Logistics Performance Index, 2010-2016

Logistics Performance Index, 2010-2016

Source: adapted from World Bank, Logistics Performance Index. Memedovic, O., L. Ojala, J-P Rodrigue and T. Naula (2008) “Fuelling the Global Value Chains: What Role for Logistics Capabilities?”, International Journal of Technological Learning, Innovation and Development, Vol. 1, No. 3, pp. 353-374.

The development and provision of logistics services varies from country to country. In most developing economies, the market for these services is small, which can be a major deterrent for companies wishing to establish a market presence. Logistics performance is closely associated with levels of economic development and it can be argued that logistics can be a more effective measure of development than standard measures of GDP per capital because it is reflective of concrete transport and commercial conditions. The first worldwide Logistics Performance Index (LPI) was developed by the World Bank in 2007 to provide a better assessment about how respective countries rank in the managerial and physical effectiveness of their logistic.

The LPI is a composite index based on proxy measures for transport and information infrastructure, supply chain management (SCM) and trade facilitation capabilities, which are calculated based on a world survey of international freight forwarders and express carriers. The LPI is based on six underlying factors of logistics performance: (1) efficiency of the clearance process by customs and other border agencies; (2) quality of transport and information technology infrastructure for logistics; (3) ease and affordability of arranging international shipments; (4) competence and quality of logistics services; (5) ability to track and trace international shipments; and (6) timeliness of shipments in reaching destination. LPI values range from 1 (worst) to 5 (best) and show that building the capacity to connect firms, suppliers and consumers, is a key in a context where predictability and reliability are becoming as important than costs in sourcing decisions. A value of less than 3.0 usually reflects an array of problems within a nation’s freight distribution system causing undue delays and additional costs. For instance, a difference of one point lower in the LPI is related to two to four additional days of port hinterland access and a 25% higher physical inspection rate at customs.

At the global level, some divergence of the LPI is observed. While the average LPI value has barely changed between 2010 and 2016, its standard deviation has increased. This implies more pronounced national differences in logistic performance. It is mostly the outcome of the unequal diffusion of transport infrastructures and services, a process favored by the growing presence of global freight carriers, such as maritime shipping companies, global terminal operators, air freight and even third party logistics providers. These providers structure their networks and allocate their assets to maximize their revenue. High-income economies lead in logistics performances, but many developing economies are showing gradual and continuous improvements. They benefit from economies of scale and scope, innovation and technological change in logistics services. Still, reforms and investments in the logistics sector are difficult to implement even if supply chain performance is a readily acknowledged factor of economic development.

The LPI is a proxy for the involvement of each country in global value chains and the friction of freight flows. According to the LPI, Germany and Singapore rank among the top tier. Germany is a major manufacturer and exporter of high added value goods while Singapore is a major hub in global trade. At the other extreme are low-income economies, particularly those landlocked in Africa, Central Asia and Latin America. There are significant differences among developing countries with similar incomes. Developing economies with a higher involvement in international trade performed better than those with similar incomes, but with a lower participation in international trade.