Progress Report on

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Progress Report on Nurturing an Integrated
Logistics and Transportation System for the APEC
Economies 2006-2008
April 14-18, 2008

• Korea Maritime Institute

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Contents

1. Concept of logistics integration
2. Implications of logistics integration in EU and
   NAFTA
3. Economic Impacts of Integrated Logistics Market
   led by Trade Liberalization
4. Impediments to Logistics Integration in Northeast
   Asia
5. Conclusions

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Concept of Integrated Logistics
Interconnectivity
Intermodality
Interoperability
A seamless logistics system through
integration and interoperability between hardware
-Infrastructures and transport- and software
legal, institutional and technological
framework
Maximization of Added Values through human,
material and information exchanges
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4
Implications of Integrated Logistics Markets in
EU and NAFTA

• FTA Agreement -gt Increased trade volume between
  involved economies -gt Increased necessity of
  building an integrated logistics market.
• 3I based policy makings and projects
• Constant intra-regional understanding and
  consultation on the needs of building an
  integrated logistics market and possible
  impediments in the process
• EU - Despite the legal ground founded by the
  Treaty of Rome, so little progress has been made
  in the area of common transport policy in EU,
  while countries in the region have constantly
  made multi-facet cooperation based on the policy.
  
• NAFTA - Although progress in its integrated
  logistic market plan is small, NAFTA has been
  continuously pushing the plan with a strong
  recognition of the need of regional cooperation.

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Implications of Integrated Logistics Markets in
EU and NAFTA

• Emerging Importance of Efficient Eco-Friendly
  Inter-modal System
• EU - Constant needs of integrated transport
  policy due to
• distorted growth pattern among different
  transportation modes,
• growing increase in cargo volume,
• inefficient transshipment between different
  transportation modes,
• and increasing environmental concerns.
• NAFTA Continued discussions on how to improve
  the efficiency of inter-modal transport system
  covering road, railway transport as well as short
  sea shipping
• The question How to finance the infrastructure
  building!!
• EU Despite establishment of funding
  institutions such as EIF, EIB for promotion of
  TEN-T Project, the project is faced with several
  financial obstacles.

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Implications of Integrated Logistics Markets in
EU and NAFTA

• Guidelines to encourage the use of existing
  infrastructures and give priorities to project
  plans which aim to address major bottle-neck
  areas
• With a slow progress of TEN-T project at its
  early stage, EU amended its guidelines, focusing
  on elimination of bottle-necks in major highways
  and project sites, rather than building new
  infrastructures.
• The more integration in the logistics market, the
  more focus on the soft-side of the logistics
• More attentions on improving the quality and
  efficiency of customs procedures and transport
  services through establishment of related laws
  and policies.

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Review on History of Regional Cooperation for
Trade Liberalization in Northeast Asia

• Nov. 1999 Informal Tripartite Meeting among
  Korea, China and Japan at ASEAN3 Summit Meeting
  in Manila. Later it has been set as a regular
  meeting.
• Korea-Japan FTA Negotiations (2003.12-2004.11,
  Currently in suspension)
• Research on Korea-China FTA by the Governments,
  Industries and Academia of Korea and China
  (2007.3-Present)
• Korea-China- Japan Logistics Ministers Meeting
  (2006)

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CJK Effects of Trade Liberalization on the
Logistics Market

• Logistics market expansion in line of trade
  liberalization such as FTAs

Expansion of Logistics Market
Expansion in Trade
Removal of Tariff Non-Tariff Barriers
FTA

• In order to understand how CJK trade
  liberalization will affect the logistics market,
  it is necessary to estimate how much trade will
  be expanded by FTA.

