International Maritime Transport Costs

Market Structures and Network Configurations

Gordon Wilmsmeier

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317114000
• Edition: 1
• Topic: Política y relaciones internacionales
• Subtopic: Política pública de planificación local y regional

Based on in-depth empirical research, this book develops our understanding of maritime transport costs, the maritime industry and the competitiveness of regions in a global market environment through a geographical lens. Further, the book uses a unique set of data that gives an extensive insight into Latin American international maritime transport costs and its determinants. This is a clear call for policy makers and port authorities to strengthen transnational cooperation in order to improve the development of the whole system of maritime transport, focusing on the causes that put regions at risk of becoming peripheral and uncompetitive.

Chapter 1
Introduction

Setting the Scene

States and nations are redefining their place in the world at the present time in the wake of the economic, political and cultural transnationalization processes that have occurred in recent decades.

Each country, each region is seeking to recast its role and potential in accord with its geographical location, its history and the times. This positioning is, of course, conditioned by multiple factors, which include conditions of production, economic and political interests and transport-related issues especially. Maritime transport is the materialization of economic exchange in a globalized world. As a consequence, the performance of maritime transport as a derived demand through its organization, strategies and functioning has facilitated and potentially driven space-time compression and to a certain level affects the position of a country within the global market place.

Within this global situation, the region of South America and in a wider understanding Latin America, are particularly interesting cases. Maritime transport, the related infrastructural development, institutional reforms and the way the region imagines its place within the global trading pattern have been greatly changing in the last decade, driven by trade liberalization, economic development and globalization.

The intensification of intra-regional trade is a contingent part and result of trade liberalization and economic development in Latin America. This development brought quantitative and qualitative changes in trade relations and transport services. Transport services have been under constant pressure to accommodate these changes in the structure of demand. Being intrinsic parts of the distribution networks and markets, transport services present a mirror image of the structure and the direction of development of trade flows; however obstacles and barriers for the development of transport are drivers of inefficiencies within the system.

Aims and Objectives

Es genügt nicht, die rationalen Lösungen zu finden und darzustellen, sie müssen auch durchgesetzt werden. Die Wissenschaft kann der Wirtschaftspolitik nicht mehr bieten als rationale Leitbilder, die den widerstreitenden Kräften und der politischen Führung die Zusammenhänge ins Bewusstsein rücken. (..) Wir müssen uns nur darüber klar sein, dass das rationale Leitbild als solches niemals verwirklicht wird und dass der praktischen Wirtschaftspolitik nicht zufällig und gelegentlich sondern essentiell ein Element der Irrationalität eigen ist. Es ausschalten zu wollen würde aller soziologischen Erfahrung widersprechen und nichts anderes sein als Utopie. [Finding and presenting rational solutions is not sufficient, they need to be implemented. Science cannot offer more to economic policy than rational Leitbilder, which make the interrelationships known to disputing powers and the political leadership. … We need to recognise that the rational Leitbild will never come true and that irrationality is not a random or sporadic but essential element of economic policy. Aiming to eliminate it (irrationality) is as shown from sociological experience nothing more than utopia.] (Predöhl 1958: 270 ff.)

Maritime transport is closely interconnected with the development of intra-regional (and global) trade flows. Maritime transport is not only a tool to bridge space, but has also shown to be an indirect driver of economic development processes with possibilities to consolidate, induce and interpose (Kumar and Hoffmann 2002, Voigt 1973: 8).

Kindleberger (1962) states that trade is only stimulated if the difference of distinct price structures in different countries is not eaten up by the costs to connect the two trading partners. According to Kindleberger (1973) two conditions for the realization of transport services apply:

• Technical bridging of space by the disposition of adequate mobile transport entities

• Economic bridging of space by a scheme of ‘adequate’ pricing

The realization of adequate technical transport services can result in transport costs at such an elevated level that the bridging of spaces becomes ‘impossible’. This interdependence between these conditions leads to the question of market requirement.

In this respect transport costs have been considered as important components of market access barriers, but until recently they have been submerged in the discussion of tariff and other non-tariff barriers to trade.

With the extension of trade liberalization and the constant reduction and levelling of tariffs, transport costs have received growing attention. Increased competition between countries and globalization of production has driven tariff margins downward; consequently the relative importance of transport costs in the final price of traded goods has grown. Therefore low transport costs drive the international division of labour and give access to attractive markets (Skjølsvik et al. 2000: 78f). Francois and Wooton (2001) in line with Amjadi et al. (1996), argue that reducing shipping margins bears greater potential for countries in terms of competitiveness in globalized trade than further reductions of tariff rates.

