jan.hoffmann@unctad geneva, may 2010

[email protected] Geneva, May 2010

The demand and supply of The demand and supply of international transport services: international transport services: The relationships between trade, The relationships between trade, transport costs and effective access to transport costs and effective access to global marketsglobal markets

TransportTransportcostscosts

TradeTrade

TransportTransportServicesServices

More income to finance trade facilitation

-> Better trade facilitation-> More Trade-> More income to finance

trade facilitation

Ango

la

Lower Transport Costs-> More trade-> Economies of scale-> Lower Transport Costs

Better services-> More trade-> More income to

finance infrastructure-> Better services

Suez

Can

al

More trade-> More shipping supply-> More competition-> lower freights-> More trade

The challenge: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

Transport CostsConnectivityTrade

Geneva, May [email protected]

Freight rates in May 2010Freight rates in May 201040’ container from Dalian to • DUBAI 1200 • COLOMBO 1300 • B.ABBAS 1300• CALCUTTA 1700• BAHRAIN 1800 • UM QUASER 3000 • PORT SUDAN 3300• ROTTERDAM 3500• TEMA 4600• SANTOS 4800• VALPARAISO 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 Freight costs for for countriescountries

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 Freight as % of commoditiescommodities value value

UNCTAD, Review of Maritime Transport


TradeTradeVolumesVolumes

TransportTransportServicesServices?

Differences in maritime freights depend on…Differences in maritime freights depend on…

1) Distances2) Economies of scale3) Imbalances

4) Type & value of goods5) Competition6) Port characteristics

y = 0.6206x + 1019.9R2 = 0.2058

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0 500 1,000 1,500 2,000 2,500Distance

Frei

ght r

ate

Freight rates and Freight rates and DistanceDistance in the Caribbean in the Caribbean

UNCTAD Transport Newsletter, 1st Quarter 2007

Feb 2008 costsFeb 2008 costs 11001100TEUTEU

42504250TEUTEU

87508750TEUTEU

13000TEU

Construction costs million USD

28 77 135 167

Construction costsUSD per TEU

25 000 18 117 15 430 12 850

Crew 15 to 17 15 to 17 15 to 17 15 to 17

Source: Dynamar, 2008, via Antonio Zuidwijk

Economies of ScaleEconomies of Scale

CRS, 25 April 2010

Container ship sizesContainer ship sizes• 27.- US$ saving/ container/ trip

using “post panamax” versus “panamax” (Drewry)

Mergers of shipping companiesMergers of shipping companies• Savings thanks to larger volumes

(Roland & Berger)

0102030405060708090

100

medium large

ships

purchasing

containers

access

admin

Port operationsPort operations

• 12 US$ per move savings with global operatorsDrewry

ImbalancesImbalances

CI-Online 10 May 2010

Merchandize type and valueMerchandize type and value

• Increase the value by 1% implies an increase of transport and insurance costs by around 0.3 – 0.4%

Competition with land transportCompetition with land transport

• If countries are neighbours, with paved roads, maritimetransport costs are around 10% lower

Fotos: Jan Hoffmann

Competition between carriersCompetition between carriers

• Receiving 20 instead of 5 companies

freights go down by around 12%

Competition between carriersCompetition between carriersCase study CaribbeanCase study Caribbean

• If the company itself has no direct service (i.e. it only has a service with transshipment): This company’s freight rate + $650

• If other, competing, companies do provide a direct service: This companies freight rate - $425

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 20Number of Carriers providing direct services

Frei

ght r

ate

Source: Hoffmann, Wilmsmeier, IAME 2007

Competition between carriersCompetition between carriersCase study CaribbeanCase study Caribbean

Port reformPort reform• Difference 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


Better Better port infrastructureport infrastructure reduces maritime transport costsreduces maritime transport costs




Better (perceived)Better (perceived) port efficiencyport efficiency reduces maritime transport costsreduces maritime transport costs



Better Better general transport infrastructuregeneral transport infrastructure does NOT reduce maritime transport costsdoes NOT reduce maritime transport costs


