Third World Countries Infrastructure Have a Profound Effect on Logistics - Research Paper Example

Third world countries Infrastructure have a profound effect on Logistics Contents Introduction 3 Transportation Infrastructure 4 Port Infrastructure 4 Canal and Waterway Infrastructure 5 Airport Infrastructure 6 Rail Infrastructure 7 Road Infrastructure 7 Warehousing Infrastructure 8 Communications infrastructure 8 Utilities Infrastructure 10 Electricity 10 Sewer and Water Infrastructure 10 Recommendations 10 Conclusion 11 References 12 Introduction The process of efficiently moving goods/resources from the source to destination is known as logistics and has a significant impact on the performance of a business (Tracey, 1998). Logistic effectiveness is considered to be pivotal for the trade and economic growth of a country and plays a strong role in the overall competitiveness and economic performance of a country (Mangan, Lalwani & Butcher, 2008). A study of logistic effectiveness of 155 countries across the globe was conducted by the World Bank in 2012. The study rated countries on the scale of 1 (worst) to 5 (best); the report showed that most of the countries rating 1 were less developed countries from Africa and Asia (World Bank, 2012). The logistic performance of the countries was measured on six components out of which the quality of infrastructure related to trade and transport such as ports, roads, railroads and communication technology topped the list. The other components were the efficiency with which customs and other border control agencies carried out the clearance process, the quality and competency of logistic services, ease of tracing and tracking of consignments, the ability to arrange shipments at competitive price and the reaching of the shipment within time schedule (SC Digest Editorial, 2012). Good quality infrastructure is considered to be the main requirement for sustainable development of a country. Efficient transport system and proper energy, sanitation and communication systems are needed not only for a decent standard of living but also for the economic growth and prosperity of a country (European Commission, 2014). Ondiege et al (2013) studied the less developed countries in Africa and found that they suffer from marked infrastructure deficit which has largely hampered growth prospects. Research done by Razzaque (1997) also showed that the Third World countries not only lacked logistic facilities but developing a good infrastructure in these nations was a daunting task. This was mainly due to rampant corruption, civil wars and lack of funds. In most countries the governments were also not committed enough as projects to improve infrastructure were abandoned halfway through Razzaque, 1997). In order to boost growth and development and respond to the changes in global businesses (developing logistics being one of them), the third world countries need to invest in infrastructure. Studies conducted by (Bhattacharya et al., 2012) show that infrastructure is one of the main determinants of logistic costs. Where logistics cost is defined as the money spent to bring goods from the producer to consumer. The quality and availability of infrastructure determines the logistics cost. In third world countries, the inefficient logistics infrastructure makes smooth transportation of goods extremely difficult and expensive (Bhattacharya et al., 2012). Poor infrastructure resulting in least attractive logistics also lowers the competitive edge of a country. For instance although Brazil is rich in natural resources and has abundance of cheap labor, it is not viewed as a low production country because the poor infrastructure has raised the cost of logistics (Kelley, 2011). Besides increase in cost, poor logistics also results in increase in time. Transportation Infrastructure Mostly in the third world countries transport infrastructure is most inadequate and is often stated to be the leading constraint in economic growth (Ondiege et al., 2013). Road and rail infrastructure lack maintenance whereas outdated airport and seaport infrastructure limits logistic activities; transportation infrastructure can be further categorized as follows: Port Infrastructure The importance of port infrastructure can be determined by the fact that around 90% of the world’s trade is carried by the sea. As compared to other modes of transportation, it is cheapest form of transporting large amounts of merchandize and commodity. The lifting of trade barriers and the integration of trade has caused sea shipments to increase by 3.1% in the last decade (African Bank, 2010). However this is not true for less developing countries; for instance in African continent, the port performance is rather poor and inadequate to meet the pressures of the rising global trade. African Bank (2010) stated that due to rise in trade, the African ports have become congested. Low containerization and weak inland transportation links were also observed in the report. Similarly in Latin America too inadequate infrastructure was found to be the reason behind the slow development of the countries (Jacobs, n.d.). The under-developed port infrastructure has resulted in inefficiencies that have reduced trade volume and increased the cost of port operations (Kelley, 2011). Although the situation is not that grim in Asian less developed countries still port congestion, bottlenecks for foreign shipments, time delays, inadequate tracing and tracking capabilities are common at Asian ports and are a big hurdle to logistics. Many Asian countries are struggling to keep up with the global standards of port infrastructure (Rodrigue et al., 2014). Canal and Waterway Infrastructure Canal infrastructures are few kilometers wide