Framework for Measuring Performance of Trade Related Services under Trade Facilitation Process Biswajit Nag Indian Institute of Foreign Trade, New Delhi biswajit@iift.ac.in Work in Progress
Background The world has witnessed a decline in average tariff Various Non-Tariff barriers are the major impediments to achieve the desired gains from International Trade Improvement in Trade Facilitation (TF) is expected to provide a significant growth in world trade WTO claims for a trade growth of US$ 1 trillion if Bali agreement is in place Studies find that Trade Costs are between 1%-15% of value of traded goods APEC is expected to gain 0.26% of Real GDP if its TF programme is fully implemented
Background Countries have taken up efforts to improve TF process either unilaterally or due to WTO commitment or due to commitment in RTAs/FTAs Simplification of Customs Rules Transparency and harmonized Regulation Automation and introduction of Single Window System Improvement in Logistics and Communication System Introduced Port Reform Number of global organisations ( such as World Bank, OECD, etc) are now providing information about the status of TF across the world through various indices Trading Across the Border/Doing Business : World Bank Logistics Performance Indicator : World Bank Enabling Trade Indices: World Economic Forum Trade Facilitation Indicators: OECD
Background Slow convergence is observed despite countries are making efforts. LPI 2014 highlights that, the modest convergence since 2007 is due to a perceived improvement in trade supporting infrastructure in low- and middle income countries. However, logistics services, customs and border management are still quite cumbersome. As a result, despite having investment in infrastructure, rankings of many countries have not improved much. This could be due to the lack of integration among number of services, ineffective privatization of services ( such as terminal handling, inspection, warehousing etc) and existence of corruption.
Background This background indicates that we require more close monitoring of the trade related services. Both public and private sectors are participating in trade related services. In several cases, public-private partnerships are also observed Customs are managed and regulated by Government Ports were earlier entirely managed by public sector but now private ports are coming up in a big way. In many countries, port reforms are being carried out and as a results several services are being privatized Logistics sector is mostly privatized but large Freight Forwarding companies or 3PL MNCs are more active in developed and relatively large developing countries. Private participation in Transport Infrastructure is now common. However, crucial infrastructure ( such as railways in India) are in the hand of government in many cases. Both public and private sectors are present in banking and insurance sector
Objective This paper makes an attempt To Identify Private Services in the TF process To map the methodology of different indices which have made attempts to measure the performance of trade related services To identify the gap of these measurement To highlight national or regional framework to measure these services To develop a framework for measuring private services
Core Services To be Improved under TF process University of Manchester (2008)
3 Tiers of Logistics Services USITC
Port Terminal Handling, Yard Operation/ Stevedoring, Inspection Services, Material Handling, Container Stuffing and destuffing, Services Considered in the Study Transport and other Infrastructure Approach Road to the port, Roadways, Railway, Aviation, Marine, Private ICD/CFS, Transport Services/Logisti cs Freight Forwarding, Courier Express Delivery, Warehousing, Shippers, and Support Services Custom Agents and Brokers, Cargo Handling Operators ICT Supporting Customs website, Managing Single Window, E-Commerce, Connecting Banks with exim process Banking and Insurance are not included
Trade Cost Survey Based TF Indicators Current Literature on Measuring TF Performance Gravity Model CGE Models Doing Business (WB) LPI (WB) ETI (WEF) TFI (OECD) Estimating Trade Costs and Benefits if it goes down Country ranking based on scores calculated from sub-indicators Time Release Study and BPA Micro level study to understand time delay and efficiency at operational level Methodology based literature from Supply Cain Management and Operation Research area
National Framework: mainly available in following areas» Logistics» Port» Customs Example from Thailand: Logistics Current Literature on Measuring TF Performance Identify key activities Measure performance on Cost, Time, and Reliability Identify Key Performance Indicators (KPI) Cost Time Reliability Transport Order Cycle Time Delivery in Full & On Time Warehouse Delivery Cycle Time Forecast Accuracy Inventory Inventory Days Return Rate Source: Thammasat Business School Increasingly countries are developing Result Oriented Metrics to conduct performance evaluation
Example: Thai Logistics Performance Framework Source: Thammasat Business School
Example: Justification of Assumption and Metrics ( Japan s Framework) Japan follows a standard guideline for any performance evaluation. This gives strength about the assumptions made during the evaluation and verification about the data availability. Narrative Summary Objectively Measurable Indicators Means of Verification Important Assumption Overall Goal Purpose Output Activities JICA Guideline for Project Evaluation, 2010
Comparison among International TF Indicators LPI Doing Business/Trading OECD ETI Across Border Coverage 160 countries 189 countries 133 countries 138 countries Use of Survey data Freight Forwarders Local freight forwarders, shipping lines, customs brokers, port officials and banks Specific people in the government and permanent delegation to WTO Executive Survey Use of Secondary/ Numerical Data No No Yes Yes
