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The Cost of Being Landlocked
overheads. This is the case with many agents’ fees. Discussions of the main categories of logistics overheads related to transit operations follow.
Mandatory Transit-Related Procedures Mandatory procedure costs include bonds or guarantees, compulsory transport of customs documents, escorts, transit fees, and compulsory insurance. Many transit-related mandatory fees are overpriced or priced without consideration for the actual service rendered and are thus akin to rents (for instance, the various documents issued by freight organizations; transit documents from chambers of commerce; shippers council fees, which sometimes also apply to domestic goods; and compulsory insurance schemes). Some additional services in public administration may also add to costs in landlocked countries. In Rwanda, Magasins Généraux du Rwanda had, until 2006, a monopoly for warehousing and added three to five days to the clearance process while collecting 4 percent of the goods’ value as a fee (3 percent directly in favor of the government’s budget, 1 percent as a cost recovery fee).
Agency Costs (Freight Forwarders) Transit logistics for many landlocked countries also tend to increase the rates charged by freight forwarders. In some cases in Central Africa, these rates may add 30 percent in overhead. The procedural complexity and multistep processes imply that each shipment requires attention, staff, and costly intervention otherwise unnecessary in a seamless transit environment. Fixed operational costs (office and staff, often including expatriates for large companies) become very significant on corridors where the number of shipments is low. On many corridors, weak competition (often linked to the small volume of goods) means that some freight forwarders can charge a much higher margin for (relatively) higher-quality services. Informality and rent in some segments of the logistics industry are also obstacles to the development of diversified services, because not even a logistics integrator will have full control of the supply chain.6
Magnitude of Transit Overheads for LLDCs Overhead is seldom disentangled from transportation costs, especially as a shipper will very often use an agent to organize its imports (sometimes including payment of customs duties). The shipper is therefore aware of the total cost but not of what corresponds to overheads, and tariffs are usually not public. Within the many components of these overheads, only facilitation payments at roadblocks have received attention from policy