MULTI-MODAL TRANSPORT NETWORKS AND LOGISTICS1

Ken Gwilliam
Principal Transport Economist
The World Bank

INTRODUCTION -
1. This conference brings together the two topics of logistics and multi-modal transport.
Logistics is concerned with the progress of materials from their procurement by the firm
through the manufacturing process to the point at which they are delivered as a final product
to the consumer. Logistic costs include those of storage, inventory financing, packaging,
transpoort and administration, management and control. Multi-modal transport network
development is often seen both as a way of reducing these costs, particularly for long distance
and intercontinental movements, and as a means of reducing the impact of freight transport
on the environment.

2. It has been estimated that in the OECD countries logistics costs account for about
20% of the total costs of manufacturing industry, varying from less than 15% in the
automotive industry to nearly 30% in the food industries.(Annex Figure 1). But that
proportion varies significantly by region: a recent study undertaken at the University of Costa
Rica suggests that logistics costs accounted for between 30% and 40% of the market price of
domestically manufactured products.

3. The German Bundesvereiniging Logistiek has estimated that transport costs account
for about a quarter of the total logistic cost, roughly equally divided between transport into,
within, and away from the manufacturing process. (Annex Figure 2). For the OECD
countries it was reported that a reduction of 1% in logistics costs had the same effect on
company profitability as a 10% increase in sales.

THE CONTEXT OF A CHANGING WORLD

4. The last two decades have seen enormous changes in the national and international
economies. The available range and sophistication of consumer products has increased, as
has the possibility of customizing products to individual tastes. The development of new
synthetic materials has reduced the demand for some traditional developing country exports
such as copper, steel and cotton, and has increased the technological sophistication of
production processes.

1
I am grateful to my colleague Hans Peters both for his general comments and advice and for
permission to use tables assembled by him for an unpublished World Bank review paper.
5. This has been associated with increasingly complex production and distribution
arrangements, involving production to demand rather than to stock (just-in-time). Over 60%
of production and sales are now processed directly to order, which permits, indeed
encourages, demand volatility. Order cycle times have been reduced drastically. Philips
International, which was an early participant in this development reduced its average order
cycle time from 23 weeks to little over 5 weeks between 1980 and 1990. (Annex Figure 3)
Such performance is now commonplace. The speeding up of the whole logistics process has
occurred despite involving increasingly complex international chains (globalization).

6. The corollary of those changes is that the patterns of international trade have also
changed. Many developing countries, traditionally thought of as the sources of raw materials
for the manufactured outputs of the industrialized nations, are now heavily dependent on
their place in global production and distribution chains as a major source of growth. Already
over 50% of the exports of the low income developing countries, more than 60% of those of
middle income countries and over 90% of those of Asias newly industrialized economies are
manufactured goods. Only sub-Saharan Africa has failed to develop some kind of sustainable
manufacturing export base, despite generally favourable access to the large European market.
The consequence of this trend to global sourcing is that during the last 15 years, when total
world output has risen by little more than 50% world trade has actually double. In this sense
the world economy is becoming more transport intensive.

Just in Time Production and Distribution

7. The sources which have fuelled the revolution in production and distribution patterns
are complex and interacting. Developments in production technology have allowed cheaper
retooling for smaller production runs, diminishing the economies of scale in production and
hence facilitating a reduction in necessary stockholding. High interest rates during the
eighties have accentuated the desire to minimise stock holdings. Improvements in
information technology have allowed centralization of stockholding, to reduce overall stock
levels. Improved speed and reliability of transport has also been necessary to support the
reduction of buffer stock levels both of components within the production process and of
final products at the sales outlets.

Globalization
8. Industrial restructuring transcends national boundaries.The initial attraction for
international outsourcing was undoubtedly the possibility of exploiting pools of cheap labour
in low income countries. Originally this occurred in traditional industries, such as textiles,
where the technology was simple and well established. But it has been extended into more
complex and higher technology products through the development of unit construction
methods which have enabled more labour intensive tasks of specific component manufacture
to be outsourced, with only basic technology and design, (and where product bulkiness is an
issue, final assembly) being retained nearer to the higher income markets.