sea passages made to avoid the discontinuity of land transport. The Panama Canal and the Suez Canal are two most important canals of the world through which high volume of merchandize and cargo is shipped. Ships are especially designed to fit the length of Panama and Suez canals. In order to make logistics more cost effective, the ocean carriers increased the size of the vessels making them bigger than Panamax the largest size that can sail through Panama (Jacobs, n.d.). This has increased the route of those ships which passed through the canal and thus the transportation charges as the cargo is unloaded at bigger American ports and then transported to the destination by road. To overcome this problem, the Panama Canal is now being expanded so that the cargo reaches the intended destination on time and at reduced cost (Jacobs, n.d.). Latin American countries and some African and Asian countries also have navigable waterways which can serve in logistics. These waterways are capable of providing low cost and safe passage for cargo transportation. Despite the advantages the waterways remain largely underutilized because of bureaucracy and high cost of fuels (Novais, 2012). Airport Infrastructure Inadequacy of runways, low capacity terminal buildings and parking space are some problems of the airport infrastructure in the least developed countries. Only major airports in these countries have infrastructure to handle the air cargo and these too have insufficient warehousing facilities (LCL Logistix, 2011). Time delays due to outdated infrastructure pose another problem as it takes days to load and unload cargo; the outdated and mechanized system of handling cargo further aggravates this situation. The international standards for airport waiting time are 12 hours for export cargo and 24 hours for import cargo but in many least developed countries, it takes days (LCL Logistix, 2011). Also in the least developed countries, cargo transportation was never a priority and so the airplanes used for cargo were not exclusively designed for cargo transportation but are conversions of passenger planes. Dedicated cargo terminals, parallel taxiways and improved air traffic control facilities are needed at many airports (LCL Logistix, 2011). Rail Infrastructure Rail infrastructure is defined as the second most important component in logistics operations. Unfortunately in almost all third world countries the rail infrastructure is quite dilapidated and highly underused (Ondiege et al., 2013). The railways in these countries were designed for passenger transportation and therefore the major hurdle in rail logistics is that the same tracks are used for passenger trains as well as cargo trains. This reduces the speed of the trains and causes delays. Another factor that slows done the speed of trains is encroachment around railway surroundings which in some countries forces the trains to slow down to the speed of 5 km per hour (Novais, 2012). Also the railway does not connect isolated areas to the main centers which limits the routes available and thus the flexibility of transportation (Novais, 2012). Unavailability of wagons has also been reported as an obstacle in rail logistics. Limited capacity in terms of goods transportation and high cost of transportation mar rail logistics in many third world countries (Guasch, 2011). Road Infrastructure Transportation of merchandize by road is an important means of goods movements in many countries around the world and is the most popular transportation method in the logistics sector. However it heavily depends upon the road infrastructure and it has been observed that in the third world countries, poor road infrastructure cripples the smooth flow of logistics. The highways are narrow and congested and the surface quality of roads is quite poor (Economic Commission for Africa, 2010). Most of the far flung areas do not have access to proper roads while the existing roads are in bad condition. In some areas the unpaved and patchy roads become inaccessible during the rainy season thus bringing the logistic activities to a halt (Economic Commission for Africa, 2010). The dismal conditions of the roads compels drivers to reduce their speed and the average speed of the trucks in areas with bad roads was observed to be 30 to 40 km per hour as compared to 60 to 90 km per hour in developed countries; because of slow speed less distance (240-280 km) is covered by the trucks while the distance covered in developed countries averages 680 to 700 km (LCL Logistix, 2011). Besides lack of maintenance, encroachments along roadside and absence of signals are also hurdles road transportation faces in the third world countries. Warehousing Infrastructure Sub-standard warehousing infrastructure is yet another crucial logistic bottleneck in third world countries (Guasch, 2011). There is a shortage of warehouses and the existing ones lack proper facilities and rates are quite high. In many countries there is no proper cooling capacity required for perishables such as food items. It is interesting to note that the availability of cooling services for perishables is a crucial component of its logistics system (Guasch, 2011). For instance in Vietnam exports seafood, flowers and vegetables and imports drugs and processed foods; all of these items require climate controlled warehousing infrastructure and a lack of such facility has stunted the development of logistics in the country and has affected its economic growth as well. Not only Asian countries but the least developed and less developed countries in Latin America and Africa also lag behind in providing satisfactory warehousing infrastructure. Inefficient handling is also reported in these countries as the staff hired