Most infrastructural development carried out in Bangladesh in the last 10 years require a policy in place to help fix the logistical challenges faced by businesses. The maiden logistics policy has been adopted. What does the policy contain?
Logistics has been defined holistically as the process of making a product or service reach from its point of origin to the consumer as per demand. One reason why logistics is not merely transportation is that logistics involves processes other than transportation too. For example – clearing and forwarding at the port is considered part of logistics.
Score for Trading across Borders
Source: World Bank Ease of Doing Business
No Data Found
According to the World Bank’s now-defunct Ease of Doing Business in 2020, for trading across borders, Nepal, India, Sri Lanka and Pakistan score 85.1, 82.5, 73.3 and 68.8 respectively. However, Bangladesh’s score was only 31.8 in terms of trading across borders. Mainly due to the cost and time associated with exports and imports. It took 168 hours and 216 hours for border compliances to export from and import to Dhaka. It cost $408 for border compliance in case of export on an average.
4.5% - 48% Logistics Expense
Of Total Sales
Bangladesh is ranked 88th in the Global Logistics Performance Index 2023 out of 139 countries. According to a study published by the World Bank Group in 2020, Bangladesh’s logistics expenses range from 4.5 to 48 percent of total sales, which is significantly more than most other South Asian nations.
29 x
Passenger Traffic
10 x
Freight Traffic
13 x
Container Traffic
22 x
Seagoing Container Traffic
On the other hand, according to the projection of Bangladesh’s Perspective Plan 2041 passenger traffic is supposed to increase 29 times, freight traffic 10 times, port container traffic 13 times, seagoing cargo container traffic 22 times by 2041 in comparison with 2021. The country plans to achieve US$ 100 billion in annual export earnings by 2026, which, for the year 2023 has been revised to US$ 30.9 billion. The progress made so far has to be accelerated in order to achieve the target by 2026.
The aforementioned World Bank study shows that poor logistics cause Bangladesh to lose 19% of its export potential which could be realized with short and mid term reforms in the logistics sector. Only 1% decrease in logistics costs could potentially lead to a 7.4% increase in exports. A spillover effect on the real wages around the country could also be realized with that.
It clearly indicates the necessity of having greater logistics support for businesses in order to attract FDI inflow to Bangladesh. Over the whole supply chain (manufacturing, storage, transit, shipping, release, and distribution), delays and inefficiencies resulted from the logistics industry’s lack of coordination and simplified procedures. The industry is highly dependent on government regulation, which stifles competition and innovation. With the LDC graduation of Bangladesh in 2026, taxes and tariffs in terms of exports to the EU nations might increase by 8-12%, which can only be accommodated by a decrease in logistics costs to keep Bangladesh competitive as a manufacturer. However, there was no comprehensive policy that encompasses the wide range of logistics support and their reforms.
Maiden Logistics Policy of Bangladesh
Even though Bangladesh has undertaken major megaprojects for improving connectivity, like the Padma Bridge, Expansion of HSI Airport, Karnaphuli Tunnel, Dhaka Elevated Expressway, Cox’s Bazar International Airport, Matarbari Deep Sea Port, Payra Sea port, Chattogram Container Terminal, Bay Terminal etc., without any comprehensive policy, the country would be unable to utilize these infrastructure to facilitate trade and business.
Bangladesh has developed its first logistics policy with the aim of achieving sustainable economic growth by enhancing its capacity for local and international commerce and investment on May 3, 2024. The strategy was devised by the Prime Minister’s Office and officially published in a gazette on April 28, 2024. The strategy seeks to establish a state-of-the-art logistics system that utilizes technology, is efficient in terms of time and cost, and prioritizes environmental sustainability. Its main objective is to minimize delays and expenses in logistics services.
It will be put into action through the establishment of two prominent committees: the National Council for Logistics Development (NCLD) and the National Logistics Development and Coordination Committee (NLDCC).
A Summary of the Maiden logistics Policy
Developing the infrastructure for the logistics sector of Bangladesh entails many challenges, as well as major scope of development, ranging from multimodal transportation infrastructure, integration of transportation systems, establishing connectivity hubs to compliance with international standards. The logistics policy outlines the following policies for the future:
Multimodal Transportation
The policy proposes to decrease the proportion of road transportation from 77% in 2018 to 60% in 2041 while raising the proportion of waterways to 25% from 16% and railways to 14% from 6% for the transfer of domestic cargo. However, it is possible to further decrease the proportion of road transportation to 50% and increase the proportions of waterways and railways transportation to 28% and 20% respectively.
Proportion of Transportation by Medium (%)
Source: Bangladesh Perspective Plan 2021-2041
No Data Found
Freight Tracking
It is mentioned that the government would create an integrated transportation system using superior technology like GPS tracking, real-time visibility, inventory management etc. There still exists scope for crowd shipping, autonomous vehicles and drone delivery.
Connectivity Hubs
The policy seeks to establish connectivity hubs in major parts of the country with inland container depot, centrally bonded warehouse facilities, customs tax stations, banks, courier services etc.
