Determinants of Transport Costs

1. Determinants of Transport Costs Jan.Hoffmann@UNCTAD.org Geneva, May 2009

2. Maritime Freights1: Determinants2: Fluctuations 3: What can we do?

3. Maritime Freights1: Determinants2: Fluctuations 3: What can we do?

4. Maritime Freights1: Determinants2: Fluctuations3: What can we do?

5. Maritime Freights1: Determinants2: Fluctuations 3: What can we do?

6. Differences in maritime freights depend on…

7. Distances Economies of scale Imbalances Differences in maritime freights depend on… • Type & value of goods • Competition • Port characteristics

8. Distances Economies of scale Imbalances Differences in maritime freights depend on… • Type & value of goods • Competition • Port characteristics

9.  Freight rates and Distance in the Caribbean UNCTAD Transport Newsletter, 1st Quarter 2007

10. Doubling the distance leads to a increase of maritime transport costs (incl. insurance)by about 15-20%… averages, empirical dataECLAC, FAL 191, Wilmsmeier, HoffmannHandbook of Maritime Economics, Kumar, Hoffmann  Distance

11. Distances Economies of scale Imbalances Differences in maritime freights depend on… • Type & value of goods • Competition • Port characteristics

12. moving 10 000 tons instead of 100 (in one transaction) reduces unit costs by 40 to 50%  Economies of Scale

13.  Source: Dynamar, 2008, via Antonio Zuidwijk

14.  Economies of Scale CRS, 28 January 2009

15.  Container ship sizes • 27.- US$ saving/ container/ tripusing “post panamax” versus “panamax” (Drewry)

16.  Mergers of shipping companies • Savings thanks to larger volumes(Roland & Berger)

17.  Port operations • 12 US$ per move savings with global operatorsDrewry

18. Distances Economies of scale Imbalances Differences in maritime freights depend on… • Type & value of goods • Competition • Port characteristics

19.  Imbalances CI-Online 28 January 2009

20. Supply/demand Trans-Pacific trades  Containerization International

21.  Imbalances • In Barbados, which freight rates would you expect to be higher: • Those for imports, or • Those for exports ?

22. Distances Economies of scale Imbalances Differences in maritime freights depend on… • Type & value of goods • Competition • Port characteristics

23. Increase the value by 1% implies an increase of transport and insurance costs by around 0.3 – 0.4%  Merchandize type and value

24. Distances Economies of scale Imbalances Differences in maritime freights depend on… • Type & value of goods • Competition • Port characteristics

25. If countries are neighbours, with paved roads, maritimetransport costs are around 10% lower  Competition with land transport Fotos: Jan Hoffmann

26. Receiving 20 instead of 5 companies freights go down by around 12%  Competition between carriers

27.  Competition between carriersCase study Caribbean • If the company itself has no direct service (i.e. it only has a service with transshipment): This company’s freight rate + $650 • If other, competing, companies do provide a direct service: This companies freight rate - $425

28.  Competition between carriersCase study Caribbean Source: Hoffmann, Wilmsmeier, IAME 2007

29. Distances Economies of scale Imbalances Differences in maritime freights depend on… • Type & value of goods • Competition • Port characteristics

30. Difference between “best” and “worst” case in Latin America: 25% of worst case  Port reform

31.  Port reform

32.  Dependent variable: maritime transport costs per tonne of containerizable cargo Wilmsmeier, Hoffmann, Sanchez, in: Porteconomics, 2006

33.  Dependent variable: maritime transport costs per tonne of containerizable cargo Better port infrastructurereduces maritime transport costs

34.  Dependent variable: maritime transport costs per tonne of containerizable cargo Better (perceived)port efficiencyreduces maritime transport costs

35.  Dependent variable: maritime transport costs per tonne of containerizable cargo Better general transport infrastructure does NOT reduce maritime transport costs

36.  Dependent variable: maritime transport costs per tonne of containerizable cargo Port privatization in the EXPORTING country reduces maritime transport costs

37.  Dependent variable: maritime transport costs per tonne of containerizable cargo Trade facilitation in the IMPORTING country reduces maritime transport costs

38.  Dependent variable: maritime transport costs per tonne of containerizable cargo Better connectivity between ports/ more competition among carriersreduces maritime transport costs

39. Distances Type & value of goods Imbalances To sum up: Differences in maritime freights depend on… • Competition • Economies of scale • Port characteristics

40. Lower Transport Costs -> More trade -> Economies of scale -> Lower Transport Costs

41. Maritime Freights1: Determinants2: Fluctuations3: What can we do?

42. Bulker Spot Earnings $/day Source: Clarksons Research, 27 March 2009

43. Containership charter rates $/day Source: Clarksons Research, 27 March 2009

44. Causes of the (increased) volatility ?

45. Fluctuations in demand The pig cycle Speculation Causes of the (increased) volatility ? • Lower variable costs • The oil price (?) • Trying to avoid future volatility…

46.  Less trust – less demand “If, for instance, an Indian importer wants to buy grain from the US, the exporter might not trust you and then the deal will not be done.” Martin Sommerseth Jaer, shipping analyst at Arctic Securities in Oslo, as quoted in Fairplay on-line, October 2008.

47.  Less trust – less demand THE IMF predicted today a near-total standstill for the global economy in 2009, with sharply lowered trade projections. (…) world growth is expected to fall to its lowest rate since the Second World War Fairplay on-line, 28 January 2009

48. Fluctuations in demand The pig cycle Speculation Causes of the (increased) volatility ? • Lower variable costs • The oil price (?) • Trying to avoid future volatility…

49.  The shipping cycle

50.  A presentation of four years ago…