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(Work in progress - Please do not quote)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. Even so, it is instructive to observe the encounters of TIC in exporting, and by extension, the challenges that confront start-up firms that have relatively limited resources in breaking into the garment export business, as the following account reveals.

The starting point of TIC's export process is when an order is received from a customer. Typically the order is from an established account and so it is processed without subjecting it to the level of scrutiny and payment terms that is associated with a new customer where an LC will be required. On this occasion the order calls for a shipment

2 The information used in this section is based on joint-interviews with Egypt's two leading garment manufacturers, Mr. Mohammed Ihab El Messiri, Chairman and Managing Director, Textile Industries Company, 52 Moussadek St., Eldokky, Cairo and Mr. Magdy Tolba, Chairman and Partner, Cairo Cotton Center, 67 Cairo-Alexandria Agriculture Road, Qualioub Station, Cairo. The case study centers on Textile Industries Company's experience. of 24,000 pieces of cotton T shirts of differing colours and sizes valued at $90,000 shipped in a container to New York. The title of the goods is to be transferred at the designated port, which in this case is Port Alexandria. Since the transaction is with an established account, the method of payment is cash against delivery (CAD). On the basis of this arrangement, the export process is carried through a series of activities as explained and tabulated below.

EGYPTIAN GARMENT EXPORTER'S ELAPSED PROCESSING TIME

Processing Activity Elapsed Time in Days Order Processing/Production Planning 30 Material Sourcing - Yarn (from inventory) 30 - Accessories (direct from overseas supplier) 40 - Packing Cartons (direct from Israeli supplier) 40 Manufacturing - 30 days 65 - Knitting - Dyeing - Cutting and inspection - Sewing, ironing and inspection - Packing and inspection Pre-shipment preparation 67 - Book truck service - Arrange delivery of empty container - Container stuffing Transport Container to Port Alexandria by Truck - 220 km, 4 hrs., 67.5 $200 Container Terminal Handling and Loading - 2.5 days 70 Ocean Carriage to Port of New York - 21 days (19 - 28 days) 91 New York Port Terminal Handling and Clearance - 2 days 93 Drayage to Distribution Center - 1 day 94

Upon receipt of the order, a considerable amount of care and attention is taken to plan the production logistics because of the specifications pertaining to size, color, design and other considerations. Samples are also produced and tested to ensure quality compliance and control, all of which require time to complete. The length of time it takes depends on the degree of complexity of the order, ranging from several weeks to more than a couple of months, as several rounds of samples are produced and tested. In the current case, the order calls for a shipment of 24,000 pieces of cotton shirts of different colors and sizes and the duration for production planning is about a month. By the time the process is completed, 30 days have elapsed since the order first came in.

In parallel with the above activity, orders are placed for supplies of materials to be delivered to the plant. Yarn is the major material but TIC keeps an inventory of 4 months supply. The yarn inventory is built by sourcing the material primarily from India (80%) and secondarily from Pakistan (20%). The yarn is transported on a regular basis by vessel from the supplier's loading port, such as Mumbai or Karachi, to the Egyptian port such as Alexandria, and then trucked to TIC's facilities in Mehalla Elkobra for storage. One FEU of yarn costing $40,000 (C&F basis at an Egyptian port) is required to produce 1 FEU container load of shirts. The cost of the inbound logistics is $3,100, which includes $2,500 for shipping cost, $160 for terminal handling charge, $200 for cross- border clearance (clearing agent fee, Customs clearance, speed money, etc.), and $200 for trucking the container to the TIC warehouse. The time that yarn is drawn from the inventory for knitting, the elapsed time is the 30th day.

In addition, accessories such as buttons, sewing threads, hand tags, price stickers, name labels, size labels, care labels, fusing cloth, poly bags, etc., are also required. Since the order is a brand name, the accessories are sourced from suppliers in Hong Kong and the USA as designated by the buyer. Usually the practice is to order 20% more to avoid shortage in the event of losses during production. Unlike yarn, these materials are time sensitive and they are flown in on a just-in-time basis by air at a cost of about $7,000 with a landed cargo value at Cairo airport of about $21,600. The elapsed time when accessories are delivered is the 40th day.

