Time and tariffs

by on December 11, 2013 at 12:23 pm in Economics | Permalink

We estimate that each day in transit is equivalent to an ad-valorem tariff of 0.6 to 2.1 percent.

That is from David L. Hummels and Georg Schaur, the AER version of their paper is here, various ungated versions are here.  If you are wondering, parts and components are the most time-sensitive goods in international trade, according to the authors.  Note also that airplanes are increasingly important for international trade:

From 1965–2004, worldwide use of air cargo grew 2.6 times faster than use of ocean cargo.

Spencer December 11, 2013 at 12:45 pm

I just read the summary.

But didn’t they include the impact of falling prices in the information technology area?

If IT prices are falling some 2% a month a domestic manufacturer can not wait two months for the part to arrive by boat. This means he is paying up to 5% more for the component than his competition that ships by overnight air. The competition will base their selling price on the current price of components and force the manufacturer shipping by boat to eat that difference.

I always though this was the driving force behind the growth of air transport in international trade in the 1980s and 19990s.

Rahul December 11, 2013 at 1:18 pm

“From 1965–2004, worldwide use of air cargo grew 2.6 times faster than use of ocean cargo.”

Is that by weight or by value?

prior_approval December 11, 2013 at 1:50 pm

Think about it this way – a single Ultra Large Container Vessel container ship crossing the Pacific carries a max of 14,500 20 foot containers (There are 8 of this particular class). Each container has a tare weight of roughly 2 and a half tons, and a maximum capacity of over 20 tons. A 747 in cargo configuration (of which there are 300 world wide, according to Boeing – though the information is several years old) can carry a load of 124 tons. http://www.boeing.com/boeing/commercial/747family/pf/pf_400f_back.page

So, those 300 747 freighters, with a total cargo carrying capacity of something like 37 200 tonnes, are able to handle, with a comfortable and approximate 20% margin, the weight of that ULCV’s empty containers (leaving aside the question of volume, of course). Of course, each of those 300 planes would need to make something on the order of 10-20 round trips to carry the weight of that single shipload.

No, it is all about value.

(Fascinating ships – http://en.wikipedia.org/wiki/Emma_Mærsk )

(And as a side note – calculated risk likes to publish the LA/Long Beach port numbers – which come to almost a million containers handled a month – at ports that handle about 40% of the U.S.’s container traffic.)

prior_approval December 11, 2013 at 1:55 pm

However, as a final note – using Maersk’s own method of TEU calculation, each of those 747 freighters needs to make approximately 5 round flights

Derek December 11, 2013 at 2:03 pm

The additional costs of shipping by air are offset by savings for storage and handling, and financing costs. Which would indicate that we are not at zirp in the real economy. Or that all those cool inventory handling systems are an expensive waste of money. Or that no one has the faintest idea what to stock anymore.

The great stagnation continues.

Dan December 11, 2013 at 8:12 pm

The change in the mix of products likely has a lot to do with air freight growth. It makes sense to fill a plane with semiconductors, iPhones, and other compact, high-value items. You can almost never find these products in import/export shipment records, which tend to cover only waterborne shipments. But you can find lots of cotton, corn, and bulk commodities.

If trade in small, high-value products grew faster than other products over that period, it would make sense that growth in the transportation mode of choice for those products would also outpace more traditional transportation methods.

Steve C. December 12, 2013 at 7:41 am

Value per cu/ft or per lb is a good approximation. Plus the benefit of time. If you make smart phones, you’d prefer to make them at the last minute.

Matt2 December 12, 2013 at 8:10 am

I’m going ot try to read the paper over the weekend. Looks like there’s a lot of good info at http://people.hofstra.edu/geotrans/index.html

It seems obvious that in that narrow window of time air cargo would grow faster, given the thousands of years head start that ocean cargo had. Concur with the comment above that I’d need to know what measure of growth they are using – value, tons, ton-miles, or something else.

Nathanael Snow (@NathanaelDSnow) December 12, 2013 at 8:57 am

I’d be concerned first and foremost about non-tariff barriers across borders. How many days does it take to move goods from the US side of the border to Mexico? Many more than the reverse due to Mexican cartels owning warehouses on the US side where they can delay the movement of those goods to the Mexican side.

Sean December 12, 2013 at 8:34 pm

With the technology we are presented with today, there is no wonder why the use of air cargo has grown. Time is money, and it can be said that an investment made today is hypothetically worth more than it is tomorrow. Therefor people will pay for the extra cost of convenience.

mulp December 13, 2013 at 1:42 am

So, time being money, we have allowed the US transportation infrastructure to decay for three decades to introduce more cost into the economy?

Yes, lots of investment in ports to handle container cargo on ships which are slow while doing very investment in rail which is fast because the rail cargo at key points interferes with trucking to delay both.

Once trains carried cargo at speeds up to a hundred miles per hour, but today half that is “high speed”. Instead, in the 20s through 50s, the central planners focused on highways to get their speeds to half the potential of rail, but by neglecting rail, trucking has improved slightly while rail has fallen significantly.

And China’s investment in speeding up transport is seen as a waste of money by many policy advocates in the US who claim to be focused on economic growth.

And China is working with Germany to cut the cargo time between the two dramatically over cargo ship – the first freight rail between China and Germany has cut the transit for containers from 30 days to 15 days, and both want to implement high speed rail for cargo. China is willing to fund rail upgrades across Russia if Russia will provide it acces to Russia’s resources. In a way, Russia is too rich with its shrinking population – how rich can Putin oligarchs get?

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