Nepal – Trade Performance Tangled In Multiple Issues

The foreign trade of Nepal is tangled in multiple issues plaguing since decades – be it inadequate infrastructure, Customs procedures, transhipment issues, trade finance and export product quality concerns.

The exim trade of Nepal has been down last year and through the first half of this year. Generally exports have been very slow and import restrictions by government have also decreased imports from third countries. Import and export with India has been slightly decreased. Nepal imported goods from 164 countries during the fiscal year 2021-22, valued at $14.63 million (Rs 1,920 billion). Of this, imports worth $9.14 million (Rs.1,200 billion) were from India alone, while the export was worth $1.18 billion (Rs 155 billion). It means the country’s trade deficit with India alone was over $7.96 billion (Rs 1,044 billion) last fiscal year.

The COVID had a big effect to Nepal trade and the situation currently as well is not very good due to increase in logistics cost (specially ocean freights). The effect of pandemic has been very hard as the government was not prepared for smooth operations and easy connectivity at transit points beyond borders and within.

Recently, the logistics cost has increased and there has also been scarcity of empty containers. Such situation has led to cancellation of orders or less placement of orders as regards exports. But in case of imports, very little change is seen as demand of imported goods is high and customers are willing to pay the price.

The rail transit time has reduced with private railways operating but cost benefits have not been passed on to the Nepalese importers. The decrease in rail freight from Kolkata and Vizag has been enjoyed by shipping lines as terms of import is C and F or CIF and it is beyond the hands of Nepalese importers or freight forwarders. In such terms of dealing the upper hand is on the exporters in foreign countries where as liabilities are for the importers of Nepal.

Nepal is looking to enhance the logistic performance by adopting to Coordinated Border Management system as well as standardization of ICPs and ICDs through Standard Operating Procedures (SOPs). It is believed that this will enable all terminal operators remain in the same system and monitoring and evaluation will be much easier. Container terminal in the Western region (Dodhara Chadani) is being worked out and waiting for environmental approval.

Total Throughput (2021-22):  126,448 TEUs

Nepal Government is also looking forward to establishing mini logistics centers in some small Customs points like Bhadrapur via Galgalia and Krishnagar etc. Some works on enhancing terminals of Biratnagar for Railway connectivity is also underway. Further study is being conducted to establish warehouses in all 7 Provinces as well as for Agro hubs. Policy for logistics is almost complete and laws and regulations related to logistics like warehouse act, MTO act (amendment) Cargo or Freight Forwarders, Good Carriers act, etc are underway.

The government has decided to set up the Nepal National Single Window (NNSW) and converge it with the regional single window to interchange data and information for paperless trade facilitation. Similarly, the Exim Code has already been implemented. Initiatives in customs modernization such as ASYCUDA World and ASYCUDA++ are also moving ahead side by side. Now all these initiatives need to be integrated with the regional mechanisms in order to ensure a smooth flow of logistics.

Electronic Container Tracking System (ECTS)

ECTS has been introduced to cut down the time and cost of moving containers from Indian ports to Nepal, while ensuring safety. Customs formalities, procedural compliance and paperwork are reduced, but at a much higher cost. The device is installed only after port formalities are completed, thus it does not reduce port formalities. The monitoring can be done only when installed by its agent and not the importers. It is functional up to Indian border customs and not beyond. It is just a mechanism to permit Indian counterparts to monitor containers and check diversion. Moreover, the containers are carried by Indian rail and loaded with two containers facing the door. As it is, chance of pilferage or diversion should be next to Impossible. The challenge is in linking this simple tracking system to international transshipment.

Major ICDs: Bhairahawa, Biratnagar, Birguj, KakarbhittaTatopai

Logistics infrastructure enhancements