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Gozde isik updated logistics presentation cgf_gozde_isik_june2012 (2)
- 1. Logistics in the Caribbean Current Trends and Future Prospects Caribbean Growth Forum June 19th, 2012 Kingston, Jamaica Jordan Schwartz Gözde Isik World Bank
- 2. Productivity losses (%) 30 OECD LAC 25 20 15 10 5 0 Merchandise losses: Share of primary goods that do not arrive at market Logistics costs as share of market value Levels of Inventory Sources: World Bank, Guasch (2004, 2008)
- 3. These basic goods represent 20% to 30% of household income For the poor may represent up to 70% Share of HH Budget spent on food Logistics and transport costs are 2 to 10 times higher than import tariffs for basic goods. GDP per capita (log) Source: Dessus, et al, World Bank (2008); data from household surveys .
- 4. 45 42 LAC Logistics Costs: % of Total Value of Firm Sales 40 35 1 2.7 30 25 18 1 5 7.31 1 .36 1 29.4 18 6.28 20 18 1 0.63 1 1 1 0 5 6.9 0 Les s than US$ 5 M US$ 5 M to US$ 50 M US$ 50 M to US$ 500 M Inventory Management &Warehous ing More than US$ 500 M Trans port &Dis tribution
- 5. 1.2 1 4% 6% 0.8 US$ Ct/K 36% 0.6 2% 0.4 19% 0.2 0 34% Margins Warehousing costs Transport Costs Duties, customs fees and phitosanitary certificates Handling and conditioning, packing, and other admin. Costs Farm gate price
- 6. Maritime transport costs as a share of Containerized Exports to the US and South America (% FOB value) to US to South America Guyana Antigua & Barbuda Cuba Guyana Dominica Haiti Dominican Rep Dominican Rep Barbados Barbados Caribbean Trinidad & Tobago Belize Belize Dominica Antigua & Barbuda Bahamas Jamaica Grenada Bahamas Grenada St Lucia St Vincent Jamaica Haiti Suriname Developed country average 0% 3% 6% 9% 12% 15% 18% 0% Source: UNECLAC 2009 5% 10% 15% 20% 25%
- 7. Location: At the intersection of the major east-west and north-south trade routes Lack of natural hinterlands and small domestic markets Lack of scale economies: negative trade balances and related backhaul problems Emergence of the hub and spoke system in liner services as larger ships were introduced over time for major routes
- 9. Port of Freeport Spain 4% 98% Other, 9% Kingston 90% Colon, 26 % Cartagena, Colon 80% 13% Port of Spain/Point Lisas Caucedo; 8% Kingston, 19% Freeport, 21% 60% Rio Haina/Caucedo 50% Cartagena 40% 0% Source: Contecar 2011 Large domestic markets 20% 40% 60% 80% Source: McCalla 2009 100%
- 10. Kingston Freeport Port of Spain Bridgetown Castries 300 Economic recession Maersk leaves 250 200 150 100 Source: Containerisation International 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
- 11. Hong Kong Egypt Panama Jamaica Colombia Bahamas Dominican Republic Mauritius Fiji Cuba Barbados Haiti Cape Verde Suriname Saint Lucia Guyana Saint Vincent and the… Grenada Belize Saint Kitts and Nevis Antigua and Barbuda Dominica 0 20 40 60 80 100 120 Cost to ship 20ft container from Miami (USD) Liner shipping Connectivity Index 2011 4000 Basseterre 3500 Roseau 3000 2500 Castries PAP St Johns Paramaribo 2000 POS Bridgetwon Caucedo Cartegena Colon Kingston 1500 1000 500 0 0 Connectivity index Source: UNCTAD and shipping lines Transshipment hubs St Georges Kingstown 10 20 30 40
- 15. Intra-Regional fleet deployment 700 350,000 600 300,000 500 250,000 400 200,000 300 150,000 TEUs Vessels 200 100,000 100 50,000 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: CI Number of vessels Total number of TEUs 400,000
- 16. Efficiency scores based on utilization of infrastructure San Juan In terms of utilization of equipment and yard and berth areas, some ports have room to grow while other do not…something to think about when considering expansion Freeport Balboa Colon Cartagena Port of Spain Havana Point Lisas Kingston Rio Haina Belize City Caucedo St Johns Bridgetown Fort Vieux Roseau 0% 20% 40% 60% Source: World Bank 2012 80% 100%
- 17. Logistics is central to boosting the region’s competitiveness The widely accepted prognosis is that the Panama Canal expansion will increase transshipment traffic in the Caribbean Not entirely clear if capturing more transshipment traffic will help reduce logistics costs and increase efficiency of logistics services in the region as a whole (including connectivity of small non-transshipment ports) Logistics bottlenecks must be removed in order to fully reap the benefits of the Panama Canal expansion
Hinweis der Redaktion
- Economic growth depends on use of the factors of production – (1) labor, (2) capital and (3) something more elusive… Economists call “Total Factor Productivity”Basically, it is competitiveness… how you innovate, how you build skills, how you do business, how efficiently it uses its resources. If the productive sectors of an economy can be more efficient and innovative this would drive growth, jobs and, finally, poverty alleviation.So we started looking at how firms spend their resources…Moving goods, storing goods, paying for inventory, transferring across borders, redistributing
- - For Pineapple exports from Costa Rica, transport expenses, including the value of time spent waiting en route, are equal to 36% of the final price. - if you include warehousing and customs fees, logistics expenditures exceed 40% of the final price.
