Cambodia’s Regional Connectivity: Unlocking the Full Potential of Transport Corridors 1 EXECUTIVE SUMMARY CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS 2024 A Report Objectives and Structure Cambodia’s export-driven growth has The analysis and proposals described in this resulted in increased freight demand. report focus on the short to medium-term Containerized import and export cargo priorities. By providing alternative insights movement has increased more than five-fold on the role and performance of the existing over the past 12 years. By 2030, it is expected roads, waterways and maritime transport, that trade volumes moving along highways railways, and cross-border trade facilitation and through ports, airports, and warehouses the report is designed to complement the will double. However, high transport and CITLS. Throughout the course of this study, logistics costs are major bottlenecks to stakeholder consultations were conducted Cambodia’s economic competitiveness and with involved public sector institutions diversification. and major private sector players in freight transportation and logistics3. The Royal Government of Cambodia (RGC) developed the Comprehensive Intermodal The report is structured as follows: Transport and Logistics System (CITLS) • Chapter 1 – discussion of trade, Master Plan for 2023–20331 to support transport, and logistics efficiency; improving the performance and efficiency trends in demand and modal of the transport sector and supporting the competitiveness; and the current achievement of the national development cross-border trade. objectives as defined in the RGC’s Pentagonal Strategy Phase 12. However, many of the • Chapter 2 – analysis of the transport projects put forward in the CITLS are in the sub-sectors covering roads, inland conceptual phase requiring further technical waterways, and maritime transport, studies and prioritization prior to securing and railways. financing from the public and private sectors. • Chapter 3 – analysis of the three This report prepared by the World Bank prioritized transport corridors by the team aims to complement the RGC’s efforts study. by focusing on immediate investments and policy actions to unlock opportunities along • Chapter 4 – propose priority the existing transport corridors in Cambodia. improvement directions. 1 Comprehensive Intermodal Transport and System Master Plan 2023-2033 (Royal Government of Cambodia, August 2023). The Master Plan aims to improve domestic and international connectivity and promote continued sustainable, and equitable, economic growth. It has four major objectives. The Master Plan identifies 174 priority projects, including 94 road projects, 8 railway projects, 23 inland waterway transport projects, 20 maritime transport projects, 10 air transport projects, 15 logistics projects, and 4 additional projects. These projects, including better interconnections among modes and logistics centers, are divided into 90 short-term and medium-term projects and 91 long-term projects. The total cost of these investments is estimated at over $30 billion. Most of these investments are anticipated by the Master Plan to be implemented by private investors. 2 Pentangle Strategy–Phase 1 for Growth, Employment, Equity, Efficiency, and Sustainability: Building the Foundation Towards Realizing the Cambodia Vision 2050 (Royal Government of Cambodia. August 2023). 3 Consultations with the private sector were conducted with (i) shipping companies operating barges along the Mekong River between Viet Nam and Cambodia; (ii) international shipping and logistics company that utilizes rail, road, and barges to transport cargoes to maritime ports; (iii) local companies mainly utilizing trucks between Cambodia and Viet Nam; (iv) several companies involved in rice production and trading; (v) Cambodian Logistics Association; (vi) Royal Railway (Cambodian railway concessionaire); and (vii) operators of boutique passenger cruise services between Viet Nam and Siem Reap. 1 CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS EXECUTIVE SUMMARY B Country Context Economic growth averaged 7.1 percent over slightly outperformed road transport to Viet the period 1995–2021, enabling Cambodia Nam since 2015. Waterways are suited to to become a lower middle-income economy bulk and containerized transport and have by 2015. Growth has been driven by a few significantly lower transport costs per ton- export-oriented sectors, including tourism, kilometer than roads. agriculture, garments, and construction The World Bank’s Logistics Performance sector. However, the COVID-19 pandemic Index 2023 (LPI) points to significant logistics led to a 3.1 percent contraction in 2020, challenges in Cambodia, which is ranked followed by a relatively subdued recovery 115th out of 138 countries. Furthermore, with 3 percent growth in 2021. By 2022, GDP the time it takes to comply with border and growth accelerated to 5.2 percent, and in export formalities (for both imports and 2023, it is estimated to have increased to 5.4 exports) is much higher in Cambodia than in percent. The deteriorating global economy neighboring