Introduction
Logistics form the backbone of all human endeavours. From military logistics and raw materials supply to the food chain and medical equipment, no industry can survive without logistics. Imports and exports are directly dependent on the logistics network, thus making it a decisive element in a nation's economic well-being. In that case, it is no wonder that international organisations like the World Bank periodically give scorecards to countries to determine the best logistics systems across the globe. This initiative helps international freight carriers and freight forwarders to stay vigilant and informed. The index, known as the LPI or Logistics Performance Index, rates countries based on their efficiency, quality, competence, technological solutions, and competitiveness.
For years, Germany has been staying in the number one position due to several factors. Only once in 2012 did Singapore overtake Germany for the top spot. Brazil and India outperformed in the lower-middle-income nations, securing 31st and 37th places, respectively. By no means, this LPI is exhaustive nor has some authority for determining the quality of logistics. It only gives a foundation to trade upon. By looking at these top performers, managers and governments can identify opportunities and solutions that make freight movement better in their countries. In this article, we will discuss the key factors that make top performers what they are.
How LPI is calculated
According to the World Bank, logistics performance (LPI) is measured using six key dimensions. Then the results are averaged to obtain the performance index. These are:
1. Efficient customs procedures
2. Logistics infrastructure quality
3. The ease shipping
4. The competence and quality of services
5. Easy tracking of consignments
6. Shipment timeliness
Lessons from countries with best Logistics systems
Location matters.
International trade favours countries that are adjacent to trade routes. These are more advantageous than countries that are lateral to these routes. The location of the country matters more than anything else.
Singapore
Singapore is a country with few natural resources to export. However, due to its strategic position next to international freight movement lines, the nation made itself a global leader in international trade. It didn't happen overnight. The government of Singapore has made decisions to make the future of the small city-state more prosperous. First, it made agreements with over 130 states for high-frequency flights to and from Singapore. Indeed, Singapore's international airport is voted the best in the world (Source: Airline Quality). It also developed its port structure to work with ocean lines, which created one of the world's densest maritime transport networks. Along with that, Singapore operates the world's largest transhipment container port (Source: MPA).
Such high connectivity to almost all parts of the world through air and sea trade routes makes Singapore one of the world's highest performing logistics operators. Due to Singapore's quality in freight movement, it is sometimes even faster to forward freight through Singapore than to ship it through the direct lines. Along with that, Singapore's logistics laws are revolutionary in terms of administrative perspective. The government has changed its mind set from "controlling the trade" to "facilitating the trade".
Germany
Germany is placed in a strategic position with access to a number of ports that facilitate freight movement across Europe through Germany. Altogether, Germany's highways, railways and inland waterways cover around 60,000 km. Among these, the German rail network connects 40,327 km and the road network covers 12,000 kms (Source: The Hindu).
Egypt and the Suez Canal
Source: Tobias Tullius
Egypt was a top performer in its category. Egypt's proximity to the Suez Canal is one of the major reasons for its performance index. The Suez Canal is one of the world's busiest trade routes, connecting Asia with Europe. As a result, it naturally makes Egypt a logistics nexus. This man-made trade route is serving Egypt with revenue through traffic, tourism opportunities, and development opportunities through logistics growth (Source: MFAT).
Poland, China and the New Silk Road
Poland and China both performed better in upper-middle-income countries. China secured 27th place, while Poland secured 31st. Both countries are positioned across the modern international silk road of logistics. As China has become a major manufacturing and export hub, its logistics are steadily becoming more resilient.
Russia
Russia, however, underperformed in the LPI because of its location. It has limited access to ports that connect to major trade routes. Most landlocked countries are at this disadvantage as their freight movement efficiency depends on the countries that surround them. Russia's logistics cannot blame itself for the inefficient logistics of the countries that surround it.