The manufacturing goes into full swing through a process of knitting, dyeing, cutting, inspecting, sewing, ironing, inspecting, packing and inspecting again. By the time this process is completed the 65th day has elapsed and the order is ready for shipment.

Shipment entails preparation so that the shipping logistics are coordinated with the buyer who is taking delivery of the order at the Port of Alexandria. TIC contacts the buyer to finalise shipping arrangements and instructions are given to the buyer's nominated shipping line/agent in Alexandria to release an empty FEU container.3 At the same time, TIC prepares the documents for export, such as commercial invoice, visa quota (for US textile entry requirement), certificate of origin and others. TIC sends a truck to pick up the empty container from Alexandria and deliver it to the plant. Upon arrival the container is stuffed and sealed. By the time pre-shipment preparation is completed the 67th day has elapsed.

The container is then trucked to Port Alexandria, a journey that takes 4 hours and travels over a distance of 220 km at a cost of $200. The container is unloaded at the container terminal and cleared through Customs by handing in the export declaration form and other documents as pertinent. The container is handed over to the shipping agent who then issues a bill of lading, a copy of which is given to TIC. There is a dwell time as the container waits to be loaded on to the vessel. Altogether the container's stay in the terminal is about 2.5 days and by the time that the container is loaded on to the container ship the 70th day has elapsed. The terminal charge for handling services plus clearance agent fees is about $370 for the container.

At this juncture, TIC has acquired all the documents (bill of lading, visa quota, commercial invoice and others necessary for the release of the shipment at the customer's port of entry) necessary for payment. These documents are submitted to the buyer for payment on CAD terms.

The container vessel sails to the Port of New York and arrives 21 days later at a cost of $1,300. The container is unloaded and cleared through the terminal within 2 days and

3 Buyer or his freight forwarder books the vessel space with a specific time set for sailing. picked up by a truck and transported to the buyer's distribution center the following day. By the time that this process is completed, the 94th day has elapsed.

This is a relatively trouble-free export process taking slightly more than 3 months to complete the order to delivery cycle. The total cost that is incurred as a result of TIC's trade logistics practice is shown below.

LOGISTICS COSTS FOR 24,000 PIECES OF SHIRTS EXPORTED TO USA LANDED AT PORT OF NEW YORK IN U.S. DOLLARS4

Non-Transport Logistics Costs: Ordering and other admin. Cost 60 Load/unload 560 Capital carrying cost in transit 996 Capital carrying cost in Storage 670 Storage cost 475 Shelf-Loss in Transit/Storage 90 Filing loss & damage claims 30 Safety Stock/Stock-Out Cost NA Emergency shipment cost NA Subtotal 2,881 Transport charges: Truck 400 Airfreight 7,000 Ship 2,500, 3,800 Subtotal 11,200 Logistics Costs - Total shipment 14,081 - Per kg. 2.01 C&F Product Price at New York - Total shipment 91,660 - Per kg. 13.09 Logistics Cost as % of Landed 15.4% Product Price

The incidence of logistics cost to the landed price for TIC's shipment of cotton shirts to the United States is about 15%. This calculation does not include the effects of non- reimbursement of duty drawbacks, which amounts to about 75% of the value of the export shipment, TIC is entitled to claim from Customs. If these effects are included, the cost will be higher. Though 15% may be high but it is not so high as to affect the viability of TIC's business. TIC is an accomplished garment exporter who knows the ropes of exporting in Egypt and learnt to play the game successfully. TIC's competent supply chain management has prevented it from falling into trouble at various points in the system.

4 Exchange rate is based on U.S.$1.00 = 173 Yemeni Riyals The most obvious is the sourcing of yarn that has to pass through Customs, a barrier that management says takes 1 to 2 weeks to clear under ideal conditions and much longer if the documents are "unclean". Management leaves the responsibility of Customs clearance to a highly experienced clearing agent who has all the "know how" in handling Customs including speed money. Smooth cross-border processing, in spite of a relatively long processing time, provides TIC a continuous flow of material for manufacturing but this dependency is also backed up by a 4 month inventory of yarn and an adequately large safety stock in the event of surprises. This larger than usual inventory and safety stock is an insurance against surprises that inhibit the delivery of the raw material but it also imposes a logistics cost that is higher than it should be.

