ISSUE 1 | JUNE 2024 Beyond Borders: Perspectives on Regional Connectivity in South Asia The Path to a Multimodal Future in Eastern South Asia Authors: Erik Nora, Charles Kunaka; Research Inputs: Mitali Nikore FOREWORD Introduction Regional connectivity and trade can be a The eastern South Asia region1 has extensive networks of all the main modes powerful catalyst for fostering economic of surface transport for the movement of goods, both within and between growth, alleviating poverty, and promoting countries. It has at least 38,000 kilometers of waterways2, almost 125,000 peace and stability in South Asia. However, kilometers of railways, and close to 175,000 kilometers of highways. However, this is a complex agenda that presents barring a few commodities, goods transport in the region is heavily dependent formidable, multidimensional challenges, on only a single mode - road transportation. which have long hindered the region from reaching its potential in regional trade. Freight Modal Share in Eastern South Asia Intra-regional trade still accounts for a mere 5 percent of the total trade, substantially lagging other regions such as East Asia and Sub-Saharan Africa. The World Bank is supporting governments IWT 9% Road 72% Sea 14% Rail 4% in the region to overcome these challenges by facilitating the enhancement of transport and trade-enabling infrastructure, digital Road transport dominates freight transport, accounting for about three- systems and institutions and policies. We quarters of the market in India and Bangladesh and rising to over 90 percent conduct research, analyses, and data in Bhutan and Nepal. Yet, the regional road transportation system faces collection to underpin evidence-based significant structural challenges that undermine its effectiveness, notably policy discussions. The ACCESS knowledge severe congestion and poor reliability. The average speed on regional road series, “Beyond Borders – Perspectives on corridors is a mere 28 kilometers per hour. Transport costs by road are also Regional Connectivity in South Asia”, aims higher than the cost of an equivalent journey by other modes. to provide technical studies and empirical data on key issues that are holding back The average speed on regional trade corridors cross-border connectivity and trade. is a mere 28 km/h. We hope this knowledge initiative can empower and enable policymakers and other stakeholders with the necessary tools to drive reform for positive outcomes on regional cooperation. -Cecile Fruman, Director, South Asia Regional Integration and Engagement 1 Bangladesh, Bhutan, India, and Nepal; in this note also referred to as “Region” 2 Comprising the total network of rivers and canals; not all are currently used for navigation ACCESS Knowledge Notes Series a multimodal future in eastern south asia 1 Transport costs (US$ ton/km) in Eastern South Asia Multimodal Transport Benefits: World Bank Study 0.06 0.05 Highlights 0.04 Multimodal transport is increasingly recognized in 0.03 the region as a way of achieving seamless movement of freight, exploiting the comparative advantage of 0.02 different modes of transport. If coupled with measures that synchronize and optimize the entire transportation 0.01 chain, it can relieve congestion, decrease transit times, and ultimately reduce logistics costs. Estimates suggest 0 potential reductions of 40-50 percent in transit times, Road Rail Sea IWT highlighting the significant impact that multimodal Source: World Bank logistics can have on supply-chain efficiencies and trade The elevated costs of transport are only one of the competitiveness. factors for the low levels of intra-regional trade observed in South Asia. The other factors include cumbersome Many regional trade routes within eastern South Asia regulatory processes, protectionist tariffs, non-tariff are long, exceeding 250 kilometers, a distance where barriers, reliance on time consuming manual trade rail and Inland Waterway Transport (IWT) tend to have a processes, and inadequate transport infrastructure. In competitive edge over road transport, as these options fact, some countries within the region find more favorable can offer lower costs and higher capacity for bulk trading conditions with distant economies compared to shipments. This is particularly relevant given that mineral neighboring countries. transportation, which is well-suited to these modes due to its bulk nature, constitutes a significant 67 percent of total cross-border trade flow in eastern South Asia3. India It is 15–20 percent less expensive for a and Bangladesh, which have the most extensive rail and company in India to trade with a company IWT networks, generate about 81 percent of this traffic. in Brazil or Germany than with a company in Bangladesh. Regional trade - Cross-border value of trade US$mn (2021) Importer Exporter Bangladesh Bhutan India Nepal Bangladesh 7 1,764 129 A car-carrying IWT vessel can transport up Bhutan 38 344 12 to 300 small cars, removing the equivalent India 14,093 868 9,190 of 50 car-carrying trucks from the road. Nepal 6 6 1,318 Source: World Bank The prevalence of mineral commodities in the region’s trade highlights the potential for a modal shift from road Having established the inefficiency of the region’s current to rail and IWT, which can lead to more cost-effective unimodal road transport system, the