An analysis of maritime transport and its costs for the Caribbean

Includes bibliography

Introduction The Caribbean is largely made up of small and specialised open island economies, which import a large proportion of their consumer goods. In addition, any local production of goods and services is heavily dependent on the import of raw materials and unfinished parts. In 1996, the Caribbean's level of foreign trade, as a proportion of GDP, was 78 per cent, compared with 25 per cent for Latin America for the same period (Hoffmann, 1997);. Based on these figures, it can be inferred that Caribbean countries are more dependent on foreign trade than other regions. Maritime transport is the primary mode of commercial transport for the Caribbean. For island States such as these, trade in goods is conducted either by air or by sea. However, from an economic standpoint, air transport is only feasible for certain types of products and, as such, maritime transport remains the sole mode of transport for most goods. From this, it can be concluded that Caribbean countries are more dependent on maritime transport than other regions. Most Caribbean countries export only a few commodities such as bananas, sugar or bauxite -- commodities for which a buyer can easily choose alternative sources of supplies. This means that countries in the region must accept prices determined by the international market for their export products. Moreover, these products have a low value and high transport costs, which have a significant impact on regional exporters. High shipping costs will even impede trade of any commodity once a competing country can offer the same product, inclusive of transport costs, at a lower rate. Thus, the industries of a country with high shipping costs experiences difficulties in exporting their products. Moreover, any dollar spent to transport a commodity directly to the market reduces the income of the Caribbean exporter and, as a result, firms in such countries might be forced to pay lower wages to compensate for higher transport costs, in order to be able to compete on world markets. It also increases the price of imported consumer goods and commodities. Thus, the whole economy of a country would benefit from any savings that result from the lowering of the transport costs. In summary, it can be said that high transport costs have a direct negative impact on trade and foreign investment. This relationship was identified in a recent World Bank Study (1994);. Similarly, Radelet and Sachs (1998); concluded that 'countries with lower shipping costs have had faster manufactured export growth during the past thirty years than countries with higher shipping costs'. For the Caribbean, especially, maritime transport costs are still high in comparison to other countries. For countries in the region, transport and insurance costs as a percentage of the value of their imports are as much as three times higher than the world average (Hoffmann, 1997);. There are diverse reasons for higher transport costs, that is, economies of scale in ports and in shipping, the degree of competition, port dues and tariffs, waiting times in ports or insurance premiums. Knowledge of the potential factors that influence these costs is essential. Hence this document, which seeks to analyse maritime transport and the possible determinants of its costs. To examine maritime transport and its costs, the analysis has been divided into three parts. Firstly, an overview of Caribbean foreign trade is given and the impacts on maritime transport and its costs for this region are considered. This analysis was done using import and export data for Barbados, Dominica, St. Lucia and Trinidad & Tobago for the period 1999. (1); The information was obtained from a prototype of a trade and transport database, which has been created by the Economic Commission for Latin America and the Caribbean (ECLAC); Subregional Headquarters for the Caribbean. These countries were chosen as representative of the Caribbean: Dominica and St. Lucia Â- representing small open economies with dependency on a few export commodities; and Barbados and Trinidad & Tobago -- representing larger economies with a more diversified product structure. The second part of this document is a detailed analysis of the determinants that impact on maritime transport costs. Data used in this part of the study was obtained from various sources, namely ports, shipping lines and agents, as well as other research studies. However, it must be noted at this juncture that because of a lack of statistical information, no comprehensive analysis could be undertaken on the factors having an impact on transport costs and, as such, selected samples were used. The final section of this document provides governments, regional and international organizations, such as the Association of Caribbean States (ACS); or the Caribbean Shipping Association (CSA);, with a few preliminary recommendations of possible areas for future activities, aimed at facilitating foreign trade and maritime transport. The key purpose of this section is to highlight what could be done by the public sector to promote trade, reduce transport costs and generally to assist the private sector involved in shipping. (1); Only import and exports of goods. Trade in services is not included