TIC's dependence on a good clearing agent is also evidenced by the JIT delivery of accessories that are cleared by Customs at the airport. No inventory can be carried on these items as they are dictated by buyer on a contract by contract basis, and so they have to be available on time for manufacturing otherwise the entire production will be held up and the order is unfilled within the prescribed time. Timing is important in that garment is time sensitive and subject to the fashion season. Buyers are ready to mark down the value of the shipment at the expense of the exporter in the event of a delay.

2.3 The Potato Exporter

2.4 Friction in the Egyptian Trade Logistics System

3. Trade Logistics in Jordan

3.1 Overview of Jordan's Freight Logistics System

Road Freight Transport

The total length of the national road network is 7,130km, of which 2,900km are main roads, 2,050km are secondary roads, and 2,270km are village roads. There are three main road corridors in Jordan. The first is the Central North-South Corridor that runs across Jordan from Syria to Saudi Arabia. The second is the Western Border Corridor that runs form the Syrian border through the Jordan Rift Valley to Aqaba and the Red Sea. And the third is the Eastern Corridor that branches off from the Central North-South Corridor at the city of Ma’an to the Iraqi border. The design, construction, and maintenance of the road network is the responsibility of the Ministry of Public works & Housing, with municipalities also responsible for certain roads within their jurisdiction.

The trucking fleet in Jordan primarily transports goods to and from Aqaba as well as transit goods to neighboring Arab countries. During the 1980s, transit goods represented a major portion of freight traffic, but due to the Gulf War and competition from other ports in the region, the trucking industry experienced a downturn over the past few years. Since then the industry has deteriorated and is currently characterised by the following features.

- Oversupply in the market along with stagnant demand has led to the decrease in rates. Jordan’s total truck fleet reached 13,000 trucks, while the market demand does not exceed 5,000 trucks.

- Transport rates set by the Ministry have been decreasing over the past couple of years but the rates have not yet reached a level that allow Jordanian trucks to compete with neighboring countries. For example, trucking cargo from Latakia in Syria to Baghdad is still lower than transporting cargo from Aqaba to Baghdad.

- Ninety percent of trucks in the fleet is 20 years or older and needs to be replaced. But the industry is in poor financial condition and does not have the capability to modernise the fleet.

The trucking industry is dominated by three companies, two of which are state owned on a joint basis between Jordan government and neighboring governments while the third is a cartel. The first is the Jordan-Syria Land Transport Company which is owned by the Jordanian and Syrian governments. Operating with a fleet of 392 trucks and 700 odd drivers, the company transports goods between Port of Aqaba and various locations in Jordan, phosphate from the mines to Aqaba, and transit goods from Syria and Lebanon. The second is the Iraqi Jordanian Road Transport company, established jointly in 1980 by the Jordanian and Iraqi governments, for the purpose of transporting oil from Iraq to Jordan, transit cargo from Aqaba to Baghdad and phosphate from the mines to the Port of Aqaba. The company has a fleet of 300 trucks operated by about 500 drivers. The third is the Unified Company Land Transport Company, a cartel which owns no trucks but established by government for the purpose of organising private sector trucking by assigning loads (based on turns) for trucks operating in the Aqaba and Zarqa Free Zones. Currently a truck can only get a turn once every two weeks. As to the private operators, the largest company is Odeh Naber Transportation Company that has a fleet of 350 trucks and 453 employees.

Water Transport

The Port of Aqaba is Jordan’s only seaport and is operated by the Ports Corporation under the purview of the Ministry of Transport. In the past, the port played a major role as a gateway port for goods heading to Iraq. Aqaba has three main cargo handling areas: the Main Port, the Container Port, and the Industrial Port. The Main Port handles mainly general cargo, liquid and dry bulk such as phosphate and grains. The Container Port is smaller in size but is considered the most financially lucrative due to the container traffic. The Container Port is also used for RoRo-traffic and has dedicated berths for bulk rice imports and bulk cement exports. The Industrial Port is used for bulk exports of chemical fertilizers and potash and the import of livestock and oil.