focus hereon is the and environmentally sustainable transport solutions. To various dimensions of a multimodal freight transport better understand the economic benefits of improving system for eastern South Asia, examining the challenges multimodal transportation in eastern South Asia, the that must be overcome to fully realize its potential. World Bank developed a detailed trade and transport ACCESS Knowledge Notes Series a multimodal future in eastern south asia 2 model4. This model encompasses the main modes Hard measures concentrated on improving multimodal available in the sub-region—rail, road, sea, and IWT. It transportation solutions and road infrastructure. forecasts freight transport demand for two horizon years, 2035 and 2045, and estimates the benefits associated The findings of the study indicated that while both soft with investments in policy, regulatory, and institutional and hard measures are essential for creating a more measures, as well as hard infrastructure, aimed at efficient multimodal transport network, the dismantling improving multimodal transportation. of critical regulatory and policy barriers was found to be three times more effective in enhancing the region’s trade The demand modelling estimated that in a do-nothing potential. This underscores the paramount importance scenario (representing the existing transport network) of robust regulatory frameworks in ensuring efficient truck volumes at border points in eastern South Asia operations and facilitating regional economic integration. will double by 2035. Similarly, in the Business-as-Usual scenario (representing the existing transport network, plus ongoing or sanctioned transport infrastructure Harnessing Waterways and projects), truck volumes would also double at most border Rail for Greener Goods points. However, some India-Bangladesh border points, particularly in the northern and eastern side of Bangladesh, Movement would experience lower truck traffic demand due to new The region has an extensive network of navigable rail links and IWT routes that are under development. waterways, especially during the monsoon season. It In both scenarios, the model projected that the market includes the vast Ganga-Brahmaputra-Meghna (GMB) share for road transport will further increase, with little to delta, a dense lattice of waterways that that historically no modal shift towards more sustainable modes. Moreover, facilitated the movement of over 70 percent of the goods the increased truck volumes indicate that supply is and passengers within the region. inadequate to cater to the escalating demand, leading to Presently, IWT is predominantly utilized in West Bengal, the deteriorating levels of service, longer queues and extended waiting times at the different border and terminal points. northeastern states of India, and Bangladesh. Bangladesh and India have a combined total of 3,500 kilometers of To tackle the challenges arising from inadequate supply navigable rivers designated as Protocol Routes for trade and utilization of infrastructure, as well as the current and transit. These trans-boundary rivers play an important imbalance in the modal split, the study explored various role in the exchange of goods and passenger transport. soft and hard transportation measures to boost trade among eastern South Asian countries. Soft measures Despite a notable increase from a mere 0.1 million tons in included enhancements to trade and transport-related the 2001-02 to approximately 3.5 million tons in 2019-20, policies, regulatory frameworks, and institutional structures. cargo transported via IWT between India and Bangladesh accounts for only 11 percent of their bilateral trade volume, with fly ash representing more than 97 percent of the total cargo. Cargo transit through Bangladesh to India’s northeastern states constituted only 0.39 percent of the total maritime cargo volume5. Interest in waterways extends beyond Bangladesh and India as Bhutan and Nepal are actively exploring waterways as an alternative to road transport for goods movement. Chittagong and Mongla in Bangladesh have been identified as international gateway ports for Bhutan, with Narayanganj (Dhaka) serving as the main port for bilateral trade. Dhubri on India’s National Waterways 2 (NW-2) serves as the transit point. This multimodal route, connecting Phuentsholing to Narayanganj covering 600 Photo credit: Mitali Nikore ACCESS Knowledge Notes Series a multimodal future in eastern south asia 3 kilometers of waterways, reduces transportation and Recent developments in railway connectivity between India logistics costs by an estimated 30 percent compared to and Bangladesh underscore a strategic commitment to road transport. enhancing regional connectivity by railways. These efforts include significant initiatives such as the restoration of A World Bank study6 found that the river systems of India’s historic rail links between Haldibari-Chilahati and Akhaura- National Waterways 1 (NW-1) are suitable for transit Laksha, alongside the development of new routes like the movement for Nepalese cargo. Infrastructure developments New Belonia–Feni line. are being implemented to improve the navigability of NW-1, which is connected to the Indian seaports of Kolkata and Haldia, with several multimodal terminals along its stretch. Transit cargo at the Indian ports of