'Internal logistics slowing growth'

Avia Collinder, Gleaner Writer

Ancile Brewster, country representative of Inter-American Development Bank, Jamaica, says while crime is often cited as one of the greatest barriers to growth, the problem of logistics relating to the movement of product between source and market is an equal barrier to development.

Addressing the 15th annual general meeting of the Jamaica Social Investment Fund (JSIF) recently on the topic of Internal Logistics and Jamaica's competitiveness, Brewster attributed low productivity and slow productivity to high transport costs which act to cutback on company profit and national development goals.

"The Inter-American Development Bank (IDB) in its research publication on productivity edited by Carmen Pages notes that there is an umbilical connection between total factor productivity and transport costs within an economy," Brewster said.

"In spite of the fact that Jamaica has one of the highest ratios of road networks to area in the world, it is our contention that of the factors that militate against the sustainable and robust development of the Jamaican economy, the poor state of internal logistics in Jamaica is one of the most debilitating," Brewster stated.

The assertion, he said, is based on high transport costs per kilometre, on the low riding comfort index and low average riding speeds, the poor road layout and inadequate levels of maintenance, warehousing and forwarding infrastructure."

Noting that the implications were significant for agriculture and tourism among other industries, Brewster stated that Jamaica's logistics profile shows high cost per tonne of moving goods between the key producing and consumption centres.

Overweight trucks

In addition, issues also exist with respect to overweight trucks and damage to the road pavement, truck quality and safety.

"These combined with a poor road network and mountainous topography could be responsible for the higher relative transport costs. Warehousing and distribution facilities are also insufficient and inadequate for optimal product distribution resulting in poor scheduling, poor delivery compliance or high product deterioration."

Brewster said high inventory costs are an important logistics bottleneck for the region as a whole, driving up the cost of delivered products.

"For the Latin American Region and the Caribbean (LAC) businesses, the World Bank calculates that inventory costs equal 35 per cent of gross domestic product (GDP), compared to only 15 per cent of GDP for businesses in the United States. This can be explained by the fact that, beyond the roads themselves, the storage networks of many of the region's countries are substandard, warehouses lack competition and effective instruments for financing inventories and the rates of storage space rental are higher in LAC compared to other regions."

Research findings

Brewster said the IDB research paper on low factor productivity looks specifically at how improving the freight logistics performance in Jamaica could improve the compe-titiveness of communities, com-panies and by extension the economy as a whole.

IDB research shows that logistics costs as a percentage of GDP in Latin American Region and the Caribbean are between 50 and 100 per cent higher than in Organisation for Economic Cooperation and Development countries.

Brewster asserts as well that there is a very special problem which is particularly relevant for Jamaica and the Jamaica Social Investment Fund. Recent research shows that Small and medium enterprises (SME's) generally experience higher costs related to freight logistics and value chain optimisation. This is in part due to limitations in load size, lack of access to warehousing and particularly the technical expertise to understand the significant effects that suboptimal logistics have on all businesses.

"Therefore, while larger companies invest in warehousing, modify their operations to permit the just in time or optimal delivery - particularly of agro-produce, SME's suffer proportionally higher product deterioration and higher freight costs which erode their profit margin."

Generally, he said, across the LAC there is an increasing lack of sufficient warehousing capacity in the agricultural sector, which has been proven to be particularly costly for small shippers. This is broadly reflective of the situation in Jamaica where notably the majority of firms fall into the SME category.