Policy Brief
Challenges Confronting Stakeholders under ASEAN Logistics Connectivity No. 2, February 2014 *By Chackrit Duangphastra EXECUTIVE SUMMARY ASEAN logistics connectivity will be strengthened by building on physical, institutional, and people to people connectivity to reduce business transaction costs, time and cost of travel, connect the core and the periphery in ASEAN. Prioritized logistics connectivity projects in ASEAN master plan mainly involve transport infrastructure development, streamline and well connected customs and trade procedures, and the operationalization of the ratified regional transport agreements. Major challenges confronting connectivity viewed by business, trade associations and academic stakeholders include how to efficiently and timely manage obligations and measures set out in the roadmap under limited resources, and how to accelerate more integration in sub-regional platform and to expand greater supply chain cooperation among government and business sectors especially small and medium enterprises to ensure the sustainability of the region’s logistics connectivity. INTRODUCTION ASEAN connectivity is a key priority area of cooperation that is crucial to the integration of social, cultural, political, and economic dimension of the ASEAN region. ASEAN is region of six hundred million people with GDP of US$ 1.5 trillion and total trade of US$ 1.7 trillion. Connectivity is necessary to facilitate the integration of the region to establish the ASEAN community.
According to Master Plan on ASEAN Connectivity (MPAC), connectivity in the ASEAN context refers to the physical, institutional and people to people linkages that would provide the platform to achieve the goals and objectives of economic, politicalsecurity and socio-cultural pillars of the ASEAN Community by 2015. The physical connectivity will cover transport, information and communications technology and energy while institutional connectivity would cover trade and economic areas such as trade and investment liberalization and facilitation, investment, mutual recognition arrangements and capacity building programs. People to people connectivity would include tourism, education and culture. There is also a strong positive relationship between connectivity and community building for ASEAN. Community building can be strengthened by building on physical and institutional connectivity, which will reduce business transaction costs, time and cost of travel, connect the core and the periphery in ASEAN. A more connected ASEAN will help promote a people-oriented ASEAN and enhance the unity of ASEAN. However, a number of concerns have been raised regarding the impact of connectivity, budget and resource requirements, and how these initiatives will be achieved in the targeted timeline. The growth of economy in ASEAN is now progressing and logistics is high on the agenda of both public and private sector. For the public sector, many governments have introduced a range of development scheme to improve capacity and efficiency of transport and logistics systems. For private sector, companies use logistics as a mechanism to pursue market penetration, cost reduction, and enhance competitive advantage. Parts of many logistics development schemes are currently supported by the ASEAN transport ministers, finance ministers, communications ministers, industry ministers, and economic ministers.
The introduction of modern logistics techniques in ASEAN has generally been done by those MNC manufacturing and retailing. These companies have utilized modern logistics techniques to deal with the high levels of growth and a more demanding customer base. Furthermore, in many respects, the state of 3PL in many ASEAN countries resembles the situation in the North America and Europe in the past ten years. There are viable small and mid size logistics service provider, niche players that are specific and have good relationship with local customers. Also, there are several multinationals “global giant” established as the larger players. Acknowledging lessons learned in the more liberalized services trade economies like Europe and North America, the liberalization of logistics services outsourcing may generate a possibility of having a series of acquisitions and mergers of business activities along the value chain by the larger players to strengthen competitive position and enhance revenue stream in targeted market and to become the most global / regional LSP without worrying about the regulatory constraints requiring them to source products and services from limited choices of local partners. Most local firms then perceive it difficult to compete.
In ASEAN region, multinational corporations (MNC) with their global production chains, require sophisticated logistics support, ranging from high levels of reliability in delivery, minimal transit time, to tight security for high-value goods and other specialized requirement such as cold storage capability during distribution (Figure 1). ASEAN public and private sector should ensure that our logistics system is available enough to keep up with evolving demands. In addition, the liberalization of trade in goods, service and AEC scheme traditionally relaxes tariff and non tariff barriers, the goods exporters are exposed to more trade opportunities that are increasingly causing them to outsource parts of or even their entire value chain of activities that are not core business to LSP. This may stimulate the move towards liberalization of logistics services to capture growing demand.
