Port efficiency, maritime transport costs, and bilateral trade

Recent literature has emphasized the importance of transport costs and infrastructure in explaining trade, access to markets, and increases in per capita income. For most Latin American countries, transport costs are a greater barrier to U.S. markets than import tariffs. We investigate the determinants of shipping costs to the United States with a large database of more than 300,000 observations per year on shipments of products aggregated at six-digit Harmonized System (HS) level from different ports around the world. Distance, volumes, and product characteristics all matter. In addition, we find that port efficiency is an important determinant of shipping costs. Improving port efficiency from the 25th to the 75th percentile reduces shipping costs by 12%. Bad ports are equivalent to being 60% farther away from markets for the average country. Inefficient ports also increase handling costs, which are one of the components of shipping costs. In turn, factors explaining variations in port efficiency include excessive regulation, the prevalence of organized crime, and the general condition of the country's infrastructure. Reductions in country inefficiencies, associated to transport costs, from the 25th to 75th percentiles imply an increase in bilateral trade of around 25%. (C) 2004 Elsevier BY. All rights reserved.