Transport and Trade Facilitation and Security in the 21st Century

Haruya Koide Principal Regional Cooperation Specialist Office of Regional Economic Integration Asian Development Bank

Recent Transport and Trade Developments and Challenges: An Overview

Global trade transformation and the emergence of a new landscape
Substantial trade volume increase Vast improvements in maritime and air shipping brought about by technological advances Cooperation among economies Deepening trade complexity Just-in-time delivery Low inventory retention Multimodal logistics services Increasing complexity of global supply chain networks Security threats after the 9/11 attacks Illicit trade These developments have required capacity and efficiency improvement of transport infrastructure and logistics services have underscored the critical role of customs administration in international trade and have required customs agencies to further strengthen their competencies to carry out increasingly complex functions that extend far beyond revenue collection.

Recent Transport and Trade Developments and Challenges: An Overview Substantial trade increase
World trade grew at an average annual growth rate of 9.8% between 2000 and 2011, reaching a historic high of over $36 trillion last year (Figure 1). Asias total trade surged from $3.5 trillion in 2000 to $11.7 trillion in 2011 and grew, at an annual rate of 12.0%. Asias share of world trade also rose from 26.7% in 2000 to 32.5% in 2011.
Figure 1: Merchandise Trade: World and Asia ($ billion)
20,000

18,000
16,000 14,000 12,000 10,000

8,000
6,000 4,000 2,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Asia exports Asia imports World exports World imports

Note: Asia refers to the 48 developing member countries of the ADB plus Australia, Japan, and New Zealand. Source: Direction of Trade Statistics, International Monetary Fund and CEIC for Taipei,China data.

Recent Transport and Trade Developments and Challenges: An Overview

World making things together and increasing calls for trade facilitation from the private sector Trade today is not about one country selling one product to another. It is about the world making things together. Without efficient trade facilitation, it will not be possible to execute this kind of business model.

(Source: APEC Secretariat 2010)

Recent Transport and Trade Developments and Challenges: An Overview Deepening trade complexity
Mounting security threatsin the aftermath of the 9/11 events in particularand the need to counter illicit trades have increased the complexity of border risk management, adding challenges to transport and customs operations. Since the 9/11 attacks, governments across the world have shown the utmost prudence as they undertake measures to ensure the safety and security of the public, while also making certain that economic activities are unhampered. However, terrorist attempts continue to hound the public. For instance, in the morning of 29 October 2010, two United States-bound packages were each found to contain at least 300 grams of pentaerythritol tetranitrate (PETN), a powerful explosive used in quarrying and demolitions. (Source: WCO 2012 and CNN 2011)

Recent Transport and Trade Developments and Challenges: An Overview Deepening trade complexity (continued) Illicit trade includes human trafficking, the trade of protected commodities, the trade network of terrorists and criminal elements, and the illegal trade of harmful and dangerous goodsdrugs, explosives, firearms, and counterfeit products. Increasing tenfold since the 1990s, illicit trades value may range from $1 trillion to $3 trillion, or almost a tenth of the worlds economy. Illicit trades expanse and scope threatens all facets of human life, society, and the rule of law
(Source: World Economic Forum 2010)

Recent Transport and Trade Developments and Challenges: An Overview Regional transport infrastructure to meet the trade volume increases 991 regional transport infrastructure projects totaling about $206 billion in Asia (2010-2020)
*Asian Highway Network (121 projects, $43 billion) *Trans-Asian Railway Network (45 projects, $83 billion) *Asian Container Ports (765 projects, $50 billion) *About 60 regional road transport projects ($30 billion) envisaged under the Greater Mekong Subregion (GMS), Central Asia Regional Economic Cooperation (CAREC), and South Asia Subregional Economic Cooperation (SASEC) programs
(Source: ADB and ADBI, 2009)
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Recent Transport and Trade Developments and Challenges: An Overview

CAREC and GMS regional transport projects Over the years, with strong leadership and support from government agencies and ADB, the GMS and CAREC programs have yielded fruitful outcomes.
By the end of 2011, 172 regional projects totaling $34 million had been carried out under the framework of the two programs, of which regional transport projects constitute 81% ($27 billion). The two programs also provided numerous personnel training sessions for member countries.

