Iran: New Logistics Document Seeks to Cut Transport Costs by 30 Percent

EghtesadOnline: Iran’s Logistics Centers Planning Document, which aims to reduce transportation expenses by up to 30% when fully implemented, was ratified by the High Council of Transportation on Aug. 21 and notified by the now-outgoing Roads Minister Abbas Akhoundi on Sept. 10 to all bodies involved in the implementation of the document.

News ID: ۷۸۴۲۴۶

23 October 2018

"The document is aimed at coordinating different modes of freight transportation and encouraging collaboration," says the director general of the Transport and Logistics Comprehensive Planning Bureau with the Ministry of Roads and Urban Development’s Transportation Department.

“It’s the light ushering us toward higher efficiency and productivity in transportation network. Our guideline was the current freight flow in the country. There were a lot of requests coming in from investors, each of whom wanted to establish a logistics center. Yet, we had no major plan to give us a bird’s-eye view and help us decide what amount of investment in what kind of a logistics center will be economically and strategically viable in a particular spot,” Mehdi Safari Moqaddam told Financial Tribune in an interview.

About a year ago, the National Council of Logistics Centers was formed to set major policies in the field. Members of this body include Islamic Republic of Iran Railways, Ports and Maritime Organization of Iran, Road Maintenance and Transportation Organization, Iran Civil Aviation Organization, Islamic Republic of Iran Customs Administration, Ministry of Industries, Mining and Trade, High Council of Free Trade Zones, Iran Chamber of Commerce, Industries, Mines and Agriculture, Iran Chamber of Cooperatives and transportation associations, according to Financial Tribune.

“Our goal is to minimize, as much as possible, the expenses of freight transportation in the country; whether this freight is a domestic one, aimed for exports, coming in as imports or passing through as transit. To do so, we gathered the waybills for all the cargo transported in the country over the past five years in a database," Moqaddam said.

"We ran this information on a supercomputer on multiple occasions and came up with a mathematical model that helped us determine where the freight hubs are and what freight should be carried via which mode of transportation. Using this information, we realized the need for 58 logistics centers across the country. These centers include logistical cities, freight (logistical) villages, general cargo logistical parks, agricultural cargo logistical parks and border logistical centers.”

Cost-Effective Transportation

The official added that the main criterion in choosing the number and location of these centers was cost-effectiveness.

"Studies carried out in the Transport and Logistics Comprehensive Planning Bureau show that once the Logistics Centers Planning Document is fully implemented, direct and indirect transportation and logistics costs will reduce by 30% to stand at 300 trillion rials (around $2.17 billion) from the current 430 trillion rials (more than $3.11 billion) per annum," Moqaddam said.

He explained that these savings include a 44% decline in freight fuel consumption (down from 9.6 billion liters to 5.4 billion liters), a 12% decrease in expenses caused by road accidents and a 15% decrease in environmental pollution expenses.

"We expect a 15% rise in the share of rail in freight transportation (to reach 25% from the current 10%) and a 48% increase in ton/kilometer transportation by rail (from the current 12% to 60%),” he said.

Also stipulated in the document is that freight is targeted to be transferred from road to rail wherever possible. This alone will reduce fuel consumption to one-sixth per ton/kilometer and increase road safety as there will be fewer heavy vehicles on the road, resulting in fewer accidents that cause casualties and damage to automobiles.

Moqaddam further said the document seeks to establish logistics centers, prepare the grounds for establishment of new generations of logistics companies like 3PLs and 4PLs, provide equipment and technology for intermodal transportation, integration and standardization of freight transportation documents and procedures, smartify transportation infrastructure and devise a policy and economic package to help rectify the common yet flawed practices in the sector.

Encouraging Train Transportation

According to the official, there is a tendency among Iranian cargo owners to use road transportation.

"The package will help change the perspective and encourage traders to use railroad instead, which is more economically viable on a national scale and less hazardous to the environment," he said.

Logistics centers offer some basic services such as transportation, loading and unloading activities, transshipment, warehouse services, customs procedures and standard inspections.

There are also value-added services available like banking and insurance, vehicle repair centers, carwash, hotels and restaurants, as well as sorting and packaging units.

These logistics centers, which are to be located in the vicinity of cities where there is a considerable population or near industrial parks and major factories, will be established near intermodal transportation companies. They will be major nodes in which different transportation modes meet and, as such, multimodal transportation is facilitated.

Climbing Up the LPI Ladder

In Iran, there are several border freight terminals and ports that engage in logistics activities, says Moqaddam.

This new plan demands that new centers need to be set up to help expand intermodal transportation.

In the World Bank’s 2018 report, Iran’s ranking in the Logistics Performance Index improved 32 places compared with 2016. With the score of 2.85, the country was positioned at 64th place out of a total of 160 countries.

LPI has been released by the World Bank every two years since 2012. Measuring performance on trade logistics within a country, the index is an interactive benchmarking tool to help countries identify the challenges and opportunities they face in undertaking trade logistics and what they can do to improve their performance.

The index is based on a worldwide survey of operators on the ground (global freight forwarders and express carriers), providing feedback on the logistics “friendliness” of the countries in which they operate and those with which they trade.

“In climbing the LPI ladder, improvements made in customs procedures services, including the “Customs Single Window System” played a major role,” Moqaddam said.

The new system enables cross-border traders to submit regulatory documents such as customs declarations, applications for import/export permits, trading invoices and investment permits to a single entity and/or single location. This allows for more control and supervision, reduces red tape and boosts efficiency.

“We are also constantly building new infrastructure while renovating the old ones. Yet, the most effective factor in Iran’s LPI ranking improvement was the atmosphere created after the implementation of the Joint Comprehensive Plan of Action on Jan. 16, 2016," he said.

"During the post-sanctions period, more companies came to work with us and that altered the dark image they had of Iran. They realized that we have good infrastructure and facilities here.”

Public-Private Partnership

The projects will be capital-intensive and government resources are inadequate to cover all the costs.

“Hence, we are not counting on government resources for establishing these logistics centers. Yet, since these centers are considered strategic sites and there is a need for state supervision and control, and to ensure best practices in the field, we are eyeing a public-private partnership (PPP) to take place. This will also reduce the private sector’s investment risks," Moqaddam said.

"The international norm is that the government takes on the responsibility of establishing the infrastructure while implementing the expansion projects and providing the facilities, equipment and services—the costlier part—are shouldered by the private sector.”

In this respect and to attract the private sector resources, the official said, "we need to do away with some of the cumbersome regulations concerning investments. There is enough money flowing between different markets in Iran. These could be directed towards productive and lucrative activities such as the one we have at hand".

Moqaddam said work has already started work and regulations are being rectified to make investments and related procedures less arduous.

"We are designing incentives for people who would bring their money into our logistics projects. We welcome foreign investors too. Yet, we mostly seek foreign cooperation in technology and the know-how required in the field,” he concluded.