The World Bank Cares About Logistics

One of the highlights of the BVL was a panel discussion by the World Bank, talking about their global logistics study.

Jean-Francois Arvis spoke about the World Bank Study on the Logistics and Public Sector.  The World Bank is looking at logistics form a policy perspective, which has just emerged in the last ten years.  JP referred to the importance of logistical events in history to set the context.  For example, he discussed commemoration in 1826  of A.J. Jomini for military logistics, which was at the heart of ending Napoleon’s campaign in Russia where the government was the supply chain operator.  This disaster was relived and the art of moving goods and supply was a big issue, with government as the driver.  Before this military logistics concept, logistics was key to colonial expansion in the new world.  Finally, the concept of military logistics which implemented in WWII was key to the invasion of Normandy and the end of the war.  The role of government as a primary driver of business logistics began in 1980’s, and has escalated in the last decade.  The World Bank has subsequently adopted a focus on logistics as a policy area.

What are objectives of the state for logistics?  Working with governments, the World Bank focuses on competitiveness of logistics growth as a key driver for economic growth, due to the importance global value chains and supply chains.  Logistics capability enables an increase production sharing and continued growth in world-trade.

Some governments also want to drive logistics services to share prosperity to connect remote areas and ensure food security.  It is also a business opportunity for logistics hubs to be created, to serve different regions (such as central Africa).  The World Bank is seeking to effectively integrate a number of areas for infrastructure, planning, customs trade facilitation, and regulation of services.  This must be demand driven, as people become aware of the high impact of logistics on production and trade and the importance of supply chain cost implications!

One key metric of logistics infrastructure involves the cost of logistics as a percent of GDP.  In developed countries like Germany and the US, that number is about 8% of GDP.  But when we look at countries with a poor loigstics infrastructure, we find that the cost ranges from a high of 20% in Kazakhistan, 14% in Brazil, and 18% in  China.  This is due to the high cost of transferring freight, the cost of cars stuck in traffic, and damage and waste of goods in the channel.

One measure is also the LPI Index which shows how transport costs down and freight costs go up as the index goes up.  The LPI consists of six elements, including customs, infrastructure, services quality, timeliness, international shipments, and tracking and tracing.  The LPI is conducted largely through Professor Lauri Ojula at the Turku School of Busieness in Finland.  I had a chance to speak with Lauri, and hope to continue a dialogue with his team and the World Bank going forward!