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Lixian Fan, Xinlu Li, Sijie Zhang and Zimeng Zhang

With increasing trends in globalization and international trade, the demand for transportation of goods by sea has been growing at an unprecedented rate. This has motivated the industries to build more vessels of greater size and better efficiency, which will enable the shipping industry to provide transport services at lower cost. Notwithstanding the importance of shipping market study in investment decision making, there are relatively few empirical studies modeling the dynamics between shipping demand and fleet supply by considering the incremental trend in vessel size. This chapter examines the nature of the shipping market and then provides a simultaneous model of ship orders, earnings and capacity decisions, and tests it using data. The primary findings point to the impact of vessel size on new investment and fleet development; and order book volume is a significant factor for capacity development which could lead to overcapacity in the market if not well organized.

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Dragan Miljkovic

The role of transportation cost in international trade had always had a prominent place in economics research. Yet it was barely recognized that many agricultural commodities are quality-differentiated, and as such may be impacted differently by the change in transportation cost. The literature on the impact of per-unit charge on the sales of different qualities in spatially differentiated markets, in the form of the Alchian–Allen theorem and its applications, evolved independently from the international agricultural trade literature. I connect the Alchian–Allen theorem with the law of relative demand for more than two qualities, a case more general than the original proposition, and test empirically the propositions derived in the theoretical section on the example of Japanese imports of three differentiable qualities of imported beef. Both the Alchian–Allen theorem and the substitution effects of the impacts of relative prices on relative demands are shown to hold.

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Laura Alfaro and Maggie Xiaoyang Chen

Falling transportation costs and rapid technological progress have precipitated an explosion of cross-border flows in goods, services, investments, and ideas led by multinational firms. This chapter reviews existing theories and evidence, addressing questions including: How is FDI distributed across space? Why does the law of gravity apply? How do the costs of transporting goods, tasks, and technologies influence firms’ decisions to separate tasks geographically and locate relative to one another? The authors discuss a variety of theoretical mechanisms through which transport cost and other geographic friction influence FDI and present the key empirical studies and findings.

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Jerónimo Carballo, Georg Schaur and Christian Volpe Martincus

Trade facilitation policies aim to simplify administrative processes and accelerate the handling of shipments across borders. Recent research shows that these policies have substantial effects on trade flows. In this chapter, the authors discuss what the existing evidence for trade implies for the provision of transportation services. In addition, they make use of a particular policy change, an upgrade to a new transit trade regime, to illustrate the many direct and indirect linkages between trade facilitation and transportation. These multiple connections imply that a well-functioning transportation sector is important in realizing the full potential of trade facilitation policies. The authors’ conceptual and empirical analyses show that, despite an increase in demand for transportation services, the effect of trade facilitation on freight rates and the underlying transportation sector is far from obvious. This calls for future research to examine equilibrium adjustment channels to trade facilitation policies in the transportation sector.

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Kristian Behrens and W. Mark Brown

The authors’ objectives are threefold. First, they explain how to estimate transport costs and the geographic concentration of industries using trucking microdata and geocoded plant-level data. Second, they document that transport costs explain 25 percent to 57 percent of the observed relationship between trade and distance across Canada’s economic regions. Last, they show that changes in transport costs have a substantial impact on geographic concentration patterns for vertically linked industries, depending on the strength of the links. A one standard deviation increase in transport costs leads to a 0.02 standard deviation decrease in geographic concentration for industry pairs at the bottom decile of the input–output coefficient distribution, whereas the corresponding effect at the top decile is a 0.02 standard deviation increase. This gap between weakly and strongly linked industries stands up to a wide range of specifications and is robust to instrumental variables estimations.

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Wayne K. Talley and Sara Russell Riggs

Trade economists have investigated the international trade between countries but not the transportation service provided for the trade between countries. The latter, however, can be investigated by using UNCTAD’s data on seaborne trade, i.e., merchandise international trade that is transported by ship from a seaport in country A to a seaport in country B. The world’s tonnage of seaborne trade is equivalent to 80 percent of the world’s tonnage of merchandise international trade. In addition to transportation service, other logistics services provided for seaborne trade include commercial documentation, document transmission, global trade management system submission, partner government agency adherence service and free trade agreement adherence service.

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Bruce A. Blonigen and Wesley W. Wilson

Ocean ports are vital hubs for transportation of internationally traded goods and therefore important for economic growth. In this chapter, the authors review the various methodologies that have been used to estimate the efficiency of ocean ports. They then refine and provide updated estimates of port efficiencies based on the methodology of Blonigen and Wilson (2008), compare these estimates of port efficiency with those using other methodologies, and evaluate their role in the level of trade costs and trade.

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Bernardo S. Blum, Sebastian Claro and Ignatius J. Horstmann

As tariffs have become less important in shaping trade patterns, researchers have begun to study the impact that other trade costs have on trading behavior. In this chapter, the authors detail research on the role that export and import intermediaries play in reducing the costs both of acquiring and consolidating the products of domestic producers for export to foreign markets and of matching the imported products of foreign producers with domestic customers. They present the current state of knowledge on these intermediaries and suggest avenues of future research on the market imperfections that generate intermediaries and their policy implications.

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Michael O. Moore

This chapter provides a review of recent empirical work on the determinants of trade-related transportation costs and the subsequent impact on goods trade flows. Earlier studies have examined how improved international transportation systems (i.e. port-to-port costs) as well as upgraded port infrastructure can increase exports. More recent studies have focused increasingly on broad measures of “trade facilitation” using newly developed databases on internal transportation frictions. These new analyses, typically using gravity equation techniques, concentrate on policy-induced problems at the border as well as behind-the-border determinants such as logistics, domestic infrastructure, governance, and service sector restrictions. These issues have become more important as traditional trade barriers like tariffs have decreased. The review also documents the relative paucity of studies that examine firm level transportation frictions, which is likely to become a more important area of future research.

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Theo Notteboom

Global trade is impossible without transportation, making efficient transport a key trade facilitator. Increasing the efficiency of transport and lowering the associated freight and time costs are key fields for action in view of lowering trade costs, and thus enhance global trade. This chapter discusses the transport networks and transport modes that support global trade. The chapter first discusses the changes in the appearance of goods traded worldwide and the impacts of these changes on the increasing scale and segmentation in the transport industry. Next it provides an analysis of the design and function of transport networks, following a four-layer approach (i.e. location, infrastructure, transport operations and logistics organization). The chapter then provides further detailed elaboration on each of these layers, before presenting some concluding remarks.