9. That process of change has been assisted by increasing levels of technical education
in some relatively low labour cost countries which has facilitated the international
transferability of technology, and by increasing freedom of trade and capital flows, and
improvements in information and transport technology which have reduced the impediments
to the efficient delivery of goods associated with either distance or national boundaries. One
of the most striking features of the fastest growing amongst the newly industrialised
economies of East Asia is the very high commitment to basic education.i

10. A corollory of the changes has been that many of the stages of production have
become locationally footloose. Developing countries have been able to enter global
manufacturing chains without either the basis of a strong local market for the final products
or a strong local technological capability. By the same token, however, the location of such
activities has become more volatile, and the struggle to maintain position more competitive.

Keys to success
11. What then are the main keys to success in this increasingly competitive world? First,
of course, whether it be in local markets or in global chains, there must be some basic
advantage to be exploited. Increasingly this is not the access to a raw material or to a finished
product market, but the availability of a competitive human resource supply. But cheapness
labour is not enough. Competitiveness has the dual dimension of quality, or skill for the job,
and price.

12. Even when some basic advantage is established, the increasingly footloose nature of
many industrial processes means that there will be a constant struggle to maintain that
competitiveness. In addition to the establishment and maintenance of some basic advantage
within the production process it must be possible for that to be fitted cost effectively into the
longer chain of processes from raw material to marketed product. Logistical excellence is
thus the essential counterpart to process efficiency.

The holistic approach to production and distribution

13. The first key to logistical excellence is a holistic approach to business decision
making. That involves a carefully considered trading off between costs of production,
stockholding, marketing and
Company Business No. of warehouses Period of
transport. Within that structure are change
decisons on the number and location
of points of production and Initial Final
stockholding which have
implications both for the quantity and Compaq Computers 14 3 1995-
quality of transport required. During
the last decade there has been a trend 3M Multiple 23 5 1993-1995
within Europe to centralized pan- products
European distribution, particularly in
Eaton Truck 5 2
large multi-national manufacturing components
industries such as electronics,
pharmaceuticals and vehicles. (see Bosch- White goods 36 10 1995-
Table 1) Siemens

14. In many cases that

consideration has involved the setting of new boundaries to the activities of the firm. The
traditional make or buy decision applied to input goods, and hence to the level of vertical
integration within the manufacturing process. The modern counterpart of that concerns the
degree of integration between manufacturing and distribution, with new possibilities
emerging for the contracting out of a comprehensive logistic function involving
stockholding, stock control and delivery planning and performance, often on the basis of
comprehensive long term alliances.. A World Bank survey showed the proportion of logistic
services contracted out to have increased by 60% between 1987 and 1995 while the number
of contracting parties fell by one third over the same period. (Annex Figure 4). In the UK
about one third of logistics turnover is contracted out to third parties. This has been
associated with a retreat to the core business by manufacturing enterprises and a desire to
reduce risk by reducing the number of different small service providers with whom they
contreact, and on whom they are dependent. Hence the development of long term strategic
alliances between manufacturers and logistic service providers specializing in taking the
risks of consolidation and co-ordination.

15. A corollory of this has been the restructuring of freight logistics involving both
vertical integration to allow the offer of a single door-to-door contracted service, and
substantial concentration in some shipping trades. The top ten carriers in the Pacific
increased their share of that market from one quarter to three quarters in the eighties. It has
also changed both the scope and the motivation of the traditional freight forwarding
specialist. For example, in the process of Emery Worldwide changing from being an air
forwarder to being a fullogistic service company the primary concern of their managers has
shifted from that of filling aircraft to that of ensuring the highest possible customer service.ii

16. The potential for cost saving and quality improvement through contracting out
logistics management is highly dependent on the capability, through modern information
technologies, to link the internal information process of a manufacturing firm with that of an
external supplier able to benefit from skill specialization in the logistic management
function, economies of scale in warehousing and stockholding, and economies of
consolidation in transport. In their turn the logistic service suppliers may themselves
subcontract their transport function to specialized carriers.

