Unlocking Cambodia’s Regional Trade Hub Potential Through Improved Connectivity

The World Bank's report emphasizes urgent improvements in Cambodia's transport infrastructure, including roads, railways, and waterways, to reduce logistics costs, enhance trade competitiveness, and support economic growth. Strategic investments and multi-modal integration are key to unlocking Cambodia’s potential as a regional trade hub.

The World Bank's report, Cambodia’s Regional Connectivity: Unlocking the Full Potential of Transport Corridors, highlights critical infrastructural needs to support Cambodia’s trade-driven economy. The study, developed in collaboration with Cambodia’s Ministry of Public Works and Transport, is led by senior transport economists and specialists and provides a roadmap for overcoming logistical inefficiencies. With trade volumes projected to double by 2030, the country faces challenges from high transport costs, fragmented systems, and underperforming infrastructure. The focus is on three key transport corridors roads, railways, and inland waterways which hold the potential to drive economic growth and integration into regional and global markets. Despite achieving lower middle-income status, Cambodia's logistical weaknesses threaten its competitiveness, making immediate investments in transport systems essential.

The Burden of Inefficiencies in Cambodia’s Logistics

Cambodia’s high logistics costs, representing 26% of its GDP, undermine economic diversification and growth. While road transport dominates domestic freight movements, only 38% of provincial roads and 10% of rural roads are paved, limiting accessibility and increasing vehicle operating costs. Despite improvements in cross-border trade facilitation, customs clearance processes remain slow, with inadequate digital infrastructure like the national single window delaying progress. The trucking sector suffers from an aging fleet, with trucks averaging over 20 years old, contributing to inefficiency and high emissions. Meanwhile, inland waterways, although offering cost-effective freight solutions, remain underutilized due to limited port capacity and navigational challenges. Rail transport also plays a minor role in Cambodia’s logistics, constrained by outdated infrastructure and insufficient rolling stock. Together, these inefficiencies rank Cambodia 115th out of 138 countries in the World Bank’s Logistics Performance Index, highlighting the urgent need for reform.

Building Resilience in Roads and Inland Waterways

The East-West road corridor, which connects Cambodia with Thailand, Vietnam, and Laos, remains a critical but underdeveloped link. Poor conditions, particularly between Siem Reap and the Vietnam border, limit its economic potential. Investments in road quality, feeder roads, and border facilities could transform this corridor into an engine for regional trade. Inland waterways, especially the Mekong River, offer an opportunity to reduce costs for bulk and containerized freight. Phnom Penh Autonomous Port (PPAP), Cambodia’s primary inland waterway hub, plans to expand its capacity by 80% by 2029. However, these plans must be supported by dredging, port modernization, and streamlined cross-border procedures to ensure the full potential of waterway transport is realized. Enhanced inland waterway systems could also play a vital role in Cambodia’s decarbonization efforts, offering a lower-emission alternative to road freight.

Railways as a Catalyst for Trade Growth

Rail transport holds significant promise for Cambodia’s logistics landscape. The Northern and Southern railway lines, though underutilized, offer cost-effective alternatives to trucking for long-haul freight. Upgrading the Northern Line, which connects Phnom Penh to the Thai border, is essential to improve speeds and axle loads, making it more competitive. The Southern Line, which links Phnom Penh to Sihanoukville Port, is better developed but still constrained by limited rolling stock. Royal Railway’s plans to expand operations, including transporting agricultural goods and fuel, could increase rail traffic significantly. However, the absence of rail connections to Vietnam and Laos remains a missed opportunity. Integrating rail with inland waterways and improving access to Phnom Penh’s ports could create a seamless, multi-modal logistics network. The report also highlights the potential for high-speed rail projects connecting Cambodia to Thailand and Vietnam, although these require careful planning and substantial investment.

Strategic Investments for Long-Term Impact

The World Bank recommends a dual approach to improve Cambodia’s logistics systems: immediate, low-cost interventions coupled with long-term infrastructure investments. Short-term priorities include upgrading the Siem Reap-Oyadav road, increasing PPAP’s container capacity, and modernizing Cambodia’s truck fleet. Inland waterway enhancements, such as navigation channel dredging and port expansions, are equally crucial. For railways, acquiring new rolling stock, upgrading tracks, and digitizing signaling systems are key steps to improving efficiency. Additionally, integrating transport modes through intermodal hubs could enhance resilience and reduce reliance on single modes. The adoption of digital tools like smart seals for cargo tracking could further streamline cross-border trade and reduce delays.

Cambodia’s strategic location in the Greater Mekong Subregion positions it as a vital player in regional trade, but infrastructure deficits hinder its full potential. By focusing on the integration of roads, railways, and waterways, the country can lower transport costs, diversify its logistics options, and improve its standing in global supply chains. The report emphasizes that delayed action could weaken Cambodia’s trade competitiveness, while timely interventions could transform its logistics sector into a key driver of sustainable economic growth. Through coordinated efforts and investments, Cambodia can align its infrastructure development with its goal of becoming a high-income nation by 2050, ensuring that its transport corridors unlock the full potential of its trade-driven economy.