Port privatizationPort privatization in the EXPORTING country in the EXPORTING country reduces maritime transport costsreduces maritime transport costs



Trade facilitationTrade facilitation in the IMPORTING country in the IMPORTING country reduces maritime transport costsreduces maritime transport costs



Better Better connectivityconnectivity between ports/ between ports/ more competition among carriersmore competition among carriersreduces maritime transport costsreduces maritime transport costs


To sum up: To sum up: Differences in maritime freights depend on…Differences in maritime freights depend on…• Distances• Type & value of

goods• Imbalances

• Competition• Economies of

scale• Port

characteristics




?

Transport Costs ConnectivityTrade


• TradeTrade grows faster than GDP

• Containerized tradeContainerized trade grows even faster than trade in general

• Containerized port trafficContainerized port traffic grows even faster than containerized trade…

Containerized port throughput Containerized port throughput

UNCTAD RMT, based on data from Drewry

Containerization of trade, and access Containerization of trade, and access to containerized transport services to containerized transport services

are important determinants of are important determinants of countries’ trade competitivenesscountries’ trade competitiveness

How can we measure this?

““Connectivity”Connectivity”1) Per country – in a “point”2) Per route – between pairs of countries

““Connectivity”Connectivity”1) Per country – in a “point” (162)

2) Per route – between pairs of countries

““Connectivity”Connectivity”1) Per country – in a “point” (162)

2) Per route – between countries (13041)

““Maritime connectivity”Maritime connectivity”UNCTAD’s “Liner Shipping Connectivity Index” (LSCI):

An indicator for the supply of liner shipping servicesComponents:• Ships • TEU capacity• Shipping companies• Services• Maximum ship sizes

The UNCTAD LSCI componentsThe UNCTAD LSCI componentsIndex of country averagesIndex of country averages Maximum vessel size

TEU

VesselsServices

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

We have reached a peak We have reached a peak Until very recently:• In spite of the (global) process

of concentration, the number of companies providing (local) services increased due to the expansion of global players into (so far) new markets

We have reached a peak We have reached a peak Today:• As global players are (now)

covering all regions of the world, mergers among them (start to) lead to a reduction of competition on individual routes.

Connectivity per countryConnectivity per country

based on www.ci-online.co.uk

http://www.ci-online.co.uk/

Container ship deployment 2009Container ship deployment 20091446


Number of companiesNumber of companies96


The UNCTAD “LSCI”The UNCTAD “LSCI”

BarbadosBarbados

www.ci-online.co.uk

http://www.ci-online.co.uk/

Connectivity per routeConnectivity per route

Top 25 routes (out of 13041)

Direct connectivity?Direct connectivity?Out of 162 x 161 pairs of countries: How many are connected by direct

services?


How to deal with How to deal with indirect connections?indirect connections?For all pairs of countries• Direct services yes/no?• How many transshipments do I need?• Shortest distance with transshipments?• Largest vessels with transshipments? • Highest competition with transshipments




?

Determinants of maritime connectivityDeterminants of maritime connectivity

• Trade volumes (+)

• Distance (-)

• GDP per capita in exporting country (+)

• Port infrastructure (+)

Transport Costs Connectivity Trade



TradeTrade


?

Gravity modelGravity 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?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.– Increase of the freight rate per TEU (twenty foot

equivalent unit) by 1000 USD: Reduction of the share of country A’s exports to country B of almost half a percentage point.

In Conclusion…In Conclusion…

In Conclusion…In Conclusion…

What I wanted to do in this first lecture:

• Present research on transport costs• Sell our “Connectivity Index”• Invite cooperation in future research

What’s next? What’s next?

• Improve measurement of “connectivity”– Developments over time.

2010 will be 7th year with data.– Incorporate distance, transshipments,

frequencies, direct/indirect connections…– In-land connections, land-locked countries ?

• Identify determinants of “connectivity”• Use “connectivity” as determinant for

trade, transport costs et al .

Transport Costs Connectivity Trade


jan.hoffmann@unctad geneva, may 2010

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