Playing with shipping costs data

Ethan Zuckerman has some fun with Maersk’s online shipping rates calculator:

The main thing I’ve found playing with Maersk’s calendar: distance doesn’t matter as much as demand. Americans buy a lot of atoms from China. The Chinese don’t buy nearly as many from the US. A 40′ container filled with household goods, shipped from Shanghai to Houston, TX costs $6169.93. Reverse the trip and ship the same container from Houston to Shanghai and the cost is $3631.07. That’s because 60% of containers on ships coming from the US to China are empty, which means Maersk and other shippers are desperate to sell container space.

(The 2006 New York Times article that offers that 60% empty container statistic suggests that lots of full containers are coming to China from raw-materials rich countries like Australia, Brazil and the Middle East. That suggests we should see the opposite pattern – expensive containers from Sao Paolo to Shanghai and cheap ones in the other direction. Nope. $5101.70 from Shanghai to Sao Paolo, $1930.59 in the other direction. Perhaps containers from China to Brazil are riding the same ships as those to the US and paying the same premiums?)

Maersk also offers a set of maps that help you get a sense for how these trade routes actually work. It’s a four day trip from Suva to Auckland on the Pacific Islands Express, and then the bottles of Fiji water are transfered to OC1, the Oceania Americas Service. The Pacific crossing is a long one – 18 days to the Panama Canal, a quick stop in Cartagena, and we’re in Philadephia 25 days out of Auckland. It’s a truck ride from Philly to Cambridge, and that short hop is responsible for $950 of the total transit cost.

As I poke through these maps, schedules and tariffs, I feel like I’m glimpsing a secret world. Part of it may come from the sheer poetry of the names. Shipping routes include “The Boomerang” and the “The South China/Australia Yo-yo” and connect ports like Tin Can Island (Apapa, Nigeria, the main port for Lagos). And part comes from the sense that these routes and rates, the infrastructure that supports an economy where transPacific bottled water is possible, are the ley lines of globalization, radiating a mysterious and sinister power.

Non-discriminatory treatment in domestic commerce

A recent court ruling that led to the repeal of an import prohibition on agricultural products may not be covered at the IELP Blog, because it’s a purely domestic matter:

The city of Lake Elmo [in Minnesota] imposed the protectionist law in 2008, requiring that all agricultural produce sold on Lake Elmo’s farms must actually be grown in Lake Elmo. This would have significantly damaged the Bergmanns, and others like them, who grow produce elsewhere and sell it from their Lake Elmo farm. Judge Noel’s opinion recommended that a preliminary injunction be issued preventing the law from being enforced while the Institute for Justice lawsuit is litigated. The City Council’s change in the law now makes a preliminary injunction unnecessary.

Mishra & Mishra: “Border Bias”

This paper is psychology, not economics per se, but it’s about the border bias nonetheless:

In this research, we documented a bias in which people underestimate the potential risk of a disaster to a target location when the disaster spreads from a different state, but not when it spreads from an equally distant location within the same state. We term this the border bias. Following research on categorization, we propose that people consider locations within a state to be part of the same superordinate category, but consider locations in two different states to be parts of different superordinate categories. The border bias occurs because people apply state-based categorization to events that are not governed by human-made boundaries. Such categorization results in state borders being considered physical barriers that can keep disasters at bay. We demonstrated the border bias for different types of disasters (earthquake, environmental risk) and tested the underlying process in three studies.

[HT: MR]

Reasons to manufacture in the US

FT:

General Electric plans to invest $432m in four US centres that design and make refrigerators by 2014. The move will add about 500 jobs and reverse a long-term trend of outsourcing its appliance manufacturing to places such as China.

GE argues that a combination of US production quality, the ability to market goods as US-made, and rising transport, currency and labour costs in formerly cheap manufacturing countries have made the moves practicable.

A series of local, state and federal tax breaks have also played a role. For setting up the design and manufacturing centres in the Midwest and South, GE negotiated about $78m in tax breaks.

Over the past year a number of US companies ranging from Caterpillar, the world’s biggest maker of earthmoving equipment, to Wham-O, the maker of the Frisbee and Hula-Hoop, have announced similar plans to expand US production facilities…

In the US market the investments also make for useful headlines for GE. “You still have to be competitive but when all things are equal, being made in the US tips consumers in our direction,” Mr Campbell said. But behind the moves are a series of hard-headed calculations. Local manufacturing means faster product development and lower costs. GE has also used tough new labour contracts to reduce its domestic production costs.