Road Efficiency
In order to increase road efficiency, the policy proposes increasing lanes of major highways, separate lanes for freight transporting trucks, increasing speed of the vehicles and setting up weighing bridges to control weights of vehicles in order to increase sustainability of the constructed roads with road user charge for maintenance and development of the roads.
Railway Connectivity
For ease of freight transport through railways, the policy proposes establishing railway communication with major land, sea and river ports. The Railway Masterplan 2045 has already been adopted with provisions to upgrade all meter gauge railways to broad gauge. The logistics policy also mandates increasing the speed of trains.
Inland Waterway Connectivity
All inland water bodies are to be surveyed for hydrographics regularly and dredged to maintain their ability to transport. Any bridges built on water bodies have to ensure that they will not obstruct waterways and their traffics.
Sea Ports
Sea ports are proposed to be modernized in order to maintain operations during both ebbs and flows. The policy proposes adopting a landlord port model where the government oversees the operations of the ports while private companies are liable for day-to-day operations.
Cargo by Air
So far Bangladesh’s handling of cargo by air is not up to the mark. The policy suggests establishing specialized cold chain management for temperature-sensitive cargo, sorting and processing centers for cross-border e-commerce and air cargo hubs along with modern cargo handling and customs facilities at every airport.
Container Depot/Warehouse
The policy says the government will open up cargo handling services to the private sector. Private companies will be able to operate inland container depots, container freight stations, air freight stations and warehouses. All Specialized Economic Zones and Export Process Zones are supposed to have private depots/warehouses with their own security services.
A major challenge for businesses in Bangladesh is the delays associated with clearing of goods from the port. It takes 11 days and 6 hours on an average to clear goods from the Chittagong port, according to an NBR study in 2022. Where Singapore and India took around 3-7 days on an average. Even in 2014, Chittagong port could clear cargo in around 6 days. However, the massive increase in cargo handling at Chittagong port since then, which has almost doubled, has caused the port to lag behind.
The logistics policy suggests upgrading port management using electronic customs declaration, digital documentation, automated clearance system, integrated and coordinated border management system, pre-arrival processing, authorized economic operators, advanced rulings, harmonization of post-clearance audit and customs clearance process and mutual recognition agreement. As a signatory of WTO’s Trade Facilitation Agreement, Bangladesh is bound to take initiatives according to the agreement’s promises.
The major benefit of using technology in the logistics sector is the ability to share data and information among different government agencies and ensure interoperability of data and processes. The policy outlines the establishment of One Stop Service Platform. For faster transactions and facilitating e-commerce, the policy suggests inclusion in international connectivity platforms for using cross-border paperless trade, digital signature and electronic documentation.
Human Resources
The policy suggests recognition of prior learning for the workforce, reskilling, upskilling, apprenticeship and internship facilities. It mandates the creation of an internationally acceptable certification system with skill transfer and mutual agreement recognition facilities for trade with foreign nationals. The policy also suggests establishing a logistics education system with a new curriculum.
Investment in the Logistics Sector
The policy sets a target of investing US$ 10 billion in the logistics sector every year, the majority of which is supposed to be private and foreign investment. There will be provisions for joint investment through public-private partnerships and non-equity investments. There are provisions to use small and medium enterprises for forward and backward linkage.
Eco-friendliness
Bangladesh has agreed to decrease greenhouse gas emission by 6.73% by themselves without any foreign support and 15.12% with foreign support. The country has to go on a decarbonization drive to achieve the target. According to estimations, by 2030, greenhouse gas emissions from the logistics sector will stand at 36.28 million tonnes, of which 3.39 million tonnes should be reduced to achieve the target. Using green energy for vehicles is a way out, which the policy doesn’t clearly define a way to achieve.
Safety and Security
As part of the tracking and tracing of goods, the policy seeks to keep provisions for user management of highways and expressways. The allround GPS tracking system should allow an emergency response team to respond quickly. The government is planning to open up security, safety and compliance on the highways to the private sector which is already being done at Dhaka Elevated Expressway.
Reforms Suggested by the Logistics Policy
Upon consultation with the major stakeholders of the logistics sector, the logistics policy suggests a total of 62 reforms to the existing policies and facilities. The noteworthy reforms suggested are stated below:
Private Container Depots
Currently the private container depots are not allowed to manage goods of several customers in one single container, known as less container load. The policy suggests changing that provision as well as decreasing storage charge of such containers which is very high currently, hurting the small importers. It also suggests allowing private depots to store more categories of products. In many cases the NBR orders do not include the HS code of the categories of products a private depot is allowed to store. The policy also mandates NBR to follow proper coding while permitting private depots.
Inland Container Depots
Inland container depots are supposed to be at least 20 km away from the port according to the law, which should be revised according to the policy. Foreign Small and Medium enterprises are to be allowed to set up warehouses in Bangladesh. Currently foreign RMG buyers are allowed to have their own warehouses. However, the policy suggests keeping the provision for partial exporters and SMEs to have the same privilege.
