Logistics Performance Index 2018

Winners & Losers: Key Insights from the World Bank Logistics Performance Index 2018

If you are interested in trade and logistics, and you’re intrigued by what we can learn from data analysis, this article is just right for you.

Introducing the World Bank Logistics Performance Index (LPI)

The World Bank released its Logistics Performance Index (LPI) 2018 report. Earlier versions of this global Logistics benchmark were published in 2007, 2010, 2012, 2014 and 2016. The Logistics Performance Index (LPI) is considered one of the main benchmark studies in the trade and logistics sector.

The LPI aims to offer a comparison of how efficiently supply chains connect firms to markets, or logistics performance. It covers more than160 countries, i.e. the majority of global supply chains worldwide.

Structure of the LPI

The LPI benchmark measures country’s performance in six indicators, and derives an overall ranking. The six indicators are:

  1. The efficiency of customs and border management clearance.
  2. The quality of trade- and transport-related infrastructure.
  3. The ease of arranging competitively priced international shipments.
  4. The competence and quality of logistics services.
  5. The ability to track and trace consignments.
  6. The frequency with which shipments reach consignees within the scheduled or expected delivery time.

These indicators are explained on page 8 of the 2018 report. Additionally, the LPI website contains a more elaborate explanation about the LPI methodology.

Key Findings From The 2018 Report

Gaps In Logistics performance Persist

Between the 2007 report and the 2014 report, the gap between best performing countries and worst performing countries shrunk. In 2016, however, “the gap seemed to widen between the top and the bottom, with the highest average scores ever for the top 10 countries (4.13 on a scale from 1 to 5) and the lowest scores since 2007 for countries at the bottom (1.91)”. The 2018 report shows however that the gaps shrink once again: “The average score for the top 10 countries dropped to 4.03, whereas the bottom 10 countries scored an all-time high of 2.08”. The trade ecosystem is becoming more equal, to some extent.

Emerging Concern: Supply chain resilience

In 2017 several large logistics companies reported major losses due to a cyber attack. Ocean carrier MAERSK estimated its loss due to the cyber attack at $300 million. Also FedEx cut its profit forecast with $300 million following the same cyber attack. It therefore isn’t surprising that supply chain resilience has emerged as a growing policy concern worldwide. Developing countries lag far behind high-income countries in preparedness.

Emerging Concern: Sustainability

Another interesting observation is the correlation between the demand for sustainable supply chain management (e.g. green logistics) and logistics performance. This is especially true for environmentally sustainable services (green logistics). In top performing countries, shippers more often ask for environmentally friendly options.

Top 10 Countries In The LPI 2018 Ranking

We can learn interesting insights by comparing results of the various reports from 2007, 2010, 2012, 2014, 2016 and 2018. Let’s first examine the top 10 ranking countries in each report.

Ranking 2007 2010 2012 2014 2016 2018
1 Singapore Germany Singapore Germany Germany Germany
2 Netherlands Singapore Hong Kong Netherlands Luxembourg Sweden
3 Germany Sweden Finland Belgium Sweden Belgium
4 Sweden Netherlands Germany UK Netherlands Austria
5 Austria Luxembourg Netherlands Singapore Singapore Japan
6 Japan Switzerland Denmark Sweden Belgium Netherlands
7 Switzerland Japan Belgium Norway Austria Singapore
8 Hong Kong UK Japan Luxembourg UK Denmark
9 UK Belgium USA US Hong Kong UK
10 Canada Norway UK Japan USA Finland

Stable European Dominance

Germany has been dominating the benchmark, ranking #1 for three consecutive times, although its score dropped slightly since 2016. The Netherlands is also stable, ranking in the top 6 every time. Yet the Dutch position has been decreasing since 2014: #2 in 2014, #4 in 2016, and #6 in 2018. Sweden, traditionally a trade-friendly country, dropped from #3 in 2010 to #13 in 2012, but regained its position: #6 in 2014, #3 in 2016 and #2 in 2018. Also Belgium has been able to maintain its position in the top ranking countries for quite some years, and ranked #3 in 2018. Finally, the UK has been another European stable dominant player, ranking in the top 10 in all reports.

Austria: New Dominant Player?

