Apart from loading and discharging at origin and destination, the main divisions of logistics costs and times are as follows:
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! Line-haul movements by road, rail, or inland water ways together with the modal interface, if transfers to a different mode are required;
! Intermediate handling of the freight at border crossings and ports; and
! Customs inspections and procedures.
An analysis of these activities forms the basis for an assessment of productivity gains. Loading and discharging operations are usually examined in terms of the cost-per-weight unit of the freight. Line-haul tasks are measured in ton-kilometers in order to be independent of the size and type of vehicle (and hence to allow productivity growth to be apparent through increased size or greater technical efficiency). In general, line-haul costs vary by size of the consignments and the distances traveled.
Additionally, the suppliers of transport services typically offer better rates for shippers who have freight available on a regular basis. This creates an opportunity to seek back-haul freight or to organize a scheduled service around an assured level of capacity that will be used by the regular shippers. It does not affect the operating cost of the transport service, but helps to reduce undesirable levels of empty space on round-trip journeys.
Intermediate handling costs are expressed per weight unit and, ideally, also include the cost of time in transit. The latter typically varies with the value per unit of the freighted items (this was conveyed in the previous example by means of the CIF value). The upper range for this valuation is set by high-value, per-weight-unit items for which transport by airfreight may be viable. The lower range is determined by heavy items of relatively low value. Delays in transit are not usually a major factor for this freight, but it tends to be sensitive to increases in freight rates and other charges that are assessed on the basis of weight.
Customs clearance costs generally vary inversely with the value of the freight, though this may not be the case for agricultural products that require testing or costly inspection.
To illustrate the approximate magnitudes of the main components, and the variations that are likely to arise from different routes or items, the World Bank’s study of logistics costs contained the following comparisons (Subramanian and Arnold 2001):
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Figure 5.1 Comparison of Logistics Costs, by Route
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Percent
3 4 5 7 8 9 10 11 6
Route Number
Line-haul Intermediate Customs
Route code:
3: Cement from Kolkata to Agartala
4: Agricultural produce from Kathmandu to Dhaka 5 Limestone from Thimpu to Dhaka
7: Wool from New Zealand to Kolkata to Kathmandu 8: Tea from Karimganj to Kolkata to Liverpool 9: Carpets from Kathmandu to Kolkata to Bremen 10: Polypropylene from Singapore to Kolkata to Thimpu 11: Garments from Dhaka to Chittagong to United States 6: Yarn from Kolkata to Dhaka
As noted in the report, line-haul movements can be expected to account for at least 85% of the total costs (including handing at origin and destination) for regional shipments and at least 75% for cross-border shipments. Short distances will, of course, change this. For the first three routes shown in Figure 5.1, the cost of line-haul transport dominates. However, for agricultural products, the other costs tend to be about one-third of the total, and the relatively high cost for customs clearance is noticeable from the Nepali and Bangladeshi borders. This indicates considerable scope for significantly reducing both intermediate and customs components.
Recommendations
Immediate Actions (6 months)
! Complete legal review of Draft Nepal India Rail Agreement; finalize and implement. (HMGN)
! Appoint a terminal management operating company for Birgunj through competitive tender. (MoICS)
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! Operationalize and fund Roads Board activities and expenditures, including fuel levy transfer;
implement APP budget for rural roads. (MOF/Roads Board)
! Fund customs and ASYCUDA training. (DoC/TA)
! Review passbook scheme for duty drawback; implement or replace by exemption. (MOF)
! Simplification and Harmonization of Trade and Transport Related Procedures and Documents.
(MOICS/DOC/TA)
! Introduce One Spot Export Clearance Arrangement in major customs. (MOICS/DoC/HMGN)
! Review constraints to market access, especially in EU. (MOICS/TA)
! Pass Carriage of Goods by Rail, Carriage of Goods by Road, Multimodal Transport Acts, and Marine Insurance Act or promulgate through Ordinances. (MOICS)
Medium Term Actions (within 2 years)
! Conduct in-depth evaluation of transit corridors starting with Kathmandu-Birgunj-Kolkata corridor especially those accessing Mumbai port, and Singhabad-Rohanpur with a view to communicating and negotiating these with the Government of India. (MOICS/MOLTMTM/TA)
! Nepal Roads Board: MOF concurrence with the Board’s rules and regulations; funding mechanism and administrative procedures should be given as soon as possible and arrangements made for transferring fuel levies for road funding for the next FY. (MOPPW)
! Priority Investment Program (PIP) and the APP: The PIP should be more effectively implemented at the district and village levels so that local officials are able to evaluate the economic and social benefits of roadway infrastructure and initiate preliminary environmental assessments. Budgeted allocations for rural roads under the APP should be expended. (MOPPW/MOAC)
! Rural-Urban Partnership Program: The Rural-Urban Partnership Program (RUPP) should be extended to develop linkages for trade-transit-transport services to small enterprises in towns and rural regions. (NPC)
! Program for Private sector Participation: A seminar program should be initiated for countries in the South Asia region to exchange information and experiences related to increased private sector participation in trade-transit-transport.
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6. LABOR MARKETS IN NEPAL
6.1 Introduction
Most people in Nepal are poor, not because they cannot find work, but because productivity is low—the lowest in the South Asia region. Growth and poverty alleviation are constrained by one of the most rigid regulatory frameworks for labor markets in the developing world and by the poor-quality educational system. Much work is needed to improve both the domestic policy environment for labor markets and the educational system.
Specific needs include:
! Reform of the legal environment for labor markets, based on providing greater freedom for employers and employees (and their unions) to enter into employment arrangements not subject to the constraints imposed by the existing rigid regulatory framework.
! Development of mechanisms to allow families, especially poor ones, better access to quality education and introduction of competitive forces into the education system, even if it means giving up some control of the public resources used to support education and related political patronage.
Despite recognition of a change in policies, these issues have become highly politicized in Nepal with rent seeking and political patronage often dominating the needs of economic efficiency, growth, and poverty alleviation.