Jan Hoffmann, Chief, Trade Facilitation Section,

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

Transport CostsConnectivityTrade

Geneva, May [email protected]

Transport CostsConnectivityTrade


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


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


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


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



Imbalances

CI-Online 10 May 2010


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%


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


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


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


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


Differences in freight costs depend on…DistancesType & value of goodsImbalances

CompetitionEconomies of scalePort and infrastructure characteristics




?

Transport Costs ConnectivityTrade


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.




?

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

Transport Costs Connectivity Trade



TradeTrade


?

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


Questions


Thank you!Jan HoffmannUNCTAD/ DTL

Trade Logistics BranchTrade Facilitation Section

Palais des [email protected]

www.unctad.org/ttlwww.asycuda.org

Documents

Jan Hoffmann, Chief, Trade Facilitation Section,