Improving trade efficiency, before and after

Seeing the progress made so far, I am optimistic that we will also manage the challenges that still lie ahead

It is now 25 years ago that I started my career in the United Nations system. First, in 1995, I worked for the IMO in London; then for ECLAC in Latin America and the Caribbean; and since 2003 I work on transport and trade facilitation reforms for UNCTAD in Geneva. If I add the 10 years from 1985 to 1995 where I helped out as seafarer and office clerk for “Hoffmann Shipping” and some trading companies in Germany, Spain and Benin, I can look back at 35 years of working in international trade and its transport.

During those decades my hair has gone greyer, but there is no doubt that operations and services in ports and Customs administrations around the world have improved tremendously. Still, many challenges remain, and I do not expect to run out of work during the next 10 years until my retirement. Let me explain.

Before and after

A very motivating experience for me was a recent collaboration with Haina International Terminals in the Dominican Republic. Look at these two photos, taken at the same place in the port, almost two decades apart.

In 2001 (left), the terminal was plagued with pilferage, corruption, and inefficiencies. At a conference of the Interamerican Port Committee of the OAS later that year I showed some photos from Rio Haina to illustrate the challenges ports can face. With hindsight, I should not have been surprised that representatives of the ?Autoridad Portuaria Dominicana were not too happy that I used their port as a bad example. “Who is that [at that time] young German UN representative who dares criticise our local culture and ways of working?” they asked. The official complaint letter to the OAS, with copy to my Executive Director at ECLAC, followed suit.

But perhaps (just possibly) my finger pointing actually had some marginal positive impact. I know that subsequently my intervention was intensively discussed by the port authority back home in Santo Domingo. And not much later the port operations in Rio Haina and Caucedo were concessioned to the private sector. Today, the ports and Customs in the Dominican Republic deploy latest technologies and apply good practices.

Port professionals in Santo Domingo did not hold a grudge, but kindly invited me back to their port in 2019, to teach a module of the UNCTAD Port Management Programme. On that occasion, I could take the second photo (right) shown above (more 2019 photos of the port, including down from a gantry crane, are here).

Another similarly encouraging experience was a recent visit to the port of Cartagena, Colombia. Captain Salas very kindly acknowledged and appreciated the support we had provided to him and his team 20 years earlier. Today, the port of Cartagena has the highest LSCI of South America.

While it is difficult to attribute the impact of specific studies or conferences, I think the work we did on port reforms, transport costs, and maritime connectivity helped support port and trade facilitation reforms in many developing countries. I have uploaded a PowerPoint presentation that summarizes some of the key studies and outcomes over the last 25 years here.

In the case of technical assistance, the attribution is easier. Concrete outcomes of UNCTAD’s technical cooperation programmes are manifold, ranging from a transit agreement between Afghanistan and Pakistan, over the implementation of the WTO Trade Facilitation Agreement on the ground, to simplifying trade procedures in Sudan, to list just a few.

Cause for optimism

Have a look at this video on trade logistics in developing countries, produced by my predecessors at UNCTAD in 1994. It is really fun (at least I had to laugh e.g. here, here and here).

What has changed? Yes, the computer screens, the hairstyles of the office workers, and the size of the ships have changed. What else is different today?

It seems that key challenges for the logistics of international trade remain the same. They include the exchange of data, intermodal transport connections, and the compliance with border agency procedures. But today data and transport connections are much faster and more reliable, and procedures have been significantly simplified.

I think a lot of credit must be given to the many colleagues who work on trade logistics, port modernization, the professionalization of Customs administrations, the development of global standards, and the automation of Customs processes over the last decades.

When arriving in a port with our Hoffmann Shipping tween-decker 30 years ago, we could not start loading or unloading until a number of officials (five or six were not uncommon) had left the captain’s cabin, each one of them carrying a Johnny Walker Red Label under one arm and a carton of Marlboros under the other. Today, thanks to pre-arrival processing and improved transparency, the visits of such officials have become less frequent and less expensive in most countries.

Nowadays, port and Customs authorities focus on more ambitious reforms, such as port call optimization, smart ports, and paperless procedures. Year after year, the average indicators of doing business, logistics performance, and liner shipping connectivity improve. Not for all countries and not all the time, but every year there are more countries that see improvements than countries that don’t.

And not just in transport and trade facilitation. The world has objectively gotten better. Take violent deaths, live expectancy, school enrolment of girls, or democracy. Digesting daily news might make you think otherwise, but if you lean back and look at the numbers, many objective indicators confirm the improvements. See for example these books on factfulness, the better angels of our nature, and how to become a rational optimist.

No time for complacency: Four challenges ahead

Acknowledging that trade efficiency has improved does not mean that there is no need for further work and support to developing countries. On the contrary. For me, the positive past developments are an encouragement to keep going. I live under the illusion that my work can make a difference. And I see four main future challenges where we should focus our attention over the next 10 years.

1) The gap is widening

• Although the averages for various logistics indicators keep improving, some countries are left behind. For example, the gap between the least- and the most-connected countries in terms of liner shipping connectivity is widening. As ships get bigger and technologies become more sophisticated, the smallest and least developed countries, including some very small island states, are caught in a vicious cycle. Low trade volumes do not commercially justify the necessary investments in infrastructure and technologies, and the resulting low performance makes trading more expensive, so volumes decline even further. We need to help the most vulnerably economies to avoid them getting trapped in such downward spirals.

2) Technological progress will never be as slow as today

• Technological progress has been fast (think internet, AIS, or blockchain), and it will become even faster in future (think AI, drones, and the unknown unknowns). Technological progress has been accompanied by capacity development and institutional adjustments, and as technologies will develop further, societies and their institutions will need to continue adjusting. Article 10.1 of the WTO Trade Facilitation Agreement, which obliges countries to continuously review and revise trade procedures to ensure the least cumbersome solutions are systematically adopted, will gain in prominence. Strengthening inter-institutional mechanisms such as National Trade Facilitation Committees and setting up Trade Information Portals can help countries review existing procedures and ensure that we always adapt to the latest technological possibilities.

3) Efficiency gains need to be passed on to society

• In parallel to the advances in international container shipping (technologies, port reforms, economies of scale), we also observe a process of concentration. The market shares of the largest carriers and their alliances have been growing (horizontal integration) and shipping companies have expanded into port operations (vertical integration). We need strong port authorities and national competition authorities to monitor market concentration. We also need to promote trade and transit facilitation, to enhance inter-port competition. The objective is to ensure that the positive advances made by carriers and port operators are passed on to shippers and the society as a whole.

4) The polluter should pay

• The transportation and facilitation of international trade has led to growing environmental and social costs. Even if – in my view – the overall benefits of trade to our societies far outweigh the costs, we also need to minimize the negative externalities, such as congestion, pollution and climate change. Thanks to latest tracking technologies and ever-expanding availability of data, it will be easier in the future than in the past to assign a price tag to these negative externalities. Once a price tag is assigned to the pollution, the “internalization of externalities” implies that the private operator can choose between different options. The options include avoiding the pollution (e.g. change the energy used, or choose a less polluting mode of transport), clean up after the pollution (e.g. install filters, or plant trees that take the CO2 out of the air again), or pay the price for the external costs so that those that are affected by the pollution can fund adaptation measures (e.g. help small island states build dikes, invest in climate resilient port cranes, or modernize their Customs to reduce their trade costs).

In sum, there remains a lot of interesting work to be done to facilitate global trade and its transport. I hope that after my retirement in 2030, I can write another blog post that will report on some further positive “before and after” stories.

(original post here)