INTERNATIONAL TRADE BARRIER : TRANSPORTATION SERVICE

High transport costs are a barrier to trade— The costs of international transport services are a
crucial determinant of a developing country’s export competitiveness. Shipping costs often
represent a more binding constraint to greater participation in international trade than tariffs and
other trade barriers. Across economies, a doubling of shipping costs is associated with slower annual
growth of more than one-half of a percentage point. Transport costs determine the potential access
to foreign markets, which, in turn, explains up to 70 percent of variations in countries’ gross
domestic product (GDP) per capita.

—reflecting geography and income— Transport costs depend on a mixture of geographic and
economic circumstances. Adverse geographic locations and low-income levels— the latter being
associated with poor infrastructure and low traffic volumes—pose an inherent challenge for many
countries’ trade and development prospects—at least in the short to medium term

Transport costs affect growth rates— Shipping costs can affect economic growth in several ways.
First, higher transport costs reduce rents earned from the exports of primary products, lowering an
economy’s savings available for investments. They push up import prices of capital goods, directly
reducing real investments. Second, all things being equal, countries with higher transport costs are
likely to devote a smaller share of their output to trade. Those countries are also less likely to attract
export-oriented foreign direct investment

Advances in transport technology— Ocean, air, road, and railway shipping have each seen a different
mix of technological and institutional innovations, with profound implications on how traded goods
are shipped from one location to another.16 Ocean shipping is a relatively mature industry, yet there
have been important advances in maritime transport technology over the past decades. Specialized
ships have emerged for dry bulk commodities, oil, hemicals, automobiles, forest products, and other
goods. Probably the most far-reaching development in maritime transport has been the growth of
containerized cargo shipping, which has allowed investments in larger and faster ships. Today, more
than 60 percent of global general cargo trade moved by sea is carried in containers. On trades
between industrialized countries the percentage is just over 80 percent.17 However, evidence from
major developedcountry shipping routes suggests that the real price of ocean liner shipping has not
declined over the past decades, while tanker and tramp shipping has arguably become cheaper (Fig.
Unfortunately, no information is available to assess the development of real ocean freight rates for
developing country routes in past decades