“Compared to five years ago we have made tremendous progress with our unions, which means the new people we hire on to these programmes will come in at reduced wage rates, and that has gone a long way to help us get competitive,” Mr Campbell said.

[HT: Tepper]

The shortcomings of African ports

Michael Baker in Foreign Affairs on African maritime problems:

Africa has the least efficient ports in the world. Dwell times — the amount of time a ship must stay in port — for the loading and unloading of cargo exceed global averages by several days and are nearly quadruple those of Asian ports, thus driving up shipping costs through delays. No African port can be found on the list of the top 70 most productive in the world. As a result, shipping companies send smaller, older, and cheaper ships to Africa in an effort to reduce their losses.

A number of factors are to blame: poor harbor maintenance, bureaucratic red tape, inadequate maritime law enforcement, and lax security. Additionally, Sam Bateman, a maritime security expert at the S. Rajaratnam School of International Studies, in Singapore, has demonstrated that pirates and other maritime criminals tend to prey on old, slow, decrepit ships — the types of ships that inefficient and unsecured African ports and waterways attract — because they are easy targets. Half of the ships successfully hijacked by Somali pirates in 2009 fell into the category of the smallest merchant ships.

Moreover, many African ports cannot handle ships of median size due to infrastructure limitations. Meanwhile, the global shipping industry has been modernizing its fleets, scrapping obsolete vessels for newer mega-carriers. This means that shipping companies will continue deploying their remaining smaller and slower ships for transport to and from Africa, increasing the number of easy targets for pirates and further impeding Africa’s ability to export products efficiently. In this environment, companies producing goods in Africa cannot reliably or efficiently get their wares to market. This plays a large role in explaining why Africa garners only 2.7 percent of global trade despite its cheap labor force, cheap commodities, and proximity to major markets.

What drives unilateral liberalization? Evidence from Asia

Unilateral trade liberalization is quite underdiscussed, perhaps for both institutional and political reasons. There is little reason for multilateral institutions like the WTO to discuss unilateral liberalization, since it is outside their purview and does little to hurt their missions, and policymakers pursuing trade agreements for political reasons have little interest in lowering their own trade barriers.

But unilateral liberalization is big. The World Bank attributes two-thirds of developing-country liberalization during 1983-2003 to unilateral actions.

In a recent working paper, Pierre-Louis Vezina analyses the case of East Asia, where he says countries unilaterally cut tariffs to attract Japanese FDI, as Japanese firms sought to establish affiliates that would process imported components.

Focusing my analysis on seven Asian emerging economies, and using tools from spatial econometrics, I show that tariffs on parts and components followed those of competing countries if the latter were lower, if FDI jealousy was high, and if competing countries were at a similar level of development, hence competing more intensively at the tariff level… I show that these results do not hold when using tariffs on finished products nor when estimating the model for countries that are not part of the sliced-up supply chain, such as Australia.

The one tome devoted to the topic that I know is Going Alone, edited by Jagdish Bhagwati.

Escalating the US-China currency dispute without tariffs

Daniel Gros and Fred Bergsten are proposing that the US use policy instruments other than tariffs to pressure China to appreciate the renminbi.

Gros:

But there is another way. The US (and Japan) could easily prevent the Chinese Central Bank from continuing its intervention policy without breaking any international commitment. The US and Japan only need to invoke the principle of reciprocity and declare that they will limit sales of their public debt henceforth to only include official institutions from countries in which they themselves are allowed to buy and hold public debt. Instead of the “moral suasion”, tried in vain by the Japanese, the Chinese authorities would just be told that they can buy more US T-bills and Japanese bonds only if they allow foreigners to buy domestic Chinese debt.

Imposing such a “reciprocity” requirement on capital flows would be perfectly legal – although the US (and Japan and all EU member countries) have notified the IMF that they have liberalised capital movements under Article VIII of the IMF. Yet, in contrast to the area of trade, there are no legal constraints on the impositions of capital controls.

Bergsten:

This gap can be filled, however, by the introduction of a new policy instrument: countervailing currency intervention. When China or Japan buy dollars to keep their currency substantially undervalued, the US should sell an equivalent amount of dollars to push back. The IMF should authorise such intervention when necessary, to discipline countries that are violating their obligations by engaging in deliberate undervaluation.

Setting aside the desirability of the move, there would seem to be a number of practical challenges in implementation.