Shipping Your Cargo To And From Cambodia

0
5142

160427-B2B---Article---Shipping-Your-Cargo-To-And-From-Cambodia-A-USE

As ASEAN Economic Community (AEC) integration proceeds, the Kingdom’s trade with the rest of Asia, Europe and North America continues to grow at a steady pace. “We have seen continued high growth for intra-Asia trade as well as trade with Europe. Export and imports to and from the US is slowing down but it is still positive,” says Lam Bui, Country Manager at Maersk Line Cambodia.

Lam Bui, Maersk Cambodia

This expansion in trade has been possible thanks to the ongoing development of the country’s infrastructure, and by governmental efforts to streamline and modernise customs procedures. The civil war severely damaged the Kingdom’s infrastructure, but since then Cambodia has recovered and it now boasts three international airports, two deep-sea harbours, and two rail lines.

The road network has also been vastly improved in the last decade, and the main highways are now up to international standards. In addition to the main interprovincial traffic artery connecting Phnom Penh with Sihanoukville, Phnom Penh is now permanently connected with Koh Kong, allowing uninterrupted road access to neighbouring Thailand and their vast road system.

Comparative advantage

The shipment of certain products (such as garments and footwear) from Cambodia is relatively cheap, as pointed out by several garment buyers. According to Maersk’s Bui, this is due to the “Everything but Arms” treaty that the Kingdom enjoys for products bound for the European Union. The agreement exempts Cambodia from paying taxes when trading with the European bloc.

Low manufacturing costs are also part of the equation, adding to the Kingdom’s comparative advantage in trade. As Bui notes, manufacturers from around the world are lured into the Kingdom by its “cheap and large labour force.” As of today, the minimum wage for garment workers stands at $140 per month, although labour unions are in negotiations with the government and the Garment Manufacturers Association in Cambodia continue to raise the figure.

Challenges to competitiveness

Cambodia’s infrastructure network continues to improve, and a country that a decade ago was hard to travel even by road, now enjoys decent highways and over 600 kilometres of rail tracks. However, problems with the transportation and movement of cargo and people persist, and the infrastructure of the country still lags far behind that of Thailand or Vietnam.

“I believe infrastructure is one of the main hurdles to Cambodia’s competitiveness,” says Bui. She recommends that the road and rail line connection between Phnom Penh and Sihanoukville, as well as the roads and waterways that link Cambodia and Thailand/Vietnam, need to be overhauled to meet future growth.

High operational costs are another impediment to competitiveness. Bui believes that, due to the low productivity rates and a lack of economies of scales, excessive operational costs are also a concern for companies operating in the Kingdom. Nuon Ratana, Sales & Marketing Manager at RDL Logistics, agrees with Bui: “In order to compete with neighbouring countries, the freight costs need to be lower.”

Nuon Ratana, RDL Logistics

AEC integration: challenges and opportunities

On January 1, Cambodia officially joined the AEC, although the process of integration, which started long before this token date, continues to this day at a steady pace. Transportation and logistics experts unanimously expect the flow of cargo within ASEAN nations to significantly increase in the near future as the result of increased connectedness. This presents challenges as well as opportunities.

Bui believes a big challenge is to be found in Cambodia’s deep-sea ports, which need to improved. “To cope with heightened demand, Cambodia’s ports will need to be developed further,” she says.

R sees an opportunity in Cambodia’s urgent need to modernise its infrastructure. “In light of AEC integration, the roles of the Phnom Penh Autonomous Port and Sihanoukville’s deep-sea port become increasingly vital,” he says. “I am optimistic that in order to gain a competitive edge over fellow ASEAN nations, Cambodia will improve its infrastructure and optimise its customs clearance procedure.”

Sea freight

Cambodia’s ports are undergoing renovations to expand their goods-handling capabilities and allow them to cope with the surge in shipping traffic. We recently learnt that the Phnom Penh Autonomous Port is entering the second phase of its development, expanding their container yard capacity and acquiring more port equipment. Meanwhile, the Sihanoukville Autonomous Port is also expanding by buying two big quay cranes. “These investments will significantly increase port capacity as well as productivity in coming years,” says Bui.

Last year, Chinese shipping giants China Ocean Shipping Group Company (COSCO) and China Shipping Container Lines (CSCL) set up offices at Sihanoukville’s port, increasing the number of shipping routes to China and making shipping rates more competitive. “Since the agreement between Sihanoukville Port and the Chinese shipping companies [COSCO and CSCL] we find that the price of sea freight in the Kingdom has become cheaper and more competitive,” says R.

Both ports continue to play increasingly important roles in the regional shipment of goods, particularly in light of AEC integration. However, potential for the expansion and improvement of its facilities remains huge. “Both ports could absorb many more goods if complicated procedures could be improved and other costs reduced,” says R.

Construction of a seaport in Kampot is set to begin this year thanks to a $18 million loan from the Asian Development Bank. Officials hope the port will open up new multimodal transport options for moving passengers and light freight between Phu Quoc island in Vietnam, as well as Thailand’s southern islands and Cambodia’s coastal zone. The pier is expected to service 360,000 international and domestic tourists when it opens in 2018 and 442,000 by 2022.