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CJK FTA Effects on the Logistics Market
Methodology

• Gravity Model
• - Based on the assumption that the volume of
  international trade between two countries depends
  on the inverse proportion of distance and the
  proportion of economic scale.
• - Emerged as a representative model that
  explains the changes of international trade
  between countries considering various factors
  such as language, border closeness, historical
  relations, etc.
• Gravity Model Basic Equation
• - Basic Model
• oPreceding Studies Aitken(1973), Sapir(1981),
  Biessen(1991), etc
• - Extended Model

oPreceding Studies Frankel(1997), Bayoumi
Ekchengreen(1997), Frankel
Wei(1998), etc
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CJK FTA Effects on the Logistics Market
Methodology

• The analysis conducted by following value-proven
  gravity equation (i CJK j 50 countries)
• Data resources in the study

Data Unit Sources
Trade Statistics Mil.  IMF-DOT CD May 2007
GDP Bil.  www.imf.org
Population Mil. person  www.imf.org
Distance between Countries Km  www.distances.com
Country Area  - www.cia.gov (CIA)
Geography (Boundary, etc)  - www.cia.gov/library/publications/the-world-factbook/reference_maps/pdf/physical_world.pdf  (CIA)
Language  - www.cia.gov (CIA)
FTA Dummy  -  www.wto.org (WTO)
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CJK FTA Effects on the Logistics Market
Analysis

• Data Summary

Variables Average Standard Deviation Minimum Maximum
Trade Volume (Log) 6.37  1.93  -1.76 11.63
Distance (Log) 8.91 0.56 6.88 9.88
Multiplication of GDP (Log) 10.71  2.27 2.97 17.64
Multiplication of per GDP (Log) 17.70  2.11  10.96 21.60
Country Area (Log) 26.10 2.81  17.97 32.73
FTA Dummy 0.01  0.07  0 1
Adjacency Dummy 0.03 0.17  0 1

• There are 6,122 observations and 143 bilateral
  pairs.
• Average log values of trade volume, distance,
  multiplication of GDP, multiplication of per GDP,
  country area, FTA dummy, adjacency dummy are
  6.37, 8.91, 10.71, 17.70, 26.10, 0.01, 0.03
  respectively.

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CJK FTA Effects on the Logistics Market Results

• Analysis Results
• If other variables are fixed, FTA conclusion will
  increase trade volume by 47.7 (e0.391.477), and
  58.4 (e0.461.584).
• When GDP and per GDP are increased 10, trade
  will increase 0.8 and 4.5, respectively.
• When considering economic scale geographical
  proximity, trade effects from CJK FTA conclusion
  will be much bigger

  Pooled OLS Pooled OLS Panel GLS Panel GLS
  Coefficient Value t Value Coefficient Value t Value
GDP 0.11 11.02 0.08 9.10
per GDP 0.46 32.05 0.45 37.12
Distance -1.23 -31.77 -1.32 -39.11
Area 0.15 15.36 0.17 20.57
Boundary 0.74 6.14 0.56 5.66
CJK 0.39 1.41 0.46 1.67
represent levels of statistical
significance 10, 5, respectively.
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Effects of Integrated Logistics Market on Trade
Background

• Although economic integration will deepen without
  the support of an efficient regional logistics
  system, economic integration will reach the
  limit.
• For example, in the 1990s, the European economic
  integration deepened which made Europeans
  understand the importance of an integrated
  transportation system and then EU prioritize
  policies on regional transportation integration.
• Establishment of regional integrated logistics
  systems could be necessary in order to maximize
  economic impact from FTA conclusion.
• Because it will reduce logistics cost so that
  regional corporate competitiveness can be
  enhanced.

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Effects of Integrated Logistics Market on Trade
Methodology

• A model established to find how integrated
  logistics markets influence international trade

• Data Summary (N2,159, Bilateral Relations 81)

Considered Variables Average Standard Deviation Minimum Value Maximum Value
7.124 1.92 0.916 12.004
7.385 0.987 5.064 9.616
-2.243 0.821 -4.799 -1.386
0.185 0.438 -2.881 2.259
0.064 0.053 0 0.311
5.623 1.34 3.199 9.304
0.093 0.657 -1.051 6.321
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Effects of Integrated Logistics Market on Trade
Results

• Results show that when 10 of logistics cost
  decreases, 4.8 increase of regional export in
  China, Japan, Korea can be achieved.

