Developing ASEAN’s logistics connectivity-

 

Fostering intra-regional connectivity promotes economic growth, narrows development gaps by sharing the benefits of growth with poorer groups and communities, enhances the competitiveness of ASEAN, and links its member states to one another within the region and with the rest of the world. The purpose of this article is to describe some of the logistics-related priority issues in the Master Plan for ASEAN Connectivity (MPAC), that need to be addressed, if the ASEAN Economic Community (AEC) is to become integrated as planned. The MPAC is designed to connect ASEAN by improving physical infrastructure development (physical connectivity), establishing effective institutional arrangements (institutional connectivity), and empowering people through people-to-people connectivity.

Logistics connectivity plays a key role in national and regional economies in two significant ways. First, logistics connectivity constitutes one of the major expenditure items for businesses, thereby affecting and being affected by other economic activities. Second, logistics connectivity supports the movement of many economic transactions; hence, it is an important aspect of facilitating the sales of all goods and services (Grant et al., 2006).

Logistics connectivity is not only of concern within national borders or markets (in each country or region), but also affects export and import firms that face logistics issues that may differ from those of the domestic market. Logistics connectivity requires an understanding of the relative transportation efficiencies, therefore making it imperative for managers to understand the transportation capabilities and characteristics of primary trading countries. Government actors also play a prominent role in regional logistics connectivity within a complex cross-border environment. Oftentimes, there are wasteful transaction costs that are incurred in cross-border operations involving business actors and government executive agencies. Policies addressing regional logistics connectivity should address these issues.

MPAC’s key logistics connectivity strategies

ASEAN’s fundamental framework, the MPAC consists of a three-pronged strategy to improve physical connectivity, enhance institutional connectivity, and bolster people-to-people connectivity. Thus, production and distribution networks in ASEAN could be deepened in terms of logistics connectivity. In addition, there could be greater number of commodities and countries in the region engaged in logistics network linkages and become more entrenched in global supply chains.

Improved physical connectivity

Enhancing physical connectivity in the ASEAN region requires better transport, improved Information and Communication Technology (ICT) infrastructure, and expanded interconnectivity – all of which are vital for the seamless movement of goods and tradable services. There are six key strategies under the MPAC, which have been identified for enhancing physical connectivity in the ASEAN region:

  • Complete the ASEAN Highway network: In terms of traffic volume, road transport is the most important mode of transportation. Moreover, the integration of the lagging areas in the region under the ASEAN Highway network (AHN) project would benefit the poorer areas of the continental ASEAN region significantly. However, the implementation of the Ministerial Understanding on the Development of the ASEAN Highway Network Project, which requires ASEAN member states to upgrade all designated routes to Class 3 or above, and to install road signs by 2004, is behind schedule.
  • Complete the implementation of the Singapore Kunming Rail Link project: The Singapore Kunming Rail Link (SKRL) has been a priority agenda item for ASEAN’s transport cooperation; hence, the political motivation to complete the SKRL is very high. The SKRL is expected to provide an alternative mode of land transportation that would be more environmentally friendly than road transportation.
  • Establish an efficient and integrated inland waterway network: Inland waterway transport plays a vital role in the mobility, welfare, and economic development of ASEAN member states. It can provide a relatively cost-efficient and less environmentally harmful means of transport. However, it lacks adequate investment; thus, there is a need to formulate and implement a regional policy framework for developing inland waterways transport services in ASEAN.
  • Accomplish an integrated, efficient, and competitive maritime transport system: In terms of traffic volume related to international trade, maritime transport is the most important mode of transportation. ASEAN needs to foster a competitive and efficient interstate shipping service in the region and take advantage of the full potential benefit of seamless integration with the global shipping system (ALMEC, 2002). In addition, efficient and competitive shipping routes to connect archipelagic regions needs to be established in order to enhance intra-ASEAN connectivity.
  • Establish integrated and seamless multimodal transport systems to make ASEAN the transport hub: ASEAN is at the geographic centre of the emerging global cluster of production and demand – the South Asia–Southeast Asia–Northeast Asia the Australia/New Zealand corridor. ASEAN needs to reflect on how its strategic location can enable it to function as the logistics connectivity hub in the region. Considering that transport cooperation in ASEAN has been formulated and implemented separately in accordance with transportation modes, it is vital that ASEAN streamlines its sector’s strategies with respect to the concept of multimodal transport systems and dry ports in order to enhance intra- and extra-ASEAN connectivity. Although the full implementation of this strategy will take some time, it is important, at the outset, to set a clear strategy for the same in the ASEAN region.
  • Accelerate the development of ICT infrastructure in each of the ASEAN member states: A robust ICT infrastructure, in tandem with better human resources and a regulatory environment, is critical for enabling ICT as an engine of trade, economic growth, innovation, and better governance. A number of countries in the region are gaining a global reputation in ICT infrastructure, along with ICT-based industries and services.

 

Better institutional connectivity

The second critical anchor of ASEAN connectivity, apart from physical connectivity, is institutional connectivity. Enhancing institutional connectivity in the ASEAN region would increase the effectiveness of physical connectivity by:

  • Easing the flow of goods and services (from the elimination of barriers to trade);
  • Reducing the costs of moving goods and services (from improved transport and trade facilitation services); and
  • Enhancing economic and social returns from greater physical connectivity and deeper economic linkages (through higher investments).

