38322 TRANSPORT NOTES TRADE LOGISTICS GROUP THE WORLD BANK, WASHINGTON, DC Transport Note No. TRN-35 October 2006 Success Factors for Improving Logistics in a Middle-Income Country Gaël Raballand, Jean-François Arvis and Michel Bellier This note presents the main lessons drawn from an analytical and sector work on trade logistics in Morocco. Public and private counterparts recognized the positive impact of the World Bank's report to catalyze and accelerate reforms' pace and to facilitate cooperation between public and private parties involved in logistics reforms. A careful preparation process and a strong buy-in from public and private stakeholders involved in logistics in Morocco made this Economic Sector Work (ESW) successful. To achieve this outcome, the Bank team based efforts on a tailored approach to commission background studies, knowledge dissemination during preparatory work and a detailed action plan in order to create a rapid and positive impact on improving logistics. The Moroccan example also demonstrates that, in a middle-income country, detailed and relevant action plan under a strong political willingness and commitment to reform can achieve rapid and significant results. The World Bank (hereinafter referred to as the Bank) needs to be extremely responsive and provide up-to-date expertise in order to accompany current reforms and public and private initiatives in this field. Despite this success, some knowledge gaps should still be filled to develop lending activities in trade logistics. The findings, interpretations, and conclusions expressed here are those of the authors and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. 1. WHY DOES LOGISTICS MATTER FOR Logistics creates value-added in two ways. Supply TRADE? Chain Management (SCM) allows companies to move up the value chain and thus to increase Many countries in the world opted for export- value-added. Furthermore, modern logistics oriented growth through trade openness. generates employment thanks to the creation of Developing countries signed and entered a new new services essential to the expansion of phase of regional and multilateral preferential national and multinational firms. agreements to ensure exports growth. These agreements are considered important tools to obtain a facilitated market access and thus to be synonymous with growth and employment. 2. MOROCCO'S TRADE OPENNESS AND FIRST PHASE OF REFORMS IN LOGISTICS Exports' growth depends mainly on the competitiveness of the countries' companies which Morocco made the choice of trade-led growth, is affected by price and non-price factors such as since signing an Association Agreement with the macroeconomic policies, labor costs (and European Union (1996)1 and a Free Trade productivity), investment climate, infrastructure, Agreement (FTA) with the United States (2004). public services delivery, innovation capacity, product quality, and increasingly, logistics and The Association Agreement with the EU represents transport services. an opportunity for sustainable growth and job creation2. Until now, growth has been heavily For a country whose comparative advantage is dependent on agriculture despite a steady but related to geographical proximity, such as timid growth of industry and services. Morocco, logistics becomes a major comparative advantage (or disadvantage). With sound logistics, those countries may be easily integrated in just-in-time production and benefit from 1 The agreement, implemented since 2000, stipulates an outsourcing investment from Europe or from the FTA, after a transition period ending in 2012. United States. 2 Morocco's unemployment rate reaches 22% and poverty rate 19% with 43 % of the population living in rural areas (WDI 2004). Industry has steadily accounted for 1/3 of GDP in the last decade. Page 2 Transport Note TRN-35 October 2006 However, the benefits of the Agreement will be 2005, ODEP's regulatory activities were reaped only to the extent that Morocco is as transferred to the Agence Nationale des Ports. economically "close" to the EU as possible. Simultaneously, operational activities were left with the transformed ODEP, the SODEP (Société Moroccan authorities and stakeholders perceive d'Exploitation des Ports). Law 16-02 also provides logistics as a decisive factor to move up the value for opening of commercial activities to private chain and strengthen competitiveness. They aim sector operators. at reducing logistics costs3 of Moroccan economy and therefore promoting expanded trade links Lastly, the government engaged in very strategic between Morocco and its key European partners, investments in infrastructure, which greatly and simultaneously encouraging foreign facilitate the connection to markets. Major ports, investment. The requirements of Moroccan clients production and tourist centers are linked by a are becoming increasingly demanding. Product network of modern toll roads. The investment in a cycle (order-delivery) may sometimes be less new deep sea port next to Tangier ("Tanger- than one week. Moroccan