Recent Transport and Trade Developments and Challenges: An Overview

Customs in the 21st Century (C21) agenda Responding to these trade and transport developments, customs authorities around the world are working with the private sector to introduce customs modernization, trade facilitation, and security measures in line with the strategic vision embodied in Customs in the 21st Century: Enhancing Growth and Development through Trade Facilitation and Border Security (C21), which was launched in 2008. Technology Furthermore, there have been many new developments in trade facilitation and security brought about by technological advances in information communications technology (ICT) and non-intrusive inspection (NII) technology, and in cooperation among countries around the world. These developments have supported supply chain and distribution networks, while ensuring security.

Recent Transport and Trade Developments and Challenges: An Overview

Challenges at borders
Improvements in customs services at many borders in Asia have not kept pace with the increased trade volumes and complexities. + Furthermore, the level of Asias accession to basic international conventions is lower than the international average. = As a result, trade flows are being constrained at the border in Asia.
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Recent Transport and Trade Developments and Challenges: An Overview Delays at borders have added substantial cargo demurrage costs, which are sometimes far greater than efficiency gains from transport infrastructure improvement, especially at the airports and ports where on average more than 90% of trade, in terms of volume and value, pass through. Figure 2: Delays at borders

Source: UNESCAP 2011.

Source: ADB 2011.

Recent Transport and Trade Developments and Challenges: An Overview

Asias low levels of accession to basic international conventions

Figure 3: Levels of Accession to Selected International Conventions: ADB DMCs and the World (%)
0% 20% 40% 60% 80% 100%

A.

Customs Conventions

Temporary Importation of Commercial Road Vehicles *

ATA carnet for the Temporary Admission of Goods Customs Convention on Containers, 1972 * TIR Convention * HS System Istanbul Convention Revised Kyoto Convention

B.

Civil Aviation Conventions Chicago Convention 1944 Warsaw Convention

The Hague Convention Montreal Protocol No. 4 Montreal Convention 1999

C.

Maritime Conventions FAL Convention *

SOLAS 1974 D. Road Traffic Conventions International Carriage of Goods by Road * Harmonization of Frontier Controls of Goods *
% participation of 43 ADB DMCs % of participation of 193 UN countries

Recent Transport and Trade Developments and Challenges: An Overview

Uneven logistics performance in Asia

Logistics capability plays a very important role in trade. Based on the World Banks Logistics Performance Index (LPI), developing Asias performance stood at 2.82 in 2012, higher by 0.04 points than its score of 2.77 in 2010. Developing Asias score is almost comparable to the world average score of 2.87, but is still far behind North Americas LPI regional average score of 3.89 and EUs 3.51.

Recent Transport and Trade Developments and Challenges: An Overview

Uneven logistics performance in Asia

Moreover, Asias logistics performance is uneven across the region, ranging from 3.54 to 2.40, with East Asia doing best, particularly in terms of timeliness. Performances within each sub-region also vary considerably. Country scores within Southeast Asia range from 4.13 (Singapore) to 2.37 (Myanmar), and in East Asia from 4.12 (Hong Kong, China) to 2.25 (Mongolia). These wide disparities in logistics performance within sub-regions suggest there is great potential for improvement.

Recent Transport and Trade Developments and Challenges: An Overview

Uneven logistics performance in Asia

Table 1: Logistics Performance Index 2012
Infrastructure 3.60 2.82 2.43 2.38 2.15 2.72 2.60 2.57 2.58 2.40 2.38 2.29 2.77 International Shipments 3.44 3.02 2.45 2.59 2.40 2.82 2.66 2.70 2.77 2.68 2.59 2.47 2.82 Logistics Competence 3.46 2.95 2.42 2.58 2.17 2.78 2.65 2.64 2.64 2.49 2.58 2.43 2.82 Tracking and Tracing 3.56 3.11 2.53 2.48 2.46 2.87 2.75 2.73 2.85 2.56 2.48 2.40 2.88 Timeliness 3.90 3.42 2.86 2.93 3.06 3.25 3.14 3.12 3.26 3.02 2.93 2.86 3.26 Regions LPI Customs