Transport quality and mode choice.

17. Because of the higher impact of terminal and transhipment cost, but lower trunk haul
costs per mile, there is a minimum distance below which rail haulage is more costly than
road haulage. The conventional wisdom is that this is around 250 miles, though where full
trainloads can be run between private terminals even relatively short rail hauling may be
economic (for example coal between mines and electricity generating stations).

18. In practice, developments in the organization of the logistic processes have changed
the nature of transport demands. While cost remains important, the interaction between
decisions on transport arrangements with decisions on plant and depot location and on
stockholding emphasizes the qualitative characteristics of speed, flexibility, reliability and
security of supply arrangements. In particular, an ability to deliver relatively small shipments
with absolute reliability becomes critical in many cases. An EIU survey of major successful
companies in 1995 disclosed that rail was generally believed to be slower, more unreliable,
and more susceptible to theft damage and deterioration of goods.iii Above all it was believed
that rail administrations throughout Europe are less commercially minded than road haulage
contractors.

19. For transport across land masses that shifts the modal balance of advantage in almost
everything except basic raw materials towards road transport. For example, some reseach
undertaken for the International Road Union about three years ago showed that for a range of
non-bulk movements the value attached to the qualitative differences between road and rail
transport was about equal to the basic transport cost. The implication of this was that the
demand for road transport was likely to be relatively price inelastic for these commodities.

20. Those considerations also have important implications for intercontinental transport,
and for very long transports across land masses. In these cases a dimension of particular
importance is the integration of modes, not only physically (in the sense of providing for easy
transfer of goods between land sea and air transport vehicles) but also contractually (in the
sense of offering a one stop shop or single door to door contract to the client). The
specialized skills in dealing with international transport facilitation and procurement
provides another possible basis for the determination of an area of integration.

21. Even in some of the traditional raw material trades the ability to improve transport
service quality has been critical. For example, Tanzanias exports of hard fibre to Europe fell
dramatically when competing Brazilian exporters established effective demand responsive
logistic arrangements attractive to European importers. Similarly, but on a more local scale
Cote dIvoire lost international markets to Ghanaian exporters after Ghana introduced a
program of trade reforms.

The Environmental Impacts of Logistical Change

22. Trading off transport costs against stockholding or production costs is the essence of
modern logistics management. Centralized stockholding is likely to involve increased ton
kilometers of freight movement. Whether it actually increases total vehicle movement is
rather less certain. For example, one of the clearly observed trends in food distribution is for
concentrated stockholding arrangements by the major supermarket chains involves full
vehicle load movements of single commodities from manufacturs to warehouse, and full
vehicle load movements of mixed commodities (the picked orders) from the warehouse to
the store.

23. The modal shift effects are less disputable. The tendancy for modern logistic systems
to require combinations of transport characteristics that are best satisfied by road transport
(flexibility, reliability, capability of handling small regular consignments) has already been
noted. The environmental superiority of rail or waterway transport over road transport is
widely accepted so long as traffics are dense enough to permit relatively high utilization
levels for rail equipment. So there would appear, at the least, to be an environmental concern
to answer. The possibility of countering these environmental effects through the development
of multi-modal transport is to be considered in Session 11.
 MULTI-MODAL TRANSPORT NETWORKS
24. In the second session of the symposium the extent and direction of multimodal
system development will be overviewed from the user as well as the supplier viewpoint For
intercontinental transport multi-modalism is almost by definition essential. Even for transport
over the land masses the combining of modes may be preferable to single mode haulage
because of the differing relative advantage of the modes in trunk haul and in local
distribution. In fact, the present share of multi-modal transport in land freight movements is
only about 5% in Europe and 15% in the United States. The reason why much freight
transport is single mode transport is that the transfer costs (including transaction costs) of
shifting between modes exceed any benefit of using the best mode for each bit of the job.
That problem of transfer and transaction costs is particularly acute when transport is across
national boundaries. Anything which reduces those transfer or transaction costs in real terms
will assist the development of multi-modality.