- In the previous slide Jordan explained how the various cost components along the supply chain add up to make a significant portion of total costs for imports, so picking up where he left I’d like to talk a bit about costs in relation to the regions exportsWe don’t have a breakdown like the previous slide but looking at the figure we can clearly see that freight costs as a share of containerized exports to both the US and South America are quite high when compared to developed country averages, ranging from around 10% to 18% across the regionAnd these rates don’t even include other costs like handling charges, inspection and whatnot…so if we added it all up we’d be looking at something more in the range of 20-25% across the region.TransitionWe’ve established that transport costs are very high in the Caribbean both in terms of imports AND exports, there’s no doubt about that….but these costs vary widely from one country to the other and we have to look at the distinction between transshipment and non-transshipment countries to see which factors contribute to this variation…before we do that lets take a short look at the concept of transshipment and what the Caribbean market looks like today >>>>>
- I’m not going to go into too much detail on this because we have with us today one of the foremost experts in this area, Mr. Sanchez from the Panama Canal authority will talk about this right after me.But as we can clearly see the Caribbean basin is right at the intersection of the major global trade routes that go through the Panama Canal, therefore locationwise it is ideal for this sort of business to flourish…all these white lines represent routes TransitionNow, this does not mean that every Caribbean port can be a transshipment port? NO, there are certain conditions that have to met to get into this line of business >>>>>
- The infrastructure has to be in place, the port has to have the right cranes and carriers and adequate area for them to be able to move around efficientlyThe port can’t be too far off the major NS and EW global trade routes…for instance Kingston is just 34 miles off the NS route making it an ideal locationDepth: especially with the canal expansion coming up these ports have to be able to accommodate post-panamax vessels and I believe the minimum requirement for that is 17m? Reliability: equipment has to be working, ships can’t come in to find that 3 out of the 5 gantry cranes aren’t working due to poor maintenanceHandling charges for transshipment cargo have to be significantly lower than domestic cargo in order to be competitive and attract major shipping linesThe port authority along with customs has to have in place the right risk management systems or compliance costs can add up very quickly in these timesAnd finally the port has to have a critical mass, there has to enough traffic that will allow for scale economies
- If we take a snapshot of the current Caribbean transshipment market we see that it not dominated by a 1 or 2 mega hubs but rather shared somewhat equally by 4-5 ports which reflects the fact that transshipment is a very competitive business in this regionHowever these ports vary in terms of their share of transshipment vs. domestic cargo trafficFor instance the lack of a natural hinterland makes Freeport almost a pure transshipment hub with almost the entire traffic being transshipped Similarly for Kingston and Colon that transshipment incidence rate is 90 percent and 80 percent were, respectively. In other hubs like Cartagena and Caucedo, transshipment incidence is much lower at 40 percent and 50 percent…this is because they also handle a significant amount of traffic for their large domestic markets
- Now if we look at the last decade, transshipment hubs have grown a lot faster compared to non-transshipment ports, but their growth patterns tends to be more volatile because they are more exposed to global economic trends and individual decisions of international carriersA good example of this is Maersk in Kingston….back in 2006, when Maersk made Kingston its regional hub, in a matter of just a few months, Kingston was suddenly called upon to handle a high increase of containers which boosted it’s throughput. But when Maersk decided to stop using Kingston as it’s Caribbean hub in 2007, throughput fell sharply back to it’s pre-Maersk volumes…so just shows that transshipment can be quite a risky business for ports that decide to enter itTransitionNow, lets look at at how transshipment and the hub and spoke system that has emerged from it has impacts the region as a whole in terms of costs as a function of efficiency and connectivity at the REGIONAL level >>>>>