companies must be able Méditerranée") to be operated by private to address new performance requirements. The concessionaires attracts interest from shipping end of import quotas in textile, starting from and port operators as transshipment facility (3 January 2005, made this perception even more MTEU) on a major East-West route. It will also be acute. a new first class gateway to Morocco. Since 1999, the Government of Morocco has undertaken major reforms, which had been long identified, including in the Bank's assistance, but 3. WHY DID THE WORLD BANK GET delayed for many years. INVOLVED IN LOGISTICS IN MOROCCO? Morocco's efforts in customs reform have been Despite the fact that the government had pushed well documented and are considered as worldwide for a few years for as a series of reforms in trade best practices (Steenlandt 2004). Customs reform facilitation and logistics, these reforms have been resulted in significantly reducing clearance time conducted independently without a comprehensive and creating a customer-oriented mindset. competitiveness focus. For road freight, the Moroccan parliament adopted Moreover, the Moroccan Government, through the the law 16-99 (which entered into force on March Minister of Public Works and Transportation 13th 2003). Like many developing countries, turned to the World Bank and asked for an Morocco has had a small modern fleet along with independent and holistic diagnostic of the a large "informal sector" consisting of large fleet Moroccan logistics performance and an of small vehicles. The main provisions of this assessment of the key measures needed to reform were to lift the forwarding monopoly of develop new activities and facilitate the ONT (Office National des Transports); tariffs connection with global markets and especially the liberalization; integration in the formal sector of EU. vehicles of 8 tons and less owners; introduction of qualitative criteria for profession entry. The Moroccan Government also wanted to benefit from Bank's knowledge to help in implementing For ports, the core reform resulted in (i) ending the already decided complex reforms such as in the confusion between regulatory and operational road transport services or maritime transport. functions, which previously were under a single Most significantly, the Minister of Public Works state entity ODEP (Office D'Exploitation des and Transportation relied on the Bank's Ports), and (ii) introducing competition. Following involvement in order to build a stronger coalition the adoption of the law 16-02 of November, 23rd in favor of trade facilitation measures in the country, which could enable the government to 3 implement those often procrastinated reforms. From a business perspective, logistics is the supply chain process that plans, implements, and controls efficiently forward and reverse flow and storage of Based on these motives, the Moroccan goods, services, and related information between the counterparts set three main objectives for the point of origin and the point of consumption, in order to Bank team: meet customers' requirements. Hence, logistics costs depend on not only transport management but also public management of infrastructure, institutional environment, transport services quality, private sector capability to innovate and adopt internationally recognized best practices. Page 3 Transport Note TRN-35 October 2006 1. Evaluate past and ongoing reforms4 and each level of expertise (high school, college and propose monitoring schemes. graduate levels) and then compares them to the existing training and curriculum opportunities. 2. Design a detailed action plan to identify the main bottlenecks of internal and external The background study on EDI identifies the main logistics and therefore to provide a constraints and presents different options to make comprehensive roadmap for the its use widespread in Casablanca and then in all modernization of logistic services in the Moroccan ports. This study was added to the country. scope of work in the course of the assistance when joint client-Bank investigations showed that 3. Develop awareness, capacity-building and this was a central matter in trade facilitation. The help foster a debate by promoting good consultant was the manager of the Tunis Tradenet practices in supply chain management who developed this well-recognized experience through workshops. with the Bank's financial assistance. World Bank's fact finding missions and validation workshop 4. THE WORLD BANK'S DIAGNOSTIC AND ACTION PLAN The Bank concluded field work with an extensive fact finding mission in December 2004. Based on the preliminary diagnostic by consultants, two The Bank team sequenced the field work with staffs members conducted extensive interviews of three targeted background studies5, completed by public and private entities. In liaison with the staff's fact-finding missions. client, the Bank focused especially on the road freight, strait crossing, impact of proposed port Background studies and shipping reforms, EDI, and the