# **The Cost of Being Landlocked**

# **Logistics Costs and Supply Chain Reliability**

|Section 1<br>Introduction..................................................................................................... 3|
|---|
|Section 2<br>A Literature Survey and Policy Recommendations........................................ 5|
|Section 3<br>The Need for a New Empirical and Conceptual Framework to Assess.......... 8|
|the Impact of Being Landlocked......................................................................................... 8|
|3.1<br>Transit Systems and the Supply Chain Conceptual Framework......................... 9|
|3.2<br>The Purpose of Transit Systems: A Delayed Customs Clearance.................... 10|
|3.3<br>The Real World: An Inefficient Chain of Multiple Clearances........................ 13|
|3.4<br>A Supply Chain Conceptual Framework.......................................................... 15|
|Section 4<br>Revisiting the Conventional Wisdom on Transportation Costs.................... 18|
|4.1<br>Operating Costs................................................................................................. 19|
|4.2<br>Trucking Market Regulation and Structure ...................................................... 22|
|Section 5<br>Managing the Risk of Supply Chain Unreliability Risk: Delays and|
|Unpredictability and Their Impact on Economic Operators............................................. 23|
|5.1<br>Assessing the Value of Time ............................................................................ 24|
|5.2<br>Magnitude and Sources of Delays .................................................................... 25|
|5.3<br>The Observed Unpredictability of Lead Time.................................................. 27|
|5.4<br>Impact of Low Reliability of Logistics on Firms Competitiveness.................. 30|
|Inventories and Hedging Costs................................................................................. 30|
|Exports, Imports, Linkages, and Asymmetries......................................................... 31|
|Section 6<br>Non-transportation Costs: Rents and Market Failures.................................. 32|
|6.1<br>Transit Is Extremely Vulnerable to Rent-Seeking Activities ........................... 34|
|The Link between Transit and Overheads ................................................................ 34|
|Corruption and “Facilitation” Payments en Route or at Origin and Destination...... 34|
|Mandatory Transit-Related Procedures .................................................................... 35|
|Agency Costs (freight forwarders)............................................................................ 35|
|Magnitude of Transit Overheads for LLDCs............................................................ 35|
|Quality Issues of Clearing Agents ............................................................................ 38|
|Low Quality of Some Transport Operators .............................................................. 38|
|6.2<br>Who Is to Blame? Process and User Disconnect: Shipper’s Responsibility and|
|<br>the Impact on Lead Time.............................................................................................. 39|
|6.3<br>The Curse of Small Shipments ......................................................................... 40|
|Small Is Not Beautiful .............................................................................................. 41|
|Diseconomies of Scale.............................................................................................. 42|
|Trade Imbalance........................................................................................................ 43|
|Expansion of the Concept of Landlocked Countries: The Emergence of “de facto”|
|<br>LLDCs?..................................................................................................................... 43|
|Section 7<br>A Quantitative Model of the Transit Supply Chain...................................... 44|
|<br>7.1<br>The Model......................................................................................................... 44|
|7.2<br>An Empirical Application to the Northern Corridor......................................... 51|
|Section 8<br>Areas of Maximum Impact and Recommended Implementation Measures. 55|
|8.1<br>Which Trade Facilitation Measures Are Likely to Bring Most Gains?............ 55|
|8.2<br>Conclusion and Policy Recommendations........................................................ 58|

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