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Determinants of Transport Costs. Jan.Hoffmann@UNCTAD.org Geneva, May 2009. Maritime Freights 1: Determinants 2: Fluctuations 3: What can we do?. Maritime Freights 1: Determinants 2: Fluctuations 3: What can we do?. Maritime Freights 1: Determinants 2: Fluctuations 3: What can we do?.

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determinants of transport costs

Determinants of Transport Costs

Jan.Hoffmann@UNCTAD.org

Geneva, May 2009

differences in maritime freights depend on7
Distances

Economies of scale

Imbalances

Differences in maritime freights depend on…
  • Type & value of goods
  • Competition
  • Port characteristics
differences in maritime freights depend on8
Distances

Economies of scale

Imbalances

Differences in maritime freights depend on…
  • Type & value of goods
  • Competition
  • Port characteristics
freight rates and distance in the caribbean

Freight rates and Distance in the Caribbean

UNCTAD Transport Newsletter, 1st Quarter 2007

distance
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
differences in maritime freights depend on11
Distances

Economies of scale

Imbalances

Differences in maritime freights depend on…
  • Type & value of goods
  • Competition
  • Port characteristics
slide13

Source: Dynamar, 2008, via Antonio Zuidwijk

economies of scale14

Economies of Scale

CRS, 28 January 2009

container ship sizes

Container ship sizes
  • 27.- US$ saving/ container/ tripusing “post panamax” versus “panamax” (Drewry)
mergers of shipping companies

Mergers of shipping companies
  • Savings thanks to larger volumes(Roland & Berger)
port operations

Port operations
  • 12 US$ per move savings with global operatorsDrewry
differences in maritime freights depend on18
Distances

Economies of scale

Imbalances

Differences in maritime freights depend on…
  • Type & value of goods
  • Competition
  • Port characteristics
imbalances

Imbalances

CI-Online 28 January 2009

slide20

Supply/demand Trans-Pacific trades

Containerization International

imbalances21

Imbalances
  • In Barbados, which freight rates would you expect to be higher:
  • Those for imports, or
  • Those for exports ?
differences in maritime freights depend on22
Distances

Economies of scale

Imbalances

Differences in maritime freights depend on…
  • Type & value of goods
  • Competition
  • Port characteristics
differences in maritime freights depend on24
Distances

Economies of scale

Imbalances

Differences in maritime freights depend on…
  • Type & value of goods
  • Competition
  • Port characteristics
competition with land transport
If countries are neighbours, with paved roads, maritimetransport costs are around 10% lower

Competition with land transport

Fotos: Jan Hoffmann

competition between carriers case study caribbean

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
competition between carriers case study caribbean28

Competition between carriersCase study Caribbean

Source: Hoffmann, Wilmsmeier, IAME 2007

differences in maritime freights depend on29
Distances

Economies of scale

Imbalances

Differences in maritime freights depend on…
  • Type & value of goods
  • Competition
  • Port characteristics
slide32

Dependent variable: maritime transport costs per tonne of containerizable cargo

Wilmsmeier, Hoffmann, Sanchez, in: Porteconomics, 2006

slide33

Dependent variable: maritime transport costs per tonne of containerizable cargo

Better port infrastructurereduces maritime transport costs

slide34

Dependent variable: maritime transport costs per tonne of containerizable cargo

Better (perceived)port efficiencyreduces maritime transport costs

slide35

Dependent variable: maritime transport costs per tonne of containerizable cargo

Better general transport infrastructure does NOT reduce maritime transport costs

slide36

Dependent variable: maritime transport costs per tonne of containerizable cargo

Port privatization in the EXPORTING country reduces maritime transport costs

slide37

Dependent variable: maritime transport costs per tonne of containerizable cargo

Trade facilitation in the IMPORTING country reduces maritime transport costs

slide38

Dependent variable: maritime transport costs per tonne of containerizable cargo

Better connectivity between ports/ more competition among carriersreduces maritime transport costs

to sum up differences in maritime freights depend on
Distances

Type & value of goods

Imbalances

To sum up: Differences in maritime freights depend on…
  • Competition
  • Economies of scale
  • Port characteristics
slide40
Lower Transport Costs

-> More trade

-> Economies of scale

-> Lower Transport Costs

bulker spot earnings day
Bulker Spot Earnings $/day

Source: Clarksons Research, 27 March 2009

containership charter rates day
Containership charter rates $/day

Source: Clarksons Research, 27 March 2009

causes of the increased volatility45
Fluctuations in demand

The pig cycle

Speculation

Causes of the (increased) volatility ?
  • Lower variable costs
  • The oil price (?)
  • Trying to avoid future volatility…
less trust less demand

