Sticker shock on the cost of logistics in Cambodia is partially to blame for being a drag on the country’s ability to compete with neighboring supply chains, a World Bank Group report found.
A June economic update on Cambodia, released this month by the World Bank, aimed to look at the country’s goods movement systems as it bounces back from Covid-19 and manages through current headwinds, such as rising fuel prices and the effects of the war in Ukraine.
“The pandemic has resulted in unprecedented global supply chain disruptions, which do not yet show clear signs of waning,” the report said, pointing to the “pressing” need for “transformative reforms” when it comes to the country’s transportation systems if it is to recover from the effects of the pandemic on its garment factories, tourism and exports such as agriculture.
Even as demand slowed, the country’s merchandise exports made gains in the first quarter, led by garments, travel-related products and footwear. The three sectors combined to total $3.1 billion in the quarter, up 25.2 percent from the year-ago period, according to the study.
Garment exports grew 20.4 percent in the quarter from a year ago to total $2.1 billion.
The country is projected to see its economy grow 4.5 percent this year, albeit the recovery is expected to be “uneven,” according to the report, which added “increased integration into regional and global value chains has made efficient logistics and supply chains central to Cambodia’s development strategy.”
The high cost of logistics and other supply chain challenges have become an impediment to Cambodia’s ability to compete, particularly with estimates pointing to companies in the country expected to quadruple the amount of product they’re moving in various transportation channels, according to the report.
“Increasing supply chain reliability and service quality is key to improving Cambodia’s logistics performance, as predictability is not just a matter of time and cost but also a component of shipment quality,” the report said.
The World Bank report provided a number of suggestions for the near and long term in the country, including regular monitoring of ports, boosting rail, automation, incentives to raise logistics industry standards, a hotline people can call into to report violations and supporting e-commerce and other types of specialty logistics.
The government is currently developing a masterplan that aims to address logistics and cross-border supply chains to make goods movement easier and also less costly.
It’s estimated transportation accounts for nearly 10 percent of overall logistics costs and the price of fuel serves as an additional strain.
“Transport operating costs are currently under severe upward pressure due to the high price of diesel, exacerbated by the characteristics of the operators’ fleet,” the report said, which described the drayage fleets in Cambodia as dating “back to the last century,” consisting of secondhand and thirdhand models from Korea and Vietnam.
“Upgrading the goods vehicle fleet should be seen as a priority from both a logistics cost perspective and an environmental perspective, as there is an urgent need to burn less and cleaner fuel of a higher grade than at present,” the report said.
Duties and fees can run anywhere from 35 percent to 65 percent, making it difficult for trucking companies to make the investment in newer vehicles.
Container costs also run high, particularly when comparing those prices with neighboring countries.
A 40-foot container typically runs about $1,200 in handling charges at the terminal in Cambodia. That’s up from $1,000 per container pre-Covid and also double what neighboring ports in Bangkok and Cai Mep charge. Other price differences, where Cambodia runs higher than neighboring ports, are seen in export clearance fees for containers in the range of $220 to $250, compared to $60 in Thailand and Vietnam or $50 in Japan.
Meanwhile, average cross-border container costs into Vietnam range anywhere from $217 at the Prey Vor border to $410 at the Bavet border crossing, the report found.