Ninety-one per cent of Latin America’s external trade by volume and 76 per cent in terms of value are carried by maritime transport (BTI 2010). Elevated shipping costs significantly impede competitiveness in trade for countries. In addition, transport costs are influenced by a number of factors and are far more volatile than other elements that impact on trade.

Consequently, important research questions arise as to what are the determinants of international maritime transport costs and to what level the structure of transport services and maritime industry as well as the performance and endowment of maritime and port infrastructure is reflected in these and contributes to elevated maritime transport costs.

Drivers of shipping costs have been identified in previous research, but an in-depth into the complexity and analysis of the evolution of shipping costs over time and their determinants which takes into account the changes in the shipping and ports industry remains to be developed.

The objective of the book is threefold:

• To identify and elaborate on the role of industry structures and strategies, institutions and geography in the formation of maritime transport costs

• To provide empirical evidence on the structure and complexity of determinants to international maritime transport costs

• To contribute towards conceptualizing policy areas which can influence international maritime transport costs in order to strengthen the region’s competitiveness

A combination of factors in maritime transport in Latin America results in elevated transport costs to/from and within the region. This situation at varying levels reduces the competitiveness of Latin American (LA) countries in world trade. The integration of LA countries through bi- and multilateral trade agreements and the related gradual reduction and levelling of tariffs have led to a shift towards transport costs being one of the principal factors of competitiveness.

From the set objectives the following main questions emanate:

• How does research on the structure of international maritime transport costs contribute to the assessment of transport system functioning and inefficiencies?

• How do developments and strategies in the shipping industry shape maritime transport costs?

• Shipping lines decide on liner shipping network structures, thus if a country is peripheral or central within a network. Accordingly, the question arises in how far these networks determine the possibilities of trade and the ‘distance’ between markets?

• Is there evidence on the role of maritime industry structures i.e. competition and related international policies and their interrelation to the formation of maritime transport costs?

• Are specific maritime industry practices like the use of open registries reflected in maritime transport costs?

• What is the relevance of transport costs in a region striving for economic development, economic integration and cohesion?

• In how far does infrastructural endowment impact on maritime transport costs?

• What are the determinants of transport costs that can be proactively influenced by policy makers?

• External influences such as the development of charter rates, bunker fuel and external shocks, in this case the economic crisis in 2002, should also influence the general development of transport costs and have to be taken into account when comparing the development of transport costs over time. Therefore, the consistency over time of the estimated coefficients needs to be tested for commonly-accepted determinants of maritime transport costs.

Certain port characteristics and institutional efficiency and effectiveness, including aspects such as infrastructure development, port devolution and private sector participation can be influenced by governments. A so far neglected point is the impact of the effectiveness and efficiency of institutions and politics in converting plans into reality and facilitating market responses to changing environments.

However, the cyclical fluctuations of maritime freight rates as well as most of the determinants of freight rate levels on a given route are beyond the control of policy makers, since containerized trade is managed by international shipping lines that operate on a global scale. It seems important though to understand the market forces in order to identify the most effective responses for policy development.

The contribution of this book is twofold.

First, the author develops an in-depth analysis on the role and evolution of transport costs in international maritime trade and constructs a comprehensive panel data regression model of determinants of transport costs. The goal is to determine the influences of shipping lines strategies, maritime policy and port development over time and to identify the effect on competitiveness in international trade.

Second, the results are interpreted in the context of Latin American maritime trade and transport sector development and the impacts of developments in the shipping industry on transport costs and consequently the competitiveness of the region.

Structure of the Book

The research presented in this book constructs from four areas of evidence: theoretical, field work, institutional and empirical. The application of these areas also reflects in the sequence of discussion and the different strands are pulled together and integrated in the evaluation of the empirical evidence and the discussion of the research results.

The theoretical evidence is presented in Chapter 2. The chapter discusses, compares and evaluates relevant literature, concepts and theory in the disciplines of economic, trade and transport geography and economics, particularly maritime economics. An in-depth discussion is made on the position of this work within geographic research. The chapter culminates in the debate on the interrelationship between maritime transport costs and competitiveness in international trade and the definition of maritime transport costs and reflects on existing empirical research. In the final part of the chapter the author examines the question ‘Who determines transport costs?’ and introduces the basic concepts of economies in shipping.

