As markets open and more countries trade internationally, what are the impacts of transport and logistic costs? What effects do exchange rates have on trade? How are businesses, traders and consumers affected?
OECD analyses trade costs to better understand how the benefits of international trade can be harnessed.
Maritime transport costs
Ships have moved goods across the world for thousands of years, and today shipping is still essential to international trade. Ninety percent of world trade by volume is carried by ship, and maritime traffic in 2007 was almost double its 2003 level. Operation of merchant ships generated an estimated annual income approaching US$ 380 billion in 2007, equivalent to about five percent of total world trade.
Maritime transport costs are affected by factors such as port infrastructure, the price of oil, time at sea, competition among carriers, corruption and piracy. Trade in some products is particularly affected by changes in maritime transport costs, in particular cereals and oilseeds, which are shipped in bulk. A doubling in the cost of shipping for agricultural goods would be associated with a 42% drop in trade on average.
Time as a trade barrier
Time spent in transit also has a strong effect on trade. An extra day spent at sea on an average sea voyage of 20 days implies a 4.5% drop in trade in agricultural products between a given pair of trading partners. Not only cost but also efficiency in getting agricultural goods to market are therefore important factors in explaining trade flows.
OECD analysis confirms that the longer the time required for trade transactions, the greater the tendency for trade volumes to be reduced. Lengthy procedures for exports and imports reduce the probability that firms will enter export markets for time-sensitive products at all.
Labour-intensive products such as clothing and consumer electronics are increasingly time-sensitive and many countries urgently need to shorten lead time in order to stay competitive in these sectors. With the proliferation of modern supply chain management in manufacturing as well as retailing, a broader range of products are becoming time-sensitive.
Trade deficits and surpluses are sometimes attributed to intentionally low or high exchange rate levels, though there has been no consensus on the matter. OECD analysis of impact of exchange rates and their volatility on trade flows between China, the Euro area and the United States finds that exchange volatility impacts trade flows only slightly. Exchange rate levels, on the other hand, were found to affect trade in agriculture and in the manufacturing and mining sectors but did not explain in their entirety the trade imbalances in the three economies examined.
OECD work on trade costs
OECD collects and analyses data on transport and logistics costs of trading, and the effects of these costs on international trade. This work identifies areas where countries can reduce unnecessary obstacles to trade and reduce costs for businesses, traders and consumers.
- Trade Costs: What Have We Learned? A Synthesis Report
Understanding trade costs is essential for formulating policy interventions designed to reduce such costs. This report synthesises all OECD work on cost factors across the entire trade chain. (OECD Trade Policy Paper No. 150)
- To What Extent Do Exchange Rates and their Volatility Affect Trade?
Exchange rate levels affect trade flows in agriculture and in the manufacturing and mining sector in China, the Euro area and the United States, though they do not explain in their entirety the trade imbalances in these three economies, this paper finds. Exchange rate volatility was found to affect trade flows only slightly. (OECD Trade Policy Working Paper No. 119)
- Clarifying Trade Costs in Maritime Transport
Complementing the Maritime Transport Costs database (see above), this paper describes the maritime transport sector and some of the determinants of shipping costs, and outlines the methodology, coverage and caveats of the database.
- Clarifying Trade Costs: Maritime Transport and its Effect on Agricultural Trade
Maritime transport costs have a significant impact on the trade in agricultural goods, representing on average 10% of the imported value of agricultural products. A doubling of shipping costs is linked to an average drop of 42% in agricultural trade, says this study. (OECD Trade Policy Working Paper No. 92)
- To What Extent Are High-Quality Logistics Services Trade Facilitating?
Trade can be impeded by inefficient transport infrastructure, border procedures or information flows. Better logistics services reduce trade costs for businesses and improve the competitiveness of a country's exports, according to this study. (OECD Trade Policy Working Paper No. 108)
- The Availability and Cost of Short-Term Trade Finance and its Impact on Trade
Trade fell significantly in the aftermath of the financial crisis, even more than the large drop in global production levels. This paper examines to what extent short-term trade finance may have impacted trade levels before and after the crisis hit. (OECD Trade Policy Working Paper No. 98)