countries. These inefficiencies continues to pose challenges to Cambodia’s in transportation and logistics are major export-driven economy. bottlenecks constraining the diversification Almost all of Cambodia’s export growth over of the economy and its integration into the past five years has come from North higher value-added regional and global value America, which overtook the European chains. Union in 2019 to become Cambodia’s Trade has been and will continue to be an largest export market.4 The United States important growth engine and determinant of America’s share of exports rose from 24 of Cambodia’s ability to meet its goals of percent in 2018 to 41 percent in 2021, while becoming a high-income country by 2050. To the European Union’s share fell from 30 accommodate increased future trade flows, percent to 18 percent over the same period. all modes must perform a larger and more Asia’s share dropped from 46 percent to 41 efficient transport task. As in the recent percent over the same period. These markets past, significant new investment is planned increasingly require efficient and sustainable in waterways, roads, and ports that can transport and logistics solutions. underpin a sharp growth in trade demand. Recent trade measured by the use of twenty- In particular, an 80 percent increase in the ton equivalent (TEU) containers grew from container handling capacity of PPAP LM17 317,200 TEUs in 2010 to 1,600,000 TEUs in container terminal is planned by 2029. There 2022 an increase of over 400%. The main is a significant opportunity to increase the container gateways are Sihanoukville Port share of exports by inland waterways and by for maritime transport, and Phnom Penh rail transport that have untapped potential. Autonomous Port (container terminal LM17 However, there are several challenges, as located 28 kilometers downstream of Phnom listed below, that increase the costs of trade Penh) using the Mekong River to Viet Nam, and reduce efficiency, speed, and reliability. and using road transport to Viet Nam via As a result, the RGC is prioritizing the Bavet. Despite the continued investment in development of regional connectivity and all transport modes in recent years, inland improved efficiency logistics, as one of its waterways that cater to North American and strategic pillars in the Pentagonal Strategy Asian markets via transit in Viet Nam have Phase 1. 4 Cambodia Systematic Country Diagnostic (World Bank, 2023). EXECUTIVE SUMMARY CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS 2 C Key Challenges Transport and logistics constraints are accounts for a substantial portion of increasing the costs of domestic and cross- these investment needs. About 85 border trade, creating inefficiencies in percent of national roads are paved, supply chains, and reducing Cambodia’s but only 38 percent of provincial international competitiveness. These roads and 10 percent of rural roads constraints are summarized below: have pavement, indicating a major gap in climate-resilient last-mile • Logistics and transportation costs connectivity. Maintenance spending are high. National logistics costs in is also inadequate; because of this, Cambodia (2020) are estimated at the current value of road assets is 26 percent of GDP, which is higher estimated to be more than one-third than most ASEAN countries, including below their potential maximum net Thailand (14 percent) and Viet Nam present value. (20 percent). Transportation costs are particularly high, representing more • Bottlenecks exist along regional road than 40 percent of total logistics costs corridors. Good progress has been (alongside warehousing), pointing made in improving most national to significant inefficiencies in the roads, including connecting Phnom transport sector5. Penh with major trade gateways such as the Sihanoukville port. But a major • There are inefficiencies in border gap exists along the regional East-West clearance and trade procedures. corridor (the section running from Border clearance is slow and Siem Reap to the Oyadav checkpoint at costly due to poorly synchronized the Cambodia-Viet Nam border). This procedures among countries and corridor connects Cambodia with Viet inadequate cross-border facilities. Nam, Thailand, and Lao PDR, and is Implementation of the national single part of the Greater Mekong Subregion window and ASYCUDA (Automated (GMS) corridors and the Master System for Customs Data) has been Plan for ASEAN Connectivity (MPAC slow. The introduction of the single- 2025).6 The lack of development of stop inspection and common control this corridor is a major constraint to area with Thailand and Viet Nam has economic growth and job creation in been delayed. the less-developed northeastern part • The infrastructure investment of the country. gap in Cambodia remains large. • Waterway connectivity between Public investment in infrastructure Cambodia and Viet Nam is a vital asset accounted for only 3.2 percent of GDP but is underutilized due to capacity during 2019–2022, while estimated constraints and administrative annual investment needs are about 10 barriers such as the inspection of percent of GDP. The transport sector transit containers. Maritime ports in 5 These figures represent data for 2018. 