25. A multi-modal transport network comprises a set of modal links joined together at
nodes with modal transfer facilities. For international traffics there are nodes representing the
transfer of traffic between international systems, often coinciding with an intermodal transfer
point. Sessions 3 and 4 are devoted to the presentation of case studies of modal interchanges
from many countries, and covering many modal combinations. It is no accident that some of
the developing countries which have made greatest inroads into global distribution chains are
the very same ones that have been progressive in port liberalization. In Malaysia, Thailand
and the Philippines container terminals developed and managed in joint ventures with
experienced international operators have contributed greatly to those countries ability to
meet the demands of global manufacturing chains.

Infrastructure planning construction and management.

26. The adequacy of the infrastructure links is a matter of particular concern. Session 6
addresses those concerns, with particular attention focussed on financing arrangements.
Recognizing the increasingly constrained public budget capability for infrastructure
expansion, sessions 8 and 10 concentrate on new sources of finance, both from direct user
charges in commercialized public agencies and from private and international investment.

27. Latin America has already shown what major contributions increasing
commercialization and private participation in transport infrastructure supply can contribute
to improving national economic performance. For example, the freight railways of both
Argentina and Brazil are now almost entirely concession to the private sector. In Argentina
freight rates have fallen slightly and rail market share has increased significantly since
privatization. Above all the fiscal burden of the railways has been totally eliminated. It has
been estimated that the total benefit to the economy of rail privatization in Argentina has
been around US$ 1 billion per annum. Fortunately, competition from the road sector is so
intense (rail freight market share in Argentina was only 8% at the time of privatization) that
it is not necessary to worry about any problems arising from the creation and exploitation of
private rail monopolies. By the end of the century it is likely that there will be no public
sector rail freight undertaking left in South America.
28. The port sector is equally critical.
Between 1991 and 1994 the rate of growth of
port container movements in Latin America
exceeded that of Europe and the United States
and matched that of Asia. Seven of the top ten
ports of the continent had annual growth rates
consistently above ten percent (see figure).
The continents ports have some severe
physical limitations such as inadequate
channel depth which prevent them handling
very large vessels. But despite this the growth
in trade and reforms in the port sector have
made it an attractive sector for private
investment which will improve productivity.
steps are being taken towards a more
commercial port sector in most countries on
the continent (see Box 1)
Box 1 Port Reform in Latin America
Virtually every Latin American country is
involved in port reform. In Colombia, all ports
that were government operated are now in private
hands. Chile, which deregulated its ports in 1981
is considering further decentralization of the
remaining 11 ports under state control. Brazil and
Argentina have decentralized and regionalized
their ports and six terminals in Buenos Aires are
already privatized. Mexico has also concessioned
terminals in Veracruz and Manzanillo to the
private sector. Uruguay, Nicaragua, Costa Rica
and Panama are all planning reorganizations
which will involve a decentralization of
responsibilities from the state and liberalized
private involvement in the supply of some
functions (such as stevedoring) or facilities (such
as terminals).

SOURCE: International Supplement to Public

29. Despite the rapid increase in the
Works Financing, January, 1997.
participation of the private sector in
infrastructure provision it would be foolish to
presume that the government can leave transport infrastructure provision to the private
sector. First, the private sector participation is very heavily concentrated in certain regions
and modes. For example, the problems of charging for local and urban roads, and port
superstructure (channel dredging, etc) remain too complex to make private financing and
management of these facilities attractive to the private sector (although, of course, most of
the construction works in these sectors are implemented by private contractors). Second,
even where private sector finance and management is being developed it usually requires a
strong macroeconomic base, a stable public policy environment and a clear commitment of
government to develop arrangements which share risk with the private sector.

Infrastructure maintenance arrangements

30. Despite the recent developments in private sector infrastructure the bulk of road
infrastructure is still in the public sector in most countries. In many, including most of South
America, the performance of the road infrastructure has been adversely affected by
inadequate maintenance. For example it has been estimated that US$ 45 billion of road assets
have been lost through inadequate funding of maintenance over the last two decades.