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Policy Brief
Challenges Confronting Stakeholders under ASEAN Logistics Connectivity
Figure 1: Example of Multinational Logistics Services Providers Seek to Enter ASEAN Market to Service Sophisticated Need for their Multinational Clients
The modern logistics era in ASEAN economies has led to decisions in respect to restructuring manufacturing locations and redefining what products are sourced from what countries. Companies are reviewing their historic distribution channels as the role of trading companies as distributors are being reassessed. Distributors have generally acted in both the sale and physical distribution functions, but some MNCs now believe it is strategically important to manage sales directly and to utilize specialist logistics firms for distribution. The trend of logistics development has also impacted concern on government legislation in respect to foreign investment. The aftermath of financial crisis has resulted in a new wave of foreign investment as some ASEAN counties have freed up their foreign investment in some logistics specific sub-sector, including 3PLs and distribution center. This was essential to meet customer expectations.
Regional snapshots indicate some observations relating to logistics in ASEAN: (a)
Regional logistics strategies plays an important role for companies in achieving their profit targets through market growth and the lowering of total cost;
(b)
Companies have outsourced logistics function to 3PLs as a means of accelerating the take up of modern logistics techniques
(c)
Industry rationalization has occurred in most countries, both from a customer and logistics supplier
(d)
The requirement to improve skills in management, information and other key capability areas to cope with logistics development:
(e)
Government can influence logistics development.
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Policy Brief
Challenges Confronting Stakeholders under ASEAN Logistics Connectivity
ASEAN LOGISTICS CONNECTIVITY Improvement of logistics services and logistics management is one of priority areas of government and business stakeholders in the ASEAN region and encompasses a number of committees and sub committees engaging in physical, regulatory, and people to people connectivity. The improvement of logistics connectivity can help reduce time and cost as well as development gap and enhance convenience and safety of movement of goods, people, and services.
(3)
Under the Master Plan, ASEAN has reviewed the achievement made and the challenges encountered or that are impeding each of these linkages. Key strategies and essential actions have been adopted with clear target and timelines to address these challenges to further enhance ASEAN Connectivity in achieving ASEAN Community by 2015 and beyond. For the physical connectivity, the challenges ASEAN leaders realized the need to be addressed in the region include poor quality of roads and incomplete road networks, missing railway links, inadequate maritime and port infrastructure including dry port, inland waterways and aviation facilities, widening of digital divide, and growing demand for power. This calls for the upgrading of existing infrastructure, the construction of new infrastructure and logistics facilities, the harmonization of regulatory framework, and the nurturing of innovation culture. Seven strategies have been drawn up with the view to establish an integrated and seamless regional connectivity through multimodal transport system, enhanced information and communication technology infrastructure and a regional energy security framework. For institutional or regulatory connectivity, ASEAN viewed the need to resolve many key issues including impediments to movements of vehicles, goods, services and skilled labor across borders. The achieve this, ASEAN must continue to address non-tariff barriers to facilitate intra-ASEAN trade and investment, harmonize standards and conformity assessment procedures, and operationalize key transport facilitation agreements, including ASEAN Framework Agreement on the Facilitation of Goods in Transit (AFAFGIT), ASEAN Framework Agreement on the Facilitation of Inter-State Transport (AFAFIST), and ASEAN Framework Agreement on Multimodal Transport (AFAMT), to reduce costs of movement of goods across borders. In addition, each member state must implement their respective national single window towards realizing ASEAN single window by 2015 to increase integration of movement of goods between and behind national borders. An ASEAN single aviation market and ASEAN single shipping market must initiate to go along with AEC to be a single market and production base. For people to people connectivity, two strategies have been formulated to promote deeper intra-ASEAN social and cultural interaction and understanding through community building through progressive relaxation of visa requirements and development of mutual recognition arrangement (MRA) to provide the need impetus for concerted efforts in promoting awareness, collaboration, and advocacy program to facilitate the greater interaction between the people of ASEAN Regarding the logistics connectivity, the Master Plan identified prioritized projects which will have high and immediate impact on ASEAN Connectivity. Projects related to logistics connectivity include: (1) Completion of the ASEAN Highway Network (AHN) missing links and upgrade of Transit Transport Routes (TTRs) (2) Completion of the Singapore Kunming Rail Link (SKRL) missing links