The port has seen better days in terms of cargo throughput. Prior to the Gulf War, throughput reached a maximum of 20 million tons in 1988. Since then with the onset of sanctions imposed on Iraq, port traffic deteriorated by half and current traffic is hovering around 12 million tonnes. Transit traffic that used to account for more than a third of the port's total cargo tonnage now account for only 4%. In an attempt to recapture the transit traffic, the port has reduced its fees by 50%.

Few shipping lines call at the Port of Aqaba……

The government’s current strategy is directed towards updating the legal and regulatory framework of the sector, in addition to increasing the private sector participation. The government also plans on improving the efficiency and competitiveness of the port. There is an intention to privatize the Ports but there is also confusion as to which approach to adopt for privatization. The Ministry of Transport also has plans to establish the Jordan Maritime Authority to regulate the maritime sector and to separate the maritime activities from the port activities.

Rail Transport

Railway transport in Jordan dates back to 1901, when the Hijaz Railway was built. The railway was meant to connect Damascus in Syria with Madina in Saudi Arabia passing through Jordan. The total length of the railway is 1,303km, approximately 425km of it passes through Jordan. Back then the railway was considered an important means of transportation, today its importance is being questioned due to the high cost of building new rail network or even renovating the existing one. During year 2000, approximately 30,000 passengers used the railway and 5,200 tons of cargo was transported. Various plans have been floated to revitalise the railway, including privatization, but none materialized.

Air Transport

Jordan has three main airports: the Queen Alia International Airport, Amman Marka International Airport (AMIA) and Aqaba International Airport. During 2000 the total number of passengers and cargo passing through Jordanian airports reached 2.5 million and 82,200 tons of cargo respectively. All three airports are managed and controlled by the Civil Aviation Authority. Queen Alia International Airport is the traffic hub, handling more than 90% of the country's total traffic. The government has adopted a policy of privatizing the airports, beginning with Queen Alia International Airport.

Jordan has two airline carriers the Royal Jordanian Airlines and Jordan Aviation. The former flies out of Queen Alia International Airport while the latter flies out of Amman Marka International Airport. International airlines also fly into Jordan …….

3.2 The Garment Exporter5

The United Textile Group Co. PLC is a major garment exporter in Jordan who operates two facilities that are located in Jordan's Qualifying Industrial Zones (QIZ), one in

5 This account is based on an interview with Mr. Hussein Othman Zara, Financial and Administration Manager, and Mr. Hassan Ahed, Head of the LC, Shipping, and Clearance Department, who are both from the United Textile Group Co. PLC, P.O. Box 962290, Amman 11196, Jordan. Amman and the other in Erbid. The company also has a sister company called Petra Spinning that produces yarn for the garment market and also supplies to United Textile. United Textile's clients are based in the U.S. and Europe, and among U.S. customers Target and K Mart are counted as some of them. For an export order, a typical size is 80,000 to 100,000 pieces of garment that are transported in 4 to 5 containers.

To appraise United Textile's supply chain, a consignment of 90,000 pieces of cotton shirt ordered by a U.S. buyer is considered as a case study. United Textile prefers to do business on LC terms for established as well as new customers and so a contract of sale is drawn up using this mechanism. Though drawing up a contract involves a longer time for new customers than for old, the starting point for our example begins when the contract is drawn up. This is the stage when the LC is opened by the buyer and accepted by United Textile. This triggers a series of activity that culminates in the delivery of the shipment to fill the customer's order at the prescribed time and place in a particular way that is explained below.

UNITED TEXTILE'S EXPORT PROCESSING TIME

Processing Activity Elapsed Time in Days Order Processing/Production Planning 27 Material Sourcing - Yarn (from inventory) 28 - Accessories (direct from overseas supplier) 30 - Packing Cartons (direct from Israeli supplier) 30 Manufacturing 57 - Knitting - Dyeing - Cutting and inspection - Sewing, ironing and inspection - Packing and inspection Pre-shipment preparation 58 - Book truck service - Arrange delivery of empty container - Container stuffing Transport Container to Israeli Border (Bridge) by Jordanian Truck 58.375 - 2 hrs.

