Developing and emerging economies are often prone to long lead times, delays and unpredictability in the supply chain resulting, in large part, from unreliable infrastructure and inefficient procedures. These increase trade costs that, in turn, limit the participation of their firms in regional and global value chains and hamper economic growth.
In addition to the existing direct costs, long lead times, delays and unpredictability negatively affect a country’s competitiveness by generating significant indirect costs. Such indirect costs can take the form of demurrage and detention charges, higher and lengthier storage requirements, theft and spoilage, and penalties for late deliveries. They also drive up costs by forcing firms to hold additional inventory to prevent production stoppages or supply interruptions to customers. In developing countries, such safety stocks can equal up to one year of expected sales.
Indirect costs may be the domain where most gains can be achieved with trade facilitation reform and policy as they – unlike direct costs – could have a multiplying effect by generating additional delays and further costs downstream in the supply chain.
Despite their negative impacts on trade, indirect costs are typically not fully accounted for in the design of trade facilitation policy, as reliable estimates are not generally available. This omission could nonetheless lead policymakers and supply chain stakeholders to misidentify the interventions that could be the most impactful and cost-effective to facilitate trade and/or to not fully appreciate the impact of specific trade facilitation reforms.
The Total Transport and Logistics Costs (TTLC) methodology aspires to fill this data gap by combining measurement of direct costs, such as transportation and customs fees, with estimates of indirect costs accruing from long lead times, delays and unpredictability to more accurately assess the total cost of transport and logistics in cross-border trade. By estimating the time and costs incurred in completing each step of the import and export supply chains, the TTLC can be used as a baseline tool to identify bottlenecks and estimate ex ante the potential returns of trade facilitation reform. It can also be used to assess ex post the impact of specific trade facilitation interventions on the total costs of transport and logistics.
There are various methodologies aiming to measure supply chain performance. These tend to vary in scope, periodicity and granularity. However, none are designed to account for costs accrued from delays during the import or export process. This is the main contribution of the TTLC methodology in this field.
One of the key assumptions of the TTLC is that indirect costs correlate with time, whereby the longer a consignment is delayed by a given supply chain process, the higher will be the attributed indirect cost. A container idling multiple days at terminal, whether it is waiting for clearance by customs or because it is misplaced by a terminal operator, may incur additional costs in the form of demurrage, storage and losses from spoilage, for example. The TTLC approach proportionally allocates these costs along the supply chain according to the time required to complete a specific step relative to the total time to complete the import or export process, and the type of indirect costs applicable at this step. The TTLC is calculated using survey data collected through interviews with key supply chain stakeholders.
This note explains the methodology underpinning the TTLC, detailing its key components and setting it apart from other methodologies that similarly aim to measure the costs and/or time of trade. Section 1 provides an overview of existing methodologies developed to capture the time and costs associated with specific import and export processes. Section 2 explains the TTLC conceptual framework, including the operational definition of its key components. Section 3 explains the survey methodology, sampling strategy, survey instruments and potential biases and limitations. Section 4 explains the computation of results, and Section 5 details the TTLC implementation process at the country level. The Appendix lists the indicators used in the computation of the results.
Read the TTLC methodological note.