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Trade Logistics in Egypt and Jordan (Work in Progress

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Trade Logistics in Egypt and Jordan (Work in Progress Trade Logistics in Egypt and Jordan Prepared by Peter H. J. Yee (Work in progress - Please do not quote) The findings, interpretations and conclusions expressed in this paper are entirely those of the authors and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. 1. Introduction The purpose of this paper is twofold: firstly, to review the trade logistics systems of Egypt and Jordan with respect to the level of performance and the degree of friction in the logistics chain; and, secondly, to prescribe policy measures for removing or alleviating the impediments to efficient trade. Two export products, garments and vegetables, for each country are investigated from a supply chain perspective, as measured by logistics costs and processing times. Trade logistics cost is quantified in terms of transport charges and non-transport related logistics costs (capital carrying costs, cost of safety stock, etc.), the latter reflecting the impact of poor service levels in the freight logistics system.1 An efficient trade logistics system has many requisites, such as good transport infrastructure, competitive carriers, competent transport intermediaries, fast cross-border procedures, customer oriented banking and insurance sectors, modern information and communication technology, and a sound legal framework. Above all, good trade logistics needs proficient exporters and importers who are knowledgeable and skilled in international commercial terms, documentary credits, document handling, and multimodal transport arrangements to name a few, so that transaction costs are kept to a minimum through proper handling. Conversely, an inefficient trade logistics system will manifest many sources of friction, notably the areas mentioned previously, slowing down the flow of trade by lengthening the order-to-delivery cycle time with concomitant high deadweight costs. Where this is the case, the friction need correct identification, causes appropriately diagnosed and the proper remedies found to alleviate or remove them. The government has an important role to play through proper intervention by prescribing appropriate policy measures. In the course of this paper, all of these aspects are touched upon. 2. Trade Logistics in Egypt 2.1 Overview of Freight Logistics System Road Freight Transport Speedtrans - Messad Mesouki - Frequently accidents take place but trucker has no carrier liability insurance. The service is unreliable as the trucker is often late in arrival, due to traffic congestion, coffee-break, etc. - Trucks are assembled in the country while parts are imported. - Industry is fragmented with many trucking companies, the biggest of which has a 10-truck fleet. This causes a problem when there is a consignment of 50 TEUs 1 The concept and measurement of logistics cost is explained in Annex 1. and no trucker is able to provide the service. Existence of double trailers would help but there is none. - Trucking charge from Cairo to Alexandria covering a distance of 220 km. for a TEU is about 500 Egyptian pounds, while a FEU is about 700 E pounds. Transit time is about 4 to 5 hours. Maximum travelling speed is 70 km/hr. Egytrans - Leheta Truck bans to Cairo from 12 midnight to 6 am. Four large companies in the industry but many are small ones. Water Transport War risk insurance gone up since September 11, 2002 for airlines and shipping lines. Exporters and importers are complaining bitterly. Terminal handling charge is 190 E pounds per TEU. Egytrans - Leheta There are monopoly practices in the port. Law #1 passed in 1998 freed up government monopolies in the shipping agency, stevedoring, bonded warehousing, marine works (dredging), ship chandlery, ship repair, container terminal operations and freight forwarding sectors. However, this was in paper only as many of the sectors are not working. For example, in the container terminal business, the old part of the port is closed to the private sector while only the new part of the port is open to the private sector for development. Stevedoring is another example, though it is opened to the private sector the government has reserved certain quays for its own companies that account for 50% of the total general cargo traffic. It is only in the shipping agency business and ship chandlery business (except for the supply of water to ships) that are open. Many other charges are added to the port tariff, such as ???? Delta Express - Mohammed El Sardawy Free time in terminal is 7 days while in storage is 3 days. Terminal handling charge is $160/TEU. In Turkey, the terminal handling charge is $90/TEU. Cross-border related costs, including clearing agent fees, sundries, speed money, etc, amount to $200 per TEU. In the past, it used to cost $100. Air Transport Cross-Border Procedures Speedtrans - Messad Mesouki - Im port of insecticide takes a long time because approval from Import and Export Administration is required before Customs can