6 MPAC 2025 has been adopted by ASEAN member countries to “achieve a seamlessly and comprehensively connected and integrated ASEAN that will promote competitiveness, inclusiveness, and a greater sense of community.” MPAC 2025 focuses on five key areas: sustainable infrastructure, digital innovation, seamless logistics, regulatory excellence, and people mobility. 3 CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS EXECUTIVE SUMMARY Viet Nam (such as Cai Mep and Cat attracting new businesses, including Lai) accommodate liner container along the rail link between Phnom vessels bound for the United States Penh to Poipet. and East Asia respectively and play • The trucking fleet is old and inefficient. an important role for transit of The average age of trucks in Cambodia Cambodian exports. Today, there are is typically 20 years or older, many two river port hubs and six inland- of which are imported secondhand. waterway sub-feeder general purpose Compared to new trucks, secondhand terminals in Cambodia; but their purchases have resulted in slower capacity is limited, constraining access travel speeds, significantly reduced and preventing optimal consolidation fuel efficiency, increased maintenance of freight movements. This limited costs, and generated higher emissions. capacity inhibits barge connections of Moreover, the absence of harmonized over 2,000 deadweight tons (DWT), technical standards for cross-border which is more cost-efficient for freight trucking operations for factors such transport. The current inefficiencies as axle load, vehicle length and width, in cross-border transit procedures imposes constraints on efficient have time and cost implications for regional trucking operations. Cambodia’s exports and imports requiring collaboration between • Climate-related natural disasters the neighboring countries such as disrupt logistics supply chains. Cambodia and Viet Nam to find Cambodia is highly exposed to climate mutually beneficial solutions. change impacts, including heavy rainfall and floods. Nine out of ten • The full potential of railways in provinces analyzed face more than 15 facilitating trade with Thailand percent loss of access to employment has not been realized, despite their bases such as factories and agriculture capacity to play a more significant when roads are flooded. Furthermore, role. The role of the railways in it is estimated that a seven-day regional trade is limited – estimated closure of key road corridors by a 50- at less than one percent of total year flood event would result in a five domestic freight movements. A percent indirect cost increase for trade shortage of existing rolling stock and partners for each day of disruption dilapidated infrastructure have been from freight rerouting or blockage.7 the main constraints for the railway in 7 Cambodia Climate Change Development Report. (World Bank, 2023). EXECUTIVE SUMMARY CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS 4 D Proposed Investments to Improve Cambodia’s Regional Connectivity The conclusions of the analysis of trade – Vipassana Kamsomnor – Cai Mep corridors (Chapter 3) show the importance (Cambodia–Viet Nam). This is a key of improving regional connectivity along the current trade corridor. Greater use of following transport corridors (Figure ES1): waterway transport on the Mekong River is an alternative to road to Viet • Corridor A: The East-West regional road Nam with significantly lower transport corridor connecting Laem Chabang – costs although at the expense of Poipet – Siem Reap – Oyadav – Quy longer travel times that are unlikely Nhon (Thailand–Cambodia–Viet Nam, to be a significant driver of freight and Cambodia–Lao PDR). The gap in mode choice as long as travel times international road connectivity is due are reliable. to the poor condition of the section in Cambodia between Siem Reap and the • Corridor C: The Existing Rail border with Viet Nam (about 400km). corridor from Poipet – Phnom Penh Currently, due to poor condition this – Sihanoukville Port (Cambodia- corridor is lightly trafficked but it is Thailand). For connection to Thailand, directly connected to Lao PDR and Viet upgraded existing rail is an alternative Nam and has significant development to road transport with lower transport and international trade potential. costs. • Corridor B: The existing Inland These prioritized corridors comprise part of Waterway corridor from Phnom Penh the existing backbone corridors for the three Figure ES.1: Three Prioritized Trade Corridors Showing Short– and Medium-Term Development Opportunities Source: Study team. 5 CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS EXECUTIVE SUMMARY modes – road, rail, and inland waterway – cost: about US$ 120 million. The Phnom which can be improved with relatively lower Penh Autonomous Port (PPAP) plays costs and in the short-to-medium term an important role in the movement of (compared to new greenfield corridors). freight, especially for exports to the They do not compete, but complement United States and East Asia