Nepal’s Logistics Policy and the Way Forward

The national logistics need to be incorporated into the national plans of Nepal by the MoICS to include logistics as a priority industry.

      – Rajan Sharma –

In the context of the new logistic policy introduced by the government of Nepal, the private sector and the government need to re-evaluate their approach to the logistics sector to ensure an effective and supportive institutional environment. In particular, there is a need for a unified approach to logistics policy to reduce inefficiencies, duplication, and inconsistencies in the distribution of goods and services in different provinces of the country. Determining a responsible agency for companies operating exclusively in transport, and logistics is no longer a matter for one agency or ministry alone; it requires the cooperation of many government stakeholders and representatives of the private sector. They must all contribute to managing the supply or distribution of goods and services in the context of Nepal, as it has a unique geographical location and international logistics are affected by different treaties and agreements. The distribution within the border is also not an easy task due to topographic conditions, road infrastructure, and climate conditions. There is a need for Cooperation, Coexistence, and Coordination between the central and the federal governments and this commitment is mentioned in the constitution of Nepal.

There are two aspects of the coordination of policy. The first is the national logistics strategy, and the second is a national logistics coordination mechanism to support and implement the strategy, which is still missing. Coordination has always been a big problem in Nepal due to the supremacy of one ministry over the other. Logistics is an activity that requires the cooperation of all laws and regulations under different ministries and the major challenge will be to make this happen. Until this coordination among all stakeholders is made possible we have no other alternative other than to look for a way forward based on the newly introduced Trade Logistics Policy.

However, there are gaps in the logistics policy. These gaps need to be addressed while framing the law and regulations related to the policy at a later stage.

The policy could have given names of private agencies involved and conceptual frameworks for regional integration are missing; mentioning relevant acts could also have been helpful for effective implementation. These include logistic components like:
a. Inbound transportation.
b. Outbound transportation.
c. Fleet management.
d. Warehousing.
e. Materials handling.
f. Order fulfillment.
g. Inventory management.
h. Demand planning.
i. Information and control Mechanism
j. Intermediate Facilities

The Department of Commerce, Supply, and Consumer Protection are missing as major stakeholders. There are some 16 Acts to implement under this department and they are responsible for supply monitoring and regulations.

The need for liability issues and commitments to be in line with international best practices has not been examined.

Some features of logistic policy and strategies are included but some are missing.
a. Infrastructure
b. Modernization
c. Third-party logistics
d. Control/monitoring
e. ICT
f. Human capacity
g. Harmonization and standardization
h. Trade and transport facilitation
i. Internationalization of logistics
j. The environment control mechanism
k. Logistics clusters
l. Key industries
m. Research
n. Government outsourcing,
o. Foreign cooperation,
p. Employment,
q. Inter-modality (domestic logistic operations) and modalities,
r. Logistics certification
Similarly, insurance policies and related liability of logistic service providers and the role of national associations are also missing.

The national logistics need to be incorporated into the national plans of Nepal by the MoICS to include logistics as a priority industry. Preceded by an in-depth analysis of the current state of the logistics industry, clear targets based on the expected increase in total merchandise trade must then be set out, in terms of marine cargo, air cargo trade, and cargo volume by rail freight. The ideal policy and laws related to logistics can be achieved through six strategic thrusts adopted by other countries and fall under the best practices. This is not possible until we change our mindset and coordinate and cooperate with all stakeholders.

(1) An efficient and competitive logistics industry needs to be created to support Nepal›s industrialization efforts. An efficient and competitive industry is created through the encouragement of capacity building and adopting new practices in the industry. The plan ought to specifically mention the enhancement of operations to cover the whole supply chain (door-to-door), the establishment of a professional accreditation body, and a shift in trading practices to exporting on a CIF basis and importing on a FOB basis which is best suited for Nepal›s trade integration and foreign currency earning. Another measure to support the industry, government-linked companies should encourage using the services of domestic logistics firms for international trade. Logistics companies looking to expand their capacity and activities should get assistance to accomplish their goals. ICD and ICP terminal operators should be encouraged to extend discounts to freight forwarders and non-vessel operating common carriers involved in value-added activities.

