determinants of international transport costs and connectivity and the mutual relationship between...
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Determinants of international transport costs and connectivity and the mutual relationship between trade and transport facilitation and development
Jan Hoffmann, Chief, Trade Facilitation Section, Trade Logistics Branch, Division on Technology and Logistics
TransportTransportcostscosts
TradeTrade
TransportTransportServicesServices
More income to finance trade facilitation
-> Better trade facilitation-> More Trade-> More income to finance trade
facilitation
Ang
ola
Lower Transport Costs-> More trade-> Economies of scale-> Lower Transport Costs
Better services-> More trade-> More income to
finance infrastructure-> Better services
The challenge:
Avoid a vicious circle, where high transport costs and low service levels discourage trade, which will further endear transport and reduce connectivity…Instead: Initiate a virtuous circle
Freight rates in May 201040’ container from Dalian to
DUBAI 1200 COLOMBO 1300 B.ABBAS 1300CALCUTTA 1700BAHRAIN 1800 UM QUASER 3000 PORT SUDAN 3300ROTTERDAM 3500TEMA 4600SANTOS 4800VALPARAISO 5200
Freight costs in percent of imports
0
5
10
15
20
25
30
35
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Haiti
Jamaica
Mexico
Chile
Argentina
Antigua and Barbuda
Source: UNCTAD
Freight costs for countries
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Per cent of goods' market price
Jute from Bangladesh 12.1% 19.8% 21.2% 44.2%
Tea from Sri Lanka 9.5% 9.9% 10.0% 13.4%
Coffee from Colombia 4.2% 3.3% 6.8% 2.5%
Coca beans from Ghana 2.4% 2.7% 6.7% 3.5%
1970 1980 1990 2007
Freight as % of commodities value
UNCTAD, Review of Maritime Transport
TransportTransportcostscosts
TradeTradeVolumesVolumes
TransportTransportServicesServices?
Differences in freight costs depend on…1) Distances2) Economies of scale3) Imbalances
4) Type & value of goods5) Competition6) Port characteristics
1) Distances2) Economies of scale3) Imbalances
4) Type & value of goods5) Competition6) Port characteristics
y = 0.6206x + 1019.9
R2 = 0.2058
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0 500 1,000 1,500 2,000 2,500
Distance
Frei
ght r
ate
Freight rates and Distance in the Caribbean
UNCTAD Transport Newsletter, 1st Quarter 2007
Distance
Distance matters much more over land than at sea
Distance matters more with higher oil prices
1) Distances2) Economies of scale
3) Imbalances
4) Type & value of goods5) Competition6) Port characteristics
Economies of Scalemoving 10 000 tons instead of 100 (in one transaction)
reduces unit costs by 40 to 50%
March 2010 costsMarch 2010 costs 500500TEUTEU
65006500TEUTEU
12000TEU
Construction costs million USD
10 74 105
Construction costsUSD per TEU
20 000 11 400 8 750
Crew 12 to 17 15 to 17 15 to 17
Source: UNCTAD, Review of Maritime Transport 2010, forthcoming and data from Drewry Shipping Consultants
CRS, 25 April 2010
1) Distances2) Economies of scale3) Imbalances
4) Type & value of goods5) Competition6) Port characteristics
Imbalances
CI-Online 10 May 2010
1) Distances2) Economies of scale3) Imbalances
4) Type & value of goods
5) Competition6) Port characteristics
Merchandize type and value
Increase the value by 1% implies an increase of transport and insurance costs by around 0.3 – 0.4%
1) Distances2) Economies of scale3) Imbalances
4) Type & value of goods5) Competition
6) Port characteristics
y = 1814.9e-0.0671x
R2 = 0.4348
0
500
1'000
1'500
2'000
2'500
3'000
3'500
0 2 4 6 8 10 12 14 16 18 20
Number of Carriers providing direct services
Frei
ght r
ate
Source: Hoffmann, Wilmsmeier, MEL 2008
Competition between carriersCase study Caribbean
1) Distances2) Economies of scale3) Imbalances
4) Type & value of goods5) Competition6) Port and infrastructure
characteristics
Port reformDifference between “best” and “worst” case in Latin America: 25% of worst case
Dependent variable: maritime transport costs per tonne of containerizable cargo
Port reformPort reform
Wilmsmeier, Hoffmann, Sanchez, in: Porteconomics, 2006
Dependent variable: maritime transport costs per tonne of containerizable cargo
Better Better port infrastructureport infrastructure reduces maritime transport costsreduces maritime transport costs
