EDITORIAL
Logistics system needs overhaul
Thai manufacturers must have more efficient transport for their goods if the country is to compete regionally
Thailand's export sector received a much-needed reprieve following retreating oil prices and the stabilising value of the baht. The country must take this opportunity to address the lingering problems of slipping competitiveness in the world marketplace, of which poor logistics is one of the most serious. Unless the country's dismal logistics system, which has not been upgraded in any significant manner for decades, is improved, manufacturers will be unable to lower costs, which will not only eat into their profits but also negatively affect their share of the global market. Commerce Minister Krirk-krai Jirapaet last week urged the public and private sectors to make it a priority to cooperate more closely on the upgrade of the country's logistics system. To illustrate his point, the minister said that if overhead costs, such as those related to electricity and transport, could be cut back by 15 per cent, the country's economic growth would rise by 1.5 per cent.A study on Thailand's logistics system commissioned by Japan's Economy, Trade and Industry Ministry a few years ago indicated that the cost of logistics in this country was around 25 to 30 per cent of its gross domestic product, compared with 10 per cent in the United States, 7 per cent in the European Union, 11 per cent in Japan and 20 per cent in China. In mid-2005, the National Economic and Social Development Board (NESDB) proposed a national logistics development strategy, which was approved by the Thaksin administration, but little in the way of concrete measures has been implemented. The Surayud government is now trying to urgently come up with a comprehensive plan to improve the logistics system, which has suffered from decades of neglect. Some NESDB proposals to improve logistics are being expedited for immediate implementation. The council of economic ministers will this week discuss more specific measures to achieve the ambitious objective of developing a world-class logistics system with the aim not only to facilitate domestic manufacturing and the country's export-oriented economy, but also to become a logistics hub for other countries in mainland Southeast Asia. That will be a tall order to fill. But there is no harm in erring on the side of being ambitious when it comes to a plan to improve logistics. Last week, the Board of Investment announced it was now offering would-be investors privileges and incentives to put their money into logistics projects, including logistics parks to increase manufacturing efficiency and accommodate integrated trade and exports, which will enhance the country's competitiveness. Projects eligible for promotion privileges, including an eight-year exemption from corporate income tax and duties on machinery imports, must have at least 200 rai for logistics activities, complete with at least 50,000 square metres of warehouse space for rent or sale, and they must be located no more than 50 kilometres away from a port, airport, border customs point or export processing zone. Using market mechanisms is a smart move that will encourage manufacturers to make the necessary switch to more sophisticated logistical systems to suit their specific requirements. But the government still has the pivotal role in the country's logistical development. To improve its logistical efficiency, Thailand must improve itself and become much better at combining different modes of transport, such as roads, seaports and airports. This means diverting shipments from the less efficient road-based trucking system as much as possible to the more fuel efficient, but long neglected, rail system or even transport by river, which is grossly under-utilised. Other requisites for a good logistics system include the development of necessary logistics institutions, and making sure the Customs Department is well run and relatively free from corruption. As Thailand is competing with other countries to attract foreign direct investment, it cannot be emphasised enough that good logistics will have to become the main draw as the country is now losing out on labour costs, particularly in labour-intensive manufacturing, to lower-wage countries. As a country that is heavily dependent on its export performance and foreign direct investment, Thailand cannot afford to fail this logistics challenge.
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