The wealth of the nations
The country's income and GDP play a major role in logistics networks. This is due to a higher level of imports and exports as well as better infrastructure and resilient systems. Wealthy nations always outperform poor nations in freight movement. In many poor countries, freight movement is undertaken with out-of-fashion trains, automobiles, and second-generation aeroplanes. While this is the time when wealthy nations move cargo through fourth-generation jets, Maglev or electric trains, and sophisticated trucks, poor nations still rely on four-stroke engines, coal-burning trains, and low-quality road networks. The wealth of the nation becomes a decisive factor in logistics as well as everything else. As a result, the LPI was measured in each group according to their income.
Transportation network
Source: Sid Suratia Unsplash
Countries with a highly efficient network of transportation can make efficient deliveries. These are not exclusive to anyone for transport methods. A country needs ports that function with the best modern infrastructure. It needs all the necessary equipment to move cargo from the ships or load it into ships. It needs connected roads and easy customs to facilitate faster movement. Indeed, ports in corrupt countries or ports near war zones are actively avoided by freight forwarders. Couriers with complex customs laws are also neglected in international trade routes.
Air connectivity
Countries with better air connectivity to all parts of the world are preferred on international trade routes. High-density air traffic makes it easier to move cargo across the globe. Airports are thus a decisive factor for the overall development of nations, as it is for their freight movement. Even then, it is not enough for passengers' airways. Some large cargo flights, like the C-17 Globe master and Boeing 707, need sophisticated airports with longer, higher quality runways. Small airports are not enough for such large carriers. Hence, increasing the number of international airports would be of higher priority.
Railway
Railways are another major freight carrier. The span and coverage of railway tracks are considerable factors in efficient logistics. The speed of the railways is also a decisive factor in freight transport. Railway stations with specialised infrastructure to displace cargo from the train to other transportation vehicles also play a key role. In poorer countries, such systems are next to null.
Inland waterways
Inland waterways are an underrated yet highly efficient mode of transportation. Most countries ignore this in their freight movement chains. Germany's inland waterways cover 7,450 kms of navigable territory. This can cut the time and cost of moving cargo through substandard roads or dense jungles.
Trucks
Source: Nigel Tadyanehondo Unsplash
The country's trucking companies are also critical for highly efficient logistics delivery. Singapore is experimenting with modern trucks with sensors, artificial intelligence, navigation systems, and driverless vehicles. All these can aid drivers, and thus achieve maximum efficiency.
Privatisation helps
Privatisation of ports and airports is also responsible for Singapore's growth as a major logistics hub in Asia. 20 of the world's top 25 logistics companies have global or regional headquarters in Singapore. On the other hand, it is also home to the European headquarters of logistics giants like DHL, UPS, and IKEA. Also, companies like Amazon, FedEx, Unilever, and NCC have major operations in Germany. Privatisation and the entry of international competition can make local logistics companies quickly learn, adapt, grow, and complete. This can help the country in the long run.
Freight villages and warehouses
Germany has established freight villages all over its territories. Freight villages are located at strategic points across the highways, railway stations, airports, and inland waterways. They have the necessary warehouse structures and provide freight movement vehicles with all the necessary services and spare parts. Due to the technological integrations, freight villages make unloading from one vehicle and loading onto another vehicle both time and cost-efficient. Moreover, they nullify paperwork through advanced technological integrations and make freight movement and transfer easier. Germany's warehouse system is also ingeniously placed across the country. While one-third of its enormous warehouses are located around major cities, others are located in freight villages (Source file: JLL).
Weather can help or harm logistics
The weather of the country plays a major role in freight movement. In countries like America, harsh storms halt logistics operations temporarily. In countries like India, heavy rainfall and landslides during the monsoons submerge railway tracks, airports, bridges, and roads. Landslides even cut off different parts of the country. Logistics during such weather conditions is risky for drivers as well as the goods. In fact, many countries in the world are fortunate enough to experience moderate weather conditions.
Technology and innovation
Germany has a separate research department that is responsible for innovations related to logistics. Technology plays a major role in logistics. From predicting weather to tracking consignments' delivery up to seconds, it takes higher technological superiority. This is absolutely crucial for perishable or high-priority products.