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.

less trust less demand47

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

causes of the increased volatility48
Fluctuations in demand

The pig cycle

Speculation

Causes of the (increased) volatility ?
  • Lower variable costs
  • The oil price (?)
  • Trying to avoid future volatility…
the model of a cycle

The model of a cycle

ORDERSt =  CHARTERRATEt

CHARTERRATEt =  (1/DELIVERIESt )

DELIVERIESt =  ORDERSt-24

slide56

“The shipping industry is now attempting to undo the self-inflicted damage of a bloated new building order book, the growth of which has encouraged a near doubling of shipbuilding capacity in the past ten years.” Lloyds List, January 2009

causes of the increased volatility57
Fluctuations in demand

The pig cycle

“Speculation”

Causes of the (increased) volatility ?
  • Lower variable costs
  • The oil price (?)
  • Trying to avoid future volatility…
more speculation

More “speculation”

… i.e. more traders who are not themselves users or providers of the goods or services.

slide59

More traders are participating in the market who are not themselves users or providers of transport services, but purchase future positions aiming at speculative capital gains.

As has been seen in other markets, such as shares, crude oil, or food commodities in early 2008, the expectation of future gains encourages traders to hold on to positions, thus further worsening the shortage of supply and increasing the prices - until the bubble bursts…

causes of the increased volatility60
Fluctuations in demand

The pig cycle

“Speculation”

Causes of the (increased) volatility ?
  • Lower variable costs
  • The oil price (?)
  • Trying to avoid future volatility…
causes of the increased volatility64
Fluctuations in demand

The pig cycle

“Speculation”

Causes of the (increased) volatility ?
  • Lower variable costs
  • The oil price (?)
  • Trying to avoid future volatility…
causes of the increased volatility67
Fluctuations in demand

The pig cycle

“Speculation”

Causes of the (increased) volatility ?
  • Lower variable costs
  • The oil price (?)
  • Trying to avoid future volatility…
slide69

The higher the volatility…

… the more the traders and providers will want to purchase protection, i.e. future contracts (e.g. Forward Freight Contracts – FFCs)…

… and the more future contracts there are, the more volatility we get.

causes of the increased volatility70
Fluctuations in demand

The pig cycle

Speculation

Causes of the (increased) volatility ?
  • Lower variable costs
  • The oil price (?)
  • Trying to avoid future volatility…
to reduce fluctuations of freights
To reduce fluctuations of freights
  • Carriers: Think long term
to reduce fluctuations of freights74
To reduce fluctuations of freights
  • Carriers: Think long term
  • Ports: invest and reform to avoid congestion
to reduce fluctuations of freights75
To reduce fluctuations of freights
  • Carriers: Think long term
  • Ports: invest and reform to avoid congestion
  • Governments: Do not re-invent “national fleets”.
to reduce fluctuations of freights76
To reduce fluctuations of freights
  • Carriers: Think long term
  • Ports: invest and reform to avoid congestion
  • Governments: Do not re-invent “national fleets”.

this would be a pig cycle of ideas…

unctad s trade logistics branch
UNCTAD’s Trade Logistics Branch

Sections:Trade Facilitation

Transport

Legal and Policy

unctad s trade logistics branch80
UNCTAD’s Trade Logistics Branch

Activities:Meetings and seminars

Research and publications

Technical cooperation projects

unctad s trade logistics branch81
UNCTAD’s Trade Logistics Branch

Activities:Meetings and seminars

Research and publications

Technical cooperation projects

unctad s trade logistics branch85
UNCTAD’s Trade Logistics Branch

Activities:Meetings and seminars

Research and publications

Technical cooperation projects

unctad transport newsletter
UNCTAD Transport Newsletter

Quarterly

Electronic distribution

Articles,

and news about publication and events

studies
Studies

e.g. on legal aspects of international trade

unctad s trade logistics branch90
UNCTAD’s Trade Logistics Branch

Activities:Meetings and seminars

Research and publications

Technical cooperation projects

slide92
e.g. “Capacity Building in Trade and Transport Facilitation for Land Locked and Transit Developing Countries ”

Corridor:Asuncion - Montevideo

Corridor:Bangkok - Vientiane

Corridor:Walvis Bay - Gaborone

integrated country projects e g afghanistan
Integrated country projects: e.g. Afghanistan

“Emergency Customs Modernization and Trade Facilitation project”