Land freight

Cambodia’s roads may have undergone massive refurbishment in the last decade, but they still lag behind those found in more developed neighbours. Road conditions and infrastructure need to be drastically improved in order to accommodate an increase in freight volume, says Frederic Chan, Country Manager of Cargoteam Cambodia. Standards in the industry need to be upgraded: overloaded trucks continue to pose a serious problem that contributes to the deterioration of roads, while untrained and unqualified truck drivers make the roads less safe for all users and increase the rate of accidents.

Frederic Chan, Cargoteam Cambodia

That being said, it is important to recognise that the work done in the last years to improve road conditions is impressive. With assistance from Japan and the Asian Development Bank, the Kingdom has upgraded its main highways to resemble international standards. Most main roads are now also paved.

After years of neglect and some recent rehabilitation work, the railroad system is finally up and running. Two rail lines exist, both originating in Phnom Penh and totalling about 612 kilometres. “It is fairly adequate for the time being, but will require further infrastructure upgrade soon to support the growing integration of the Cambodian economy into the ASEAN community,” explains Benny Ong, General Manager at Damco Cambodia.

Benny Ong, Damco Cambodia

Ideally, moving cargo by train should be more cost and time efficient, but the overall door-to-port process in Cambodia is still less flexible and more time-consuming than trucking. “Trucking in Cambodia still has many more advantages over rail shipping, partly due to the fact that the rail system isn’t fully completed yet,” says Chan.

Air freight

The country is serviced by 26 airfields, although only three of those can be classified as major operating airports with commercial flights. The Phnom Penh International Airport is the largest airport, followed by Angkor International Airport in Siem Reap. Tourist traffic into Angkor International Airport saw passenger numbers overtake those of Phnom Penh in 2006, and the airport is now the country’s busiest. Down south, the Sihanoukville International Airport now hosts five airlines, operating flights to Phnom Penh, Siem Reap, Hong Kong, China, Singapore and Korea, and soon also to Vietnam.

Despite having three international airports, Cambodia still trails behind its neighbours when it comes to air freight service. The country falters in a number of areas, particularly in availability of connections, scheduling options, variety of freighters and a specialised workforce with expertise in the industry. According to Damco’s Ong, the number of freighters operating in the Cambodian market is small, which puts upward pressure on the cost of services. R agrees: “Air freight cost in Cambodia is still higher than in Thailand and Vietnam, as these countries deal with bigger volume of traffic than Cambodia.” However, according to Ong, Cambodia is competitive when it comes to the cost of intra-Asia, short haul services.

Due to the limited number of cargo freighters available, passenger craft is often utilized for freight-forwarding purposes. This dependence on passenger craft accounts for most of the delays experienced when transporting cargo, as shipments become susceptible to the common delays experienced by airlines. The reliance on this sort of craft also means that, depending on the time of year and the influx of tourists, there may be shortages of cargo space, as airlines tend to prioritise passengers over heavy cargo when it comes to allocating its available space.

The Asian Infrastructure Development Bank

Established with the aim of providing funding for energy, transport and infrastructure projects in Asia, the Chinese-led Asian Infrastructure Development Bank (AIIB) was officially launched last October. The bank has garnered the support of most economies regionally and worldwide, with the notable exception of the US, which refused to join as a founding member.

“The AIIB enjoys broad international support and a big capital base, and can be a great source for Cambodia to optimise the funding [for infrastructure] as well as leverage its expertise,” says Bui. R is of the same mind: “We are optimistic that it would affect positively the transport and logistics system in Cambodia.”

Cargoteam’s Chan believes the new institution will encourage better professional standards across the transportation sector. As an ally of China, Cambodia is expected to benefit from additional assistance and loans from the AIIB.

Customs clearance

The last couple of years have seen positive developments in the area of customs which have simplified and streamlined the process of clearing goods at the borders and points of entry.

Bui informs us that last year the General Department of Customs and Excise introduced the Handbook on Customs Clearance. According to the Maersk logistics expert, the handbook gives a good overview of the customs clearance procedure in the Kingdom, consolidating all available information to increase public awareness on good customs clearance practice. This handbook is the first of its kind in the Kingdom.

Bui also notes that the GDCE issued Notification 1155 in August 2015 to clarify the timeframes involved in every step of the customs clearance process, and to specify the standard of work expected of officials. “This has enhanced transparency and boosted competitiveness,” she says.

Ratana highlights the importance of the recently-established ASYCUDA, a computerised system used for the goods clearing process and for managing trade statistics. “We are certain the new mechanism could deduct costs and save us time,” he says.

Bui hopes that in the near future all customs offices across the Kingdom will be equipped with the new system, which would reduce clearance time and improve transparency.

Cambodia has a lot of work to do to catch up to more developed neighboring countries: Shipping and transporting goods around the country is still relatively expensive and cumbersome, due largely to substandard infrastructure and inefficient procedures.

However, the last decade has seen a host of encouraging developments, including the upgrade of some of the main roads in the country and the introduction of initiatives that have simplified and facilitated the customs clearance process. They are positive signs that the Kingdom is walking down the right path, quickly coming up to speed with standards in the region.

LEAVE A REPLY

Please enter your comment!
Please enter your name here