• Analysis Results

Fixed Effect Fixed Effect Random Effect Random Effect
Coefficient Value Standard Error Coefficient Value Standard Error
Constant Term -8.148 0.263 -7.789 0.278
2.698 0.045 2.671 0.045
1.237 0.067 1.238 0.065
-0.461 0.036 -0.475 0.037
-2.784 0.378 -2.914 0.377
-0.285 0.045 -0.313 0.044
-0.117 0.263 -0.127 0.022
represents the 5 of statistical significance
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Impediments to Logistics Integration in CJK

• A survey was conducted among related authorities
  of Korea, Japan and China to find out each
  governments stance on the issue
• Legal Institutional Impediments
• Administrative Customs Impediments
• Physical Impediments
• Technological Impediments
• Korea Logistics Cooperation Division, Ministry
  of Maritime Affairs and Fisheries ( currently
  Ministry of Land, Transport and Maritime Affairs)
  
• China International Relations Division, Ministry
  of Communication
• Japan Logistics Policy Division, Ministry of
  Land, Infrastructure and Transport

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Impediments to Logistics Integration in CJK
Note - C Common issues S Separate Issues
Types of Issues Types of Issues Major Impediments
Legal Institutional Impediments C - Limits on foreign investment and ownership
Legal Institutional Impediments C - Lack of legal and institutional interoperability in logistics issues among three countries
Legal Institutional Impediments C - Possible adverse discriminations due to legal differences in the existing bilateral agreements made among Korea, China and Japan
Legal Institutional Impediments S Administrative difficulties due to organizational duplicity in the logistics authorities Difficult policy opinion coordination, Blurred responsibility line, Lack of coherency and consistency in logistics policies
Administrative Impediments C - Different customs procedures within a country or among the three nations - Excessive and duplicate paper works
Administrative Impediments S Additional issues regarding certain countries Lack of quality professionals and EDI system Customs procedures which are only possible by government related forwarders
Physical Impediments C - Lack of industrial standards in logistic equipments and facilities Poor interoperability between different modes of transport
Physical Impediments S Possible loss or damage of cargo due to lack of logistics facility management and proper infrastructure of certain countries
Technological Impediments C - Lack of a logistics information network among Korea, China and Japan - Lack of quality professionals - Ineffective statistical data sharing
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Major Outcomes of 2007 Study

• 10 reduction of logistics costs can bring
  the effect of increase of 4.8 export in each
  country of CJK
• Strategy for building an integrated logistics
  market of CJK

Issues Solutions
Regulatory Differences among Ports Elimination of discriminatory treatments in shipping and port sectors Unified administrative channel for customs and trade document submission
HR Development Logistics education, training and certificate programs universally recognized by countries in the region
Standardization and Interoperability of logistics devices and facilities Inter-modal development programs through various institutional approaches, centering on the relatively liberalized shipping and port industries Standardization of port, road and railway devices and facilities
Lack of Logistics Infrastructures absence of transport network connecting in-land China -Best use of existing infrastructure with efficient logistics methodologies Securing budget line through establishment of various funds Laws to encourage private investments
Difficult cargo tracing due to lack of data sharing among CJK Development of a standardized information sharing network for every member countries.
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Future Research Direction

• Go to the APEC region for integrated logistics
  systems, bringing the growth effect of export by
  reduction of logistics costs

Project Framework as a new APEC proposal in the
future
Creation of a Secure, Efficient, Cost-effective
and Seamless Logistic System in APEC region
Barrier Reduction, Cooperative Development
Strategies
Harmonization Facilitation
Cooperation Framework
Standardization
Need for Cooperation
Identification of impediments

• Need for reduction in transport costs for
  competitiveness enhancement

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• Thank you !