In order to ensure a seamless movement of goods, services, and resources in the ASEAN region, governments would have to:

  • Reduce policy and institutional barriers to the movement of goods, services, and resources within the region;
  • Harmonise rules, regulations, procedures, and standards among ASEAN member states; as well as
  • Improve institutional and infrastructural capabilities to provide the necessary transport and trade facilitation services

 

The following key strategies should enhance institutional connectivity in the region:

Fully operationalise the three-framework agreements on transport facilitation: A logistics network is only as strong as its weakest link: the weakest links are typically found within national borders. In order to realise the vision of a “single market and production base” as envisaged in the Asian Economic Community Blueprint, ASEAN needs to enhance regional connectivity through transport facilitation initiatives in order to minimise (and eventually eliminate) the frictions at national borders, which increase the transaction costs of moving goods between countries within the region:

  • ASEAN Framework Agreements on the Facilitation of Goods in Transit;
  • ASEAN Framework Agreements on the Facilitation of Interstate Transport;
  • ASEAN Framework Agreements on Multimodal Transport.

 

Implement initiatives to facilitate interstate passenger land transportation: The expansion of road and rail connections within ASEAN can help facilitate land travel between member states (by private vehicles, tour buses, and coaches), which could result in the development of new tour packages comprising tourism products from different member states. Currently, there are  a number of challenges that impede the free movement of vehicles, goods, and people across international borders including restrictions on the entry of motor vehicles; different standards requirements (vehicle size, weight, and safety requirements, and driver qualifications); inconsistent procedures related to customs inspections and clearances, and assessment of duties; and restrictive visa requirements.

Develop ASEAN single aviation and shipping markets: In view of the rapidly growing importance of air transportation, as well as the accelerated restructuring of the global aviation market, ASEAN needs to strengthen its aviation industry by establishing an Asean Single Aviation Market (ASAM). Low-cost carriers (LCCs) have been growing rapidly in the ASEAN, thereby facilitating intra-ASEAN tourism and, in turn, helping to enhance people-to-people connectivity. The Roadmap for the Integration of Air Travel Sector has already set the timeline for the establishment of the ASAM by 2015.

Progressive integration towards the formation of an ASEAN single shipping market and intensified development of maritime network infrastructure will strengthen ASEAN’s maritime sector. Thus, it will be able to operate efficiently and deliver quality goods and services at competitive prices.

Accelerate the development of an efficient and competitive logistics sector: The competence, efficiency, and cost effectiveness of the logistics service industry in a number of ASEAN member states can be further improved, as reflected in the wide variations in the rankings of the ASEAN countries in the “competence of service providers” subcomponent of the World Bank’s Logistics Performance Index. As ASEAN member states develop their logistics development plans, the liberalisation of the logistics service industry can be expected to contribute to the improvement of logistics in the region. In addition, the transport services component of connectivity and logistics would also need to be improved significantly in a number of ASEAN countries. Similarly, the geographic breadth and efficiency of telecommunications infrastructure and the cost competitiveness of telecommunications services in a number of ASEAN countries still leave much to be desired. A more liberalised and competitive environment can entice more investment and continuing technology improvements to the region’s telecommunications, logistics, and transport services industries.

Substantially improve trade facilitation in the region: There is no doubt that many of the ASEAN member states need to substantially improve the quality of customs services and the timeliness of the delivery of goods before the region can become a truly integrated production hub for the world. The extremely wide range in the performance of customs services in the ASEAN region, among others, effectively illustrates the significant challenge of establishing institutional connectivity for an integrated and interconnected ASEAN region. The implementation of the National Single Window and the ASEAN Single Window, together with the reform and modernisation of customs, will redress the highly disparate customs environments, thereby engendering a faster and more predictable flow of goods within the region and to the rest of the world. This programme requires changing essential features of customs control, procedures and practices. Making them compatible and interoperable is key to enhancing ASEAN connectivity.

Implementing the member states’ National Single Window and the ASEAN Single Window will: facilitate the streamlining of processes and procedures; engender the tight coordination of related government agencies and trade-related service providers in the private sector; and foster greater transparency and predictability on trade-related rules, regulations, and procedures.

Enhance border management capabilities: Synchronising activities of control at borders between related agencies in charge of border management is the first step to improving connectivity. Mutual recognition arrangements will entail a comprehensive upgrade to enable goods, transport, and passengers to cross borders without interruption. At present, cooperation in the area has begun; accelerating the process would enhance ASEAN connectivity.

Summary

ASEAN has resolved to embark on a bold and long-term strategy to enhance its logistics connectivity so that it can operate in an efficient and seamless manner in its economic integration journey. For the effective implementation of ASEAN’s logistics connectivity, essential mechanisms and resources will need to be put in place. The success of this implementation framework in driving the logistics connectivity efforts of ASEAN is still uncertain in the face of multitudes of obstacles. For now, institutional connectivity is probably the least understood and the most difficult to implement due to a lack of regulatory alignments and execution capabilities.

About the Author

Ruth Banomyong’s main research interests are in the field of multimodal transport, international logistics and supply chain performance measurements. Since 1995, Ruth has been a consultant for international agencies such as the UNCTAD, the UN-ESCAP, The World Bank, ADB, The ASEAN, etc.