Kolkata and Haldia can be directly transshipped from sea-going vessels to barges. The study found that the use of IWT routes and multimodal terminals in India, notably Sahibgunj, Kalughat and Patna, could handle transit trade worth US$4.6 billion, or 35 percent of Nepal’s total trade. Eastern South Asia boasts one of the largest railways Source: www.freepik.com networks globally, predominantly in India where Indian Despite holding a minor share of the intra-regional trade Railways operates the fourth largest freight network in the traffic in the sub-region, railways play an important role in world, extending over an impressive 121,000 kilometers. facilitating transit trade for Nepal. Around 40 percent of However, over the past decades, railways have experienced Nepal’s imports and 70 percent of Nepal’s exports transit a gradual decline in modal share, now comprising only by rail. For Bhutan, the closest Indian railheads are situated 4 percent of regional freight movement. Barriers to 16-70 kilometers from its border towns. Bhutan and India intra-regional railway movement include technology are assessing the feasibility of establishing rail connections standardization issues (gauges, braking systems), inadequate to five Bhutanese border towns from the nearest Indian infrastructure (loop lengths, missing links, interchange railheads. points), load restrictions on bridges, lack of coordination for gauge conversions, and capacity constraints in specific The 57 kilometer railway line from Kokrajhar in Assam to corridor sections. Gelephu in Bhutan is viewed as the most viable link for connecting Bhutan with the rail networks of India and There are encouraging signals that suggest a reversal of Bangladesh. This potential connectivity is further supported the declining trend in railway market share, particularly by the re-establishment of the Haldibari-Chilahati as well as given India’s significant investments in railway infrastructure upgrading the Radhikapur-Birol railway line to broad gauge. enhancement. These improvements include dedicated freight corridors and an expansion of the track network, The primary challenge in implementing effective modal especially in the Northeast region of India. change is the relative inelastic nature of much of the demand for road transport, at least in the short term. Other hurdles include missing infrastructure links including first and last mile connectivity, high costs associated with switching transport modes, and the absence of regional regulation in both the freight-rail and IWT. The advantages of road transport, particularly flexibility, outweigh the benefits of other modes. This implies that the mode-choice decisions of shippers are unlikely to be influenced solely by cost, underscoring the complexity of shifting transport patterns and the need for a multifaceted approach to address the underlying factors that favor road transport dominance7. Source: www.freepik.com ACCESS Knowledge Notes Series a multimodal future in eastern south asia 4 Emission Reduction Regulatory Optimization Targets Can Propel Shift to for Maximizing Multimodal Sustainable Modes Transport Globally, transport is one of the major contributors to To enhance cross-border multimodal transport, it is global greenhouse gas (GHG) emissions. The freight and imperative for countries to tackle regulatory barriers logistics sector, accounting for 10-11 percent of global within their transportation frameworks. Traditionally, the energy-related CO2 emissions, is facing steep emission responsibility for addressing transport, logistics, and increases due to a predicted 2.6-fold rise in freight trade issues is distributed in the region across multiple ton-kilometers by 2050. This surge is largely driven by government agencies, leading to significant fragmentation demand growth, with non-OECD countries expected to contribute 82 percent of surface freight’s carbon Rail emits 20% of truck emissions until 20508. GHGs and is four times more cost-effective for long- The share of transport emissions in eastern South Asian countries largely mirrors global trends. The transport haul journeys. sector in Bangladesh and India accounts for 14 and 20 percent, respectively, of their countries’ total fuel combustion emissions9. Worryingly, emissions from the A bulk carrier on waterways sector are growing at an alarming rate. For example, emits 10% of the GHG Nepal’s transport GHG emission growth is among the emissions of a truck. highest in the world, more than doubling from 2013 to 201810. Transport sector emissions in Bangladesh is expected to triple by 2050, with most of this growth and coordination complexities. This necessitates a shift coming from the freight sector11. towards consolidating transport governance under a single umbrella at the national level to improve process efficiency Eastern South Asian countries’ commitments to reduce and overall effectiveness. emissions would require a shift towards multimodal transport. The thrust of this strategic shift would be In Bangladesh, for instance, the administration of key on moving freight from road-based systems to more transport infrastructure projects, including rail, road, and sustainable and less carbon-intensive modes such as rail IWT, is across multiple ministries with diffused accountability and IWT. A transition from road to rail and IWT