Insight Into The Logistics Sector

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We caught up with the managers and directors holding the reins of some of Cambodia’s leading transportation and logistics firms to bring you expert insight into the state of the Kingdom’s transport and logistics industry.

Presently, the Cambodian transportation and logistics industry still faces major hurdles. These challenges are being tackled by both the Government and the private sector with increasing assertiveness. Work is currently underway to improve the road connecting Phnom Penh and Siem Reap. The recent introduction of the Kien Svay port in Kandal Province is another step forward for the industry as a whole, while the refurbishment of the Toll Royal Railway service that links Phnom Penh and Sihanoukville have also helped boost the sector. An important recent development was the launch this year of a new Special Economic Zone (SEZ) – developed by Kerry Worldbridge Logistics – which aims to put Cambodia on the map when it comes to regional logistics.

Logistic challenges: Cambodia’s long road ahead

We begin by discussing the backbone of any logistics network anywhere in the world: the roads. And for that, we resort to, possibly, one of the nation’s foremost experts in the subject. As the managing director of Royal Cambodia Limousine Service and Giant Ibis Transport – two of the nation’s most successful road transport enterprises – Jacob Montross has a lot to say on the topic.

Montross’s appraisal of the road system in the Kingdom is far from being positive, yet the US-born entrepreneur betrays a hint of optimism: “the current state of Cambodia’s road system is still below that of  neighboring counties, but the Royal Government of Cambodia is working to catch up,” he asserts. He believes the government is walking down the right path with well-directed, fruitful efforts to upgrade the Kingdom’s roads, such as the expanded national road to Siem Reap, a divided highway which he says will improve safety of travel. He also praises the new Neak Leung bridge as “another example of improvement”; he believes “it eliminated a huge bottleneck on the most important trade route between Cambodia and Vietnam.”

Montross’s biggest concern with the the road system lies in safety. He points out problems of insufficient street lighting and small road shoulders, insisting that if “these two things alone [were to be improved], it would dramatically improve safety of national roads.”

Much needed change, however, might come in painfully slow and small increments, due to a market obsessed with price. “Higher [safety] standards bring higher costs and most of the passenger transportation companies in our sector are low cost domestic operators. Improving standards would mean that higher costs would have to be passed on to the customer; a risky move in a very price sensitive market like this,” Montross concludes.

Frederic Chan, Country Manager for CargoTeam, tackles another form of inland transport. He believes a growing problem is the railway system, which he categorises as “not convenient”, “costly”, and “impractical”: “All in all, there are so many added expenses that a train freight between Phnom Penh and Sihanoukville can turn awfully expensive,” the Paris-trained logistics expert explains. He mentions the cost of loading and unloading containers to the trains, and the obligatory use of trucks to complete the journey as examples of “added expenses.”

Shipping from Cambodia: are we competitive?

Inept safety standards, roads in poor condition, and the high costs associated with the use of the railway are some of the defining traits of Cambodia’s inland transportation network. But, what about sea freight? Are we in a better position?

Benny Ong, General Manager at Damco, does not think so. In his view, “when detailed expenses are analysed, the ‘low-cost’ view of Cambodia is somewhat diminished.” The Singaporean furthers his point against Cambodia’s shipping competitiveness by asserting that our shipping costs are “amongst the highest in the Indo-China region.” He backs up his statement with hard facts: “During a recent rice tender issued by the Philippines, the overall export costs from Cambodia was found to be at least 8% higher than both Thailand and Vietnam.” Ong believes mediocre infrastructure, limited capacity, knowledge and know-how on the part of service providers, and a lack of connectivity between ports, warehouses and transport lanes contribute to the overall cost.

Lam Bui, Country Manager for Maersk Line, agrees with Ong on the issue. However, the Vietnamese professional does not believe soaring costs have obliterated Cambodia’s competitive edge in the short term. “Cambodia is still very competitive in other things,” she says. “Even though the shipping might be a little more expensive than in neighboring countries, overall we are still competitive because of trade treaties like EBA.” Bui is referring to the Everything But Arms treaty, an agreement under which least-developed countries export all goods – except weapons – duty-free to the European Union.

Benny Ong views recent development in customs procedure in a more positive light. He highlights an important government initiative to facilitate customs clearance: the introduction of ASYCUDA (Automated System for Customs Data) – a computerised system used for goods clearing processes. In Ong’s own words, it is “an undeniable great initiative from the government that will support trade growth and enforce compliance.” Ong says he expects similar strategic decisions from the Government in the near future, as they will make Cambodia a more attractive investment destination.

Cambodia’s two main ports, the Phnom Penh Autonomous Port (PPAP), and the Sihanoukville Autonomous Port (PAS) have also come under the scrutinous eye of our experts. Bui has seen “improvements in these ports in productivity and processes” in recent years. Carriers like Maersk Line measure port productivity by the number of containers that the harbour can load and unload in one hour. Bui notes that in Sihanoukville shipping lines can enjoy about “30 [loading and unloading] moves per hour when quay cranes are available.” This makes up for decent productivity levels, taking into consideration that, according to the Vietnam-born shipping professional, averages for the region pivot around 30 to 40 moves.

The problem comes when we consider accessibility to quay cranes. Bui says that with only two such cranes available at any point, sometimes they are forced to use vessels cranes, which can only handle about 12 moves per hour. The dearth of quay cranes further brings down PAS’s productivity (Bui points out, however, that the port has plans to acquire two more quay cranes in the near future, a move widely expected to boost productivity levels).

With weak security regulations, substandard inland and sea transportation and logistics networks, and excessive shipping costs, Cambodia still has a long way to go before it becomes the regional logistics hub that it aspires to be. In the meantime, encouraging signs – like the development of the Kien Svay port, the launch of Kerry Worldbridge’s SEZ, or the adoption of an advanced electronic system for customs clearance – bring us closer to catching up to more developed neighbors like Thailand and Vietnam.

 

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