future impact of the construction of Tanger-Méditerranée port. After an exploratory mission and upon the request of the Moroccan authorities, the Bank decided to A draft report was sent in March 2005. The Bank commission three background studies to fill the organized a week of thematic seminars in May main knowledge gaps: 2005 to gather comments on the diagnostic and on the proposed action plan. These sessions were · a report based on supply chain studies in four attended by all the main stakeholders in logistics key sectors6; and transport in Morocco. · a report assessing logistics competence in the Moroccan private sector and the needs in Main conclusions education and training; · A detailed feasibility study on Electronic Data The Bank's diagnostic underscored the fact that Interchange (EDI). economic operators, exporters and importers are facing serious supply chain challenges despite the The background report on supply chain studies reforms. Many issues were more severe than benefited from a tailored focus on producing, in anticipated by the client and a decisive action was particular, sector-specific data on total logistics needed. Several figures captured the essence of costs in textile and agro-business. The report Moroccan position: encompasses transport costs and time data comparing Moroccan companies' access to the EU · Logistics costs in Morocco are close to 20% of market with direct competitors from Tunisia, GDP whereas this ratio ranges between 10% Turkey and some Eastern European countries. and 16% for EU countries (including Central European countries).7 The background study on competencies estimates, based on companies interviews, skills needed at · Cost and delays incurred in crossing the Gibraltar strait are equivalent to additional 4 600-700 kilometers road journey in Spain. Most reforms have been carefully designed based on Bank's previous contributions (among others). Completed or ongoing reforms in rail sector, maritime, The main identified constraints were: road transport and port sectors are the most critical reforms in the sector. 5 Consultants were primarily financed under a French Consultant Trust Fund. 7 The Bank team followed the Council of supply chain 6Textile and garment industry, automotive parts, fruit management methodology available at and vegetables, retail. http://www.cscmp.org/ Page 4 Transport Note TRN-35 October 2006 · Low quality of the trucking sector and an mutation from sub-contracting to contract obsolete truck fleet. Most small operators manufacturing. provide cheap, but very low quality services and preclude the emergence of modern land · Lack of skills at the firm level with respect to transport corporations that can properly serve logistics and supply chain management at the the needs of the most demanding shippers. executing and strategic levels. · High port charges in Morocco, both container Key recommendations and trucks. Lack of competition in ferry services, as well as Spanish port pricing also At the end of the report, a detailed action plan is contribute to high cost of crossing compared presented. It encompasses the most critical with other straits. internal and external bottlenecks. The action plan8 proposes short and long-term measures with Table 1: Comparison of Terminal Handling major public and private stakeholders identified. and Port Charges (in Euros for a 40-feet container) The main recommendations of the report9 are as follows: Port Handling charges charges · Creating a National Trade Facilitation Casablanca 227 132-193 Committee gathering key ministries, agencies Le Havre 123 135 and private sector representatives; Antwerp 112 90 Bilbao 90 110 · Developing a sustainable monitoring instrument of logistics performance ("logistics Barcelona 140 110 observatory") in order to measure the impact Genoa 132 90 of reforms and to feed the dialogue between Istanbul 83 110 public and private stakeholders; · Clearance is cumbersome and time-consuming · Improving road freight transport by: (15 days in 2004), especially at Casablanca - Developing systems for quality control of port ­ the main import gateway. It mainly the fleet (based on law 16-99); derives from a problem of coordination since - Supporting the consolidation of road most of the agencies (port, customs) have transport companies; developed their own modern information - Supporting the renewal of fleet; systems. A pilot project in 1999, could not - Building awareness of shippers with lead to the generalization of EDI that would regard to contracting transport providers provide a critical real time link between the (code of conducts). parties to the trade transaction (consignee, forwarder, bank, customs, ports, other · Implementing the ports and shipping reforms agencies). The EDI study showed that this that will decrease port charges and increase failure happened because of lack of ferry competition for the Ro-Ro10 traffic: agreement on common project architecture. - Adopting trade facilitation measures to streamline port clearance processes and · Vulnerability of trade logistics to illegal implementing a comprehensive system of activities (drugs, human trafficking) in ports electronic data interchange or web-based and on access routes for TIR vehicles. This is Tradenet11; one of the main concerns of logistics operators - Reducing illegal activities and improving and exporters. security by investing in port security and in secured areas for trucks in transit; · Low investment levels in dedicated facilities and services leading to low quality and · Encouraging investments in logistics projects inadequate logistics services. Consulting in by: logistics, distribution centers are almost inexistent. 