East Asia

a a a

3.54 3.02 2.51 2.58 2.40

a c c

3.29 2.78 2.40 2.47 2.14 2.67 2.47 2.46 2.51 2.29 2.47 2.27 2.66

Southeast Asia South Asia Pacific

b a

Central and West Asia

Asia and the Pacific

2.85 2.71 2.71 2.77

c

Europe & Central Asia

Latin America & Caribbean East Asia & Pacific

c

Middle East & North Africa South Asia

c c

2.58 2.58 2.46 2.87

Sub-Saharan Africa World Average

a b c

Based on ADB regional classification. Fiji, Papua New Guinea, and Solomon Islands. Based on World Bank regional classification.

Note: Logistics Performance Index (LPI) scores are based on the following dimensions: (i) efficiency of border control and customs process, (ii) transport and trade-related infrastructure, (iii) competitively priced shipments, (iv) ability to track and trace consignments, and (v) timeliness of shipments. Countries are rated from 1 to 5, with 1 being the worst performance and 5 being the best.

Transport and Trade Facilitation and Security in the 21st Century: Future

Asian Century
Asia is truly in the process of a historic transformation. Assuming the continuation of its current growth trajectory, by 2050, Asia could account for more than half of global GDP, trade, and investment, and enjoy widespread affluence. Asias per capita income could increase six fold to reach the global average and be closer to current European levels, although it is expected that Europe and North America would remain much richer in per capita terms in 2050. At the same time, some 3 billion Asians are expected to enjoy affluence by todays standards. By nearly doubling its share of global GDP from 27% in 2010 to 51% in 2050, Asia would regain the dominant global economic position that it held some 250 years ago, before the Industrial Revolution (ADB, 2011).

Transport and Trade Facilitation and Security in the 21st Century: Future

Population growth and demographic shifts will change Asia

The worlds population is projected to exceed 9 billion in 2050 The world and Asia will experience substantial demographic changes as well by 2050 By 2050, Asia will constitute about 52% of the global population, a bit smaller than its share of 57% in 2010, yet still with about 822 million more people than today. Northeast Asias share in Asias population will have fallen from about 40% in 2010 to 31% in 2050. On the other hand, South Asia (India, Bangladesh, and Pakistan, in particular) is expected to grow faster than the Asian average over the next 4 decades and will have added about 164 million people (ADB, 2011).

Transport and Trade Facilitation and Security in the 21st Century: Future

Implications for transport demands

Economic and demographic changes will inevitably impact the availability of foods, energy, and other resources. These transformations will also change the locations of agricultural and industrial production areas, consumption centers, and supply chain and distribution networks, impacting transport demands and routes.

Fast-moving technological developments

The emergence of new technology, including green transport, is occurring at an increasing pace.

Transport and Trade Facilitation and Security in the 21st Century: Future

ICT and trade facilitation

The electronic exchange of information has gained usage, replacing paper-based transactions. This has accelerated transactions around the world, including rural areas through the use of cell phones that connect buyers and sellers to international markets. E-trade is being introduced in many countries and this trend will continue. Customs operations have been increasingly connected with each other electronically, allowing the pre-shipment exchange of information covering both trade facilitation and security. Consignment traceability has been improved, thanks to ICT developments. Traceability is now a fundamental business process in supply chains.

Transport and Trade Facilitation and Security in the 21st Century: Future

New aircraft and air transport

Energy efficient, fast, and large aircraft are now available in the market, achieving economies of scale, delivering speedier transport services, and reducing costs of air transport. Competition has also put downward pressure on air transport costs. Air transport is particularly vital for high-technology industries, allowing for the use of just-in-time inventory practices that have attracted production and trade networks to Asia. This is key to growing industries that depend on seasonal or holiday deliveries and sales, including garments, and for high-value foodstuffs (e.g., fresh fish) where immediate transport to markets is vital.