At the same time, opportunities to build capacity through foreign partners need to be recognized. A higher level of foreign equity should be allowed for certain logistics services. These include cost, insurance, and freight (CIF) and free on board (FOB) companies (such as container shipping companies offering intermodal integrated door-to-door services), non-vessel operating common carriers offering services to small shippers catering to less than container or consolidation services, and 3PL and 4PL companies. This measure aims to encourage multinational companies to include Nepal in their global supply chain, thus offering more opportunities for the domestic industry. Shipping companies are also encouraged to form strategic alliances with Nepali freight forwarders along with provisions of booking cargo and freight payment within Nepal with an exclusive liability imposed on the logistic service providers in line with international practices.

(2) Developing the industry in particular transport modes to operate in a competitive international environment is also needed within the transport sector, multimodal transport modes, national transport corridors, and inland waterways need to be highlighted. The initiatives to promote the inter-modality of transport need to be private-sector driven, with the cooperation of NITDB. An assessment to consider the expected impact on road haulage companies is needed. Mitigation measures, if required, need to be designed in coordination with the transport.

(3) Expanding and upgrading the capacity of the industry to enhance its participation in global supply chains is another crucial matter. The participation of the domestic industry in global supply chains is supported through several measures. The national transport corridors identified in the strategic logistics centers are to guide the selection and promotion of growth areas such as inland depots, specialized warehousing facilities, regional logistics operators, and virtual logistics hubs. Dry ports and airport operators are encouraged to form international alliances and expand operations globally. Support could be provided to 3PLs and 4PLsexploring export opportunities and outward investment. On the institutional side, regulations and rules need to be harmonized and streamlined to create a supportive regulatory framework.

(4) Intensifying the application of new ICT in the industry. The application of new technology is considered a key factor for a more competitive industry. In particular, the enhancement of skills and capacity in managing and controlling information is an opportunity to develop services for the broader regional hinterland. These links must aim to expand the service offering of domestic logistics companies, with enhanced supply chain management services. Further implementation of E-Systems needs proper planning for a paperless customs service, through a web-centric e-logistics system. Upgrading the e-services of government agencies involved in trade will feed into the development of a single-window system. In addition, the use of other technologies in logistics is encouraged, such as voice-recognition technology, RFID (radio-frequency identification), and satellite positioning systems.

(5) A strategy to adapt and ensure an adequate supply of competent workforce and the long-term requirements of the industry is needed. Re-training and life-long learning in technical, commercial, and operational skills are encouraged to upgrade the capabilities of the workforce involved in logistics. Links with foreign institutions are to be established to promote the enhancement of standards at international levels.

(6) The regulation must address the issue of strengthening institutional support through inter-ministry and agency coordination in the planning, implementation, and monitoring of policies and measures affecting the industry. The outlined plans need to undertake the enhancement of institutional support, the most prominent of which is the establishment of the National Logistics Development Council and the Supply Chain and Logistics Center. In addition, relevant rules and regulations need to be reviewed by the government, in particular those relating to the safety and security of the supply chain. The government should also consider introducing regulations on the duties and obligations of road haulages. Licensing policies on road transport and employment of foreign experts also need to be reviewed and the National Logistics Efficiency and Advancement Predictability and Safety Act are important for Nepal. This law tends to define various activities of logistics service providers and create a light regulatory ecosystem enabling monitor the activities of all stakeholders as well as the performance of logistic actors.
The Multi Modal Act needs immediate amendment to meet the policy demand for regional trade connectivity as well as the Goods Carrier Act to make transport companies liable and responsible is a pending issue for a long time.

Logistics policy has been focused on developing logistics as an industry, rather than a supporting function of manufacturing, and developing the Nepali industries. For a concrete sign of this, the Goods Distribution Promotion Act, and a comprehensive Framework Act needs to be framed. The national logistics master plan needs to be developed based on the guidelines set by the logistics policy.

Acts that are needed to be framed based on the Logistics Policies and their importance.