release the shipment. Takes about 2 weeks. - Medicine takes even longer as a health permit has to be obtained, which typically takes 4 to 6 months. For example, when a ship arrives, health authority takes samples for examination, a process that requires 10 days. Meanwhile, demurrage for the container at the terminal is incurred. - Customs clearance charge (clearing agent fee?) is 400 E pounds per TEU. In addition, there are other charges, such as Customs receipt at 60 E pounds and Certificate of Origin at 20 pounds. Egytrans - Leheta - Customs procedure is onerous with officials adopting the attitude that everyone is a crook until proven guilty based on the reasoning that they are preventing smuggling but in fact they are choking off everybody. - Officials do not always accept commercial invoice as the basis in which the value of the cargo is established and for which the duty is levied and instead enter into "negotiation". This and other factors create a pervasive lack of transparency, to the effect that there is considerable uncertainty in the clearance of goods through Customs. This uncertainty is due to the unknown regarding the amount of money it would cost and the time it would take to clear the shipment. "Clean" documents would take 5 to 7 days to clear through the port while "unclean" documents would take a much longer time depending upon the circumstances. - Import and Export Administration controls quality standards of products and intended for consumer goods only but not manufactured or industrial goods. The policy existed a long time -- has Customs illegally extend controls to non-consumer goods???. Delta Express - Mohammed El Sardawy Customs clearance takes 7 days with clean documents. Every shipment is stopped for inspection and each shipment is inspected based on a sampling of 10% to 100% of the goods in the shipment. - Documents required to clear imports include: - Authorization from consignee to forwarder to clear Customs; - Value form stamped by the Bank to certify the value of the goods transacted by buyer and seller; - Original Bill of Lading; - Legalised Commercial Invoice stamped by Egyptian Consulate at exporter's country; - Certificate of original stamped by bank; - Certificate from the appropriate Ministry, such as Agriculture, Health, etc., to testify that product has met standards of country so that Export and Import Administration can approve entry into or exit out of country. - Importer's business registration card, sales tax card, company tax card; - Customs' Registration - Form 11 (entity is recorded in computer) or Form 12 for factories, etc. or Form 13 for private use, etc; - Custom's declaration form; - Receipt from Import and Export Administration of Ministry of Trade for fee payment; Mr. Kamel El Naggar, Ex. Customs Head Manual Customs procedure require 32 signatures while computerized procedure requires 6 signatures only. However computer subscription with Customs costs 40,000 E pounds, though there are stations set up in various Customs locations. High cost is due to Customs revenue target, which is a major source of the Customs aggressive approach to the public. At present, Customs declaration is processed automatically 90% of the time while the remaining 10% is processed manually, which will soon be automated as well. 2.2 Cairo's Seasoned Garment Exporter- Knowing the Ropes2 Textile Industries Company (TIC) began as a family business many years ago that has grown into a share-holding company with mills covering 360,000 sq. ft. operated by 1500 employees. The company's manufacturing facilities are located at Mehalla Elkobra, which is midway between Cairo and Alexandria, where the business is run by modern management and production methods. The facilities are operated outside the Economic Processing Zone (EPZ). TIC produces a diversified range of products that include T shirts, Polo shirts, tops, pants, dresses and various items using different yarns, such as 100% cotton, cotton/spandex, melange, etc., with different textures such as interlock, single jersey, pique, variegated rib, French terry, three thread fleece and others. Among the available finishes are solid color dyed, yarn dyed feeder stripe, allover print, garment washed, brushed, sueded, singed, embroidered and others. TIC's business is geared to the export market as a supplier to upscale customers in the USA and Europe. A significant portion of the exports, as much as 90%, are sent to the pioneers in ready made garments, such as Liz Claiborne and Tommy Hilfiger, while the rest of the remaining production is delivered to other notable accounts such as Calvin Klein, IZOD, Van Heusen, and Bloomingdale. The value of garments that is exported annually by the company is nearly $10,000,000. The garments are exported in containers, amounting to about 100 FEU annually that translates to a shipment rate of about 2 containers per week. TIC is clearly an experienced and successful garment exporter, with the agility to adapt to Egypt's difficult trade logistics environment and to manage the supply chain successfully.
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