31. The reasons for this are partly institutional. Governments facing fiscal crises are
inevitably tempted to postpone what looks least immediately damaging. Road maintenacne is
one of these items. Though it has been shown by World Bank research that deferral of
maintenace substantially increases the cost of the road agency in the long term, where the
immediate opprotunity cost is perceived to be very high, and a high discount rate is implicitly
attached to future benefits, maintenance deferral can appear to be a rational response for a
financially strapped government.
32. What this leaves out of account is the impact that poor maintenance has on the
operating costs of those who are using the roads. Again World Bank research has shown that
for roads already in poor state of repair every dollar saved by the government in deferring
road maintenance in a particular year increases the costs of operation on those roads during
the same accounting period by at least three dollars. Thus what might look rational for the
road agency or the government department cannot be sensible for the economy as a whole.

33. Recognition that this is a matter of responsibilities and incentives the World Bank
has been instrumental in developing new institutional structures which will improve
incentive structures. This consists of the creation of user managed Road Boards with the
power to decide on the level of road user charges which will be devoted exclusively to road
maintenance. These are clearly distinguished from any general taxation on fuel which
remains the responsibility of the Finance Ministry and goes into the central Exchequor in the
traditional way.

THE ROLE OF GOVERNMENT: POLICY IMPLICATIONS OF THE SEARCH FOR

LOGISTICAL EXCELLENCE
34. We have seen that the essence of modern logistics is the systematically integrated
treatment of the procurement, production and distribution processes in a way which
maximises the value added by the transformation of raw materials into products. Within that
integrated treatment it is likely that the demands will be for transport which can deliver
relatively small consignments reliably, and flexibly. But what that means precisely in terms
of freight transport quantities, patterns and modes , will differ from industry to industry. Most
of the developments in logistic systems have occurred within and between private private
sector enterprises. Those directly involved in the industries are best able to judge what is
needed and to optimise their systems. The guiding principle should therefore be to allow as
much entrepreneurial freedom as possible in selecting transport and logistical arrangements.

35. But what is as much as possible? The evidence of the newly industrialized
economies of East Asia strongly suggests that there is an important role for government in
stimulating and assisting industrial development. For public policy makers the critical
questions concern where, and in what way they should be active, and where they should keep
out of the hair of the private sector.

Environmental externalities, pricing and the role of the government

36. Having conceded that recent developments in logistics may increase the relative
attractiveness of road haulage, and having implied that road haulage is likely to be
environmentally more damaging than rail or waterway freight transport, does not this
immediately imply that governments should be intervening to manipulate modal choice?
These issues will be discussed in session 11 in respect of environment and safety impacts.

37. My own answer to this question would be that because governments are typically ill
equipped to decide what are the optima or what are the true cost implications of any
interventions which they make, they should limit their interventions to operations through the
price mechanism. If they really attach a very high value to the environmental impact of road
traffic they should be setting high taxes on pollutants (or to the appropriate available proxies
for pollution such as fuel consumption). One common argument against such taxes, namely
that they would be ineffective in securing a modal shift, is in fact an implicit concession that
the real costs of the changed behaviour are very high. If that is the case, changing modes for
freight transport is almost certainly not the right solution to the perceived problem.

Deregulation of Transport Operations

38. Reductions in transport cost have contributed to the development both of just-in-time
approaches to production and distribution, and towards globalisation. Commercial freedom
of the road freight industry has contributed particularly to reducing logistics costs in Europe.
Experience in the US, which showed the nations transport bill growing in proportion to GNP
up until the start of deregulation but only at about half that rate since deregulation, confirms
the importance of competitive pressure as the best regulator of freight rates. (Annex Figure
3).

