGISTICS a. Use the tariff/cost information obtained in the operations audit to determine direct costs for a shipper using that route. Direct costs are only the costs which are incurred in cash, and do not include time related costs such as delays and reliability or the costs of insurance/loss/damage. b. Use the information collected in the operations audit to estimate overall transit times by route and the equivalent inventory costs as a function of the C.I.F. value and financing costs. Estimate also the variability of transit times and the probability of late arrivals (reliability). This information should then be valued as a function of the C.I.F. value. file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ot2.htm (5 of 6)07/17/2005 9:56:17 AM

6 c. Calculate the cost of insurance for traded goods, the actual loss and damage to goods imported/ exported and the extent to which the insurance compensates for such losses. Calculate the total cost of loss and damage provision, including the cost of delay in setting insurance claims. d. The addition of the direct (a) and indirect (b + c) costs will provide an estimate of the overall generalized (financial) costs to the user. Comparison of the route generalized costs and the distribution of transport flows may indicate anomalies. Such anomalies should be investigated to determine whether certain costs have been missed or whether shippers place higher valuations on dm and/or reliability. TRADE-TRANSIT-TRANSPORT INSTITUTIONS a. The scope and effectiveness of trucking regulation in both landlocked and transit country on market entry, operations, vehicle loads, tariffs etc. b. The main institutions involved in transit movements(e.g., Shipper's Council, Chamber of Commerce, National Shipping Company, Trucking Association), their roles in the transit process, their relative strength and the constraints they create. c. The scale and distribution of private sector involvement in the freight forwarding and transport industries: size and ownership of companies, local and overseas participation, extent of competition. d. Availability of credit and foreign exchange to individual entrepreneurs. e. The role played by the Central Bank and commercial banks in trade-transit operations. f. The effect of parallel markets for foreign exchange on the choice of route/modes/transporters by shippers. g. Institutional arrangements for trade insurance-role of local insurance companies. h. The nominal and effective implementation of the UNCTAD Maritime Code (40/40/20 rule). i. Traffic sharing between landlocked and transit country nationals-agreements, institutions and enforcement. Back to text file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ot2.htm (6 of 6)07/17/2005 9:56:17 AM