India’s rank slips from 39th to 54th in Logistics competence

The gap in trade logistics between the countries that perform best and worst is still quite large, despite a slow convergence since 2007, according to a new World Bank Group report entitled “Connecting to Compete 2014: Trade Logistics in the Global Economy”.

Supply chains are the backbone of international trade and commerce. Their logistics encompasses freight transportation, warehousing, border clearance, payment systems, and increasingly many other functions outsourced by producers and merchants to dedicated service providers. LPI measures efficiency of trade supply chains, or logistics performance. The data for the report that ranks 160 counties on a number of logistics pointers comes from a survey of more than 1,000 logistics professionals.

“The LPI is trying to capture a rather complex reality: attributes of the supply chain,” said Jean-François Arvis, Senior Transport Economist and the founder of the LPI project. “In countries with high logistics costs, it is often not the distance between trading partners, but reliability of the supply chain that is the most important contributor to those costs.”

Among the countries, Germany showed the world’s best overall logistics performance. Somalia had the lowest score. In general, the trend across past reports has been that countries are improving and low-performing countries are improving their overall scores faster than high-performing countries.

The 2014 report finds that low-income, middle-income, and high-income countries will need to take different strategies to improve their standings in logistics performance. In low-income countries, the biggest gains typically come from improvements to infrastructure and basic border management. This might mean reforming a customs agency, but, increasingly, it means improving efficiency in other agencies present at the border, including those responsible for sanitary and phytosanitary controls. Often, multiple approaches are required. “The LPI is a concrete tool for raising awareness and spurring improvements,” said Jeffrey Lewis, Director of the Economic Policy, Debt and Trade Department. “It allows us to evaluate constraints across a broad set of countries.”

In high-income countries, there is a growing awareness of – and a demand for – “green logistics,” or logistics services that are environmentally friendly, observes the report. In 2014, about 37 percent of LPI survey respondents shipping to OECD countries recognized a demand for environmentally friendly logistics solutions, compared with just 10 percent of those shipping to low-income destinations.

India Angle
India ranks 54th among the 160 countries covered under aggregate LPI. Its rank is still lower at 65th in customs efficiency, 58th in quality of infrastructure and 57th in effectiveness in tracking and tracing of consignments but its ranks are better at 44th in international shipments, 52nd in quality, competence of logistics players and 51st in timeliness. China ranks 28th and its indicator scores are 1.10 to 1.27 times those for India. Among the BRICS group of countries, India lags behind China and South Africa, while its scores are better than Russian Federation and Brazil.

Looking at the change over the past seven years, while the country’s overall LPI score has improved only marginally from 3.07 in 2007 to 3.08 in 2014; its rank has slipped 15 places from 39th over the period. China, on the other hand, has improved its rank from 30th to 28th, following progress in its overall score from 3.32 to 3.53 over this period.

Methodology
LPI is a multidimensional statistical assessment of logistics performance, rated on a scale from 1 (worst) to 5 (best). Its components are

• Efficiency of customs and border clearance,
• The quality of trade and transport infrastructure,
• The ease of arranging competitively priced shipments,
• Competence and quality of logistics Services,
• Ability to track and trace consignments;
• Frequency with which shipments reach consignees within scheduled or expected delivery times

LPI is constructed from the above six indicators using principal component analysis (PCA). The inputs for PCA are country scores from respondents’ feedback on selected questions, averaged across all respondents providing data on a given overseas market, which is supplemented with quantitative data on the performance of key components of the logistics chain in the country of work.

LPI has two important limitations, despite being the most comprehensive data source for country logistics and trade facilitation. First, the experience of international freight forwarders might not represent the broader logistics environment in poor countries, which often rely on traditional operators. Also, the international and traditional operators might differ in their interactions with government agencies—and in their service levels. Second, for landlocked countries and small island states, the LPI might reflect access problems, outside the country assessed, such as transit difficulties.