39. In maritime transport
deregulation has already taken a
strong hold in Latin America.
Many governments have
encouraged private sector
particpation in finance and
management of ports and have
abandoned traditional flag
protection in shipping. As a
consequence the direct effect has
certainly been that the national
share in some markets has been
diminished as competition has
intensified. But that is not the
real test of the liberalization.
National losses from flag
protection are usually several
times larger than benefits. (see
Box 2). Rather one should look
at the reduction in terminal
handling costs, which have been
up to 70% in some cases and at
maritime freight rates, which
have fallen between 30% and
50% since 1994. These indirect
effects benefit importers and
exporters, producers and
consumers alike while the
(smaller) gains for protection are
very narrowly channelled to
ship-owning and sometimes
maritime employment groups.
Even there , such a large
Box 2.. The Costs of Intervention: Maritime Transport
Flag Protection
In the majority of developing countries, the policy
to preserve transport rights for national flag carriers is
misguided. Cargo reservation for national flag carriers
shields them from competitive pressures in the international
ocean transport market, with the result that the cost of their
services is higher than that of the international carriers. The
loss to domestic importers and exporters is the difference
between what they pay for the carriage of cargo and what
they would have to pay in a free market. The gains to
balance of payments from using domestic shipping are much
less than their freight revenues because the maintenance and
operation of a national fleet is usually very foreign
exchange-intensive. Without domestic oil resources, steel
making and an efficient shipbuilding industry, the only
savings that materialize are the cost of crewing and vessel
managementassuming that these functions would be
fulfilled by nationals. In a study of Venezuela, it was
concluded that freight rates were about 30 percent higher
than would have been the case in a free market. On annual
freight expenditures of US$800 million, the cost to the
economy was US$287 million. Since 70 percent of the
freight payments were to foreign carriers, the extra foreign
exchange cost was US$187 million. The balance of
payments gain from reserved cargo, once allowance was
made for all inputs purchased abroad, was only US$20
million. Losses were, therefore, 9.4 times as high as gains.
Loss/gain ratios for other developing countries were Brazil
= 7.4; India = 4.3; Philippines = 6.1; Turkey = 9.2.
Source: Messerlin P. et al. 1990. The Uruguay Round-
Services in the World Economy. Washington, D.C.:
World Bank.
proportion of the inputs in the maritime sector are bought internationally in any case
(equipment, bunkers and even labor) that the real direct effect on the national economy is
minimal.

The information network

40. For traffic to flow smoothly through the physical network it must be supported by a
parallel information network to ensure that the physical traffic flow is not interrupted by
failures of the documentation, insurance or operators permissions or customs processes.
Session 7 is specifically devoted to information technology, while session 9 is devoted to
other system organization issues and impediments.

41. At the heart of the problem in most developing and many developed countries has
been the poor performance of parastatal telecommunications monopolies. The lack of an
adequate number of lines in service, and delay in obtaining lines was almost universal. An
IFC study in the early nineties showed international call completion rates rarely over 50%
and less than 20% in countries such as Ghana, Pakistan and Ecuador. Since then,
improvements arising from privatization, and in some countries from competition in the
telecommunications sector, have been achieved in many countries, including Chile,
Argentina and Brazil. The World Bank has contributed substantially to that revolution.

42. Efficient international logistics is also heavily dependent on internationally

harmonized documentary procedures enabling speedy electronic transmission of freight bills,
payment orders, insurance contracts and other transaction documentation. A number of ports
such as Southampton (SPIN) and Rotterdam (INTIS) have developed networkks for freight
information forwarding between importers, exporters, ports, airports, freight agents and
hauliers. The Electronic Data Interchange for Administration, Commerce and Transport
(EDIFACT) system has made significant contribution to trade facilitation in Europe. In
countries such as the Netherlands where logistics management has been most streamlined
customs or excise clearance of traded goods has already been integrated into the electronic
communications systems. Similar developments are now underway in Latin America with
assistance from the Pan American EDIFACT Board. For example, SIMPRO-BRASIL is
concerned with development of an information infrastructure in line with international
developments.

