Currency equivalents

Executive Summary 8

Main Findings 8

Recommendations 10

1.Introduction 12

Background 12

Report Objectives 12

Report Scope 13

2. Demand for Transport and Logistics Services 14

Role of the Transport Sector in the Economy 14

Trade Logistics Environment 19

Evolution of Freight and Passenger Transport Markets 22

Freight Traffic Forecast (estimates) 25

State of the Market for Transport Services 25

3. Transport Sector Strategies and Freight Transport Forecast 27

Main Sector Objectives, Programs and Plans 27

Transport Sector Organization Structure 29

Transport Policy, Climate Change and Road Safety 30

4. The Road Sector 34

Road Infrastructure and Service Provision 34

Organizational Structure of the Roads Sector 36

Sources of Finance and Road Sector Spending 37

Estimated Financing Requirements for Road Infrastructure 41

5. The Railway Sector 46

Railway Infrastructure and Service Provision 46

Organizational Structure of the Railway Transportation System 49

Operational Performance of Belarusian Railways 50

Financial Performance of Railway Operations 52

Financing Requirements for the Railway Sector 57

6. Recommendations for Improving Transport Sector Performance 60

Take Steps to Increase Logistics Performance 60

Improve the Institutional Framework for the Belarus Transport Sector 62

Improve Transport Sector Sustainability 64

Annex 1: The concept of logistics costs and international reference data 67

There is no uniform definition of logistics costs; companies have their own definitions of what constitutes logistics costs. Therefore, international comparisons should be regarded with caution. Figure presents one useful typology of logistics costs, whereby direct logistics costs consist of transportation (cargo handling and packaging included) and warehousing costs. Indirect costs, on the other hand, include inventory carrying costs (also the capital tied up in inventory) and logistics administration costs. Knowledge of alternative and indirect costs for logistics, such as managerial costs, may be relatively vague. The arrows indicate the shift in the significance of indirect and/or alternative costs under competitive pressure. 67

67

Source: Adapted from Ojala, 2004. 67

Rodrigues, Bowersox, and Calantone (2005) estimated the level of logistics costs in relation to gross domestic product. Based on the econometric model they had developed for the purpose, global logistics costs in 2002 were around US$6,700 billion, corresponding to 13.8 percent of global GDP. According to Rodriguez et al., global logistics costs have decreased between 1997 and 2002. In parts of Europe, however, logistics costs seem to have been rising during this period (Table and Table ). 67

Another estimate of national-level logistics costs is by the Council of Supply Chain Management Professionals (CSCMP, see www.cscmp.org). CSCMP estimates that India’s logistics costs are 11 percent of its GDP and China’s are as much as 21 percent. In contrast, logistics costs in the United States seem to have fallen from 14.5 percent to as low as 8 percent in the past 25 years. The CSCMP estimates that logistics costs in Europe are somewhat higher—at least 11 percent of GDP (The Economist, 2006). 68

A recent EU-financed project on the development of Baltic Sea Region (BSR) logistics, generated insight on the level and distribution in categories of logistics costs in several locations around the BSR. The estimated logistics costs of manufacturing companies by region range from about 8 percent in Lithuania to about 20 percent in Mecklenburg Vorpommern, Germany (Figure ). Respondents from Mecklenburg Vorpommern, however, are predominantly very small firms and are located mainly in and around the city of Wismar, so the data is not representative of the whole state. In Lithuania it is notable that all other logistics costs are completely missing from the answers. Transportation costs form the largest portion of overall logistics costs and contribute to over one third of the total logistics cost followed by inventory carrying and warehousing costs. 68

69

Source: LogOn Baltic Master Report 3:2007 69

In the LogOn Baltic study, the range of logistics costs by region seems to vary slightly more among trading firms than in the manufacturing industries: the range is from approximately 10 percent (Latvia) to about 23 percent (Pomerania, Poland) (). The logistics costs of the trading companies in Poland (Pomerania) amount to a notably greater part of the companies’ turnover than in other regions. In Latvia overall logistics costs are significantly smaller than in the other areas. This could be due to the fact that the respondents in Latvia had a different concept of logistics costs than respondents in other countries; half of the costs are seen as transport related, whereas inventory-carrying costs are perceived as being very low in comparison with the other countries. Lithuanian trading companies report administrative costs as forming a large part of the total logistics costs. 69

70

Source: LogOn Baltic Master Report 3:2007 70

While the LogOn Baltic study gives valuable information on the level and distribution of logistics costs, it also highlights potential problems in the conceptualization and comprehension of logistics costs in companies, making exact assessment challenging. 70

Despite these shortcomings, the key message is clear: while transportation costs are an important part of logistics costs as a whole, other costs (e.g., indirect, overhead) need to be taken into account to understand the true cost of logistics, such as international operations in general or locations and transport corridors in particular. 70

Building on this foundation, a better understanding of firm behavior can be attained, enabling more successful policy making for economic development. Similar data on Belarus would be highly useful for both policy-making purposes, as well as benchmarks for manufacturing and trading firms in the country. Collection of this type of data requires a well-managed and time-intensive effort to provide reliable results. 70

Belarus is absent from some of the important indices that are followed closely by the international community, including the following: 70

The absence of Belarus in some of the private sector comparisons (such as the GRDI) may be interpreted as a result in its own right, indicating some lack of interest towards the Belarus market perhaps due to the perceived regulatory or logistics constraints for investments. Further, Belarus may be perceived as uncharted territory in the eyes of foreign investors, as a lack of reliable information makes it more complicated for investors to assess the feasibility of market entry. 71

To some extent foreign investor interest and opinion may be formed based on these indices; efforts should be undertaken to include Belarus in such comparative tools. As Belarus collects and makes available high quality data on trade and transport, the economy may benefit from international benchmarking and higher investor awareness. 71

Annex 2: Belarus Freight Transport Forecast until 2020 72

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