The Logistics Performance Index

 

As the semester is about to end in a few weeks, it is time to look back at what we have learned. In the logistics class, we managed to understand that logistics is of great importance for any kind of company, in order to reduce the costs without decreasing the quality of the product sold. But logistics is not only a company problem, it is also a state priority. Many governments throughout the World now understand that the logistic performance of one country is linked to its economic development and growth. This is proved by the fact that with a poor logistics system, costs increase and thus the global potential of a product decreases as well, which reduces the imports and exports of a country and thus decreases its economic development. In order to understand how well a country is doing compared to others in a logistics point of view, the LPI (Logistics Performance Index), has been created in 2007.

Countries are ranked on a scale going from 1 to 5 based on six factors:

  • The efficiency of customs and border clearance (“Customs”).
  • The quality of trade and transport infrastructure (“Infrastructure”).
  • The ease of arranging competitively priced shipments (“Ease of arranging shipments”).
  • The competence and quality of logistics services—trucking, forwarding, and customs brokerage (“Quality of logistics services”).
  • The ability to track and trace consignments (“Tracking and tracing”).
  • The frequency with which shipments reach consignees within scheduled or expected delivery times (“Timeliness”).

Screen Shot 2018-05-07 at 5.32.25 PM

 

For ten years in a row, the most performing country in the World, in terms of logistics, is Germany (with a LPI of 4.12), followed closely by the Netherlands (with a LPI of 4.05). The least performing country is Somalia with a LPI of 1.77. There is a high correlation between the economic wellbeing of a country, and its level of Logistics Performance Index. Indeed, the best ten countries are all belonging to developed countries, whereas the worst ten are still in the developing stage. There are some exceptions to that rule, for example Vietnam is one of the most performing countries in term of LPI among developing countries (with a score of 3.15, ranking it to the 48thplace).

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Countries are then divided into four categories, based on their LPI level:

  • Logistics Unfriendly
  • Partial Performers
  • Consistent Performers
  • Logistics Friendly

 

This index allows us to understand the powerful impact that a country can have on the wellbeing of the logistics department in companies. Indeed, by reducing customs and by easing the transports and logistics regulations, logistics costs are reduced.

If you want to learn more on this topic, feel free to have a look at this paper: https://openknowledge.worldbank.org/bitstream/handle/10986/20399/904190WP0LPI0R00Box385316B00PUBLIC0.pdf?sequence=1&isAllowed=y

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