Comparison among International TF Indicators LPI Dimension Efficiency of customs; quality of transport and IT infrastructure, Ease of arranging international shipments, Quality of local logistics industry, tracking and tracing, timeliness, Doing Business/Trading Across Border Documents, Time and Cost (divided into subparameters) Only container based trade OECD Information availability, Involvement of the trade community, Advance Rulings, Appeal Procedures, Fees and charges, Formalities- Documents, Automation, Procedures, Cooperation Internal & External, Consularization, Governance and Impartiality ETI 7 pillars and 56 sub indicators; Domestic and foreign market access, Efficiency and transparency of border administration, quality of transport infrastructure, services and ICT, Operating environment
Comparison among International TF Indicators LPI Trading Across Border OECD ETI Other Issues Landlocked and remoteness is handled through estimating the extra cost not the exact cost Statistical technique Weights Principal Methods through Component Documents required at transit in case of landlocked countries covered Simple averaging with equal weights Some publicly available data is used. OECD indicators are more towards procedures and regulation, less on infrastructure and logistics, indirect estimation for landlocked and remote countries Pre-determined weights are given and final index is an weighted average Some data is collected from Doing Business, LPI, etc. Numerical data on transport, tariff are taken from Secondary sources Numerical data are converted into similar scale to match with perception data
Limitation of Current International Framework The global indices prepared by multilateral agencies have been very useful for countries to compare the status of the improvement in trade facilitation activities. For example, OECD indicators hint that India has to improve in fees, charges and streamlining procedures and China in border cooperation. These indicators are providing a macro perspective but some of them are merely based on perception. There is a need to scientifically connect numerical macro data with the perception data to arrive at more robust result. Also, hardly these indicators take care of different types of facilitation process required for different products. Similarly, due importance should be given for sea, air and land crossing. Time Release studies (TRS) provide more micro dimension and these learning should be linked to macro studies. For example, in Uganda, land crossing is more effective than airport cargo handling.
Basis of Framework to measure Performance of Trade Related Services ** Three major issues which have influences on the performances of trade services are Nature of Ports: Sea, Air and Land Nature of Products: Perishable, liquid, non-bulk (containerised) and bulk (non-containerised) Geographical Disadvantages: Remote Island and Landlocked countries ** Numerical Data to be used along with Survey data Data from LPI, Doing Business along with National performance data to be collected Perception Survey to be conducted among all stakeholders Each Service is required to be divided to sub services Overall goal, purpose, nature of outputs and activities to be mapped Availability of data, identification of proxy data ( if required) to be identified and checked Assumption validation through experts is required
Structural Issues Affecting Performance of Trade Related Services Ports Type of Products Geographical Disadvantage Trade value through sea, land and airports will be used to calculate the national performance of a service Weights= Trade value through sea/land/air route as % of total trade ( Data from National Database) Trade value of different types of products: Perishable, Liquid, Bulk, etc. will be used to evaluate the performance of services especially in ports and logistics Weights: Value of different types of products as % of total trade. This can be done clubbing goods at HS 2 digit level into bulk, perishable etc. For example, minerals are bulk noncontainerised; agricultural goods, fish, meat, dairy products are perishable; textile, footwear, electronics are containerised etc. Data can be taken from trade database Performance of Trade Services are highly affected by the geographical remoteness. Hence, national trade service performance indicators requires to be further qualified by the degree of disadvantages faced by the country. Many a times, delay in crossing the border depends on inefficiency of the other country or infrastructural bottlenecks. Extra Indicators: Time for the goods to reach nearest hub as a % of normal travel time ( by land or sea) to cover the distance ( Scaled into 1-5) Cost (including clearances and transport) per container for TF in transit country as % of Total TF cost from source to the port (scaled in 1-5) Data to be collected from Survey and Doing Business ( Trading Across the border)
Framework for Trade Service Performance Indicators As the performance is measured through multiple questions and some performance data, we need a mechanism to combine those to arrive at single comparable index. At the stage 1, numerical data requires to be converted into 1-5 scale using the methodology 4X (Country value-sample min value) +1 (Sample max value-sample min value) After converting all data into scale, a principal component analysis (PCA) will be conducted to arrive at a unique score. Further, the score can be improved using the trade weights and weights related to different types of ports.
