carana tl presentation

1a

Impact Of Transportation And Logistics On Trade Competitiveness

Export and Supply Chain Analytic Tool

Introduction

CARANA CorporationSeptember 26th, 2006

2

WHY TRANSPORT AND LOGISTICS (T&L)

Integration of the world economy provides tremendous opportunities for developing countries to achieve sustained economic growth through trade

Reduced tariffs and rules based trade regime leveling the playing field;

Companies going global, providing new opportunities for developing countries to become integrated into global value chains;

But weaknesses in T&L systems and practices create challenges for exporters in developing countries……….

0 . 0 % 1 0 . 0 % 2 0 . 0 % 3 0 . 0 % 4 0 . 0 % 5 0 . 0 % 6 0 . 0 % 7 0 . 0 % 8 0 . 0 %

A l l i n d u s t r i a l p r o d u c t s ( e x c l . p e t r o l e u m )

T e x t i l e s a n d c l o t h i n g

M i n e r a l p r o d u c t s

T r a n s p o r t e q u i p m e n t

F i s h a n d f i s h p r o d u c t s

L e a t h e r , r u b b e r , f o o t w e a r , t r a v e l g o o d s

C h e m i c a l s a n d p h o t o g r a p h i c s u p p l i e s

E l e c t r i c a l m a c h i n e r y

O t h e r m a n u f a c t u r e d a r t i c l e s

W o o d , p u l p , p a p e r , a n d f u r n i t u r e

N o n e l e c t r i c a l m a c h i n e r y

M e t a l s

Ind

us

tria

l C

ou

ntr

y A

vera

ge

Imp

ort

Tar

iffs

: B

efo

re a

nd

Aft

er t

he

Uru

gu

ay R

ou

nd

3

WHY TRANSPORT AND LOGISTICS?

Developing country exporters face high transport costs

• On average freight costs amount to9.1 percent of import value

Dynamic more acute when all costs(beyond freight) are considered.

• e.g. For some landlocked African countries, transport costs can reach 77% of export value

These costs effect profits and ability to succeed in highly competitive markets

Freight Costs as % of Import Value

Source: UNCTAD, “Review of Maritime Transport, 2005,” Chapter 4, data supplied by the IMF.

4

Supply Chain Management

Buyer /Buyer’s AgentLead ManufacturerSupplierSub-contractorsQuality Control

Preparation for Transport

Buyer/Buyer’s AgentManufacturersFreight ForwardersTransport CompanyCustoms brokers Consolidator/ Warehouse

Transport & Delivery Transport Company Port Operators Freight Forwarder Consolidator/ Warehouse Customs Broker Customs Border Agencies

WHY TRANSPORT AND LOGISTICS?

• Global production and distribution networks– Focus on sourcing at low cost locations

• Just-in-time delivery– Focus on reducing inventory costs

Requires system where multiple

players are linked in continuum

of T&L activities

In many countries, weaknesses in the

export and supply chain impact the

efficient and cost effective movement of goods

Resulting in lost opportunities………

Today’s buyers expect more from exporters

5

INSERT GRAPHIC TO ADD MAP

MAP IS 6.17” TALL

…BUT opinions abound as to relative importance

MULTIPLE FACTORS CONTRIBUTE TO EXCESSIVE COSTS AND DELAYS IN MOVEMENT OF GOODS …

“Ports inefficient, too

expensive”

“Government officials are

corrupt”

“Border crossings too

slow”

“More paved roads and better

maintenance”

“Can’t get a container

when I need it”

“Financing with Credit Card Debt”

“High taxes on new vehicles”

“Landlocked Country!”

“Technical Barriers to Trade!”

“River needs dredging”

“No Cold Storage Options”

6

CARANA EXPORT AND SUPPLY CHAIN ANALYTIC TOOLDeveloped under USAID Trade Enhancement for the Services Sector (TESS) & LAC Trade Projects

• Increase awareness of transportation and logistics’ impact on national or value chain competitiveness

• Filter out “noise” to focus on T&L issues most critical to national exports and priority sectors– Address issues beyond infrastructure and

customs

• Inform public and private dialogue to facilitate decision-making focusing possible T&L interventions– Emphasis on highest impact vs. time and financial resources

Designed to:

7


• Analysis through perspective of selected products (e.g. apparel, coffee, cotton, frozen meat, furniture, mangoes, shrimp, etc.)