Cross-Border Procedures at the Bridge - 10-12 hrs. 58.83 Transport Container to Haifa Port by Israeli Truck - 2 hrs. 58.92 Haifa Port Terminal Handling and Loading - 2 days 61 Ocean Carriage to Port of New York - 19 to 23 days 84 New York Port Terminal Handling and Clearance 86 Drayage to Distribution Center 87

The order is processed once the LC is accepted and, as is the practice in the garment manufacturing process, this is followed by a certain period of time spent planning and organizing the production logistics. Samples are produced and tested to ensure quality compliance and control due to the different colors and sizes of specified in the order. The activity takes about 4 weeks to complete by the time it is completed 28 days have elapsed.

During this time, orders are placed for supplies of materials to be delivered to the plant. Yarn is the major material input and this is sourced from the sister company, Petra Spinning, which is located nearby. Petra Spinning purchases raw cotton from Egypt and Syria, the former transported by ship to Port of Aqaba and trucked inland to Petra in Amman while the latter is trucked to Petra. Due to the proximity of the source of supply, United Textile keeps no inventory of yarn and purchases the material based on production demand. There is also no transport required in delivering the yarn, as Petra and United Textile are both located adjacent to one another. Hence, yarn is available for knitting from the 28th day onwards.

However, accessories such as buttons, sewing threads, price stickers, name labels, size labels, poly bags, etc., are sourced from abroad as a requirement in the contract. These accessories are flown in on a just-in-time basis by air from Hong Kong at a cost of $2 per kilogram, and sometimes by courier at a cost of $10 per kilogram inclusive of Customs clearance service. Given the size of the order (90,000 pieces of shirts), the airfreight cost is $19,000. The accessories are delivered on the 30th day of elapsed time.

The manufacturing then proceeds in full swing through a process of knitting, dyeing, cutting, inspecting, sewing, ironing, inspecting, packing and inspecting again. The facility has a production capacity of 10,000 pieces per day if the facility is dedicated entirely to filling the order and furthermore if the order is a straightforward one. However, in practice the plant is producing for other orders as well and so a realistic production rate is 3,000 shirts a day. On this basis, the production takes about 30 days and by the time it is completed the 58th day has elapsed.

Shortly before the completion of manufacturing, pre-shipment preparation is under way so that the shipping logistics are coordinated with the buyer who is taking delivery of the order at the Port of Haifa. United Textile contacts the buyer to finalise shipping arrangements and instructions are given to the buyer's nominated freight forwarder who in turn coordinates with the shipping line to release the empty FEU container. At the same time, United Textile prepares the documents for export, such as commercial invoice, certificate of origin, packing list, export declaration, and other documents that would be required for transit through Israeli territory and for the release of the container at the port of entry in New York. Importantly, each container is to be treated as a single shipment and so 4 separate sets of documents are generated. This is a requirement imposed by Israeli Customs and not Jordanian Customs. The nominated freight forwarder then sends a truck to pick up the empty container from the shipping line's container yard in Amman and deliver it to the plant. The cartons of shirts are then stuffed into the container ready for transport to the Israeli border. The documents are also handed over to the nominated freight forwarder who will facilitate the transit through Israeli territory. By the time this activity is completed the 58th day has elapsed.

The container is then trucked to the border at the bridge where cross-border formalities take place. The trucking time is short, taking only 1 hour. The total charge for the trucking service is $1,120 or $280 per container. At the bridge, the nominated freight forwarder (or his clearing agent) hands over the export declaration form together with other documents to Jordanian Customs officials who will examine the information against the contents of the containers. Once approved, the documents are handed back to the clearing agent and the truck moves to the Israeli side of the border to meet up with Israeli Customs officials. At the Israeli Customs station, the set of documents is handed over for inspection against the goods stuffed in the container. Once cleared, the container is transferred from the Jordanian truck to the Israeli truck. The Israeli side of the border only processes 15 trucks a day and so a consignment of 4 containers may be caught by the processing limit if it reached the bridge during the latter part of the day. If this is the case, then it will take until the next day for the full consignment to be processed. Since in this case the trucks reached the bridge at 9 am in the morning there is sufficient time to clear the formalities. The entire process takes 10 to 12 hours and by the time it is completed almost 58 days have elapsed.

