Saturday, December 27 2014

http://www.thefinancialexpress-bd.com/2014/12/27/72914
VOL 22 NO 47 REGD NO DA 1589 | Dhaka, Saturday, December 27 2014

Opening up logistic services for FDI

M S Siddiqui
Logistics refers to a business framework for management of material, service, information and
capital flows. It includes the increasingly complex information and communication. On the other
hand, it refers to procurement, maintenance, distribution and replacement of personnel and
materials. These may be integrated logistic services, international integrated logistic services and
cold chain facilities or insulated thermal packaging solution for temperature sensitive
products. It covers a much wider range than simply the mechanisms of shipping and receiving.
Logistics balances costs and services in ways that are cost-effective, reflects company goals and
provides good customer service. Integrated processes in logistics, optimised customer relations,
improved information and control options and technologies such as radio data transmission,
pick-by-voice or radio-frequency identification (RFI) help keep costs under control and update
information.
The shipping process is a time-definite endeavour that requires collaboration and coordination of
multiple parties shippers, freight forwarders, trucking companies, shipping companies, customs,
warehousing agents, airport terminals, airlines, and consignees. It is also an informationintensive process involving electronic agents for customs declarations, flight schedules,
bookings, tracing cargo status, etc.
An exporter can outsource its logistics functions to logistics service agents, which should be
classified according to the type of services that they provide. An agent specialises in the
provision of a single logistics service for warehousing and trucking, etc and other logistics
support for the entire shipment process (e.g., fourth-party service providers and integrators),
typically responsible for management of a shipment in addition to acting as a liaison with other
agents for the client.
Forwarders may also act as third-party service providers to provide a range of logistics services.
More generally, these third-party logistics service providers are an essential element in managing
supply chains.
The term 'logistics services' refers to a supply chain management process that plans, implements
and controls efficient and effective flow and storage of goods, services and related information
between the point of origin and the point of consumption in order to meet customers'

requirements. The main services in this area are warehousing, storage and inventory management
services, transportation services, freight forwarding or customs clearance and shipping services.
There are some other known logistic services which are warehousing, assembly, pick-and-pack,
distribution, order processing, customised label fulfilment, compliance, and reverse
logistics. Almost every critical business activity is a component of logistics. Logistics is a part
of nearly every type of organisation, big or small. Merchandising firms, transportation
companies, consulting firms and others work along with third-party logistics that offer
customised packaging for perishable and non-perishable product.
The logistic service may be from in-house or outsourcing from a third party. The market place
for third-party logistics services is perhaps the largest service industry in the world. Import and
export goods shipped in and out of the country require extensive third-party logistics planning
and management. Because of the complexities of these processes, most businesses choose to hire
a third-party logistics provider.
Third-party logistics is a supply chain process that plans, implements and controls efficient,
effective flow and storage of goods, services, and related information from the point of origin to
the point of consumption in order to meet customer satisfaction and requirements. It involves
activities that focus on getting the right quantity and products to the right place at the right time
and most importantly, in the current economy at the lowest possible cost. Increasing competitive
environment has required organisations to strive for efficiency within the supply chain.
Moreover, all the services of an independent service provider can be customised to the needs of
the client.
Generally, freight forwarding and clearing of consignments are known as logistic services. These
days, third-party logistics companies offer a vast range of shipping services. It is of outmost
importance to choose a company that is appropriately fit for specific products, shipping logistic
needs and the expertise to save time and money. In some cases, the logistics provider has the
capacity to ship millions of packages and thousands of pallets per month to different locations.
Choose one that has extensive experience in law and rule, importing and international shipping
and is well-versed in all shipping areas with years of experience.
One of the most important aspects of the shipping process is timing. Consignees along the supply
chain are dependent on regular shipments of products in order to meet their own customers'
needs and expectations. The logistics services' timeline actually begins prior to the shipment date
and time, as pre-planned delivery schedules are provided to receivers and their clients so that
they will be prepared to accept delivery. A third-party shipping logistics partner can offer better
service of shipment on time.
With emerging export of garments and other products, the business of forwarding agent has
extended so much that it is no more a forwarding service but a logistic service provider in the
global context for efficient services. But the guideline for Shipping Agent License 2009 said
shipping agent licenses are not allowed for 100 per cent foreign- owned companies. The present
guideline for freight forwarders allows a foreigner to set up a company in Bangladesh with at
least Tk 10 million in paid-up capital and $500,000 in security deposits. Governments were
inclined to protect local firms to optimise local economic growth, employment, social stability,

and tax revenues.

