Railway and logistics challenges in Laos

Through improved connectivity, Laos can bolster trade between the provinces, Asean member countries, and with China. An initial 300,000 containers from Laos will be transported via the railway to Europe from China annually. This is expected to increase to between 1.2 and 1.8 million containers per year.

The majority of China-Asean trade (worth more than US$600 billion in 2020) relies mainly on maritime routes, with Laos-China trade representing less than 2 percent of total China-Asean trade. As such, according to a World Bank report, transit trade through Laos could reach 3.9 million tons by 2030 from 1.6 million tons in 2016 and shift an estimated 1.5 million tons of maritime transport to the railway.

The government has started the development of Laos’ first-ever integrated logistics facility as it prepares for the shift from sea trade to road and rail. The same World Bank report states that only 2 million tons of freight were transported via Laos from a total of 40 million worth of trade between China, Thailand, Malaysia and Singapore in 2016.

The new facility will include expansion of the Thanaleng Dry Port and expansion of the Railway and logistics challenges in Laos greenfield Vientiane Logistics Park, to be completed by 2030.

In addition, the government will build export processing zones around stations and targeted investments in agriculture and tourism could be new export opportunities for the country. Prior to the pandemic, Laos was attracting between 800,000 to one million Chinese tourists annually and this figure could rise by up to 50 percent once international travel resumes.

From the time of opening up until April 2022, the Laos-China Railway Company carried 308,451 domestic passengers and 470,173 tons of goods. In April, the company served 82,214 domestic people and 145,012 tons of freight, which increased by an average of 566 people per day and 787 tons per day (Laos-China Railway Company Report, April 2022).

The Ministry of Public Works and Transport has a strategic plan to extend the railway from Vientiane to Champassak province in southern Laos and also to the Vung-ang seaport in Ha Tinh province, Vietnam. The strategic plan is called the “Laos Logistics Link”.

In April 2022, a Memorandum of Understanding on the US$5 billion railway from Vientiane to the Vung-ang seaport was signed between the government of the Lao PDR and an investor, with construction to begin in late 2022.

This progress in upgrading railway infrastructure and logistics in Laos by the government of the Lao PDR and its counterparts paves the way for greater Asean connectivity and could significantly reduce transport costs while removing existing transport obstacles.

An IDE-JETRO study carried out in 2017 indicated that transport costs along key corridors in the Lao PDR were between 1.4 and 2.2 times higher than those for corridors in Thailand, depending on whether a backload cargo was secured. Transport prices paid by users of transport services, however, were shown to be on average much higher than the average cost per ton-km borne by operators.

While prices for full container loads were around 11 cents per ton-km, they were 37 cents per ton-km for partial loads. These prices are much higher than in Thailand, where they are estimated at between 5.3 and 10 cents per ton-km for full loads and 8 and 16 cents per ton-km for partial container loads.

According to Mr John Arnold and his 2003 World Bank report “Logistics development and trade facilitation in the Lao PDR”, logistics services in the Lao PDR are greatly constrained by a number of factors that drive up the cost of transport, such as:

a. Small and seasonal traffic flows which limits the quality of road, water and air transport services;

b. Lack of reliable transport: physical conditions and administrative procedures increase delivery times and increase delays in both domestic and international movements;

c. Physical constraints on containerization: there are few roads designed for carrying container trucks in the Lao PDR;

d. Poor access links to ports in neighboring countries: access roads to ports in Vietnam are difficult, the roads in Thailand are much better but are congested;

e. Lack of modern handling methods: the lack of facilities for handling containers and pallets hinders the development of effective links between modes;

f. Absence of cargo information systems and no cargo tracking systems available; and

g. Lack of a legal framework for logistics services.

The Laos-China high speed electrified train definitely shines as a modern form of transport and is a wonderful new travel option for people in Laos. The railway offers cost savings and efficiency in terms of load capacity and capability in transportation and as such can significantly reduce transport costs, providing a competitive edge over the country’s neighbors.

 It solves previous logistics problems such as limited road infrastructure and poor quality trucks which were highlighted above by experts. Although some of the logistics constraints faced in the past have been lifted due to this new mode of transport, Laos is still facing logistics challenges, which the government is currently putting a great deal of effort into resolving, as follows:

1. Not all kinds of export goods can be transported by train at present, especially agricultural produce, due to the absence of a quarantine centre;

2. There is no cargo information system and no cargo tracking systems are available. This could bump up costs for customers because they have to leave their containers in dry ports or container yards;

3. Dangerous and perishable goods cannot yet be transported;

4. The cost of goods packaging and loading is high;

5. Unclear integrated multimodal transport services would be provided by any operator.

Laos’ logistics system is not amateur. One of the challenges for transport in the Lao PDR, which is acknowledged by the government, is that at present there is only developing transport infrastructure but no logistics system: logistics parks, distribution centres etc., including logistics providers, which are very significance for TRANSIT services, as stated in a report issued by the Ministry of Public Works and Transport on July 24, 2014. Railway transport infrastructure development is an example of this.

Logistics costs attributable to the land-locked status of the Lao PDR are increased due to inefficient logistics as described above. This creates a significant competitive disadvantage for exporters and importers and limits most of their activities to trade with neighboring countries. Therefore, the government of the Lao PDR is doing its utmost to resolve these outstanding and new challenges in logistics.

Failure to solve these obstacles to the success of the US$5.9 billion Laos-China railway in transforming Laos “From Land-Locked to Land-Linked and Maximizing the Development Impact of Laos-China Rail Connectivity” would create a long and difficult road to progress. Mr Saysongkham Manodham works at the Ministry of Public Works and Transport.