Clarifying Trade Costs: Maritime Transport and Its Effect on Agricultural Trade

Abstract

Maritime transport costs have a significant impact on the trade in agricultural goods. Maritime transport costs represent a high proportion of the imported value of agricultural products --10% on average, which is a similar level of magnitude as agricultural tariffs. This study shows that a doubling in the cost of shipping is associated with a 42% drop in trade on average in agricultural goods overall. The tendency to source imports from countries with low transport costs is therefore strong. Trade in some products is particularly affected by changes in maritime transport costs, in particular cereals and oilseeds, which are shipped in bulk. Time spent in transit also has a strong effect on trade: an extra day spent at sea on an the average sea voyage of 20 days implies a 4.5% drop in trade between a given pair of trading partners. Not only cost but also efficiency in getting agricultural goods to market are therefore important factors in explaining trade flows.

Why do trade costs vary?

“…In general, a country selling bulky goods will have higher transport costs than a country selling high value/bulk goods. 6 Once geographical characteristics and weight have been controlled for, we can analyse variations in trade costs using measures of 3 Similar data sets for the USA, New Zealand, and some South American countries are described in Hummels (2007, 152-153) and in Korinek andSourdin (2009). 4 Hummels (2007), reviewing the literature on trade costs, emphasises the difficulty of measuring costs of land transport (the mode used by over a fifth of international trade) and how they interact with costs of sea and air transport, which may be substitutes to varying degrees.…”

To What Extent Are High-Quality Logistics Services Trade Facilitating?

“…11 Transport costs have been found to be a significant deterrent to trade (Korinek and Sourdin, 2009), therefore including detailed freight charges as an additional variable in the analysis allows more accurate specification of the trade cost function. Estimated elasticities of imports with respect to ad valorem freight are in the range of -0.63 to -0.80.…”

Course set for a cap? A case study among ship operators on a maritime ETS

“…5 A theoretical investigation of the ability of cost-pass-through in a maritime ETS is also provided by Faber et al (2010). See Alexeeva-Talebi (2011) or Korinek and Sourdin (2010), for a more general discussion on the issue, including an empirical assessment of cost-pass-through in the EU ETS.…”