Logistics Costs and Competitiveness
Read this article. The document examines issues and costs related to domestic and international logistics. Sections 3 and 4 are most applicable here. What are the unique challenges facing domestic and global logistics?
Measuring Domestic Logistics Costs
National Accounts Data
As noted above, recent analysis of the logistics sector has focused on
producing aggregate measures of sector size, such as the level of logistics
costs relative to GDP. Existing efforts deal with one country at a time, and are
difficult to compare across countries because of different methodologies and
data sources. An alternative approach that is more easily applied on a cross-
country basis is to use national accounts data to obtain an estimate of the size
of the logistics sector relative to GDP. Clearly, data obtained in this way will
not be directly comparable with work such as that of Bowersox et al. for
two reasons: differences in sectoral classifications mean that what is intended
by the term "logistics" will inevitably differ between the two approaches; and
the national accounts approach can only compare the value added by the
logistics sector relative to other sectors in the economy, not the total amount
spent on logistics, including internal costs, such as inventories. Internal
logistics costs can be substantial, especially in low income countries.
Nonetheless, national accounts data can provide a useful point of comparison
with previous work.
Treatment of Logistics in the National Accounts
Internationally comparable national accounts data follow the International
Standard Industrial Classification at a sectoral level. The ISIC system does not
identify logistics as a separate sector. However, a number of ISIC Rev.3 sectors
are potentially relevant to work on logistics. Table 1 summarizes relevant ISIC
Rev.3 sectors according to narrow, medium, and broad definitions of the range
of activities included in logistics. The narrow definition of logistics limits the
sector to transport and related activities, of which a number in sector 63 fall
into the core of logistics services. The medium definition includes in addition
wholesale trade, which captures the core of distribution activities. The broad
definition also includes retail trade, in order to cover a wider range of
distribution activities.
A number of caveats are required in relation to these definitions of logistics. First, as previously noted, they differ somewhat from the commercial definition of logistics activities. The differences go in both directions, i.e. there are some activities that are considered to be part of logistics in the commercial sphere, but which are not included in the ISIC definitions, but at the same time, the ISIC definitions include some activities that are not considered to be logistics from a commercial standpoint. Second, the ISIC definitions are not strictly limited to freight activities, but also include passenger activities within the context of transport. Although it is in principle possible to distinguish between the two by using the three digit level of the ISIC scheme, the cross- country data source used here includes two digit sector definitions only. It is therefore left to future research to return to national sources and develop logistics indicators using ISIC three digit data. The results presented here should be interpreted as rough orders of magnitude only.
Table 1: Isic Rev.3 Sectors Relevant to Logistics (Various Definitions).
ISIC Rev. Sector |
Narrow Definition |
Medium Definition |
Broad Definition |
---|---|---|---|
60-62: Land, water, and air transport |
✓ | ✓ | ✓ |
63: Supporting and auxiliary transport activities (cargo handling; storage and warehousing; supporting transport activities; travel; tour, and transport agencies). |
✓ | ✓ | ✓ |
51: Wholesale trade. |
✓ | ✓ | |
52: Retail trade |
✓ |
Most countries currently use the ISIC Rev.3 classification for their national
accounts. In 2008, a new ISIC Rev.4 classification was released, but it has not
yet been widely implemented. It adopts a generally similar approach to the
sectors of most interest here, the only significant differences being in the
replacement of "supporting and auxiliary transport activities" with
"warehousing and support activities for transportation". The new sectoral
definition focuses more closely on core logistics activities, such as freight
forwarding - the word "logistics" is even used in the explanation of class
5229 - and excludes tour and transport agencies. As a result, measurement of
logistics activities using national accounts data can be expected to improve
marginally in the coming years with implementation of the ISIC Rev.4 scheme.