- Logistics costs in terms of freight rates vary widely across the region…looking at the first figure we see that transshipment ports face much lower freight rates, for instance shipping a 20ft container from Miami to Cartagena is almost twice as much as shipping the same container to St Kitts. And we can see the the strong correlation between the global connectivity of a port and the costs related to maritime transport…the better connected a port is to global routes by international carriers the lower freight rates it faces as you can see on the far right of the second figure But of course it’s not just connectivity that drives these costs… In Caribbean almost all countries are running trade deficits, implying that there are more containers coming in than going out, or in other words a container that comes in full will return empty or partially full which will drive prices upwardsTransitionSo we’ve established that transshipment ports face lower costs in terms of freight rates…but what about costs in the region as a whole, does the existence of these ports, their proximity help to bring down costs for other countries in the region? >>>>
- To answer this question lets look at a map of the Caribbean, I’ve taken out the non-sovereign islands and Cuba since they have no direct trade with the US… It shows the Caribbean countries linked to Miami which is where a lot of imports are consolidated and shipped fromNow, how would this map look if we used economic distance as opposed to geographic distance? Meaning that we use the cost per mile for shipping a 20ft container from Miami to a transshipment hub like Kingston as the fixed base rate and refigure all the other islands and countries RELATIVE to that cost what would this map look like?…>>>>>
- This is what it would look likewe see that some countries move closer in to Florida while others move outwards…this is because in relation to the price of shipping from Miami to Kingston, the cost of shipping to these islands is relatively lower even though they are further away…>>>>>
- Now lets put the two maps side by side to get a better idea of whats moved aroundLooking at this picture it might be inferred that proximity to transshipment hubs, in this case Kingston, has drawn some countries and islands closer in to Florida, like Guyana, Suriname, Trinidad and Tobago, Barbados these are countries with significant exports ….And some countries have grown even further away like Bahamas, st kitts, st vincent, Dominica, Grenada and Haiti…these are all countries with very little exports that suffer from backhaul problemsBut don’t get me wrong, this is not say that shipping to countries like Suriname and Guyana is cheap, freight rates are still very high to these places, but we could infer that transshipment hubs in the region may have contributed to RELATIVELY lower freight rates for some countriesNow lets look at how transshipment has impacted regional connectivity >>>>>>
- While it is clear that transshipment has increased the GLOBAL connectivity of the region, has it been able to better connect Caribbean countries with each other?Looking at fleet deployment numbers, transshipment does not appear to have increased intraregional connectivity…traffic both in terms of TEUs and number of vessels have fallen significantly over the last decade. The reason for this is because liner services for Caribbean countries mainly originate in places like Miami, Kingston or Freeport, so as larger ships have been deployed over time, very little intra-regional services exist that directly interconnect all countries….and again this goes back to insufficient demand and missing economies of scale in these trades.Another factor that is influenced by transshipment is efficiency…have ports become more efficient as a result of being in this business and being in proximity to hubs? >>>>>>>
- We recently did a regression analysis that uses equipment and yard and berth area as inputs for throughput, we found that there is huge variation in efficiency among Caribbean ports. Ports like San Juan and Freeport are highly ranked in terms of their efficiency/utilization with an average of 92% and 80%. On the other end of the spectrum, small island ports like those in Dominica and St Lucia rank very low at less than 10 percentThe efficiency average for the whole region in the ten years analyzed is: 40%, something relatively high compared with the African’s ports around 30%, but relatively low compared with over 60% in EuropeNow, before I wrap up, let me quickly summarize some of the issues introduced here >>>>>>
- Jordan talked about the importance of logistics and how it impacts firms and the poor and overall competitiveness of a countryWith 2014 coming up, the consensus seems to be that transshipment traffic will increase but it’s not entirely clear how this increase in traffic will help reduce logistics costs and increase efficiency of logistics in the region as whole through better connectivitySo we have seen that serious logistics bottlenecks remain, and it’s these bottlenecks, more precisely how to remove these bottlenecks to become more globally competitive is what this forum is all about and the reason why we are here in this room…for the next hour or so we will have an interactive discussion on practical solutions to some of these impediments to connectivity. We have an excellent panel today who bring years of experience in their respective areas relating to maritime logistics so, we couldn’t have hoped for a better panel….I will stop here and leave the stage to some folks who are infinitely more knowledgeable than myself on these matters…thank you very much