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Transport and Trade Facilitation and Security in the 21st Century: Future

New aircraft and air transport (continued) Cut flowers are flown to European and American markets from Asia, providing income generation opportunities for agricultural workers in Asia. Agricultural produce, which is grown in the southern hemisphere, is increasingly exported to countries in the northern hemisphere, taking advantage of seasonal differences. Figure 4 shows a variety of cargos using air transport.
Figure 4: Air Cargo

Source: ADB 2011.

Transport and Trade Facilitation and Security in the 21st Century: Future

Larger vessels and increasing container usage Large container vessels, usually referred to as Panamax vessels, carrying up to 5,000 steel containers, known as TEU (for 20-feet equivalent unit), will become obsolete considering that the majority of ships on order are postPanamax with more than 10,000 TEU.
It is expected that by 2030, nearly three-quarters of all shipping will be conducted via post-Panamax vessels. A $5 billion project at the Panama Canal is ongoing to expand its capacity (International Herald Tribune, 21 September 2012). Meanwhile, more than 420 million maritime containers move around the globe each year, accounting for 90% of international trade (Maersk and the International Association of Ports and Harbours, 2009).

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Transport and Trade Facilitation and Security in the 21st Century: Future

Encouraging multi-modal transport systems One aspect of encouraging small-scale trade is the expanding use of roll-on/roll-off (Ro-Ro) vessels. These hold the potential to transform inter-island shipping. Ro-Ro uses specially designed ferries to ship cars, trucks, and buses, eliminating the need for shifting cargo between vessels and saving on handling and other expenses. Ro-Ro ports are multi-modal hubs that allow land cargo to be smoothly shipped across sea-lanes. Recently, the Philippines developed a true nautical highway that allows small businesses to move goods and people more efficiently and reliably from island to island. In some instances, transport costs have fallen by as much as 40% (Asia Foundation, 2010).

Transport and Trade Facilitation and Security in the 21st Century: Future

Encouraging multi-modal transport systems

Ro-Ro systems encourage small businesses, reducing costs and easing participation in larger national markets. For instance, Ro-Ro could be used between member countries of the Association of Southeast Asian Nations (ASEAN) and PRC. Furthermore, as Myanmar opens up, its ports could be used to enhance Ro-Ro connections with South Asian countries as well.

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Transport and Trade Facilitation and Security in the 21st Century: Future

International container block train services Container block train services operate between East Asia through Central Asia and/or the Russian Federation via the Trans-Siberian Railway, offering shorter delivery time compared with shipping services between East Asia and Europe (Figure 5).
Figure 5: Container Block Train Services

Source: ADB 2011.

Transport and Trade Facilitation and Security in the 21st Century: Future

Logistics as an important strategic business factor

In the past, logistics used to be a passive, cost-absorbing function in an enterprise. Today, private companies acknowledge logistics, which provide them with unique competitive advantages and a variety of other benefits, as one of the most important strategic operational factors. The movement of consignments from the supplier through the manufacturer to the customer now accompanies a wide range of value-added transport and warehouse management applications(GS1, 2012).

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Recent Transport and Trade Developments and Challenges: Future

Logistics as an important strategic business factor

The use of state-of-the-art ICT has also revolutionalized the way logistics and transport service providers operate. The importance of efficient logistics management and transportation optimization is becoming all the more clear in the context of todays truly globalized supply chains. This is because efficient and effective communication and coordination is absolutely necessary as goods and components cross more and more borders than ever before. The logistics and transport aspects of supply chain management are increasingly becoming one of the most complex business disciplines, requiring close interactions within and between many of the traditional functional areas of a company and its partners, suppliers, and customers, both upstream and downstream (GS1, 2012).

