The Hindu Business Line : Unctad Report — Poor connectivity a drag on development

A recent Unctad report points out that the high transport costs caused by poor connectivity are more detrimental to a country’s development than ever before.

Santanu Sanyal

Distance is usually perceived to be the main determinant of transport costs in international trade but, according to a recent Unctad report on trade and development, transport costs are related not solely to distance but also to other factors, the most important being connectivity, that is, the ease with which merchandise trade can be transported.

The report points out that the high transport costs caused by poor connectivity are more detrimental to a country’s development than ever before. For example, many countries, especially in Africa, are better connected to countries in other continents through air and maritime services than they are to neighbouring countries. Thus their trade within the region is hindered not so much by distance as by poor connectivity.

Exporters from India’s west coast to Bangladesh are often required to first send their consignments to either Singapore or Colombo for onward shipment to Chittagong. Bangladesh is India’s neighbour; yet the trade route is circuitous.

An Unctad study undertaken in 2006 on the Caribbean sub-region also noted that while distance explains around 20 per cent of the variation in maritime freight rates, competition among liner shipping companies and economies of scale have a stronger impact on the freight rates. For routes where there was no shipping line to provide direct service , i.e. where shipments involved at least one transhipment in a third country’s port, the freight rates, as per the Unctad sample, were much higher than those on the routes where several carriers provided direct services.

Take the example of Paradip port in Orissa. Few container lines would call at the port on grounds of lack of cargo inducement. The port authorities therefore had to ‘rationalise’ port charges to attract at least one line to pick up the limited number of boxes. The higher the level of competition, the lower would be the average freight rate. Transit time and quality of port infrastructure are other factors influencing transport costs.

Regional partnerships

These obstacles, the report suggests, can be overcome through regional partnerships in trade and transport facilitation, with a view to improving transport infrastructure, transit arrangements and trade facilitation at border crossings. Another policy option to enhance the efficiency of transport providers and thereby reduce intra-regional transport costs, is to foster inter-port competition, says the study. In Europe, the inter-continental trade of many countries actually moves through the ports of neighbouring countries (for example, land-locked Switzerland does not have a port of its own) whereas in most developing countries, the handling of merchandise trade is typically restricted to the national port(s) of each country.

However, there are few exceptions, where ports also handle inter-continental cargo destined for or originating from neighbouring countries, thereby reducing land transport distances and increasing competition among ports. Examples are Mombassa (Kenya) and Dar es Salaam (Tanzania) for East Africa, Buenos Aires (Argentina), Montevideo (Uruguay) and Porto Allegre (Brazil) for Mercosur. In both these regions, ports also compete for inter-continental cargo of neighbouring countries.

Nearer home, Kolkata port (India) handles imports and exports of land-locked Nepal and Bhutan and there is a proposal to open up an old trade route through Nathu La to enable traders in the southern part of China to access the Bay of Bengal through Kolkata port. The trade route has been opened –– with myriad restrictions and no immediate possibility of extending it to Kolkata port. Enhancing inter-port competition thus also requires corresponding road and rail infrastructure as well as agreements on market access for land transport.

Global network

Yet another policy option, as the report suggests, is the integration of national and regional shipping services into global network. By allowing international carriers to also move Cabotage cargo or cargo between neighbouring countries the overall market size can be expanded.

Although transhipment implies additional costs due to multiple handling at several ports and longer journeys due to deviation distances, there is an increasing trend to use more of these services as it lowers the overall network costs.

Virtually all coastal countries are connected to global shipping networks. Improved port operations, increased containerisation and changed shipping services patterns have enabled many developing countries with coastlines to engage in regular trade in manufactured goods with other developing countries also having coastlines. This was not considered economically viable a couple of decades ago.

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