Trade, transport costs and trade imbalances: An empirical examination of international markets and backhauls

Abstract

The US trade deficit has been growing for over 25 years and has been accompanied by enlarging freight rate differentials. While traditional models of trade have ignored these gaps assuming symmetry across all bilateral trade costs, the specific linkages between trade imbalances and international transportation costs have remained unexplored. Given the current trade policies, the implications arising from the endogenous adjustment of bilateral transport costs to policy‐induced changes in the US trade deficit are of particular importance. To break new ground on this issue, we develop and estimate a model of international trade and transportation that accounts for the effects of persistent trade imbalances. The theoretical results are supported by our empirical analysis and indicate that bilateral transport costs adjust to a country's trade imbalance. The implication is that a unilateral import policy, for example, will cause spillover effects into the bilaterally integrated export market. To illustrate, we use our empirical results to simulate the anticipated spillover effect from the Chinese ban on waste imports. We find that China's ban and the projected 1.5% rise in the US trade deficit will lead to not only a 0.77% reduction of transport costs charged on US exports to China but also a 0.34% increase in transport costs on US imports from China.

Import tariffs and transport prices

“…33 De Oliveira (2014), Friedt and Wilson (2020), Jonkeren et al (2011), Márquez-Ramos et al (2011 and Wong (2022) show that trade imbalances affect freight rates. is the European dislike of chlorinated chicken from the US; see, for instance, Calzolari and Immordino (2005).…”

Digital Transformation as a Stimulator for Maritime Competitiveness: A Suez Canal Case Study

“…The significance of these costs increases as the interest rate prevailing in the country increases. This highlights the importance of the role of improving the quality of maritime services in influencing time, shipping costs and the competitiveness of products (Friedt and Wilson, 2018;Hummels, 2007). Friedt and Wilson (2018) used data on containerized trade and freight rates between the US, EU and Asia to test transportation costs' effects on trade volume.…”

“…This highlights the importance of the role of improving the quality of maritime services in influencing time, shipping costs and the competitiveness of products (Friedt and Wilson, 2018;Hummels, 2007). Friedt and Wilson (2018) used data on containerized trade and freight rates between the US, EU and Asia to test transportation costs' effects on trade volume. Results stated that a one percent permanent increase in transportation rates raises the average real freight rate leading to a reduction in the long-run volume of containerized trade by 0.058 percent.…”

Where has the rum gone? The impact of maritime piracy on trade and transport

“…The results are comparable in magnitude to those of Bensassi and Martínez-Zarzoso (2013). Assuming a long-run elasticity of trade with respect to freight rates of 0.058 (Friedt and Wilson 2020), their estimate of the effect of hijacking a ship on transport cost (1.2%) translates into a 0.07% trade reduction following one such incident.…”

“…More broadly, our approach relates to the literature that departs from modelling trade costs taking the iceberg form (see for example Hummels and Skiba (2004) for evidence on transport costs accruing per unit or Friedt and Wilson (2020) for the endogenous nature of transport costs). Our results are also consistent with Békés et al (2017) who investigate the relationship between uncertainty and shipping behaviour.…”