is not experienced enough or is not properly trained (Economic Commission for Africa, 2010). Communications infrastructure When it comes to communications infrastructure, the situation in third world countries is encouraging. Mobile communications technology has widely bridged the digital divide between least developed and developed countries and the mobile communication penetration rate at the end of 2010 was noted to be 29% (ITU News, 2011). This shows that mobile communication technology has been able to overcome the infrastructure barrier to some extent unlike the landline (fixed) phones which showed a penetration rate of 1%. It was also noted that in countries like Djibouti, Democratic Republic of Congo, Bangladesh, Eritrea and Burkina Faso fixed line phone infrastructure was non-existent in the rural areas (ITU News, 2011). The use of internet is not that common in the third world countries as studies showed that out of 100 only three people in these countries were online. Internet penetration ranging from less than 0.5% to more than 15% was noted in the third world countries (ITU News, 2011). Observers quoted many factors such as limited availability of international internet bandwidth, low educational and literacy rates and high prices as the reason behind low internet penetration. Mobile broadband subscription is also extremely restricted in the third world countries (only 0.5 per 100 people) because of the absence of 3G networks in these areas (ITU News, 2011). Because of the limited access to modern technology, third world countries cannot make use of RFID (Radio Frequency IDentification) and other wireless technologies that help in tracking cargo (Khan & Kurnia, 2006). However the growing availability and use of information and communication technology (ICT) infrastructure in the third world countries is a good omen the suppliers in the third world countries are now able to communicate with their customers, improve logistics, and market products. The buyers and sellers are now linked through mobile phones especially in the African countries and market information can be exchanged. Utilities Infrastructure International logistics also involves utilities infrastructure; although water, electricity and gas are available in all developed countries, this is not the case in third world countries where shortage of one or the other persists (David & Stewart, 2010). Electricity Poor performance in the power sector also hampers logistics. Unreliable power supply and aging transmission facilities affect production (MBendi, 2014). The storage facilities require uninterrupted power supply and frequent power failure and long blackouts can be detrimental for the stored goods especially perishable items. Vandalism of gas pipelines and ageing energy pipelines have added to power problems in third world countries. Sewer and Water Infrastructure Water and sewer infrastructure is critical for healthy workforce and is also one of the main requirements in the production of goods and services. Access to fresh and clean water is a major problem in many third world countries mainly due to mismanagement and unequal distribution. Besides household needs, good water and sewer infrastructure is also required for various processes during manufacturing and to properly get rid of the waste generated. Lack of sewer and water infrastructure can lead to a rise in health problems and a decrease in productivity (David & Stewart, 2010). Recommendations In order to reach to the global standards and competencies of logistic services, the third world countries need to push up the development pace of logistic infrastructure. The governments need to accelerate the development of a network of highways consisting of wide, high quality and all weather accessible roads that would connect the rural and urban areas. The governments should also expand ports to accommodate larger sea vessels as well as provide cargo packaging and handling facilities, upgrade bunker services, stevedoring and pilotage services, container parking and repairing facilities and provide state of the art warehousing facilities at the ports. Similarly logistics at airports can be improved by making equipping smaller airports with cargo handling facilities, dedicating terminals to cargoes only, constructing more runways and improving storage facilities at the warehouses. There are fifteen landlocked countries in Africa that are categorized as third world countries (ICA, 2013). The governments can collaborate to develop and maintain a trans-African highway to meet the demands for inter and intraregional trade and also to improve regional ties (ICA, 2013). The third world countries are showing progress in the ICT sector which when further developed will promote on time delivery of goods and cross border trade. Funding which is the biggest hurdle in improving infrastructure can be solved by inviting foreign direct investment; for instance China is quite interested in investing in infrastructure in Africa. Funds can also be arranged through public-private partnerships. Similarly partnership with logistics can improve warehouse conditions and facilities and increase the number warehouses and distribution centers in the respective countries. Conclusion The third world countries suffer from poor infrastructure which has impeded growth in logistics. Bottlenecks for foreign shipments, time delays, pathetic condition and inadequacy of transport infrastructure, poor warehousing facilities have resulted in poor logistics quality and have diminished market competitiveness. Most third world countries rank poorly on logistics performance and this has added to increase business cost and risks. 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