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Logistics and freight industry: The Bangladesh perspective

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The logistics and freight industries in Bangladesh have been thriving for years in line with the steady growth of exports and imports, according to industry insiders. In Bangladesh, the industry came into being in 1991-92. Initially, there was no guideline and policy regarding the industry and even government officials, exporters and importers had a scarce idea on how to operate the industry.

In the current context, foreign companies mostly open joint ventures with our local companies and this collaboration built the foundation for further accumulation of domestic logistical expertise. It is worth mentioning that logistics companies carry out all responsibilities, including loading and unloading until goods reach warehouses.

Bangladesh-Logistics-freight-industry
Figure: For Bangladesh, improving its logistics performance provides an opportunity to increase its world market share in garments and textiles.

Since Bangladesh’s annual export and import trade volume reached US$100 billion, the sector has a huge potential to improve. According to the Agility Emerging Markets Logistics Index (AEMLI) of Kuwait-based Agility Global Integrated Logistics, Bangladesh has jumped eight spots and ranked 15 in 2019, considered as the worlds’ leading emerging markets for logistics.

This is the largest gain of any market in the 50-country “Agility Emerging Markets Logistics Index 2019”, according to a recent survey.

For Bangladesh, improving its logistics performance provides an opportunity to increase its world market share in garments and textiles, which account for 84% of its total exports, expand into new markets, and diversify its manufacturing and agriculture into high-value products.[1]

Market dynamics

In the context of Bangladesh, the development of export-related logistics has been stimulated by foreign freight forwarders and 3PL, i.e. foreign parties that integrate warehousing, transportation and other logistic services.

These foreign parties usually conclude joint venture agreements with local Bangladeshi parties. These forms of collaboration create a foundation for the further cultivation of domestic logistical expertise.

Currently, about 1,600 local and 20-30 international logistics and freight forwarding companies[2] are providing necessary support to the export and import sector in Bangladesh.

The total business hovers around US$1.5 billion to US$2 billion and the industry directly generated about 40,000 jobs in the last three decades[3].

About the logistics business in Bangladesh, the dominating subsector is the freight transport services sector. It is worth mentioning that Bangladeshi export-related logistics, especially that of food and textile, are operationally advanced while the rest of the logistics sector in Bangladesh is unsophisticated.

The Agility Emerging Market Logistics Index (AEMLI) identifies: air cargo carriers, shipping lines, freight forwarders and distribution property companies will have the highest business viability in the logistics sector of Bangladesh.

Dominant logistics subsectors in Bangladesh

Various studies identified several subsectors in this area evident in Bangladesh, such as (1) wholesale trade services; (2) retail trade services; (3) freight transport services; (4) cargo handling services; (5) storage and warehousing services; (6) postal and courier services; and (7) 4PL.

However, a study by Nyenrode Business Universiteit, the Nederlands[4] pinpointed the subsectors having a strong dominance in this business, they are as follows:

  • Freight transport agency services;
  • Air and space transport services of freight and
  • Cargo handling services.

In the context of Bangladesh, rail and road freight are major segments for inland services. Shipping freight’s share in the export and import business in Bangladesh stands at 80%, while that of air and road is 20%. In general, logistics companies provide transport services of freight through sea, road and airways. However, the rail transport of freight for exports and imports is yet to be introduced in Bangladesh.

The annual turnover scenario in the Bangladesh market

The study conducted by Nyenrode Business Universiteit, the Netherlands, further found that most of the logistics businesses in Bangladesh are MSMEs and have an annual turnover of Tk. 15 million up to Tk. 100 million. On the other hand, well-renowned companies (i.e. both MSMEs and large) see an average annual turnover of Tk. 100 million or more, but at least less than Tk. 1 billion. Additionally, newly established MSMEs and large conglomerates showed an annual turnover trend of less than Tk. 15 million or more than Tk. 1 billion.

Governance

Nine (9) ministries and more than 20 government agencies play roles in setting policies and regulations, planning, operating infrastructure, and providing services[5].

  • Major private sector associations[6]:
  • Bangladesh Freight Forwarders Association (BAFFA);
  • Bangladesh Cargo Vessel Owners Association (BCVOA);
  • Coastal-Ship Owners Association of Bangladesh (COAB);
  • Bangladesh Master Stevedores Association (BMSA);
  • Bangladesh Shipping Agents Association (BSAA);
  • Cargo Handling Agents’ Association (CHAA);
  • Outsourcing and Logistic Service Provider Association of Bangladesh (OLSPAB).

Regions of business concentration

Dhaka and Chittagong are the largest logistics business clusters because these two cities are (a) major hubs of manufacturing units (b) Origin of EXIM trade and (c) largest consumption centers of the country.  Dhaka has evolved as a central warehousing hub of the country.

Chittagong, being the gateway for international trade & accounting for 90% of export-import cargo, has become the most important center for EXIM based warehousing. These two clusters jointly occupy 70% of warehousing space.

However, various other regional logistics business clusters or distribution hubs such as Khulna, Barishal, Bogura, Rangpur, Cumilla have also emerged as logistics and warehousing destination primarily for catering domestic consumption market[7].

Donors involved

In Bangladesh’s transport and logistics infrastructure sector, the majority of the financial assistance comes from the ADB, the World Bank, the UK via the Department for International Development (DFID), Japan and via the Japan International Cooperation Agency (JICA) and finally South Korea.

Institutions in Bangladesh’s logistics sector[8]

Major challenges impeding logistics business growth in Bangladesh

  • Nine ministries and more than 20 government agencies play roles in setting policies and regulations, planning, operating infrastructure, and providing services. The fragmented governance of the logistics sector exacerbates the coordination problem intrinsic to infrastructure development, leading to transport modes that developed and evolved in silos and basic mismatches of infrastructure standards, such as bridges that are narrower than approach roads.
  • Service providers cannot track and trace shipments. Because of the low quality of services, many manufacturing firms provide their logistics needs in-house to better control the performance of their supply chains.
  • There is no competition in logistics service markets in Bangladesh. The involvement of unions and associations prevents direct interaction between service providers and shippers. As service providers are not rewarded for the quality of their services, they have no incentive to provide high-quality services or innovate.
  • High trucking rates due to inefficiencies in the transportation and logistics system, low truck utilization, extreme levels of congestion in roads and ports, and a large number of trips of empty trucks are the main causes. Truck owners count that 35 percent of the trips have empty trucks.
  • Instances of unprofessional behavior by logistics service providers. Most truck drivers are low skilled and illiterate.
  • Lack of skill-training relating to modern warehousing (i.e. temperature-controlled transport & storage), cross-docking, inventory management, efficient customer service, cold chain, etc.

[1] The WBG report Moving Forward: Connectivity and Logistics to Sustain Bangladesh’s Success

[2] BAFFA member list

[3] The Daily Star, Bangladesh [Logistics, freight thrive on rising trade]

[4] Exploring the Logistics Sector in Bangladesh: Opportunities, Threats and Practical Information, Nyenrode Business Universiteit, the Netherlands

[5] “Moving Forward: Connectivity and Logistics to Sustain Bangladesh’s Success”, 2019, the World Bank

[6] FBCCI

[7] Comprehensive study on Warehousing sector commissioned by IFC, World Bank Group in association with Knight Frank, India.

[8] PricewaterhouseCoopers Study, 2018.

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