The journey to Port of Haifa takes only 1.5 hours, as the distance is short. The convoy of trucks travels in bond until it reaches the container terminal. The cost of haulage from the bridge to the Port of Haifa is nearly $1,000 per container and so the total cost for the 4 containers is about $4,000. By the time the trucks reach the Port of Haifa and unload the containers, it is 10 p.m. in the evening, which is nearly the end of the 58th day.

The containers stay in the terminal for 2 days before they are loaded on to the containership. Terminal charges are $180 per FEU. The container vessel sails to the Port of New York and arrives 23 days. The total ocean charge for the 4 containers is $9,200 or $2,300 per FEU. Upon arrival at the Port of New York, the containers are unloaded and cleared through the terminal within 2 days and picked up by a truck and transported to the buyer's distribution center the following day. By the time that this process is completed, the 87th day has elapsed.

The logistics cost associated with this method of supply chain management is shown below.

LOGISTICS COSTS FOR 22,000 PIECES OF SHIRTS EXPORTED TO USA LANDED AT PORT OF NEW YORK IN U.S. DOLLARS

Non-Transport Logistics Costs: Ordering and other admin. Cost 90 Load/unload 2,200 Capital carrying cost in transit 2,000 Capital carrying cost in Storage - Storage cost - Shelf-Loss in Transit/Storage 240 Filing loss & damage claims 50 Safety Stock/Stock-Out Cost - Emergency shipment cost - Subtotal 4,580 Transport charges: Truck 4,400 Airfreight 19,000 Ship 2,500, 9,200 Subtotal 32,600 Logistics Costs - Total shipment 37,180 - Per kg. 1.32 C&F Product Price at New York - Total shipment 249,200 - Per kg. 8.90 Logistics Cost as % of Landed 6.7% Product Price

3.3 The Vegetable Exporter

3.4 Friction in the System

4. Policy Prescription from International Best Practice Perspective

INTERNATIONAL TRADE LOGISTICS PERFORMANCE FOR SELECTED COUNTRIES COMPARISON OF EXPORT PROCESSING TIMES (DAYS)

Country Yemen Nepal Bangladesh China Canada Export Commodity Fresh Tuna Coffee Beans Bananas Carpet Garment Garment Synthetic Fibers Origin to Destination Mukalla to Sana'a to Tokyo, Hodeidah to Kathmandu to Dhaka to Los Wuhan to Toronto to Frankfurt, Ger. Japan Jeddah Bremen, Ger. Angeles, U.S. Chicago, U.S. Tokyo, Japan

Order Processing/Manufacturing. 3 122 3 120 64 60 7 Pre-Shipment Preparation 0.92 2 0.6 4 4 5 3 Outbound Inland Transp./Handling - Truck/Drayage 0.42 1 0.166 8 1.5 4 1 - Rail - - - - - 5.5 - Inland Waterway - - - - 6 - Gateway Port of Exit Sana'a Port of Harad Port of Port of Port of Port of - Location Airport Aden Land Port Calcutta Chittagong Shanghai Seattle - Terminal Handling 0.125 3 0.40 4 8 4 2 Liner Shipping - 29 - 32 26 14 11 Air Flight 0.33 ------Port of Entry Frankfurt Port of Tawil Port of Port of Los Port of Long Port of - Location Airport Tokyo Land Port Bremen Angeles Beach Tokyo - Terminal Handling & Customs Clearance 0.125 2.5 0.30 2 2 2 2.5 Inbound Inland Transp./Handling to Warehouse - Truck - 0.5 0.40 0.5 0.5 0.5 0.5 - Rail - - - - - 6.0 -

Processing Time - Order-to-delivery 4.92 160 4.9 170.5 106 101.5 32.5 - Transit and handling 1.92 38 1.9 50.5 42 41.5 25.5 Total Distance Covered (km) 6,354 12,495 910 16,543 17,619 15,526 12,269 - Rail - - - - - 3,652 4,354 - Truck/Drayage 600 400 910 1215 280 - - - Sea/Inland Waterway - 12,095 - 15,328 17,339 11,874 7,915 - Air 5754 ------Processing Speed (km./day) - Order-Delivery 1,291 78 186 97 166 153 378 - Transit 3,309 329 479 328 420 374 481