• T&L Operational Environment (e.g. infrastructure, geography, sector policies, corruption, customs/border practices, service provider capacity, etc.)

• Transaction Process Analysis Identification of bottlenecks during shipment

• Cost analysis Quantification of direct, indirect and ‘excess’ costs along the entire export or import value chain (pre-shipment, domestic and international move, borders/customs, reg. costs) for different modes and corridors

• Supply Chain Management Evaluation Identification of weaknesses in management of production and shipments

Holistic methodology analyzing multiple elements impacting movement of goods:

8


• Nicaragua: Proximity to U.S. market, no major port.– Products covered: apparel, bananas, beans, cheese, coffee, fresh fruit, onions

• Indonesia: Comprised of 17,000 islands spanning width of U.S., vast domestic market and large regional market

– Products covered: apparel, cocoa, coffee, furniture, plywood, rubber, shrimp

• Mali: Very poor, landlocked country with transit issues:– Products covered: cotton, gold, livestock, mangoes

• Bulgaria: Proximity to EU market. Important apparel industry depends on speed to market and efficient supply chains.

• Paraguay: Landlocked country, significant fluvial transport– Products covered: agro-chemicals, frozen and chilled meat, sesame, soybean,

wood

Application in five countries with varying geographic locations, levels of development and export scenarios:

9


• Bulgaria– Intensive analysis from apparel value chain perspective

– Emphasis on supply chain management (SCM) within firms

– Analysis resulted in multiple activities focused on improving SCM and reducing costs through USAID Bulgaria Labor Market Project

• Paraguay– Focus on quantifying cost of T&L weaknesses on specific sectors and

overall economy

– Use of inventory cost function to determine cost of delays

– Public and private counterparts currently involved in finding realistic solutions to critical issues.

• Key Strengths of Methodology– How can methodology be used in USAID programming

Today’s Discussion:

10a


BULGARIA APPAREL CASE STUDY


11

INFRASTRUCTURE & FACILITIES

CUSTOMS & BORDER CROSSING PROCEDURES

ACCESS TO FINANCING, INSURANCE

AVAILABILITY OF TRANSPORTATION & WAREHOUSING

CAPABILITY AND CAPACITY OF INTERMEDIARIES

GOVERNMENT REGULATIONS & POLICY

BARRIERS

Bulgaria: The Apparel Supply Chain

DOMESTIC PRODUCERS

INTERNATIONAL BUYERS

ASIAN PRODUCERSVOLUME ORDERS

HIGHER EFFICIENCYLOWER CAPITAL COSTS

LOWER WAGES

LOW COST PRODUCTION HIGHER VALUE DIFFERENTIATORS

12

The Industry Challenge

• Guarantee “basics”– Low cost

– Consistent, high quality

– Reliable deliveries

• Offer higher value– Fashion (smaller order sizes, shorter season sales)

– Faster sketch-to-shelf time

– Reduce inventory risk: Make-to-stock Make-to-demand

– Provide product services: design, procurement, rapid prototyping

– Provide management services: supplier management, inventory management, distribution

13

• Takes advantage of proximity to suppliers and buyers to reduce manufacturing cost disadvantage

• Improves Time, Cost, Reliability, Quality of Service

Apparel Transportation & LogisticsA critical requirement for global competitiveness

14

Transport & Logistics Process<Process Name>

International MoveOrder International Move Pre-shipment Domestic MovePre-Shipment Domestic Move

Containers Loaded unto

ship

Container/Truck/Van Stuffed

Equipment repositioned

Supplier produces inputs (fabric, components)

Procurement/Scheduling of T&L Services

Buyer, Buyer’s Agent of Producer

order inputs

Preparation of documentation

Buyer and Producer

Maker Deal

Inland Transport to International

Gateway

Ocean Transit

If by Sea:

Preparation of documentation for

inland move

Producer Manufactures

goods

Equipment repositioned

Delivery to Producer’s

Factory

Goods De-consolidated and consolidated at

warehouse

Container Unloaded

Customs/Inspection

at port

International Inland Transit

Border Stop #1(EU/Regional)

Border Stop #2(Regional/Bulg)

Domestic Inland Transit

If LCL:

Preparation of documentation for domestic inland

move

Customs/Inspection

Inland Transit to Producers Regional

Customs Office

Customs/Inspection at regional customs

office

If F

CL

Procurement/Scheduling of T&L Services


Container/Truck/Van

Stuffed

If LCL:

Inland Transit to Warehouse

Goods De-consolidated and consolidated at

warehouse

Customs clearance/inspection


IF F

CL

Inland Transport to International

Gateway

If by Land, or Land/Sea via Regional Port

Border Stop #1(Bulg./Regional)

Border Stop #2(Regional/EU)

Containers Loaded unto

ship or airplane

If Sea via Bulg. Port, or Air


International Inland Transit

If Land/Sea via Reg. Port


Containers Loaded unto ship

International Air or Ocean Transit


Container Unloaded at Destination

If by Land, or Land/Sea via Regional Port

Inland distribution to buyer’s warehouse or

retail outlet


Arrival at Destination

Export of Finished GoodsImport of Inputs

• 50+ Steps (lead participant)

• 20 – 40% of value of delivered product

• Up to 50% local/regional origin

• Few long term contracts

• Efficiency & price before service

• Low visibility to total costs

15

Case Studies

16

Bulgaria’s Apparel IndustryValue Chain Migration Path

SUBCONTRACT “CUT MAKE TRIM”

“FULL PACKAGE”

MANAGE BRAND

DOMESTIC LOGISTICS

SELL PRODUCTION

SELL “VALUE”

INTERNATIONALLOGISTICS

VALUE ADDED SERVICES

HR MANAGEMENT

SUBCONTRACTOR MANAGEMENT

CUSTOMER MANAGEMENT

SUPPLIER MANAGEMENT

17

The Relevance Of Supply Chain Management

OPERATIONS ENABLER

VA

LUE

AVAILABILITY OF INFRASTRUCTURE

• INVENTORY REDUCTION

• NEW PRODUCT INTRODUCTION

• SUPPLIER MANAGEMENT

• MAKE-TO-ORDER

• INTEGRATED LOGISTICS MANAGEMENT

• CUSTOMER SEGMENTATION

• DISTRIBUTION MANAGEMENT

PROCESS INTEGRATION

SUPPLY CHAIN MANAGEMENT

18

Implications for Manufacturers

• Lower volumes, faster deliveries • New cost structure• Change production, contracting techniques• Global procurement and supplier management• Products offered Services offered

– QR, VMI– Design & Development

• Customer knowledge– Segmentation & service

• New competencies and “mind set” required

19

Establish Need for Change

Publicize Solutions

Develop Solution

Awareness and Buy-in

Challenge & Educate

Decision-makers

Implement Change & Achieve Results

• TESS Study• Expanded to

related industries: Footwear, Textiles, Leather, Knit, etc.

• Press coverage – Print and Broadcast

• Conduct road-shows

• Identified and engaged most active professional associations and NGO’s

• Conducted “solution seminars” for business owners and executives

• Gauged priorities and sources of resistance

• Created revised, more targeted seminars

• Proof of concept: Computer simulations of supply chain solutions using “real-world” data

Since the Study: First Quarter in Apparel

• Selected and consulted with 2 enterprises with widely representative business challenges to realize and demonstrate value

• Selected enterprises with widely representative business challenges to develop in-depth solutions, implement and demonstrate value

20

Establish Need for Change

Publicize Solutions

Develop Solution

Awareness and Buy-in

Challenge & Educate

Decision-makers

Implement Change & Achieve Results

• Expanded to all Bulgarian manufacturers

• Press coverage – News and Broadcast

• Conduct road-shows: associations, corporations, general public

• Developed “Fundamentals of Supply Chain Management” education program

• Gained buy-in from American University in Bulgaria

• Trade magazines and business press: articles, examples, interview

• 10 week intensive training for decision-makers

• Case studies, simulations, best practices

• Techniques, “how-to’s”

• Localized, cross-industry learning

• Required opportunity identification & sponsorship development

• Supply chain projects launched:

$33 million annual savings

$70 million one-time savings

7300x ROI on training investment

Spring 2006

21

1. Redesign the supply chain to reduce customer lead times, inventory levels and unnecessary warehousing

2. Increase customer service levels and dealer responsiveness through improved inventory management policies

3. Increase sales, customer service and environmental stewardship by introducing a new product from industrial waste

4. Improve the ability to respond efficiently and accurately to customer inquiries

5. Optimize inventory levels, locations and delivery terms to reflect customer needs and requirements

634,000 BGN/year

428,000 BGN/year

153,000 BGN/year

840,000 BGN/year

43,536,000 BGN/year

PARTICIPANT ESTIMATES OF SAVINGS FROM CLASS PROJECTS

5. Improve the flow of service vouchers from the company’s suppliers to its retailers

6. Improve inventory management processes for the company, starting with two of thousands of products in stock

7. Reduce the cost of the company’s primary product by introducing a new process in the supply chain

8. Reengineer the procurement, production and delivery supply chains of three product families at the end of their life cycles

9. Improve customer service in a high growth service organization by outsourcing non-core support activities

10. Improve inventory management practices, optimize the distribution network and improve supply chain visibility

11. Reduce supplier lead times by 40% through collaborative forecasting and process improvement

12. Reduce the cost of procured materials through improved processes and technology

1,000,000 BGN/year

15,000 BGN/year

7% reduction in total product costs

4,050,000 BGN/year

45% reduction in annual service costs

17,000 BGN/year

350,000 BGN/year

24,560 BGN/year

CLASS PROJECTS DEVELOPED

Participants in the program are required to identify sponsored projects of value to their companies. Participants in the first delivery of this program identified 50,980,560 BGN in annual savings, plus one-time cost reductions of 106,994,000 BGN. This represents a return of over 730,000% per participant on their tuition investment!

22

Summer 2006

• Bulgaria’s first supply chain survey

• Benchmarks business practices & results with rest of the world

• Links local best practices with local results

• Prescribes actionable strategies for known opportunities

• Unique promotion and distribution mechanism for mass participation

23

Starting Tomorrow

• Second Supply Chain Program– Expanded to include service industries– Logistics Service Providers, Telecom, Energy

• Establish and promote local “proof points”– Follow-up and develop spring projects– Document and promote case studies

• Build a deeper bench– Programs of guided change for individual companies, supply

chain partners, and proximate SME’s

• Leverage Supply Chain Survey Results

24a


PARAGUAY CASE STUDY


25

PARAGUAY CASE STUDY Implemented by CARANA Corporation under the USAID LAC Trade Project, 2006

Why Paraguay?• Landlocked country in South America

– Quality of T&L system plays larger role in export competitiveness

• Significant interest and commitment on the part of business community (represented by National Chamber of Commerce and Services of Paraguay, CNCSP) to collaborate in efforts to identify and resolve T&L issues.

Sectors and Corridors AnalyzedPRODUCT EXP/IMP TYPE OF SHIPMENT

Mode ORIGIN DESTINATIONSoybeans (unprocessed) Export Truck Land Ciudad del Este Cascavel (Brazil)Soybeans (unprocessed) Export Barge River-sea Asunción- Nueva Palmira/ Rosario Rotterdam (Holland)

Refrigerated meat Export Refrigerated truck Land Asunción Santiago (Chile)Frozen meat Export 40’ FCL River-sea Asunción- Buenos Aires/ Montevideo St. Petersburg (Russia)

Wood moldings Export 20’ FCL River-sea Asunción- Buenos Aires/ Montevideo Miami (U.S.)Sesame seeds Export 40’ FCL River-sea Asunción- Buenos Aires/ Montevideo Osaka (Japan)Agrochemicals Import 20’ FCL River-sea Shanghai- Buenos Aires Asunción

LCL Export 9 barrels River-sea Asunción- Buenos Aires/ Montevideo Baltimore (U.S.)LCL Import 346 boxes River-sea Houston- Buenos Aires Asunción

Information technology Import 1,200 Kg Air Miami Ciudad del Este

CORRIDOR

26

Methodology

Data Collection• In-depth conversations with T&L service providers, exporters

(T&L users), industry representatives and government officials.

• Identification and quantification of all costs along a given value chain, from factory/farm to final destination– Pre-shipment: Packaging, storage, consolidation, health/sanitary

inspections and transport to exporter/consolidation point– Overland Transport: Overland transport to port of exit– Port: Fees for access, time required to entry and exit.– Customs: Activities related to release of goods by customs and

other officials, customs; includes required certifications and inspections

– Water Transport: Shipment of goods by river or ocean to destination and expenses related to insurance, handling, and port services.

