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IMF working paper suggests Covid-induced increase in global shipping time is the financial equivalent to wiping out 14 years worth of tariff reductions

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IMF working paper suggests Covid-induced increase in global shipping time is the financial equivalent to wiping out 14 years worth of tariff reductions

The Covid-19 pandemic had caused a 25% increase in global shipping times by December 2021, effectively wiping out 14 years worth of tariff reductions, according to a new International Monetary Fund (IMF) working paper.

The paper, Supply Chains and Port Congestion Around the World, is by IMF economists Andras Komaromi and Diego A. Cerdeiro, and research analyst Yang Liu.

In it the three say shipping times increased as soon as the Covid-19 crisis hit, and after a notable acceleration from late 2020, delays topped 1.5 days on average by December last year. Taking into account global average travel times of between six and 6.5 days between 2016 and 2019, the additional port delays by the end of 2021 amounted to about a 25% increase in global travel times, the paper says.

"The estimated additional days in transit for the average shipment in December 2021 can be compared to an ad-valorem tariff [a charge levied on imports, defined in terms of a fixed percentage of value] of 0.9% to 3.1%. The midpoint of this range is approximately equal, in absolute value, to the global applied tariff reduction achieved over the 14-year period from 2003 to 2017," Komaromi, Cerdeiro and Liu say.

"Second, not all congestion appears related to increased demand. Many ports, especially since mid-2021, exhibit longer wait times despite handling less cargo than pre-pandemic. Infrastructure upgrading is therefore likely a necessary, but not sufficient condition for building resilience during a crisis where other factors, such as labor shortages, may also become binding."

To combat Covid-era cargo disruptions major New Zealand exporters have taken to chartering private cargo ships to ensure their products get to market. Meanwhile, delays and rising costs have led to suggestions of a NZ government owned shipping line and/or subsidies. (Also see: Shipping headaches could be a $10 billion export problem).

Komaromi, Cerdeiro and Liu note that some 80% of global merchandise trade by volume and 70% by value is carried by ships. Cargo ships are required to carry a device known as an Automatic Identification System, or AIS, that periodically emits a signal.

The IMF paper draws on more than two billion AIS messages collected between January 1st 2015 and December 31st 2021 from container ships, general cargo ships and vehicle carriers travelling between 1,634 ports in 183 countries and territories. The travel time measured includes sailing between two ports, waiting at anchorage before entering the destination port, and the time taken to remove and load - process- cargo.

"Comparing travel times on the same routes, the data unambiguously reveal that ports did get more congested, and ships did face more delays, likely causing disruption in supply chains," the paper says.

"A back of the envelope calculation suggests that the estimated delays at seaports generate substantial welfare losses. One way to conceptualize port delays through the lens of gravity models is to imagine that the world has become a more distant place."

The authors acknowledge substantial geographical variation in port delays. The 1.5 days world average they highlight is based on all international voyages.

"It is evident that although all major sea trader nations have experienced delays, the most severe port congestion is concentrated in the U.S. and China."

"The variability in delays is also evident at the port level. The often-cited Los Angeles port is undoubtedly an outlier among major seaports both in terms of longer wait times at anchorage and slower processing times at the berths. Slower turnaround times on the docks suggest that not only more ships are arriving at the port, but that supply bottlenecks, such as the stacking up of empty containers, prevent the efficient processing of incoming cargo," the paper says.

The charts below come from the IMF report.

*Also see this Wall Street Journal documentary; Why Global Supply Chains May Never Be the Same.

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Excellent piece - the Odd Lots podcast (Joe Weisenthal) has some great detailed content on the challenges faced by ports, and the knock-on effect of the consolidation of the big shipping companies.

It's funny, when you look at these real increases in the costs of shipping, the rise in both retail and wholesale inventories that result, growing corporate profits, and constrained supply of oil, you would almost expect the price of things to increase. Thankfully, we can sort all of this out by increasing the cost of borrowing in NZ, phew. 


What we're seeing is ships dumping our consignments in Australia because they don't want to stop by New Zealand.