43. A number of countries have established national trade facilitation bodies. For
example, the British Simplification of International Trade Procedures Board (SITPRO) has a
mandate to disseminate modern trade logistics managements concepts, to foster interaction
between the public agencies and industrial enterprises, to identify issues and make remedial
proposals, and to organize relevant training.

44. Efficient customs administration is also an important contributor to the efficiency of

a country in logistical terms. In many countries this is as great or greater a hindrance to the
development of international logistical systems as transport facilities.

45. Mexico offers a fine example of the benefits that can be achieved through customs
reform. Prior to 1989 traders were facing long processing delays and substantial
undocumented costs in clearing merchandise. Legislation was extraordinarily complex and
the Directorate General of Customs in practice exercised almost unlimited discretion in
application and negotiation of the rules. The tight limitation on customs broker licences
accentuated the arbitrariness of procedures and encouraged the discretionary payments to
customs officers. In 1989 the government radically reorganized the customs system as part of
a more comprehensive overhaul of the tax system. The customs process was simplified and
the rights and obligations of traders were widely published to enhance transparency. Customs
administration was decentralized and access to the customs broker business liberalized.
Traders made payments through the banking system rather than directly to customs officials.
Irregularities were more closely monitored and strictly punished. A World Bank survey
assessed the cost savings of this reform at over US$ 2 billion. This represented 5% of the
total value of merchandise goods trade or 1% of GDP.

Conclusions
46. Let me now conclude. The radical changes in the organization of manufacturing,
distribution and transport, which together comprise the logistics revolution, has occurred as a
consequence of trading-off between manufacturing cost, stockholding costs and transport and
distibution costs, stimulated by changes in relative costs both of factors and locations. Within
the transport sector the traditional significance to modal choice of the balance between the
higher terminal handling costs of rail transport and the higher trunk haul costs of road
haulage has been overshadowed by the new significance of reliability, flexibility, capability
of handling smaller consignments at higher frequency, and so on, which has greatly favoured
road haulage.

47. At the continental level, the result has been an increasing reliance on road haulage,
particularly in Europe, with generally adverse road congestion and environmental
consequences. The concern to stimulate multi-modal transport networks is a response to this
trend, with much of the emphasis falling on improvements in modal compatibility and
improved intermodal transfers.

48. For international, and particularly intercontinental transport where modal transfer
was necessary in any case, the emphasis lies more on reducing the non-physical impediments
to movement. These include improvements in information technology transfer
documentation and to trace and track, and in international trade facilitation procedures and
reductions in customs and other delays associated with crossing national boundaries.

49. From a policy viewpoint the critical feature is that logistic are the primary concern of
the firm which is where the trading off has to take place. Moreover, the very complexity, and
situation specific nature of the trade-offs means that it is only the firm which can determine
what is the best arrangement. Hence the role of the state must not be to decide what is the
best arrangement of transport for firms, but merely to facilitate the actions of firms in making
those commercial arrangements in a way which recognizes the social as well as the private
costs of those decisions. It seems to me that it is on that basis alone that the public agenda
should be founded.

50. As I see it, that leaves the government with the following tasks:
 (a) to create an enabling environment which permits the private sector to provide
infrastructure and services efficiently on a commercial basis;

(b) to efficiently provide and maintain public infrastructure, including modal

transfer infrastructure where this is best provided by the public sector,

(c) to charge users of public infrastructure a price representing the full cost to
society of the resources used, including the internalisation of externalities;

(d) to identify and eliminate remaining constraints on the capability of the private
sector to respond to market and technological change;

(e) to progressively eliminate distortions created by national customs and other

trade practices.

51. The combination of pursuing increased freedom in operations and contract with the
establishment and strengthening of the framework for logistic and multi-modal transport
network development offers a very extensive agenda for learning and for change. I hope, and
expect, that this conference will dissseminate information on what is possible and assist that
process of change.

i
World Bank. The East Asian Miracle .........
ii
Financial Times. Supplement on Logistics. September 14, 1995.
iii
The Economist Intelligence Unit. The EU 50: Corporate cases in single market success. EIU,
London. 1995