modalities resulting in an incohesive and ad-hoc approach to could significantly mitigate GHG emissions. Rail transport, multimodal transportation planning. In response to these emitting roughly 20 percent of the GHG emissions challenges, the Government of Bangladesh has recently compared to trucks, is also four times more cost-effective adopted a National Logistics Policy which aims to foster a for long-distance haulage. Similarly, a bulk carrier on unified strategy to bolster competitiveness. IWT accounts for only 10 percent of the GHG emissions India presents a notable example of advancements produced by a truck. in logistics coordination in the sub-region. The Indian The comparative GHG emission levels that are hugely government introduced the National Master Plan for skewed in favor of rail and IWT compared to the popular multimodal connectivity, known as Gati Shakti, in 2021, road transportation system, clearly demonstrate that a aimed at reducing logistical costs by encouraging substantial reduction in the transport sector’s carbon multimodal trade. This initiative includes a digital platform footprint could be affected by a fundamental change in that integrates the ministries and departments responsible regional transportation strategies. for Roadways, Railways, Ports, and other infrastructure projects, promoting integrated planning and coordinated execution of connectivity projects. ACCESS Knowledge Notes Series a multimodal future in eastern south asia 5 While national initiatives such as Gati Shakti in India and South Asian countries need to work towards harmonizing the new logistics policy in Bangladesh serve as blueprints standards and regulations for rail and IWT. This includes for enhancing multimodal connectivity within countries, the standardizing gauge systems and operational protocols for next logical step is to extend these efforts to the regional railways and establishing common safety and environmental level. The regulatory frameworks governing waterway standards. By aligning operational rules and regulations, and rail transit within the sub-region is characterized by countries can facilitate smoother cross-border transportation a range of policy initiatives and bilateral treaties. These of goods, reduce delays, and minimize the administrative agreements facilitate transit and trade, with specific rules burden on operators. designed to regulate the operation and performance of Additionally, creating a unified digital platform for sharing these transport modes. However, challenges arise from real-time information on train schedules, water levels, and the diverse regulations governing operational standards, terminal capacities can further streamline operations. Lastly, lack of harmonized customs regulations, documentation the introduction of a single liability regime for insurance requirements, and infrastructural capabilities. covering the entire transport journey will be critical to Adopting a comprehensive multimodal framework similar to establish clear accountability, reduce complexity and the ASEAN Framework Agreement on Multimodal Transport unpredictability, and build confidence among shippers, (AFAMT) within the eastern South Asia region would be carriers, and other stakeholders that can promote the an important step. The ASEAN AFAMT presents a unified utilization of multimodal transport. model that simplifies market access for logistics operators Enhancing infrastructure is crucial. For rail, this involves across ASEAN under a set of harmonized standards, upgrading existing tracks, enhancing connectivity between allowing goods to be transported under a single multimodal major industrial zones and ports, and investing in modern transport contract (“MT contract”) by operators registered rolling stock to increase efficiency and capacity. Specifically, with the Competent National Body in each ASEAN member the development of dedicated freight corridors, similar to state, provided the origin or destination is within an ASEAN India’s initiative, can significantly reduce transit times and country. increase the volume of goods transported. Currently, the eastern South Asian countries do not have a similar distinct Multimodal Transport policy, typically incorporating these aspects within broader transport policies. This has led to a segmented approach to policy frameworks, hindering the development of an integrated regional transport network. Transitioning to a similar model in the eastern South Asian region presents its own set of challenges and will require time to materialize. The complexity of aligning different national policies, regulations, and infrastructure standards across the BBIN countries is the foremost problem as this level of harmonization demands significant political Photo credit: Erik Nora will, intergovernmental cooperation, and stakeholder engagement to overcome the existing barriers to integrated For IWT, priority should be given to dredging key navigable multimodal transport. channels, improving terminal infrastructure, and ensuring sustainable water management practices to maintain Priorities for Developing a navigability year-round. Robust Multimodal System The development of multimodal transport hubs with adequate first and last mile connectivity is also vital. These The path forward for enhancing multimodal transport in hubs, strategically