Tax Reforms
The National Board of Revenue (NBR) does not have a list of non-sensitive products which can allow faster clearing of goods with non-sensitive products through a green channel. The policy suggests amending the customs act to include a list of non-sensitive products and increasing the authority of the authorized economic operators for non-sensitive products.
In order to clear goods, customs often ask for unnecessary papers which can be eliminated. The policy suggests NBR to form a committee and adopt necessary steps. On the other hand, taxes have to be submitted to Sonali Bank Limited which operates during banking hours. The policy suggests keeping 24/7 digital payment facilities for taxes. In the case of air cargo, there are double taxation policies in some cases. For example – operators and agents both have to pay taxes in case of air express operations. The policy suggests amending tax laws. Inland container depots pay 27.5% income tax and 10% advance income tax, which are supposed to be decreased.
Port Management
There are specific ports for specific products. For example – all cars are imported through Payra port. The policy suggests increasing the product mix of every port to allow greater flexibility.
Currently the empty containers are to be returned to the port of entry before they can be reused. The policy suggests abolishing this provision so that an empty container from Dhaka that entered through Chittagong can be taken directly to Mongla or Payra.
Foreign Affairs
Currently foreign investors are allowed to keep only 49% equity in the freight forwarding sector which limits the FDI inflow. Such limitation is to be uplifted as per the policy. Foreign air express operators will be allowed to provide clearing and forwarding services.
Bangladesh’s name has been included in the ‘Red Country Status’ list of the EU which mandates extra checking of cargo originating from Bangladesh. However, the policy suggests taking necessary steps to remove Bangladesh’s name off the list.
Security and Testing
The NBR has kept provisions for electronic seal and lock services which are not in service yet. The policy suggests quick implementation in order to provide greater tracking facilities.
In terms of testing, Bangladesh Standards Testing Institute (BSTI)is continuously under pressure for testing imported products faster. The policy suggests increasing the number of private testing laboratories.
Privatization and Deregulation
Currently there is limited scope for the private sector to engage in railway operations. The policy suggests lifting these limitations in favor of allowing more private operators to provide railway services.
According to the existing law, 50% of all sea carriage should happen using Bangladeshi flag-bearing ships. However, there aren’t enough ships registered in Bangladesh and the provision disincentivizes foreign ships to carry Bangladeshi goods. And there are no one-stop service centers at the ports. The policy suggests changing these provisions and setting up one-stop service centers.
To Implement Maiden Logistics Policy Effectively
In order to implement the logistics policy effectively, there is a long way to go. The following are a few recommendations that can be followed in case of implementation of the policy.
- Implementing a multimodal transport system by improving and expanding the infrastructure for roads, railroads, canals, and airways in order to achieve efficient and uninterrupted communication, involves enhancing current infrastructure and constructing new facilities such as logistics hubs and multimodal transport terminals in order to alleviate congestion and enhance transportation efficiency
- Port modernization entails investing in state-of-the-art equipment and cutting-edge technologies to enhance container handling efficiency and minimize delays. This entails enhancing the capacity of Chattogram port and other significant ports to effectively manage larger volumes.
- Deploy sophisticated digital technologies to monitor and oversee logistics operations. This involves implementing Geographic Information Systems (GIS) to efficiently handle logistical data, creating unified digital platforms to facilitate smooth information sharing, and utilizing Artificial Intelligence (AI) to enhance routing and inventory management.
- Implement e-marketplaces and single window systems to streamline customs and trade procedures, decrease the time spent on documentation, and improve the overall efficiency of logistics operations.
- To promote private investment, offer inducements such as tax exemptions, subsidies, and profit-sharing frameworks to entice foreign investment in logistics infrastructure. Promote international investment by relaxing regulations and promoting partnerships with domestic companies.
- Establish collaborative training initiatives with private sector partners to cultivate a proficient workforce capable of managing sophisticated logistics operations. Facilitate the dissemination of information from global logistics corporations to domestic enterprises.
- Streamline and accelerate regulatory processes to minimize bureaucratic obstacles. Establish explicit protocols and regulations to oversee logistical activities and guarantee openness and responsibility.
- Implement uniform protocols and performance indicators for standardization and benchmarking logistics services to guarantee uniformity and dependability throughout the industry.
- Advocate for the adoption of ecologically conscious transportation methods and technologies by promoting the implementation of environmentally friendly logistical techniques in order to decrease carbon emissions and minimize the environmental consequences.
- Assist in the advancement and execution of environmentally-friendly technology in logistics operations, including electric vehicles, renewable energy sources, and sustainable packaging solutions by green technology investment.
- Establish co-ordinated committees such as the National Council for Logistics Development (NCLD) and the National Logistics Development and Coordination Committee (NLDCC) to supervise, monitor, and assess the execution of the logistics policy.
- Establish unambiguous performance metrics and consistently evaluate progress against these benchmarks to verify that the logistics policy successfully accomplishes its intended objectives.
About the Author
A R Tahseen Jahan is the Co-Founder and Head of Policy at The Confluence. An undergrad student of Development Studies at the University of Dhaka, she worked on topics of economic development and public policy.