Port reformPort reform
Dependent variable: maritime transport costs per tonne of containerizable cargo
Port reformPort reform
Better (perceived)Better (perceived) port efficiencyport efficiency reduces maritime transport costsreduces maritime transport costs
Dependent variable: maritime transport costs per tonne of containerizable cargo
Port privatizationPort privatization in the EXPORTING country in the EXPORTING country reduces maritime transport costsreduces maritime transport costs
Port reformPort reform
Dependent variable: maritime transport costs per tonne of containerizable cargo
Trade facilitationTrade facilitation in the IMPORTING country in the IMPORTING country reduces maritime transport costsreduces maritime transport costs
Port reformPort reform
Dependent variable: maritime transport costs per tonne of containerizable cargo
Better Better connectivityconnectivity between ports/ between ports/ more competition among carriersmore competition among carriersreduces maritime transport costsreduces maritime transport costs
Port reformPort reform
Differences in freight costs depend on…DistancesType & value of goodsImbalances
CompetitionEconomies of scalePort and infrastructure characteristics
TransportTransportcostscosts
TradeTradeVolumesVolumes
TransportTransportServicesServices
?
Containerization of trade, and access to containerized transport services are important determinants of countries’ trade competitiveness
How can we measure this?
“Maritime connectivity”UNCTAD’s “Liner Shipping Connectivity Index” (LSCI): An
indicator for the supply of liner shipping services
Components:
Ships
Container carrying capacity
Shipping companies
Services
Maximum ship sizes
The UNCTAD LSCI componentsIndex of country averages Maximum vessel size
TEU
Vessels
Services
Companies
70
80
90
100
110
120
130
140
150
160
2004 2005 2006 2007 2008 2009
Source: UNCTAD, based on data from Containerization International
New ships no longer have their own cranes
The UNCTAD LSCI componentsIndex of country averages Maximum vessel size
TEU
Vessels
Services
Companies
70
80
90
100
110
120
130
140
150
160
2004 2005 2006 2007 2008 2009
Source: UNCTAD, based on data from Containerization International
Bad news for smaller economies
In 2009, there were fifteen LDCs with only one to four service providers – almost a doubling compared to 2004, when there had been just eight LDCs with such low levels of competition.
Bad news for smaller economies (cont.)
The global average of direct connections per country has remained stable, while the number of direct connections per LDC has declined by 20 per cent during the last three years.
TransportTransportcostscosts
TradeTradeVolumesVolumes
TransportTransportServicesServices
?
LSCI African countries
UNCTADLSCI(Liner ShippingConnectivity Index)2009 values
Determinants of connectivity
Trade volumes (+)
Distance (-)
Development (+)
Infrastructure (+)
Better services-> More trade-> More income to
finance infrastructure-> Better services
More trade-> More shipping supply-> More competition-> lower freights-> More trade
TransportTransportcostscosts
TradeTrade
TransportTransportServicesServices
?
Gravity model
Participation of country B in global imports is the basic determinant of the share of country A’s exports that are destined for country B.Neighbouring countries can be expected to trade more with each other than those that are not neighbours.
Gravity model – what about distance?
Distance / trade: negative correlation (as expected)But: the parameter for distance is not statistically significant if other variables are incorporated that capture the supply of shipping services and transport costs. Instead of distance: number of liner shipping companies that provide
direct services between a pair of countries. Existence of direct liner shipping services. The freight rate
Summary
55DIVISION ON TECHNOLOGY AND LOGISTICS, TRADE LOGISTICS BRANCH, TRADE FACILITATION SECTION
56DIVISION ON TECHNOLOGY AND LOGISTICS, TRADE LOGISTICS BRANCH, TRADE FACILITATION SECTION
Questions
57DIVISION ON TECHNOLOGY AND LOGISTICS, TRADE LOGISTICS BRANCH, TRADE FACILITATION SECTION
Thank you!Jan HoffmannUNCTAD/ DTL
Trade Logistics BranchTrade Facilitation Section
Palais des [email protected]
www.unctad.org/ttlwww.asycuda.org