8 In order to address Moroccan authorities' request, recommendations applied specifically to textile and · Cumbersome implementation of fiscal and garment sector are presented at the end the action plan. customs regimes for logistics services and 9Each of the following recommendations is based on a inputs at a time when Moroccan industry detailed action plan annexed to the report. needs to develop a well performing sourcing 10Roll on ­ Roll off or transport by ferry. function as a response to demand and a 11Such a system is supposed to integrate customs, port systems and all parties involved in trade transactions. Page 5 Transport Note TRN-35 October 2006 - Recognizing logistics investment as fulfills several criteria. Moreover, customs productive investment in land administration allows deferred payment of tariff development; duties up to six months with interest rates close - Integrating logistics projects into regional to market prices. Those were critical ingredient for development programs; the industry to adapt well to the post Multi-Fiber - Improving fiscal regime of logistics Agreement environment. operators through sectoral dialogue. The institution in charge of vocational training · Preparing a national logistics training program started to develop comprehensive curriculum in to expand current curriculum. logistics in Casablanca, Tanger and Agadir. Finally, the Ministry of Industry recognized logistics SMEs as eligible for the same assistance 5. MOROCCO'S IMPLEMENTATION OF THE benefits as other industries and services. ACTION PLAN The final recommendations of the report and the The diagnostic was presented at a workshop Bank's update on implementation (April 2006) attended by public and private stakeholders in were presented at a June 2006 conference May 2005. organized by the Ministry of Public Works and Transport and widely disseminated. That The Ministry of Public Works and Transport and conference gave another opportunity to mobilize key participants such as customs not only fully local stakeholders towards trade facilitation and endorsed the Bank's recommendations but also started to promote without delays several reforms logistics cost reductions initiatives. proposed in the action plan. The Minister of Public Works and Transport adopted several reforms which had been proposed 6. LESSONS LEARNED in the action plan in the Ministry's objectives. Public and private counterparts recognized the As far as road transport is concerned, public positive impact of the Bank's report to catalyze authorities invested in weighbridges and signed reforms and to facilitate the cooperation between agreements with several industry associations public and private parties involved towards the (such as representatives of cement factories) to development of right solutions. promote enforcement of axle-load legislation. The study process has played a major role in Casablanca port security has been substantially achieving implementation of proposed strengthened. Following the report on trade recommendations in the report. From the logistics, an independent security audit was beginning, the steering committee was a very commissioned and subsequent investment in effective knowledge sharing platform. video surveillance system and fences has been carried out. Besides, port authorities moved out Draft documents were actively discussed. Bank from the port undocumented containers. staff and consultants in charge of background studies contributed to knowledge dissemination L'Agence Spéciale Tanger-Méditerranée (TMSA) through their missions. decided to speed the construction of a new Ro-Ro terminal, which will shorten the crossing distance World Bank's counterparts, especially the focal and create new economic conditions to link point appointed by the Minister of Public Works Europe. were highly committed senior officials who managed a close and professional dialogue with Thanks to the National Trade Council, port the private sector. It may also explain why the authorities and customs administration, Ministry of Public Works and Transport was able to stakeholders decided to generalize the use of EDI establish a coalition of interests in logistics. from summer 2006, following the recommendations of the Bank report. Moroccan Government's engagement, capacity and commitment to reforms have obviously been Customs and textile industry signed an agreement the critical