In 2010 Austria ranked #19. Good ranking, but not a member of the elite club. In 2012 Austria ranked #11, and almost made it to the top 10. The 2014 report however was bad news for Austria: it dropped to #22. Since then however the country has performed an impressive march upward: #7 in 2016, and #3 in 2018. What changed? Let’s look at how Austria ranked in each indicator.

Overall ranking Customs ranking Infra-structure ranking Int’l shipments ranking Logistics competence ranking Track & Trace ranking Timeliness ranking
2014 22 23 25 40 26 10 23
2016 7 15 12 9 4 2 7
2018 4 12 5 3 6 7 12

While the country improved significantly in all aspects of the benchmark, the most significant improvement is observed in the ease of arranging competitively priced international shipments. However, predictability of arrival according toe schedule (timeliness) shows a recent decrease and should be managed.

What’s Happening In Singapore?

I have very fond memories from my visits to Singapore. Before landing at Singapore airport one can see an impressive view of container vessels outside the Singapore Port. Singapore owes a major part of its economic success to its unique geographical position as a transshipment hub. Facilitating trade is not just a matter of pride in Singapore. It’s a matter of economic health. Therefore Singapore has traditionally been a top scoring country, ranking #1 or #2 in the LPI reports in 2007, 2010 and 2012. In 2014 and in 2016 it ranked “only” #5 worldwide, and the 2018 report shows a further drop to #7. While this would be a wonderful ranking for other countries, it is very low for Singapore.

How Singapore Ranks: The Numbers

To better understand what is happening in Singapore, let’s review the countries rankings and scores along the years.

Overall ranking Customs ranking Infra-structure ranking Int’l shipments ranking Logistics competence ranking Track & Trace ranking Timeliness ranking
2007 1 3 2 2 2 1 1
2010 2 2 4 1 6 6 14
2012 1 1 2 2 6 6 1
2014 5 3 2 6 8 11 9
2016 5 1 6 5 5 10 6
2018 7 6 6 15 3 8 6

 

Overall score Customs score Infra-structure score Int’l shipments score Logistics competence score Track & Trace score Timeliness score
2007 4.19 3.90 4.27 4.04 4.21 4.25 4.53
2010 4.09 4.02 4.22 3.86 4.12 4.15 4.23
2012 4.13 4.10 4.15 3.99 4.07 4.07 4.39
2014 4.00 4.01 4.28 3.70 3.97 3.90 4.25
2016 4.14 4.18 4.20 3.96 4.09 4.05 4.40
2018 4.00 3.89 4.06 3.58 4.10 4.08 4.32

How Singapore Ranks: Reflection

Singapore’s rankings and scores reveal two developments: (1) Singapore’s scores are deteriorating, while (2) other countries are catching up.

  1. In 2014 and in 2018 Singapore scored and overall score of 4.00. This score earned Singapore its #5 ranking in 2014, but only ranking #7 in 2018. Thus other countries improve their scores.
  2. Similarly, in 2014 and in 2016 Singapore ranked #5, but in order to maintain its #5 ranking, it had to increase its score between 2014 and 2016 (its score increased from 4.00 in 2014 to 4.14 in 2016; and back to 4.00 in 2018). Score 4.00 – which earned Singapore the #5 ranking in 2014 – would have erned Singapore only ranking #9 in 2016.

The largest declines in Singapore’s scores (2018 vs. 2016) are observed in two indicators:

  1. The efficiency of customs and border management clearance.
  2. The ease of arranging competitively priced international shipments

Customs is an area in which Singapore has been investing a lot along the years. It’s an area where investments are often for the long term, and therefore a sudden decline is surprising. What changed? Pricing for international shipments may be a more volatile area (prone to change) because of the emerging of brokerage platforms. Still, what brought upon the this substantial decline? What is really happening in Singapore?

Concluding Remarks

Countries such as Singapore, Belgium and The Netherlands owe an important part of their economic health to their role in international supply chains / logistics. Monitoring their position in the LPI can therefore help predict their economic growth (or decline).

In this article I provided an overview of some of the top ranking countries. The report and its underlying data provide many more details about other countries. Pick up your country of interest (e.g. China, India, Russia, The Netherlands) and examine what the data can teach you.

 

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Ziv Baida

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