As a result, 'local protectionism,' refers to the role of governments in protecting their own
companies against foreign companies, or companies from other regions. On the other hand, the
High Court has restricted overseas involvement in freight forwarding business.
Bangladesh is signatory to the General Agreement on Trade in Services (GATS) agreement and
can not discriminate domestic and overseas service-providers. This is the national treatment
principle (GATS Article XVII), i.e. agreeing not to discriminate de jure or de facto, against
foreign services and providers in any way (pre-and post-entry), allowing a balance to be
maintained between the pursuit of socially desirable objectives and assurance of the nondiscrimination that is necessary to overcome most impediments to market access. However,
GATS goes beyond national treatment to target also strictly non-discriminatory measures. While
this can secure improved market access, it also limits regulatory freedom. There are two key
GATS rules that go beyond national treatment. Moreover, the accession agreement stated that the
barriers to market entry to various service sectors need to be eliminated.
The first concerns specific commitments on market access (Article XVI) that overlap with
national treatment in excluding discriminatory measures, but preclude also non-discriminatory
quantitative measures that constrain the operation of firms. Second, once a member makes
specific national treatment and market access commitments, an additional layer of disciplines,
particularly on domestic regulation, sets in Article VI.
Technological changes and the demise of natural monopoly arguments for state-provision of
major service industries have allowed an increasing number of services markets to be contested
internationally through cross-border trade (mode 1 of the GATS) and FDI (mode 3).
Services became a part of the GATS round discussion on the understanding that the countries
having restricted to local business should open up the market to gain in other areas, especially in
enjoying more market access for their goods in agriculture, textiles and clothing and other areas
in which they have comparative advantages and where their exports face tariff and non-tariff
barriers. However, given the actual outcome in textiles and clothing and in agriculture, the
developing countries did not get their expected benefits.
Among the barriers to market access discouraging exports from developing countries from
entering the developed countries are lack of commitments on movement of natural persons
(resulting in limits to access to intra-corporate transferees, strict and discretionary visa and
licensing requirements and lack of recognition of qualifications), prohibition of foreign access to
service markets reserved for domestic suppliers, price-based measures (discriminatory airline
landing fees and port taxes, licensing fees), subsidies granted in developed countries that have
an adverse impact on developing country's exports, technical standards and licensing with
restrictive effect, discriminatory access to information channels and distribution networks, and
practices of mega firms (UNCTAD 1999a: p7).
There is another agreed principle of 'progressive liberalisation' rather than a minimum standard
of liberalisation, and Article XIX inscribes 'appropriate flexibility' for individual developing

country members for opening up fewer sectors and liberalising fewer types of
transactions. Despite these features of GATS, developing countries in reality face many
problems and challenges.
Although in principle developing countries should be able to liberalise their services according to
their own chosen pace and sectors, in practice they generally and individually often face
pressures to open up. Even if a commitment to liberalise is made on the basis of a 'voluntary
offer', once a developing country makes the commitment, it cannot be withdrawn or modified,
without giving adequate compensation. Thus, if a country later finds it has made a mistake in
making some of its commitments, or it later decides it would like to develop the capacity of local
firms in particular sectors in which it has made commitments, it would face serious difficulties in
attempting to modify the relevant commitments. In other words, the commitments in GATS are
constraints to policy options in the future.
The principle of 'progressive liberalisation' also implies that a member is obliged to increase its
liberalisation commitments. Thus, countries are under pressure through new rounds of
negotiations to 'roll forward' their liberalisation commitments which are binding, but they are
unable to 'roll back' these commitments, except through a willingness to offer adequate
compensation.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has urged the
government to introduce licensing system for freight forwarding agents allowing them to carry
out work on documentation of exports. The importers and exporters have to pay phenomenally
high prices for getting the documentation works done by the shipping agents. The freight
forwarding agents allowed to do the job will reduce the cost significantly. The BGMEA said
different chambers and trade bodies, including the Federation of Bangladesh Chambers of
Commerce and Industry (FBCCI), had long been demanding introduction of licensing system for
the freight forwarders.
There are many buyers in the West having global arrangement with logistics companies for
handling their imports from packing, internal transportation documentation for better quality to
security. These service contracts are also cost effective for overseas buyers and it also benefits
the exporting countries.
Bangladesh is now integrated to the global supply chain, particularly for garments products. The
freight forwarding is not a simple job of delivering export consignment to shipping companies
but a total solution of logistic service of international standard. Local forwarding agents have no
such expertise and logistic back-up to cater to the need of overseas buyers. It should amend the
registration rules and allow overseas logistic service providers to Foreign Direct investments
(FDI) into Bangladesh and also submit an appeal to the High Court for review of the verdict of
banning the logistic service providers to extend their services in Bangladesh.
Under GATS agreement, Bangladesh must open up logistic service sector to overseas countries
in order to enjoy access to other WTO member markets with our export products. Otherwise,
Bangladeshi products will face restriction and become less competitive. The country should not
break the global supply chain allowing uninterrupted flow of products and services. The choice

is ours.
The writer is legal economist
and pursuing PhD in Open University, Malaysia. shah@banglachemical.com