success factors explaining the rapid to facilitate temporary admission regime. A impact of the report. private operator may request enhanced facilitation from the customs administration if this operator Page 6 Transport Note TRN-35 October 2006 Yet two features in the design of the assistance Such a project needs a strong and broad client seem to have helped the outcome: engagement involving all stakeholders in public and private sectors. It is easier to build a coalition · First, it paid to combine in-depth sector of stakeholders around operators involved in diagnostics (World Bank facilitation external trade who are more motivated. Trade methodology) with supply chain studies by facilitation is a strong lever to raise awareness products. Increased knowledge and impact and build support for broader reforms in logistics. largely compensated for increased size of the team and the work complexity. The Moroccan example also demonstrates that the Bank needs to be extremely responsive and · Furthermore, at the request of the Minister, flexible to provide timely and up-to-date the Bank report proposed an action plan much expertise. more detailed than usual for a Bank ESW. Each proposal in the matrix was backed up Not two countries are alike, yet there are typical with short documents which contained challenges in trade logistics likely to emerge: implementation details such as methodology, participants, schedule and, when possible, International benchmarking and monitoring budget. country's logistics performance; World Bank's assistance to Morocco did not result · Training in logistics, and development of SCM in a lending operation partly due to its nature, culture in firms, especially among SMEs; which did not lend itself to a self-standing loan package. · Use of IT and development of EDI; Meanwhile, based on the action plan, parastatals · The linkage between international and and Ministries started to implement proposed national logistics and the need to promote measures almost immediately and self-financed quality of logistics, road transport and most of them. multimodal services; · Implementing second generation reforms in customs (especially economic regimes 7. IMPLICATIONS FOR THE WORLD BANK applicable to inventories), port management and maritime transport; Many middle-income countries are actively seeking supply chain improvements as key factors · Harnessing supply chain security. to boost firms' competitiveness, especially exporters. They are increasingly looking for While the Bank can catalyze knowledge sharing in international expertise and experience which the key areas such as customs, port reform, World Bank is well positioned to provide. Yet infrastructure or IT, it should fill some knowledge lessons learned highlight the challenge of such gaps such as: assignments. Macroeconomic estimates of logistics and Client's capacity in the area is typically high and contribution to growth and competitiveness; concerns sophisticated. The Bank is likely to be involved in the final stage of major reforms Logistics performance measurement; (customs, ports and so on). Hence, Bank's expertise is required to fine tune implementation · Best practices in road freight sector reform. of reforms or identify the "not-so­obvious" critical implementation problems or coordination failures. Page 7 Transport Note TRN-35 October 2006 REFERENCES TO LEARN MORE Amiot, F., Salama, O. 1996). "Logistical Transport Infrastructure Notes and Transport Constraints on International Trade in Maghreb." Notes are available on-line at: World Bank Policy Research Working Paper 1598. http://www.worldbank.org/transport Menegaldo, F., Palméro, S., Roux, N. 2004. Urban Infrastructure Notes and Urban Notes "Tendances de la Spécialisation des Pays are available on-line at: Méditerranéens et Impact sur la Croissance dans http://www.worldbank.org/urban le Cadre d'une Comparaison Partenaires Méditerranéens-Pays de l'Est Européen." http://econwpa.wustl.edu/eps/it/papers/0404/040 4004.pdf. Raven, John. 2001. "Trade and Transport Facilitation: a toolkit for audit, analysis, and remedial action." World Bank Discussion Paper No 427. December 2001. Steenlandt, Marcel and de Wulf, Luc. 2004. "Morocco" de Wulf and Sokol, José (Eds.). Customs Modernization Initiatives, Case Studies. World Bank. Tourkmani, M., Mrani, H. 2004). "Compétitivité des Exportations au Maroc." Ministère des Finances et de la Privatisation du Royaume du Maroc. Working paper 97. www.finances.gov.ma/Rapports/etudes/doctravail /doctravail.htm#. World Bank. 1997. Participation du secteur privé dans les infrastructures. World Bank. 2003. "Speeding Integration through Regional Agreements," in Trade, Investment, and Development in MENA, chapter 7. World Bank. 2005. La logistique et la compétitivité du commerce du Maroc. http://imagebank.worldbank.org/servlet/WDS_IBa nk_Servlet?pcont=details&menuPK=64154159&se archMenuPK=64154240&theSitePK=501889&eid= 000310607_20060809111358&siteName=IMAGEB ANK. World Bank. 2004. 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