The Act on Logistics Policies shall provide the legal framework for the development of the logistics industry. It sets out the duties of both public and private sectors at various levels (from national to local) and draws particular focus on institutional support for the industry and the promotion of efficiency and competitiveness. The logistics policies under the act shall aim to develop the logistics industry systematically by “promoting prompt, punctual, convenient, and safe logistics activities and integrating the policies of the government related to logistics interconnecting harmoniously”.

The Act stipulates the formal process for the development of the national logistics plan. The law should incorporate following subjects:

  • Matters concerning each function (transport, storage, loading and unloading, packing, etc.) and the coordination of policies regarding each mode of transport;
  • Prioritization and investment (and disinvestment) plans for logistics facilities and equipment;
  • Development of infrastructure for a more integrated system to cater to the federal government’s requirements,
  • Measures for the improvement of efficiency in logistics through standardization and collaboration enhancement of information literacy, etc.
  • Measures to strengthen the competitiveness of the industry;
  • Training human resources for logistics and development of logistics techniques;
  • Measures to support the internationalization of the industry; and
  • Other measures considered necessary.

    The Ministry must be supported by the relevant government agencies, local authorities, logistics enterprises and other relevant organizations to make things happen. In addition, the Ministry is also mandated to produce a yearly execution plan. A Master Plan for Regional Logistics needs to be formulated by each city mayor to complement the national Master Plan, with the same content but a local focus.
    The Act should address the efficiency of the logistics system through three factors. Firstly, it is the expansion of logistics facilities and equipment by the logistics enterprises. Special attention needs to be paid to the consistency of facility development in terms of connectivity and avoiding overlaps. Funds may also be provided for collaboration on facilities and equipment.

Secondly, standardization of logistics, in terms of equipment and calculation of logistics cost, in particular, is encouraged. The Act allows for the preferential treatment of companies adopting standardized equipment, for example, by giving financial support or discounted service rates at public logistics facilities.

Thirdly, the importance of developing ICT capacity for logistics efficiency is recognized. The use of information systems has been promoted by the policy. The Act provides the possibility for the financial support of plans related to the development and operation of facilities and programs. In addition, the Act supports the construction of function-specific and integrated logistics information networks by relevant government agencies, if deemed necessary for the promotion of the collection, analysis, processing and distribution of logistics information. For this purpose, the subcommittee on logistics facilities is indicated as a possible coordinator.

The ministry must also be mandated to construct and operate a national logistics database. The use and development of electronic documents, taking into account data safety, is supported, and the MoICS is tasked with formulating a plan for the development of standard electronic documents and supporting the adoption of electronic documents through promotion initiatives and other incentives.

An operator intending to engage in international freight forwarding has to register with MOICs and the fees and procedures in consultancy with the logistic service providers. Registration is not possible for persons who are found incompetent or who have a record of a certain criminal offense. The registration can be revoked in case of wrongdoing or if the company no longer fulfills the stated requirements. The Act also promises government support for the incorporation of an association by international freight forwarders.

While developing a national strategy can be time-consuming and costly, a national logistics plan has several benefits and has to be developed as the policy is already in place. Firstly, it outlines a common understanding of national priorities in the fields relevant to logistics. The coordinated actions of various government agencies and the private sector are complicated. The various stakeholders may have different views on the appropriate action at different stages of industry development. By going through the consultation processes with the federal government related to developing a national strategy, stakeholders can agree on a common direction, and thus better determine their contribution to the development of the industry. A related benefit is the use of logistics capacity development funds in a more efficient way because actions are consistent and do not duplicate work by other agencies because actions should be consistent. A high-profile national strategy can also serve as a sign of government commitment to the development of the logistics industry and national and international connectivity. By setting concrete targets, the performance of the relevant agencies can be measured against the national strategy and implementation plans. The challenge the logistic policy faces at the moment is ownership of all ministries and the stakeholders and identifying the acts and regulations in which the policy is based to manage this sector and meet with the only one motive of lowering the logistic cost of Nepal.

Sharma is the former President of the Nepal Freight Forwarders Association and a logistic consultant.

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