BUS606: Operations and Supply Chain Management

Despite the commercial importance of the logistics sector in helping firms complete import and export transactions, international trade practitioners have only recently come to focus on it in any detail. There are two main ways in which logistics intersects with the trade policy agenda. First, logistics covers a number of sectors that are subject to ongoing liberalization discussions at regional and multilateral levels in the context of trade in services. Examples include transport and distribution. Some regional initiatives, such as ASEAN, have recognized the importance of logistics by treating it as an independent "cluster" for negotiation and liberalization purposes, even though it cuts across a number of pre-existing sectoral definitions in the ISIC and GATS classifications. There is thus a strong linkage between the logistics sector and trade policy in services.

The second area in which linkages between trade and logistics emerge is in the context of trade facilitation. Although the WTO has adopted a narrow working definition of trade facilitation - focusing essentially on import and export procedures - many other forums, such as APEC, have adopted a much broader approach. More generally, trade facilitation can be considered as including the full range of policies that tend to reduce the transaction costs affecting international movements of goods. Improving logistics performance is in fact at the core of the private sector trade facilitation agenda, and is an important complement to public sector measures such as reducing red tape, and improving infrastructure quantity and quality.

Although there is now an extensive body of analytical work on the links between trade facilitation - using both the broad and narrow definitions - and trade flows, there is as yet relatively little analytical work dealing specifically with the trade effects of logistics sector performance. Until recently, the data constraints involved in doing such work have proved formidable. However, a number of recent initiatives, such as the World Bank's Logistics Performance Index, have started to loosen that constraint.

Against that background, this paper has two main aims. First, it provides a first overview of currently available data relevant to logistics, and suggests some preliminary applications. Although data availability is limited in terms of country coverage and sector specificity, it is useful to analyze freely-available data to see whether expected relationships appear to exist. Examining data in this way can also provide important insights into the types of data that could be collected in the future. Such exercises have not previously been conducted in the literature. Clearly, though, a major caveat in relation to the analysis undertaken here is that it necessarily relies on proxies for the logistics sector, and does not purport to capture the full range of logistics activities considered by more micro-level, industry-specific studies. Nonetheless, there is a tradeoff to be made in terms of data availability versus specificity, and a number of important insights arise from the basic analysis presented here.

The second objective of this paper is to frame the issue of logistics cost measurement and data collection in terms of the types of inputs needed for applied trade policy research. As will be shown, the needs of trade researchers are fundamentally different from those of industry groups: the latter can make use of data that effectively measure sector size for political economy purposes, but trade researchers need to focus more on issues of performance as measured by cost relative to some output price. Once such data become available, however, a number of interesting research avenues are available. On the one hand, logistics performance is expected to be an important determinant of bilateral trade flows, and there is already some empirical evidence to support that view. In addition, logistics performance combined with sectoral logistics intensities can also be expected to have a significant impact on the global pattern of production, exports, and specialization. The cross-sectoral implications of logistics performance have as yet received only cursory attention in the literature, but are likely to be the source of major gains going forward. This paper is the first to sketch out a data-driven research agenda for trade and logistics in this way.

The paper is organized as follows. The next section presents an overview of possible directions in applied trade policy research using logistics data. Section 3 examines existing data sources that can be used to measure domestic logistics costs, focusing on the national accounts, input-output tables, price comparisons, and firm-level data. Section 4 presents a new methodology for measuring international trade costs, and identifies the proportion of those costs due to logistics. Section 5 uses input-output data to identify logistics- intensive sectors in a range of countries. Section 6 concludes.