located at the intersection of rail, road, and the BBIN region begins with a concerted effort to address inland waterways, are essential for facilitating the efficient regulatory and operational disparities. The eastern transfer of goods between different modes of transport. ACCESS Knowledge Notes Series a multimodal future in eastern south asia 6 A prime example would be the creation of integrated ABOUT THE PROGRAM logistics parks that not only serve as transit points but also The Accelerating Transport and Trade Connectivity in as centers for value-added services such as packaging, Eastern South Asia (ACCESS) program is a World Bank initiative aimed at facilitating regional connectivity and assembly, and distribution. The establishment of such hubs trade across Bangladesh, Bhutan, India, and Nepal. The requires collaborative planning, focusing on key locations that program supports investments in digital systems for maximize connectivity and accessibility to international ports trade, green and resilient transport infrastructure, and institutional and policy strengthening for transport and and major industrial zones. trade facilitation. Complementing the lending program, the ACCESS knowledge and convening platform develops, Streamlining customs and border management curates, and shares analytical findings, and fosters evidence- based dialogue. procedures and documentation are needed to foster seamless multimodal transport across the sub-region. This The knowledge works underpinning the ACCESS Knowledge Series have received funding from the South Asia Regional involves simplifying and standardizing documentation Trade Facilitation Program (SARTFP), the South Asia Regional requirements, adopting digital customs and border Infrastructure Connectivity (SARIC) Trust Fund, and the Program for Asia Connectivity and Trade (PACT). clearance procedures, and ensuring mutual recognition of inspections. These programs are World Bank South Asia regional trust funds, with SARTFP supported by the Department for Foreign Affairs and Trade (DFAT) of the Government of Australia, and Finally, fostering regional collaboration and stakeholder PACT supported by the UK’s Foreign, Commonwealth and engagement is key to realizing the full potential of Development Office (FCDO). multimodal transport in the BBIN region. Governments should actively involve industry stakeholders, including ABOUT THE SERIES logistics providers, exporters, and importers in the policy- The ACCESS knowledge series, “Beyond Borders - Perspectives on Regional Connectivity in South Asia”, aims making process to ensure that the developed frameworks to present in-depth technical studies and empirical data address the practical challenges faced by the sector. addressing crucial barriers to cross-border connectivity and trade. Establishing a regional logistics council, comprising representatives from government, industry, and academia, The knowledge series will explore a broad spectrum of issues related to transportation, trade facilitation, logistics, digital can facilitate ongoing dialogue, share best practices, and connectivity, climate resilience, non-tariff barriers, and more. coordinate efforts towards common goals. ABOUT THE AUTHORS END NOTES ERIK NORA Erik Nora is a Senior Transport Specialist at the World Bank, 3 World Bank (2024). Railway sector review and preparation of roadmap for cross-border rail services in eastern South Asia (internal report). Research specializing in transport-led regional integration in South Asia conducted in partnership with Deloitte India. with an emphasis on connectivity and trade facilitation. 4 World Bank (2022). Regional Trade Facilitation and Transport Sector Review Link to profile for the BBIN Countries [internal report]. Research conducted in partnership with Ecorys. CHARLES KUNAKA 5 World Bank (2021). Developing Regional Waterways in South Asia Compendium [internal report]. Research conducted in partnership with Charles Kunaka is a Lead Transport Specialist at the World CUTS International. Bank. He has worked on numerous trade and transport 6 World Bank (2020). Nepal Inland Waterway System Feasibility Study facilitation, logistics and connectivity projects. (Internal report). Research conducted in partnership with Maritime & Link to profile Transport Business Solutions (MTBS). 7 ITF. (2022). Mode Choice in Freight Transport, ITF Research Reports, OECD Publishing, Paris. RESEARCH INPUTS 8 ITF. (2021). ITF Transport Outlook 2021 OECD. International Transport Forum. Paris. MITALI NIKORE 9 World Bank, Dataset: CO2 emissions from transport, IEA Statistics 10 World Bank. (2022). Climate Change and Development Report: Nepal. Mitali Nikore is an economist consulting with the Transport 11 World Bank. (2023). Climate Change and Development Report: Bangladesh. Global Practice at the World Bank, specializing in regional connectivity and gender mainstreaming in South Asia. Link to profile World Bank Group Disclaimer: 1818 H Street, NW Washington, DC 20433 The findings, interpretations, and conclusions expressed in this work do not Email: onesouthasia-worldbank.org necessarily reflect the views of the World Bank, its Board of Executive Directors, www.worldbank.org-southasia or the governments they represent. www.worldbank.org-onesouthasia ACCESS Knowledge Notes Series a multimodal future in eastern south asia 7