For example, medical drugs that needs constant pressure, temperature, and second-to-second tracking throughout transportation. Freshly cut flowers need as little temperature change as possible to maintain their freshness. So this takes a faster displacement from one freight movement method to another. If they need to be transferred from an air-conditioned truck to a freight train, the time it takes to travel between the two is absolutely critical. Slow paperwork makes such time-sensitive goods perish in the trolley itself.
This is why high-profile logistics couriers have trackers and predictors for such high-priority products. Other such innovations also help in efficient and timely delivery. Here are some of the best logistics innovations.
Digitalisation
Digitalisation of customs and logistics is also a highly recommended method for faster freight movement. Smart sensors can nowadays detect shipping anomalies like piracy, smuggling of animals, human trafficking, and drugs. Singapore is planning to use a single window that includes manufacturers, logistics companies, trade financiers, and customers. If that rolls out, permits can be obtained within minutes from all parties involved in the freight movement. This can revolutionise the speed of paperwork.
Voice picking
Voice picking negates the complex paperwork that elongates delivery time. It uses voice recognition of logistics workers instead of paperwork and signatures. Such measures save time and effort and help with timely delivery.
Driver shortage and AI
Many European countries are running short on manpower. This is particularly bothersome for the freight industry as there is a short supply of driving staff for freight companies. Some countries, like Sweden, are overcoming this major concern through technology. Artificial intelligence is helping Sweden with self-driving trucks and other logistics vehicles.
Fossil-free trucks
Climate change has become a mainstream concern for the whole world. Some countries have identified the threat and started using fossil-free trucks in logistics. Sweden, which is among the top five in logistics performance, is experimenting with all the technological alternatives.
Drone delivery
With the explosion in the popularity of drones, many innovative countries are experimenting with drone delivery. Drones are highly efficient for low-weight cargo delivery across a few kilometre radiuses of logistics facilities. They can be strategically used at the end of logistics facilities with last-mile deliveries. This can serve well in areas with difficult terrain. Where other freight mover vehicles have difficult access like winding roads and high terrain, drones can easily cut time, distance, and effort. However, the weather is the only thing that can make fine delivery impractical at times. Heavy winds, higher temperatures, heavy rainfall, and snowfall can all hinder drones from operating at peak efficiency.
Customs and laws
Customs and laws play a major role in efficient logistics. Some countries that have corrupt port officials make it harder for the country to develop through international trade. Countries without stable government bodies, oppressive governments that give no heed to business ethics, and countries with civil wars have all been low-performing in the index. These countries, however, are causing their own demise by failing to capitalise on the opportunities provided by the logistics industry. Among such countries are Somalia, Afghanistan, and Syria in last place.
Conclusion
Logistics has become a sophisticated industry with revolutionary technology and government policies. Those who recognise its value in building a nation have made smart moves in improving transportation infrastructure. They have easily digitised permitting, which negates the need for extra paperwork. Companies have also resorted to technology like voice recognition to nullify complex paperwork. A country's infrastructure on land, air, and sea all help in the development of logistics.
Better logistics build the nation through higher connectivity and healthy competition due to the entry of international players. This can also bring profit through import-export and freight forwarding, as in the case of Singapore. The small city-state's trade value is 3.5 times its GDP (Source file: IMF)! While technological integration makes logistics highly efficient, there needs to be a separate department that deals with research, refinement, and innovations related to logistics. Warehouses and freight villages can revolutionise logistics speed and on-time delivery. Due to these qualities, Germany is staying in the top position.
Finally, the shortage of blue-collar workers like drivers will be a major issue in the future. Add climate change to the equation, and logistics can become chaos in many countries that are constantly bombarded with natural calamities. In such cases, technology can be responsibly used to create a highly efficient delivery process as well as a fossil-free, climate-friendly industry. SNATIKA offers a prestigious Masters Degree in Logistics and Supply Chain Management to senior professionals. If you are a manager working in the logistics and supply chain industry, you are eligible to apply for our program. With dual academic qualifications, an ISO 9001:2015 certified admission and academic delivery processes, and flexible learning hours, you can rest assured of having the title under your name in just 12 months!