27

Methodology

Focus on Excess Costs in T&L Process• Identification of weaknesses or issues that lead to higher costs born

by exporter or service provider (e.g. trucking company)

– Bureaucratic Fees that do not correspond to a service provided or represent redundant fees

– Technical Barriers to Trade (e.g., SPS requirements resulting in delays that could reduced through electronic submission/receipt of approval)

– Unnecessary delays along value chain as compared to either reasonable amount of time in Brazil (internal comparison) or existing benchmarks in region (e.g., time to enter/exit port)

• Measurement of inventory (opportunity cost) and financial costs attributed to the specific issue.– Inventory cost calculated at 0.3 to 0.8 percent of cargo value per day.– Finance cost calculated by interest rate or $/hour of transport asset

delayed

28

Direct C

osts

Pre-shipmentLand

TransportPort Customs

River / Maritime TransportParaguay Russia

Fluvial-Maritime Transportation Process

Customs

Detail: Customs-related and Other Gov’t Agency Costs Incurred in Exporting Frozen Meat to Russia

• Cargo Reserve Law

• Customs Broker Fee

• Voluntary fee to Meat Chamber• Customs seal• Certificate of Origin (Chamber of Commerce)• Sanitary Inspection (Ministry of Ag)• Document Photocopying Charge

• Miscellaneous informal fees• On-site Customs inspection• Registration of Export Shipment

• Fee for electronic documentation

Ind

irect Co

sts

Inven

tory C

osts

Fin

ancin

g C

osts

EXAMPLE EXPORT CHAIN ANALYSIS: FROZEN MEAT EXPORTS (PARAGUAY – RUSSIA)

29


30

Breakdown of Total Costs

Port4.0%

Customs6.7%

Pre shipment29.8%

Payment14.3%

Water Transport44.8% Surface

Transport0.4%


Analysis of costs breakdown to export via water route

Breakdown of Excess Costs

Customs18%

Water Transport12%

Payment11%

Pre shipment58%

Surface Transport

0%

Port1%

31

Using Results: Prioritizing Issues at Value Chain Level

Product(Corridor)

Estimated Impact of the Excess Cost to Sector in

2005 (US$)

% of Total Excess Costs

to Sector

1 Insufficient river dredging $ 9,377,897 33%

2 Delays in port access $ 6,836,646 24%

3 Pre-shipment costs $ 4,800,848 17%

1 Delays in border crossings $ 2,654,536 57%

2 Excess costs due to Customs $ 1,477,611 31%

1Pre-shipment costs (land transportation, phytosanitary certif ications, etc.)

$ 8,555,326 59%

2 Excess costs due to Customs $ 2,570,250 18%

3 Insufficient river dredging $ 1,725,113 12%

1Excess costs caused by requirements of SENASA in Argentina

$ 1,596,632 54%

2 Excess costs due to Customs $ 438,282 15%

3 Delays due to poor roads (during preshipment) $ 276,602 9%

4Delays due to lack of availability of refrigerated transportation equipment

$ 276,602 9%

1Preshipment costs (delays in domestic transport, obtaining quality certif icate)

$ 1,422,377 68%

2 Insufficient river dredging $ 336,808 16%

1 Delays in loading LCL containers $ 1,515,000 39%

2 Delays due to poor roads (during preshipment) $ 929,981 24%

3 Insufficient river dredging $ 532,500 14%

4 Excess costs due to Customs $ 510,336 13%

82%

Top Issues By Product and Corridor

1Delays in raw -material imports due to border crossings

$ 12,434,284

Soybean exports(River-sea – Netherlands)

Soybean exports(Land – Brazil)

Frozen-meat exports(River-sea – Russia)

Chilled-meat exports (Land – Chile)

Wood exports (River-sea – USA)

Sesame exports(River-sea – Japan)

LCL exports (River-sea – USA)

Top Issues by Product and Corridor

32

Using Results: Prioritizing Issues at System Level

Top Ten Excess Costs Identified (2005)