In addition, there are a number of projects in relationship to logistics connectivity which has not yet been listed as prioritized projects by ASEAN leaders, especially those involving regulatory connectivity, they however have drawn significant attentions from business stakeholders, trade association, SME, academia, and non-transport infrastructure organization. These comprise Physical Connectivity consists of (a) the better utilization of inland waterways transport and establish more well-connected with road and rail connection, (b) the improvement of maritime transport connection in designated 47 ports and adding more qualified ports in the maritime networks, (c) the development of air transport facility to cope with growing activities of low cost carriers, and (d) the introduction of electricity and pipeline interconnection in the region. Institutional Connectivity refers to linking various international or regional agreements to facilitate international transactions of goods and services as well as the movement of natural persons across borders. These involve (a) the liberalization of transportation and other logistics services to allow foreign participation up to 70 percent by 2013, (b) the liberalization of goods and other non tariff barriers such as customs procedures, rules of origin, subsidies, sanitary and phytosanitary measures, industrial technical barriers to trade, (c) the grant immediate benefits of investment promotion and liberalization to both ASEAN investors and ASEAN-based foreign investors who have substantive business operations in the region, (d) the development of free flow of skills labor and establish mutual recognition agreement of logistics professions and trade persons, (e) the encouragement of enterprise to develop interoperable supply chain management systems in ASEAN to link up planning solutions, automated storage and retrieval systems and wireless tracking technologies, (f) the enhancement of the transparency of domestic regulation for logistics related regulation, (g) the acceleration of the implementation of domestic regulation to be in line the ratified ASEAN framework agreements related to transport and logistics, and (h) the establishment of more regulatory free areas such as free port, customs free zone, and special economic zones. People to people Connectivity takes into account of (a) the adoption of best practices in the provision of logistics and support the development of SMEs in the sector, including the formation of SME networks, (b) the development and update of an ASEAN database on logistics services provides with a view to enhance the development of networking activities, (c) the development and upgrade skills and capacity building through joint trainings and workshops, (d) the introduction of national skills certification system for logistics services providers, (e) the development of an ASEAN common core curriculum for logistics management, and (f) the establishment of national and sub regional center of excellence. Sub-Regional Cooperation in ASEAN include (a) Greater Mekong Sub-Region (GMS) comprising Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, and China, (b) Brunei Darussalam, Indonesia, Malaysia, and the Philippines – East ASEAN Growth Area (BIMPEAGA), and (c) Indonesia, Malaysia and Thailand – Growth Triangle (IMT-GT).
(4) (5) (6)
Study on the Roll – on / roll –off (RoRo) network and short sea shipping Establishing common rules for standards and conformity assessment procedures Operationalize all national single window by 2012 Operationalization of the ASEAN Agreement on transport facilitation
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Policy Brief
Challenges Confronting Stakeholders under ASEAN Logistics Connectivity
CHALLENGES FOR ASEAN STAKHOLDERS Recognizing the importance and trend of logistics development, ASEAN members should collectively and timely find ways to achieve improvement in logistics services. Such an assessment must take into account links to the marketplace encompassing globally, regionally, locally, and industry generally. To date, the challenges confronting stakeholders under ASEAN Logistics Connectivity can be addressed below: Do ASEAN governments understand the dynamics of logistics development? How ASEAN manage timeline and obligation made in ASEAN Master Plan of Connectivity and roadmap to achieve outcome and targets to support a common vision to fully integrated AEC in 2015? Is the investment in logistics infrastructure and services adequate to support growth?
Is the regulatory environment stimulating the desired outcome? Do foreign investment regulations adequately support logistics development? Do the quantity and quality of local workforce and management adequately support national logistics development? What is the sub sectoral coverage of logistics services? What services are sensitive? Cooperation, trust, and more operational plan and actions are important keys to manage logistics and supply chain integration while sometimes allowing flexibility of individual country. Can we manage just in time development of logistics connectivity?
REFERENCES Asian Development Bank (2013), Asian Economic Integration Monitor – March 2013, Asian Development Bank, Mandaluyong City, Philippines,
ASEAN Secretariat (2012), Master Plan on ASEAN Connectivity, ASEAN Secretariat, Jakarta, Indonesia Duangphastra, C (2010) ASEAN Logistics Roadmap, Department of Trade Negotiation, Nonthaburi, Thailand
*Chackrit Duangphastra, PhD is lecturer in management at Chulalongkorn Business School and Deputy Executive Director at ASEAN Studies Center, Chulalongkorn University. This article first appeared in February 2014.
Contact: Chackrit Duangphastra at chackrit@cbs.chula.ac.th
Published by ASEAN Studies Center, Chulalongkorn University, February 2014. ASEAN Studies Center Chulalongkorn University Location: 3rd Floor, Vidyabhathna Building, Chulalongkorn University, Phayathai Road, Pathumwan, Bangkok 10330 Tel.+66 2 218 3929, +66 2 218 3933 Fax. +66 2 218 3928 Email: aseanstudiescu@gmail.com
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