. Framework for Trade Service Performance Indicators Performance score for Service 1 (PS 1 ) = Where And This also ensures that 1 PS 1 5. Weights for Ports and Sea Port ( w 1 ) Air Port (w 2 ) Land Port (w 3 ) Products Product Type A (t 1 ) P 11 P 12 P 13 Product Type B (t 2 ) P 21 P 22 P 23 Product Type C (t 3 ) P 31 P 32 P 33
Services and Nature of Data to be Collected Services under Port Facilities Terminal Handling Yard Operation/ Stevedoring Inspection Service Material Handling Container Stuffing and destuffing Warehousing ( if within the port premises) Data Collecting from Port Authorities Productivity, Average Time in and Time Out, Utilisation, Fees and charges etc. Perception on Performances (Stakeholder Survey) Productivity Quality of Mechanisation Implementation of IT tools Tracking and Tracing Time Delay Time Predictability Commitment Damage/Handling Transparency Response to Statutory Requirement Informal Payments to speed up the process
Services and Nature of Data to be Collected Transport and Infrastructure Data to be collected from National Authorities Railways How far is the privatization ( No, Roadways Fully, Partly) ( especially approach road to Percentage of domestic cargo Ports/Railway yards) carried by Aviation/Airports Railways/roads/inland Marine and Inland waterways waterways/airlines Ports Average traffic Handling by Telecommunication major ports Private ICD/CFS Average waiting time for vessels in the port Telecommunication density Facilities and Handling capacity of private ICDs/CFS Perception on Performances (Stakeholder Survey) Quality of infrastructures offered by Railways/Roads/airport/port Approach Roads/bottlenecks outside ports/railway yards Quality of Services offered by them 1) Loading/Un loading 2) Delay 3) Damage Handling 4) Security Telecom pricing and types of services offered. Efficiency of private ICDs 1) Infrastructure/Capacity 2) Clearance procedure 3) Smooth Transit operation 4) Time Efficiency
Services and Nature of Data to be Collected Services Freight Forwarding Courier and Express Delivery Warehousing Shippers Data to be collected from National Authorities How far is the privatization ( No, Fully, Partly) Whether 3PL companies are present Contd. From Col. 3 Value Added Service such as barcoding, labelling, light assembly Shippers Cost effectiveness Value for Money Services Time Delay Commitment Response to Statutory Requirement Perception on Performances (Stakeholder Survey) For Freight Forwarders: Cost effectiveness Value for Money Services Time Delay Tracking Service Cargo Handling Helping in Custom Clearance For Courier and Express Delivery: Pick up service Delivery service Time Delay Tracking Service Warehousing: Damage /Handling Refrigeration Cost Effectiveness Contd. To Col. 2
Logistics Services Freight Forwarding Courier and Express Delivery Warehousing Shippers Services and Nature of Data to be Collected Data to be collected from National Authorities How far is the privatization ( No, Fully, Partly) Whether 3PL companies are present Contd. From Col. 3 Value Added Service such as barcoding, labelling, light assembly Shippers Cost effectiveness Value for Money Services Time Delay Commitment Response to Statutory Requirement Perception on Performances (Stakeholder Survey) For Freight Forwarders: Cost effectiveness Value for Money Services Time Delay Tracking Service Cargo Handling Helping in Custom Clearance For Courier and Express Delivery: Pick up service Delivery service Time Delay Tracking Service Warehousing: Damage /Handling Refrigeration Cost Effectiveness Contd. To Col. 2
Services and Nature of Data to be Collected Other private Support Services Custom Agents and Brokers Cargo Handling Operators Data to be collected from National Authorities Current regime of regulation and transparency Perception on Performances (Stakeholder Survey) Time Delay Commitment Availability Whether Refilling (making mistakes in forms) Response to Statutory Requirement Act as Transparent and Efficient agent Level of corruption and informal payments
Services and Nature of Data to be Collected Services Supporting Customs website Managing Single Window E-Commerce Connecting Banks with exim process Data to be collected from National and International Authorities Whether private Sector is allowed Issues covered under single window ( Status of Single window) Regulatory Structure of E- Commerce Use of Internet Banking Use of ICT Use in Govt Operation ( Some values are available from Global Innovation Index) Contd. From Col 3 Cumbersome process in the payment gateway Security Issue State of Internet Frauds Coordination between banking documents with trading documents E-LC Services provided E-Negotiation for LC is allowed Perception on Performances (Stakeholder Survey) Quality of service ( low to high) Uptime (%) Speed of the Network Uploading and downloading time Clearly structured website Websites are simple to navigate Quality of third party links (through the site of Freight Forwarders, custom agents, etc.) Tracking Facility Real Time Notification about changes in rules Promptness in replying to enquiries Tracking Facility Seamless document flow State of Existing Internet Banking facility Whether E-Commerce regulatory structure is very rigid Contd. To Col. 2
Thank You biswajit@iift.ac.in