"Containing" Global Trade
How are shipping costs reflective of energy and technology costs?
July 28, 2008
Successful merchants, wrote the 14th-century Muslim scholar Ibn Khaldun, come in two varieties. One buys goods of “medium” quality, suitable for sale to middle-class families as well as rulers and aristocrats.
The other imports things from far away — he meant Sahelian Africa, Persia, India and possibly China — which by nature are “few and rare,” dangerous to transport along routes patrolled by pirates and bandits, and so command high prices.
Six centuries later, the concept of “far away” seems all but dead for commercial purposes. The extirpation of pirates and bandits in most parts of the world has taken away risk, fiber-optic cables and satellites allow long-distance services trade to be conducted at virtually no cost and container shipping radically reduced the time and cost of manufacturing trade.
The two sorts of successful merchants accordingly merged in the modern retailing chain, ferrying middle-class goods all over the world each day.
The dollar value of this trade, to the United States, is enormous. The United States recorded $1.94 trillion worth of goods imports last year.
Of this total, $415 billion arrived by air, $1.02 trillion traveled by sea and $347 billion (from Mexico and Canada) was split among rail, truck and oil pipeline. America’s own $1.16 trillion in goods exports, meanwhile, are more evenly divided: $375 billion by ship, $365 billion by air and $422 billion by truck and rail.
By weight, U.S. imports clocked in at about 1.3 billion tons. Seaborne goods accounted for 950 million tons, truck, rail, and pipeline imports 240 million tons and air freight a tiny but expensive 4.5 million tons.
Exports are generally lighter, weighing in at only 426 million tons by sea and 3.3 million tons by air. (I was not able to find the weight of American rail and truck exports in U.S. Department of Transportation data.)
These numbers clearly suggest that many of the dangers Ibn Khaldun spoke of have been overcome.
But could “distance” return? Probably not. Apart from anomalous cases like Somalia, piracy and banditry are unlikely to make a comeback. The telecom network will presumably only get better.
But the cost of manufacturing trade has begun rising again and may stay high for awhile as energy prices push up the cost of shipping and air freight.
A brief look at the fall and rise of shipping costs:
Between 1997 and 2006, the world container-ship fleet grew from 1,954 ships to 3,907. The average capacity of a container ship rose as well, from 1,530 TEUs — “twenty-foot container equivalents” — to 2,500.
Freight costs accordingly fell. UNCTAD’s annual Review of Maritime Transport report, using data from industry magazine Containerisation International, averages the cost of sending a container from Asia to the West Coast, East Coast and Gulf Coast.
Its figures, though varying a bit depending on demand and the use of the different routes, show the average cost of sending a container from Asia to the United States was over $2,000 at the turn of the century and dropped to levels usually between $1,500 and $1,800 between 2002 and 2007.
But with higher energy costs, shipping rates are rising. Containerisation International found the Asia-U.S. rates running above $1,725 at the beginning of 2008. More recent fees, though no systematic figure is yet available, are reported above $2,000.
Nor is Asia alone: The bill for shipping a 40-foot container from Paraguay to the United States was $3,100 in January and is now $4,300. The likely consequences, assuming energy prices remain high:
- Shift in American imports, especially heavy goods like metals and cheap goods like clothes, from Asia to Europe
- Pressure on Chinese and other Asian exporters to move faster into high-priced, lighter, higher-technology products where transport costs are less important
- More sparing use of air-freight, where fuel prices have risen even faster than for shipping
- Mixed results for American exporters, with less pressure on the United States’ $375 billion in seaborne goods — U.S. exports are more often light and expensive than heavy and cheap — but more on the $360 billion in air-freight exports.
In effect, theory calls for a modest revival of Ibn Khaldun’s separate categories of merchants selling medium-quality goods from local sources and more expensive goods from far away. Early indicators of this remain hard to pick out in reality, though.
Seaborne imports have slimmed down a bit, from one billion tons in 2006 — the all-time record — to 950 million tons in 2007, and perhaps 900 million tons this year. Chinese imports have also slowed to a crawl this year. But both could reflect lower dollar values and the import-cutting effects of recession as much as energy costs.
By weight, U.S. imports clocked in at about 1.3 billion tons.
The concept of "far away" seems all but dead for commercial purposes.
The dollar value of this trade, to the United States, is enormous. The United States recorded $1.94 trillion worth of goods imports in 2007.
The average cost of sending a container from Asia to the United States was over $2,000 at the turn of the century and dropped to levels usually between $1,500 and $1,800 between 2002 and 2007.