Experience from field work has contributed significantly for the author to understand the complexity of the maritime and port industry and their manifold facets in the diversity of Latin American economic, social and institutional realities. During the course of the research the author worked in projects in 20 of the 33 countries in Latin America and Caribbean countries. Field work included evaluation of port development (e.g. Argentina, CARICOM states, Chile, Colombia, El Salvador, Paraguay, Peru, Uruguay, and Venezuela) and observing port privatization processes in Guayaquil, Ecuador. The field work allowed engaging with relevant actors from the public and private sector as well as at different levels of decision making. This direct engagement on the one hand enabled discussing specific problems and on the other hand offered the possibility to deepen expertise of known problem structures and to better understand the actual action and perceptive conditions.

The combination of field work experience and gathered institutional evidence set the foundations for the presentation and interpretation of the challenges in the region in relation to maritime transport, port development and international trade.

In Chapter 3 the theoretical discussion focusing on the complexity of determining liner shipping freight rates is underpinned with the field work experience. The author describes and evaluates the complexity of maritime transport costs determinants in five sections. These are: determinants of relation and geography, implications of cargo characteristics and trade structure, carriers, interfaces and regulatory and legal environment. The chapter closes by identifying the gaps in existing literature and mapping transport costs determinants in relation to the derived hypotheses for the empirical investigation.

The empirical evidence unfolds in Chapter 4. The chapter starts with a description of the used data sources and the author then introduces the International Transport Database (BTI) which forms the basis of information on international maritime transport costs. The database includes a collection of time series data on maritime trade flows and maritime transport services and industry, and ports. The statistical analysis of the data is presented in this chapter and is used for conducting factor analysis and econometric modelling. The chapter terminates with the definition of the econometric model used in the empirical analyses

Analysis of trade and transport determinants is realized in Chapter 5. Quantitative methods have been frequently used in transport sector research. They provide the possibility to visualize situations ex-post and to develop scenarios from these results. The study identifies the influencing factors for the current structure of transport costs in LAC and their development between 2000 and 2006. Throughout the chapter a series of models is constructed which give insight into which factors influence maritime transport costs in the region.

Based on these empirical findings and their interpretation Chapter 5 combines the five areas of evidence to test for the hypotheses set out in Chapter 3.

The final Chapter 6 concludes the work summarizing and evaluating the research findings and reflects on the contribution of the provided evidence on research specifically in transport geography, maritime economics. Finally, future research areas emanating from the results presented in this study are presented.

Chapter 2
Theoretical Framework

Introduction

Transport is a complex and increasingly prominent part of our lives. (Woudsma and Andrey 2004: 446)

Complexity is evident not only in the transport systems themselves, but in the multifaceted impacts these systems have on their environment. Research in the structures, functional relationships and influencing factors in international trade and especially in connection with maritime transport is at the heart of research in economic and particularly transport geography, but at the same time clearly depicts the interrelationship with neighbouring disciplines, in particular economics.

Transport facilitates Raumueberwindung while at the same time transport acts as a differentiator in space (raumdifferenzierender Faktor). Traditionally, transport geography discusses the relation between geography and trade and traditional theories discuss the influence of spatial organization using distance and transport costs as explanatory factors (Weber 1909, Christaller 1957, described in Schätzl 1998). Geography discusses the interrelationships between phenomena in a spatial setting and with the explanation of spatial patterns (Hoyle and Knowles 1998).

Regarding Pedersen (2001): ‘Until the 1960s transport costs were generally seen as one of the main factors explaining the location of economic activities, and it was the central organising principle in most location theories. Until the early 1970s transport costs were among the most important explanatory factors in economic geography and theories of regional and industrial development.’ Thoman and Corbin (1974) refer to transport costs as the limits to the spatial extent of the market. In this decade transportation and transport costs almost lost their relevance in the discussions and research in mainstream economic geography (Pedersen 2001). Consequently, transport as research topic, particularly freight transport basically disappeared from studies of economic and regional development during the 1970s and 1980s.

Pedersen (2001) further argues that ‘Transport geography became a niche concerned with the transport system itself but with few linkages to economic and industrial development.’ Transport costs were recognized as a condition for spatial dispersion and expansion of economic activity. However, the level of transport costs was regarded to have reached a level where any further decrease would not impact on the choice of location for production. Such argumentation becomes evident in publications like Taaffe and Gauthier (1994) and their overview of transport geography in the United States and is also illustrated in the discussion in the textbooks on transport g...