Transport and Trade Facilitation and Security in the 21st Century: Future

Logistics as an important strategic business factor

Figure 6 shows one of the warehouses of High Tech Logistic, a Russo Kazakh joint venture, which has logistics centers in Astana, Aktobe, and Almaty.
Figure 6: High Tech Logistic, Almaty

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Transport and Trade Facilitation and Security in the 21st Century: Future

Instruments and programs to promote customs modernization and trade facilitation

WCO has introduced many instruments and programs to facilitate and secure global trade, including the following New Developments (2011~2012) *Revised Time Release Study (TRS) (2011) *New Single Window (SW) Compendium (2011) *New Risk Management (RM) Compendium (2011) *Economic Competitiveness Package (ECP) (2012) (Revised Kyoto Convention, SAFE Framework, etc)

Transport and Trade Facilitation and Security in the 21st Century: Future

Paperless trade

Paperless trade such as e-trade offers substantial benefits to all countries and traders. The repetitive completion of numerous paperbased documents for cross-border trade is costly, inefficient, and problematic. Documentation complexity tends to discourage SMEs from entering international trade. Paperless trade also provides governments with savings. Because of the expected benefits, many countries are preparing domestic e-trade legislation to promote streamlined and less costly trade transactions between businesses and governments, and between governments (Governments of Australia and the PRC 2001). This trend is expected to continue.

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Transport and Trade Facilitation and Security in the 21st Century: Future

Electronic air freight documentation

E-freight introduced by the International Air Transport Association (IATA) is one of the most notable trade facilitation and security actions taken to date. In 2004, IATA carried out an industry-wide program-involving airlines, shippers, freight forwarders, ground handling agents, and customs authorities-to replace paper accompanying airfreight shipments, with cheaper, more accurate, and more reliable electronic messaging. The system avoids repetition and errors caused by repetition. Electronic documentation also allows pre-screening and real-time tracking. In 2007, e-freight began with six pilot locations. As of September 2011, there were 43 countries and 383 airports.

Transport and Trade Facilitation and Security in the 21st Century: Future

Life cycle of technologies, methods, and procedures Customs, transport, and trade-related authorities need to bear in mind the life cycle of technologies, methods, and procedures.
For instance, air cargo security has four core elements: (i) Advance Electronic Information (AEI) and intelligence to riskassess cargo, (ii) physical screening and the use of technology to secure cargo, (iii) a secure supply chain with operators preserving the integrity of the cargo until departure, and (iv) mutual recognition of controls and operators as well as cooperation between authorities. When it comes to advance electronic information and intelligence, more and more countries are implementing AEI. Alignment with WCOs SAFE Framework is critical in terms of who sends what data and how and when they send it.

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Transport and Trade Facilitation and Security in the 21st Century: Future

Life cycle of technologies, methods, and procedures

The harmonization of risk management and criteria to define high risk cargo is a must. Government and industry collaboration is paramount when implementing AEI. Figure 6 shows developments expected by IATA in the area of AEI and intelligence until 2017 (IATA 2012)

Transport and Trade Facilitation and Security in the 21st Century: Future
Figure 6: Life CycleAdvance Electronic Information and Intelligence

Source: IATA, March 2012.

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Transport and Trade Facilitation and Security in the 21st Century: Future Physical screening should comprehensive enough to detect improvised explosive devices (IEDs) and improvised incendiary devices (IIDs) concealed inside consignments. It should complement AEI and be performed by operators that are widely recognized by a number of countries. Screening methods comprise x-ray, Explosive Detection Systems (EDS), and manual searches and visual checks. Modern technologies can help secure high risk cargo. Screening technologies need to be fast, reliable, and able to handle large volumes. IATA standard codes such as Screening Status and Methods should be adopted. Figure 7 shows expected developments in this field between 2012 and 2017 (IATA 2012).

Transport and Trade Facilitation and Security in the 21st Century: Future
Figure 7: Life CyclePhysical Screening

Source: IATA, March 2012.

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Transport and Trade Facilitation and Security in the 21st Century: Future A secure supply chain should be at the heart of any cargo security regime; IATA Secure Freight can help. It should be aligned with ICAO Annex 17 (i.e., cargo secured prior to loading). Secure operators should be widely recognized by countries and AEO/MRA alignment is needed. Cargo should be secured upstream and its integrity maintained throughout the chain (as represented in green in Figure 8 below). The IATA standard electronic Consignment Security Declaration should be recognized by countries as an audit trail (IATA 2012).

Transport and Trade Facilitation and Security in the 21st Century: Future
Figure 8: Secure Supply Chain

Source: IATA, March 2012.

