New projects to enhance Cambodia’s logistics capabilities
The intermodal transportation connectivity and logistics system master plan worth $48.6 billion will cover 332 projects consisting of seven projects that include master plans of logistics, roads, rails, waterways, ports and airways. Khmer Times explains how Cambodia will cope with it.
The Ministry of Public Works and Transport (MPWT) has planned to develop four logistics complexes in Phnom Penh, Sihanoukville, Bavet and Piopet under its logistics master plan worth about $19 billion which is among the seven master plans of the intermodal transportation connectivity and logistics system master plan, according to a senior official of MPWT.
The intermodal transportation connectivity and logistics system master plan worth $48.6 billion which is interim status to cover 332 projects consisting of seven projects that include master plans of logistics, roads, rails, waterways, ports, intermodals and airways. The logistics complexes will be developed consistently with Hub-and-Spoke Model.
A study of the $19 million logistics master plan was conducted with support from Japan International Cooperation Agency (JICA) and United Nations Development Program (UNDP) and completed in 2018 and the Asian Development Bank (ADB) conducted the pre-feasibility study as the first phase for the development of Phnom Penh Logistics Complex (PPLC) project in November 2019 worth about $200 million in a plan, according to the official.
Chhieng Pich, Director General of the General Department of Logistics of MPWT, told Khmer Times in an exclusive interview last Wednesday that the pre-feasibility was conducted to find out whether the PPLC project can be included in the logistics master plan or not after six-month negotiation before all parties reached signing a framework agreement in early March 2021.
Two months after, YCH – Singapore’s largest home-grown supply chain solutions company and leading regional supply chain management partner to many of the world’s leading brands across Asia Pacific – started conducting feasibility study, which is in progress and expected to be completed this month.
“The logistics complex refers to a facility that is built for logistical operations that might include warehouses, freight forwarders or repair depots. When you think about logistics complex, you think about a facility where transportation of freights is consolidated at a particular logistics place,” Pich explained when basically asked what is a logistics complex.
Pich added the MPWT and MEF, somehow selected YCH Group – to conduct a feasibility study of the PPLC project after MPWT and the Ministry of Economy and Finance (MEF) signed an agreement with the former.
“The agreement allows the company to conduct the feasibility study for this complex and the result of the study will be submitted to the two ministries for review before forwarding to the government for a decision on whether a concession agreement can be signed or not,” he said, adding that the construction can be started after concession agreement is signed.
The Director General of Logistics at MPWT pointed out that the government will continue the process of the development of the PPLC project if the results of the feasibility study show that the project is commercially viable, which means the two parties will proceed with negotiation with each other to reach a concession agreement for a period of about four or six months after the government approves the result of the feasibility study.
“The negotiation is to set terms and conditions for the project and after the concession agreement is signed, the construction can start and how long will the construction will take,” he said, adding that this agreement shall allow the government to award the project to YCH Group to invest about $200 million in the implementation –construction on about 100 hectares of land in the first phase – for a period of time and stipulate the roles of the government and the Singapore-based logistics company. The area of PPLC is planned to be enlarged.
However, according to Pich, YCH Group needs to work with a partner in Cambodia – local conglomerate WorldBridge Group – to implement the PPLC project as per the requirement set in the framework agreement between the government and the company which expressed its interest in the project after the Director General presented the project in a forum in Singapore.
After the construction of PPLC is completed likely in mid-2023, YCH Group will be responsible for operations and management, but it will be obliged to pay taxes to the government through the General Department of Taxation, according to the official, adding that MPWT and MEF have discussed with YCH Group to sign a sort of agreement like Memorandum of Understanding (MoU) regarding PPLC during the ASEAN Submit to be held at the end of this year.
PPLC is expected to improve the competitiveness of the logistics industry of Cambodia by reducing the costs and time but improving reliability compared to the neighbouring countries such as Thailand and Vietnam, Pich pointed out. “When you take one product from Point A to Point B with less time and costs but more reliable sources, our logistics is very good compared to other countries,” he said.
“When the time is saved, the costs are saved and then the reliability will be improved because when a buyer orders a product from you, you have to proof with strong commitment that you will really ship or take that product to them on time. So, costs, time and reliability are the core value of the logistics industry,” he pointed out.
The logistics costs include the costs of transportation, administration and inventory, Pich stated, adding that Cambodia can compete with Thailand and Vietnam in terms of transportation costs, but the administration and inventory costs is higher than these countries. A 40-feet container per kilometre – transportation – costs at a similar level compared to these two countries.
To gear up the development of the logistics systems in Cambodia, MPWT also has been developing the Sihanoukville Logistics Complex (SLC) project with support from the International Finance Corporation (IFC) of the World Bank (WB) and its pre-feasibility study was completed in 2019 and found that the complex is also commercially viable.
Currently, the MPWT has been in the progress of negotiation with IFC – playing a role to provide advisory services for the project – to finalise the Financial Advisory Service Agreement (FASA) and then sign the FASA before the international institution can be commissioned to conduct a full feasibility study for SLC, which will allow for estimation of the investment costs for this project.
“After the government signs the agreement sometime soon, the international financial institution will be enabled to place the project for bidding it will organise in our country to find investors. So, whoever win the bidding, they will be get the project for implementation and we are highly confident on it as it has a very good reputation in providing such services,” Pich said.
“The logistics complexes will contribute to the economic development through improving the efficiency and effectiveness of the supply chain of production and manufacturing of any businesses in our country. If our logistics is not good, our products will be not competitive, but the improved logistics systems will enable the supply chains more competitive both regionally and globally,” Pich said.
