‘High logistics cost weakens Bangladesh’s competitiveness’
As the prices of commodities continue to rise, transportation costs have also inflated and this, in turn, affects businesses. The Business Standard spoke with Abul Kasem Khan, former Chairperson, trustee board of Business Initiative Leading Development (Build), about the importance of logistics and a robust supply chain
Bangladesh Bureau of Statistics has recently published the latest transportation sub-index of the Consumer Price Index (CPI) basket in the country, estimating an increase to 317.88 points in March from 317.11 points in February this year.
For the last several years, the country has observed inflated transportation costs due to various reasons. A study titled Quantitative Analysis of the Move to Paperless Trade, conducted by the Commonwealth Secretariat, also estimated trade cost was over 80% of trade revenues in Bangladesh. This exorbitant cost may be reduced once the overall digitisation is adopted here.
How do the inflated transportation costs affect the business communities? The Business Standard recently talked to Abul Kasem Khan, the former Chairperson of the trustee board of Business Initiative Leading Development (Build), who shared his views on the importance of strong logistics supply chains for better competitiveness.
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How has the inflated transport affected the domestic trade and commerce as well as the export sector?
I would explain the factor a bit differently. The cost of logistics is very high in Bangladesh. Logistics include expenses like transportation costs, which often make up 40% of the total production costs, which is quite high compared to our competitors.
This high logistics cost weakens Bangladesh's competitiveness. We need to address this issue as soon as possible. We, the business community, have urged the government to formulate a policy about logistics because we have observed that logistics do not receive much importance.
Before landing in the market, 25-40% of crops, including the perishable mango begin to rot due to poor transportation facilities and other reasons including slow traffic movement, inefficient packaging and impoverished wholesale facilities.
In terms of access to the market, I would say the supply chains are very weak in the country. Every year, around 40% of products like vegetables and fruits are being wasted because of this. Otherwise, the income of producers and sellers would have been higher.
How can we change the situation? The country needs warehousing as well as cold-chain policies. Incentives by the government will help mend the weak supply chain. If the supply chain becomes strong and efficient, wastage and logistics costs will decrease subsequently.
The government should give incentives to the private sector to build the proper cold chains (low temperature-controlled supply chains). Now, developed countries have modern technologies to facilitate the refrigeration of different products in the same warehouse. We are still far behind in terms of facilities.
Do you think that curbing irregularities and corruption in the transport sector will reduce the burden of higher transportation costs?
Of course. Inefficiency increases costs. Weak connectivity is a major inefficiency. For efficiency, there should be good road communication and better access to the market. The export processing zones in Dhaka and Chattogram should house refrigeration facilities because many export items need to be preserved at a regulated temperature. Here, government incentives are required to set up such facilities. These facilities will attract investment from business communities.
I believe this is high time for Bangladesh to identify the supply chains which require incentives on a priority basis. For this, the government should check corruption and extortion, which are responsible for the increased transportation costs.
Otherwise, the inefficiency of logistics cannot be addressed. Who is paying the highest for this inefficiency? Of course, the consumers. The more efficient the supply chain becomes, the less consumers have to pay for the products. It will stabilise the market too.
The price information varies from market to market. Because of transportation, processing and packaging costs, the price of mango will be higher in a Dhaka-based market compared to a Rangpur-based one. But the difference must be at a permissible level. Product prices in Dhaka markets should not go beyond the capacity of city shoppers in general. The price should not be increased because of wastage.
You have talked about incentives. In case the fuel price keeps rising, does the business community plan to demand more subsidies in the transport sector?
The government has already been providing us with subsidised fuel. We don't want to add more burden on the government's shoulders. Instead, the business community should bring out more competitiveness.
How long will the government provide subsidies? The government has limitations. But the government should facilitate the building of efficient supply chains. Delayed transportation not only adds to transportation costs but also increases the retail price of products. If I talk about mango transportation, the logistics cost is lower than the transportation cost.
The producers and the middlemen add transportation costs, including fuel costs, to the final price. The producers and suppliers will need less fuel if they can transport products to the market quickly through an efficient communication system, whether it is by road or waterway. Here, access to the market or speed of reaching the market depends on the efficiency of the supply chain.
I think Bangladesh now requires a long-term energy strategy. The Russia-Ukraine war will impact our energy sector for sure. Hence, the government should frame an energy sourcing strategy following an assessment of the future energy demands. The government must fix the ceiling of the subsidy in case the international fuel price keeps increasing.
Bangladesh has good reserves of gas and coal. I find policy gaps in exploring the energy reserves. There is no clear roadmap for energy exploration. We extract less gas compared to other countries. A big reserve of coal and the vast offshore gas blocks are yet to be explored. So I strongly recommend strengthening the local energy sector. Otherwise, dependency on energy imports will weaken our competitiveness.
Studies suggest that higher trade costs in Bangladesh may subside once the country adopts paperless trade. Do you agree with the statement?
Paperless trade broadly means online business. Of course, I agree with the statement. There is an example I love to share with others. See the success of the 'Surokkha' app which is being used for the mass Covid inoculation campaign. Is there a paper trail? No. Vaccine seekers apply online for jabs, receive short messages on their mobile phones and get the shots in due time. Thousands of people have received vaccines through this online process. Haven't they? The paperless activities eventually have helped conserve the environment.
Under the guidance of Prime Minister Sheikh Hasina, many sectors have now been digitised. Why should the trade and commerce sectors be isolated? I have learnt about the formation of the Single Window (a system which facilitates electronic communication between traders and relevant government agencies) to facilitate paperless trade in Bangladesh. The faster it is implemented, the easier, faster and more accountable the trade will be.
