Logistics cost-to-GDP ratio not the issue, expert says

Railway construction is in a hurry and has been a must for a long time Thailand has had railroads for 130 years and has never developed more routes. Customs border checkpoints should also be improved to meet international standards in response to the coming of Asean Economic Community in 2015. 

The government’s decision-making in this way means the projects will be locked in for the next 20 to 30 years.

 

Is the government’s infrastructure development plan clear enough to be the nation’s strategy?

No, it’s not. The nation’s strategy must have a vision. But I’m not sure what it is as I’ve never seen it. I would like say that it’s too late if we now have Thailand Vision 2020, as Asean is looking beyond that to 2030. We have to ask whether the country’s strategy should be in the same direction as that of Asean because we will eventually be under the Asean umbrella.

 

What’s your view on the logistics ratio that the government has been advertising, which would be reduced by at least 2 percentage points from 15.2 per cent now as a result of the infrastructure projects?

The infrastructure [such as roads and ports is for transport facilitation, resulting in the country’s logistics competitiveness, not for reducing logistics costs. However, if we can’t say the infrastructure will help reduce logistics costs, then it seems it’s not worth it.

 

If we shift our goods transportation from more road to more rail, can we say that the lower cost per unit of rail transport means the logistics cost will go down?

That’s illogical. In theory, the road transport cost is higher than rail and rail is higher than sea. Looking at Thailand, the country’s transport cost by road is lower than that by rail or sea.

Taking distance into the account, rail cannot compete with road which is about 80 per cent of total transport. Typically, the distance that rail needs to be competitive with other modes is at least 600 kilometres.

According to my research on refrigerators and washing machines in Europe, we found that a competitive distance was 1,000km. For Thailand, if distribution centres are only 300-400km from production centres [in the Central region], then rail transport is not competitive. Except for a special route for cargo, for example, from the production hubs housed in the Central region to Laem Chabang Port.

Generally speaking, rail transport is cheaper than road. That’s not wrong. But, it doesn’t reflect the real costs, derived from such higher costs as packaging and double handling before loading on and unloading from the trains. 

 

Why do many countries target to reduce the logistics ratio?

This is a question that the World Bank and I have criticised. I would like to say that Thailand is brave to speak out that it would reduce the logistics cost to GDP. In fact, logistics at the macro level is just an indicator that reflects the expenditures on logistics. When GDP grows faster than logistics spending does, the logistics cost-to-GDP ratio will fall automatically.

The ratio is an interesting indicator, but we should not target any reduction rate. We should look instead at the expenses for transport, warehouse management and inventories in detail.