through the each other, by serving different geographic Mekong River and maritime ports in Viet areas, regional markets, and destinations. Nam. Priority investments to expand However, it is noted that well-designed capacity and improve efficiency of the inland waterway and railway measures inland waterway include (i) supporting that cater to shipper preferences would PPAP investment plan for its phase 4 have important decarbonization benefits in expansion of its main container terminal addition to economic benefits. The following (LM17) to double its container-handling investments are proposed to enhance capacity; (ii) developing sub-river feeder Cambodia’s regional connectivity: ports for additional freight consolidation (in Kampong Cham, Siem Reap, Kampong • Corridor A. Improve Siem Reap-Oyadav Chhnang, and Prek Kdam); (iii) capital Road as part of the East–West corridor dredging of the navigation channel between Thailand, Cambodia, and to accommodate larger vessels; (iv) Viet Nam (and the only road corridor expanding the river barging; (v) improving connecting Cambodia with Lao PDR). navigation safety and efficiency; and Estimated cost: US$500 million. Under (vi) streamlining cross-border waterway MPAC 2025, this road link is prioritized transit procedures. for improvement and designation as Asian Highway 21, which connects • Corridor C. Improve the existing railway Cambodia to Quy Nhon, an important operations and infrastructure links with domestic and regional shipping port in Thailand. Estimated cost: about US$500 Viet Nam. Investment in the main road million. Priorities include (i) renovation infrastructure should be complemented of the existing one meter gauge track by improvements to the condition along the 386 kilometers northern and resilience of feeder roads linking line (infrastructure/track is owned by to agriculture and production areas, the public sector); (ii) acquisition and modernization of the border-crossing deployment of new rolling stock by Royal facility, and the promotion of private Railways, the railway concessionaire; (iii) investments to develop value-added enhancement and digitalization of the services and consolidation facilities along signaling system; (iv) development of an the corridor. To take full advantage of road improved legal and regulatory framework investments, rationalizing duties, and for railways operation; and (v) preparation special taxes on imports of new trucks of a forward business plan, including and vigorously pursuing harmonization required public and private sector actions of vehicle technical standards would to improve railway operations. There is help incentivize the replacement of the scope for detailed value-engineering to outdated fleet with larger, cleaner, and identify a first phase of upgraded railways efficient vehicles. that maximizes the benefits to be achieved for each dollar of investment. • Corridor B. Improve the inland The feasibility of extending the rail waterway connection with Viet Nam and connection to PPAP’s LM17 container farm hinterland in Cambodia. Estimated terminal should also be explored. EXECUTIVE SUMMARY CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS 6 E Proposed Actions to Address Logistic and Cross-Border Transit Inefficiencies The study recommends a two-pronged - Maintain and develop further the approach to address current inefficiencies current trunk and feeder waterways in trade, logistics and cross-border freight that have demonstrated efficiency transit and trade: and sustainability advantages over the other modes and are well- • Improved cross border trade oriented to the main international facilitation and more efficient markets. transport movement focusing on relatively low-cost infrastructure, - Take advantage of the immediate operational and management opportunity to achieve enhanced measures; utilization of the current railway with modest investment and to - Implementing measures to reduce expand its role in cross-border trade costs and promote smart movements (with Thailand and with logistics. other markets via Sihanoukville - Synchronizing and streamlining Port). border crossing procedures with - Inter-link waterways, roads, and those of neighboring countries. railways and multi-modal terminals - Modernizing the truck fleet with thus developing multi-modal harmonized truck axle load limits network that is inherently more and other technical features among resilient than individual networks the GMS countries. working alone. • Connected transport networks - Deploying weigh-in-motion focusing on completing the road technology along key international network and improving its safety, corridors (e.g., NR1, AH21) to further developing waterways, monitor the incidence of truck maritime transport, and expanding overloading to preserve road the role of rail, as follows: assets and facilitate more freight usage by rail and waterways. - Develop primary, secondary, and tertiary road networks by focusing A summary of the proposed actions that on current gaps in links between are set out in Chapter 4 is presented below the key economic zones and (Table ES.1). The proposed actions are international gateways. Ensure described as having short-term and medium- such networks have sufficient term priority – with short-term actions established alternatives at times generally occurring within a period of three of severe weather events. Improve years and medium-term actions after that. traffic management and safety along highways and rural roads. 