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Transport and Trade Facilitation and Security in the 21st Century: Future With respect to mutual recognition and cooperation, countries should have comparable security programs based on international standards that they mutually recognize. Information should be transmitted once to a single window and then accessed by all government agencies concerned. Information and control results at the point of export should be shared with the importing authority (Globally Network Customs = building block 1 of C21). Secure operators should be recognized outside of their own country; AEO and regulated agent programs should be aligned. Origin screening should suffice at transit and transhipment points to avoid unnecessary unloading and rescreening (IATA 2012). Figure 9 shows expected developments through 2017.

Transport and Trade Facilitation and Security in the 21st Century: Future
Figure 9: Life CycleSecure Supply Chain and Mutual Recognition and Cooperation

Source: IATA, March 2012.

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Transport and Trade Facilitation and Security in the 21st Century: Future

Human resource constraints in customs, transport, and traderelated authorities

During the First Session of the Capacity Building Committee of the World Customs Organization (WCO) held in Brussels on 27-29 September 2010, the Jordanian Transport Minister said capacity building is essential in our increasingly globalized world.

He added, [a]s the private sector increases its investment in logistics, inventory and information systems, government agencies must keep pace or lose out in goodwill and real trade. Customs, transport, and trade-related authorities are experiencing knowledge- and skills-drain as many experienced officials are retiring, while new officials require time and training to gain the competency required for their services. Customs, transport, and trade-related administrations need to build and establish sustainable institutional capacity through active staff training.

Transport and Trade Facilitation and Security in the 21st Century: Future

Pros and cons of cross-border transport

Cross-border transport improves the mobility of people and goods. Developing Asia, together with its partners like ADB, has improved regional infrastructure including roads, railways, ports, and airports. Developing countries in Asia are also modernizing customs and introducing trade facilitation and security measures, including transit arrangements, to meet challenges arising from substantial increases in trade volumes and complexity. ADB, WCO, and other development partners are supporting this process. To complement trade support through infrastructure upgrading, and customs and transit procedural improvements, ADB supports trade in Asia by providing trade finance and guarantees to letters-of-credit through the Trade Finance Program, which supports over 1,800 SMEs in 16 DMCs.

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Transport and Trade Facilitation and Security in the 21st Century: Future

Pros and cons of cross-border transport

While cross-border transport is having a beneficial impact on developing Asia, it can also be accompanied by illicit trade and negative externalities such as human trafficking, the spread of HIV/ AIDS, accidents, and pollution. WCO and other development partners, such as the United Nations Office on Drugs and Crime (UNODC), are supporting developing Asia to reduce illicit trade. We all need to minimize such negative risks systematically. Countermeasures to address HIV/AIDS and environmental issues have become standard features of ADBs projects. Furthermore, ADB has introduced systematic regional approaches to address road accidents in South Asia and Southeast Asia. Figure 10 shows efforts by DMCs, ADB, and partner organizations to promote the good and contain the bad aspects of cross-border transport.

Transport and Trade Facilitation and Security in the 21st Century: Future
Figure 10: DMCs, ADB, and Partners: Promoting the Goods and Containing the Bad Aspects of Cross Border Transport

DMCs, ADB and Partners

Good (+)
Positive Economic & Social Impacts Trade/Traffic Increase Infrastructure Improvement

Negative Economic Impacts

Negative Social & Health Impacts

Illicit Trade Human Trafficking HIV/AIDS Accidents, pollution, etc

Customs Improvement Transit Improvement Trade Finance

Bad (-)

DMCs, ADB and Partners

Source: Haruya Koide, ADB. 2005. Central and South Asia Transport and Trade Forum. Modified in 2010 and 2012.

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Efficient and secure transport creates shared prosperity across Asia-Pacific

Thank you

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Transport and Trade Facilitation and Security in the 21st Century

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Transport and Trade Facilitation and Security in the 21st Century

For More Information

Contact
Mr. Haruya Koide Principal Regional Cooperation Specialist Office of Regional Economic Integration Asian Development Bank E-mail: hkoide@adb.org Phone: 63-2-632-6124 Fax: 63-2-636-2183

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