The other two logistics complexes – Bavet Logistics Complex in Bavet city of Svay Rieng province and Poipet Logistics Complex in Poipet city of Banteay Meanchey province – will be developed after PPLC and SLC with unspecified timelines. “We need to implement the projects step-by-step,” he said.
Chea Chandara, president of the Logistics and Supply Chain Business Association, told Khmer Times the logistics complexes will improve the efficiency and effectiveness of the logistics industry in Cambodia through more modern technology, machinery, equipment, management systems and formalities set up in the complexes.
According to Chandara, logistics firms such as freight forwarders currently use logistics services including lift-on, lift-off, storage and others at dry ports where more services are available than depots that are generally used for loading down and maintaining empty containers, but all of these facilities are not modern enough, which makes the costs higher compared to Vietnam and Thailand where logistics complexes are available already.
PPLC and SLC are among the projects under the public-private partnership mechanism undertaken by the General Department of Budgeting and the General Department of International Cooperation and Debt Management of MEF, according to the report on performance in the first half of 2022 of the ministry released recently.
Chanda said logistics complexes will much improve the logistics industry of Cambodia as they would be set up with more efficient and effective management systems that include maintenance, warehouses, customs facilities and formalities in one location so that it would be easier for investors to take care of their goods for both exporting and importing.
The logistics complex projects would be different from special economic zones, dry ports and depots, he said, adding that a special economic zone is a facility that is most suitable for setting up factories whose management staff can proceed to work with officials at their offices set up in the zone such as representative of offices of the Council for the Development of Cambodia (CDC), the Ministry of Commerce for processing certificate of origins (CO) and customs offices.
They will also improve the efficiency of transportation and flow of goods from and to nearby provincial destinations of distribution when forwarders take their goods from the complexes after lifting down trucks or other means of transportation driven from neighbouring countries such as Thailand and Vietnam which are also a transit hub for goods transported from China, he said.
For example, Bavet LC would provide facilitation for goods transportation from the complex to other provinces most economically potential such as Kampong Cham where there are remarkably many facilities, while PPLC is expected to help improve the quality and safety of goods such as food and beverages in the commercial centre of Cambodia through better storage in warehouses.
“So, the logistics would also help improve the order of flow of transportation and storage of goods, while currently the goods that are imported from other countries are transported to put at this or that warehouse where is in the same province or other province or cities, which means it is disordered. So, if they are taken into a big complex, its modernised system will help keep the flow and storage better organised,” Chandara said.
Chanda also said that PPLC would be useful to provide services for both land and air freight forwarders to distribute to Phnom Penh business hubs and nearby provinces. However, he added that locally produced goods will also be better stored and organised at the logistics complexes before they are exported to other countries through borders or by air transportation, while Poipet LC will most likely be suitable for agriculture goods that flow from Thailand more than from Cambodia to Thailand.
So Nguon, Chairman of So Nguon Group Co Ltd which runs dry ports in Cambodia, told Khmer Times that MPWT or the government should conduct consultation with private logistics firms that currently also operate dry ports that function similarly to logistics complexes as he thinks that the development project should be implemented by local investors rather than foreign ones.
“I think local investors also have financial and technical capabilities to run such business and it would be useful for the country’s economy through not allowing the money to flow out of the country and if the project is also under the cooperation with the government, it would be much difficult for private dry ports to compete with the complexes and locally invested and run dry ports would die as they cannot compete with such government’s projects,” he said.
“Currently, customers have options to use logistics services provided by the private sector and we can compete with each other among private companies ourselves even though we do not much money for large-scale expansion unlike that; but if the logistics complexes are run with support by the government, we would be able to compete with them as they would be more able to lower the prices and lobby customers than us,” he said, adding that there are over 10 dry ports operated in Cambodia
“I believe Cambodian investors or businesspeople can do it. I think we do not need foreigners to do it. Let the locals do it. What does the government think about the private firms that run logistics businesses too? If the project materialises, it would affect them, especially those with limited financial capabilities,” said Nguon, adding that the logistics complex projects will most likely serve to import rather than export.
The logistics sector plays a significant role in fostering economic development. Apart from its contribution to a country’s GDP, a well-developed logistics network has an impact on most economic activities. An efficient logistics system can improve a country’s competitiveness, facilitate international trade and enhance its connectivity to better serve consumers and meet the needs of regionally-integrated production facilities for reliable delivery of inputs and outputs, according to the Organisation for Economic Cooperation and Development (OECD).
Logistics is the process of planning, implementing, and controlling procedures for the efficient and effective transportation and storage of goods including services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. This definition includes inbound, outbound, internal, and external movements.
Using twenty-foot equivalent (TEU) containers is nowadays a fundamental feature of all major national and international transport modes. TEUs can be stacked on top of each other on board a ship, allowing the efficient use of space and better cargo handling. Containerisation makes the so-called “intermodal system of freight transport” possible, which enables the uncomplicated movement of bulk goods from one mode of transport to another.
TEU containers and container systems also allow a number of small packages to be consolidated into a large single unit, leading to a reduction in transport and handling costs. Generally, logistics is a cluster of activities with each area involving a range of different actors and services freight transportation, excluding air transport, freight forwarding, warehousing, small-package service delivery and value-added logistics.
Industries in which there is greater competition experience faster productivity and economic growth. These conclusions have been demonstrated by a wide variety of empirical studies and summarised in the OECD’s “Factsheet on how company policy affects macro-economic outcomes.” Competition stimulates productivity primarily because it provides the opportunity for more efficient firms to enter and gain market share at the expense of less efficient firms.