7 CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS EXECUTIVE SUMMARY Table ES1: Proposed Actions to Address Logistic and Cross-Border Transit Inefficiencies Short-term Medium-term Enhancing cross-border transport and trade facilitation • Continue to enhance cross-border trade • Complete the negotiations on the GMS movement efficiency through further Framework Agreement for Cross-Border automation and implementation of single-stop Railway Transport Connectivity and, in inspection and a common control area. parallel, finalize key annexes and technical • Complete the renewal of the early harvest arrangements. arrangements for the GMS Cross-Border Trade • Provide effective bilateral and tri-lateral Agreement, further harmonizing national coordination to facilitate efficient regional, requirements and enhancing CIQ capacity. trade, and economic corridors involving • Activate the Mekong Navigation Facilitation updating and maintaining trade facilitation and Committee to overcome constraints in smooth associated agreements for all modes. and safe navigation along the waterways • Facilitate efficient multi-modal transport between Cambodia and Viet Nam. through an effective regulatory framework to • Facilitate better data access for investment and ensure appropriate investment and domestic policy making. capacity development. Improving road connectivity • Improve Corridor from Siem Reap to Oyadav, • Prioritize investment in climate resilience of at the border with Viet Nam (Corridor A), critical rural roads. including cross-border facilities and linked • Facilitate developing a modern, safer, more tertiary roads. energy-efficient, and lower-emission truck • Investigate and provide additional traffic fleet with technical standards that are better management and safety measures along NR4, harmonized with GMS neighbors. NR1, and NR5. • Assess the implications for new axle load limits and impact on overloading and infrastructure deterioration. Developing inland waterways and maritime facilities • Ensure the navigability and efficiency of the • Develop an adequate end-to-end management Mekong River for domestic and international system along the main waterways. waterborne trade via Viet Nam (Corridor B). • Equip the Department of Waterways to efficiently • Improve the capacity, safety, and quality of manage inland waterways and enhance the river navigation. marketing capacity of inland waterways. Strategically improving the current railway • Develop a 3-year rolling business plan to • Improve the current meter gauge railway improve the railway sector. infrastructure and rollingstock (Corridor C), • Undertake a value-engineering and feasibility focusing on the Northern Line and facilities to study to determine the optimal level of develop new markets. investment in upgrading the railway, including • Complete a new feasibility study for a dual infrastructure and rollingstock. gauge track to PPAP LM17 container port. • Progressively strengthen the capacity of the • Draft a new Railway Law that sets out the Department of Railways for management of legal framework to bring to fruition a modern capital works and maintenance. domestic railway network with high-quality regional connections. Source: Study team, refer to Chapter 4. EXECUTIVE SUMMARY CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS 8 Delayed actions to address the critical active facilitation by the National Logistics identified challenges may ultimately Council and regular government and private undermine Cambodia’s international sector interaction. With the development of trade competitiveness versus its regional a common vision and improved coordination peer countries. However, vigorous and among stakeholders, success can be coordinated efforts can overcome the achieved through selective investments challenges in transportation and logistics to close the gap in infrastructure. In this faced currently by Cambodia that are light, the investment program included in complex but not uncommon across the the Comprehensive Intermodal Transport world. The complexity is related to the nature and System Master Plan 2023–2033 would of the sector, which requires coordinated benefit from further prioritization. Priority efforts by multiple public sector agencies investments should be complemented by s closer engagement with private sector policy actions to unlock trade and export stakeholders (such as freight forwarders, potential through seamless cross-border logistics companies, trucking associations, transit, improved logistics and value chains, traders, and businesses). Institutional and the development of productive sectors. coordination can be strengthened through 9 CAMBODIA’S REGIONAL CONNECTIVITY: UNLOCKING THE FULL POTENTIAL OF TRANSPORT CORRIDORS EXECUTIVE SUMMARY