10 MOST SIGNIFICANT IDENTIFIED EXCESS COSTS TOTAL IMPACT US$

Border crossings $ 38,404,015 Delays in port access $ 19,556,645 Insufficient river dredging $ 19,377,896 Delays due to poor roads $ 16,615,336 Delays in obtaining health certifications $ 7,232,951 Consular visa requirements $ 6,801,600 Loss of merchandise in the pre-shipment process $ 5,085,551 Delays in payments $ 4,291,192 Cargo Reservation Law $ 3,491,037 Customs brokerage fees $ 3,331,490

SUBTOTAL OF THE 10 MOST IMPORTANT EXCESS COSTS $ 124,187,713

33

Using Results Quantifying Economic Cost of Issues to Inform Cost-Benefit Analyses of Interventions

Excess costs generated by Poor Infrastructure• Cost of poor roads in pre-shipment phase (farm to exporter) - $16.6 million

per year• Cost of depth limitations (lack of dredging) in river transport - $19.3 million

per year

Excess costs generated by regulatory/procedural issues• Consular visa requirements – $6.8 million• Customs brokerage fees attributed to red-tape and misc. payments (bribes)• Cargo reservation law - $3.5 million• Delays at border crossings ; $38.5 million• Obtaining SPS-related certifications - $7.2 million ($4.8 million in meat)

Excess costs generated poor practices and coordination• Poor packaging and handling techniques - $5.1 million• Poor coordination at ports (resulting in delays in movement/clearance of

goods) - $23.5 million

34

EMPIRICAL EVIDENCE UNDERSCORES IMPORTANCE OF TRANSPORTATION AND LOGISTICS…

• Study covered 48% of volume of Paraguayan exports in 2005

• Transport and logistics costs equivalent to 20% of value of exports (FOB).

• Approx. 33% of these costs were determined to be excess costs linked to legal, regulatory, efficiency and procedural bottlenecks that can be feasibly reduced in the short and medium term, equivalent to 1.88% of GDP . – Extrapolated to macro level, equivalent to 4.26% of GDP.

• Estimate that 77% of the excess costs identified are Paraguayan responsibility. Estimated 47% of excess costs are linked or attributable to Paraguay’s landlocked country status.

• Approximately 30% of the excess costs identified could be addressed at private sector level

35

…INFORMING PUBLIC / PRIVATE DIALOGUE ON KEY OPPORTUNITIES TO INCREASE COMPETITIVENESS…

• Private Sector armed with solid data to build consensus on key opportunities to improve competitiveness

• Customs and Policy Makers equipped with economic justification for change and key private sector allies to target

• Industry groups equipped with tool to calculate total transport and logistics costs, and collaborate on reduction of costs they are able to change (e.g., excess pre-shipment costs)

• Initiatives are underway (some w/ Lac Trade Support)– Chamber using own funds to develop capacity to advocate or

consult on T&L issues; Serving as spokesperson for Private Sector– LAC TRADE support to Chamber to address bureaucratic issues in

short term– LAC TRADE support to Chamber to develop T&L index to track

costs on ongoing basis.

36a


SUMMARY OF STRENGTHS AND UTILITY


37

Summary of Strengths of Export and Supply Chain Analytic Tool

• Flexible methodology easily tailored to country context; sector-specific or macro-economic focuses– Easily integrated into TCB or Export Development Programs

– Input for MCC program prioritization

• Enables stakeholders to zero in on the issues that really matter; determine relative importance to economy/sector– Infrastructure, legal and regulatory polices, customs and borders,

• Facilitates identification of ‘Quick Wins’ at value chain level Improvements in pre-shipment,supply chain management practices – Investments in value chain specific assets and techniques (e.g. cold

chain, hanging garment containers)

– Improvements in product specific regulations and procedures (e.g. SPS certifications and procedures)

38

How can USAID use the tool for programming?

• Facilitating public-private engagement for programs and policies focusing on trade facilitation– Consensus around critical issues and proposed interventions– Support for follow-up analysis and feasibility studies– Tracking performance over time

• Support for T&L Improvements at Value-Chain Level– Building capacity of producers, manufacturers and exporters to use

modern T&L solutions (e.g. packaging, supply chain management)– Promotion and facilitation of investments and upgrades in value-

chain specific T&L assets and services (e.g. cold chain)

• Support for T&L Improvements at Systemic Level– Privatization of public transport assets, development of PPPs– Policy reform in transport service sectors– Customs modernization programs– Multi-country initiatives to improve regional T&L systems; focus on

improving landlocked countries’ market access.

carana tl presentation

Business