Natural disasters and trade: the mitigating impact of port substitution

Abstract

We study the effect of natural disasters on port-level exports. We model the interaction between firms and ports to study how strongly exports from one port are affected by changes in the cost of exporting at neighboring ports. We extend the standard trade model with heterogeneous firms to a multiple port structure where exporting is subject to port specific local transportation costs, port specific fixed export costs and international bilateral trade costs. We show that gravity distortion due to firm heterogeneity is conditional on the comparative advantage at the port level and resulting substitution of exports across ports. We present evidence of the substitution effect using the 2011 Great East Japan Earthquake, indicating that at least 40% of exports was substituted to other ports following the disaster. The substitution effect is the strongest in technology intensive product categories, which suggests an interaction between supply chains and domestic trade costs.

Port disruptions due to natural disasters: Insights into port and logistics resilience

“…Recent empirical work (Friedt, 2018;Sytsma, 2017) analysed changing port-level trade flows during and after a number of hurricanes in the U.S.A. and found limited evidence of port substitution. Hamano and Vermeulen (2019), however, found evidence that in Japan about 40% of the export were substituted to other ports in the months after the Great East Japan Earthquake in 2011. However, this could be driven by the type of commodities Japan exports (e.g.…”

“…Most modelling studies assume that port substitution readily happens, either by modelling the alternative assignment options explicitly (Achurra-Gonzalez et al, 2019a;Jones et al, 2011;Novati et al, 2015;Paul and Maloni, 2010) or by including it as a resilience option in an impact analysis using macro-economic models (Rose et al, 2018;Rose and Wei, 2013). However, port substitution might not occur in practise, due to a variety of factors: the earlier mentioned simultaneous port disruptions, draught constraints, hinterland connections, specialised equipment, and contractual restrictions (Akakura et al, 2015;Hamano and Vermeulen, 2019;Trepte and Rice, 2014). The ongoing trends in port development are on the one hand an increasing specialisation of smaller ports and on the other hand a rise in large gateway ports, driven by the ever-increasing size of vessels that can only call at a limited set of ports (Ducruet et al, 2015;Notteboom and Rodrigue, 2008).…”

“…However, this could be driven by the type of commodities Japan exports (e.g. car manufacturing) that generally have little inventories (and therefore a larger export push), the two month disruption of multiple ports, and because of the country's spatial configuration, which makes it relatively cost-efficient to switch from ports on one side of the country to the other (Akakura et al, 2015;Hamano and Vermeulen, 2019). The extent to which port substitution can occur does steer the resulting losses.…”

Assessing the Supply Chain Effect of Natural Disasters

“…Among them, Todo et al (2015) examine how supply chain networks affected the resilience of firms (defined as the amount of time required to recover production) after the 2011 Great East Japan Earthquake and find that the positive effect of supply chain diversification exceeds the negative effect of higher exposure to disruptions. Hamano and Vermeulen (2019) study the effect of natural disasters on port-level exports after the 2011 Great East Japan Earthquake. They find that at least 40% of exports was substituted to other ports following the disaster, and the substitution effect is the strongest in technology-intensive industries.…”

On the evolution of agricultural and non-agricultural produce flow network in India

“…While the international trade network provides economic leverage to participating nations, it also poses an economic and financial threat to the highly interconnected countries at times of economic shock due to external stresses, namely natural disasters and global pandemics [6,7,8,9,10]. The few cases of such a disruption to the international trade network are the Thailand flood (2011) [7], Japan earthquake and nuclear disaster (2011) [7,11], Hurricane Harvey in the United States (2017) [12], and the COVID-19 pandemic (2019) [13]. Moreover, the sensitivity of international trade to exchange rates [14], transportation costs and delay [15], culture [16], and geopolitics [17] makes the network fragile, which can imperil a nation's food security and impair it's economic condition.…”