BUS606: Operations and Supply Chain Management

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).

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.