Ad Hoc Expert Meeting on
Addressing the Transport and Trade
Logistics Challenges of the
Small Island Developing States (SIDS):
Samoa Conference and Beyond
11 July 2014
Liner shipping connectivity and transport
costs in SIDS
Presentation by
Mr. Jan Hoffmann
Chief, Trade Facilitation Section, Trade Logistics Branch
Division on Technology and Logistics, UNCTAD
This expert paper is reproduced by the UNCTAD secretariat in the form and language in which it has been received.
The views expressed are those of the author and do not necessarily reflect the views of the UNCTAD .
Liner shipping connectivity and
transport costs in SIDS
Jan.Hoffmann@UNCTAD.org, Geneva, July 2014
Trade
Transport
costs
Connectivity
1
Lower transport costs
-> More trade
-> Economies of scale
-> Lower transport costs
More income to finance trade
and transport facilitation
-> Better trade facilitation
-> More Trade
-> More income to finance trade
and transport facilitation
2
Better services
-> More trade
-> More competition
-> Better services
The challenge for SIDS:
• Avoid a vicious circle, where high
transport costs and low service levels
discourage trade, which will further
endear transport and reduce
connectivity…
• Instead: Initiate a virtuous circle
3
Trade
Transport
costs
Connectivity
Freight costs % of import value
Source: UNCTAD estimates. Data: 10 year moving average
4
Freight costs % of import value
Source: UNCTAD estimates. Data: 10 year moving average. Note: unweighted average for SIDS groupings
Differences in maritime freights depend on…
5
Differences in maritime freights depend on…
1) Distances
2) Economies of scale
3) Imbalances
4) Type & value of goods
5) Competition
6) Port characteristics
Differences in maritime freights depend on…
1) Distances
2) Economies of scale
3) Imbalances
4) Type & value of goods
5) Competition
6) Port characteristics
6
Freight rates and Distance in the Caribbean
3,500

y = 0.6206x + 1019.9
R2 = 0.2058
3,000
Freight rate
2,500
2,000
1,500
1,000
500
0
0
500
1,000
1,500
2,000
2,500
Distance
UNCTAD Transport Newsletter, 1st Quarter 2007
Differences in maritime freights depend on…
1) Distances
2) Economies of scale
3) Imbalances
4) Type & value of goods
5) Competition
6) Port characteristics
7

1100
TEU
Sample costs
4250
TEU
8750
TEU
13000
TEU
Construction costs
million USD
28
77
135
167
Construction costs
USD per TEU
25 000
18 117
15 430
12 850
Crew
15 to 17
15 to 17
15 to 17
15 to 17
Source: Dynamar, 2008
Differences in maritime freights depend on…
1) Distances
2) Economies of scale
3) Imbalances
4) Type & value of goods
5) Competition
6) Port characteristics
8

Cargo imbalances
Merchandise Imports and Exports as % GDP
Region/Country
Imports
Exports Region/Country
Caribbean
Imports
Exports
62.7
57.1
76.8
24.1
5.7
19.2
64.4
na
61.3
35.1
50.5
10.7
na
3.1
41.5
11.1
Pacific
Antigua and Barbuda
Bahamas
Barbados
45.8
42.3
41.9
5.7
12.3
13.5
Dominica
Grenada
Jamaica
Saint Kitts and Nevis
Saint Lucia
Saint Vincent and the
Grenadines
Trinidad and Tobago
41.7
43.7
45.4
30.0
56.5
7.3
4.6
10.8
5.9
15.3
Fiji
Kiribati
Marshall Islands
Micronesia (Federated
States of)
Nauru
Palau
Papua New Guinea
Samoa
49.1
40.3
6.2
56.2
Solomon Islands
Timor-Leste
49.6
28.6
46.6
0.9
Tonga
Tuvalu
Vanuatu
44.5
62.7
37.5
3.4
0.8
7
41.9
53.2
2.9
4.2
Indian Ocean
Comoros
Maldives
Mauritius
Seychelles
50.3
69.9
49.6
70.9
4.2
14.1
25.3
44.0
West Africa
Cape Verde
Sao Tome and Principe
Source: World Bank, World Development Indicators
Cargo imbalances

9
Differences in maritime freights depend on…
1) Distances
2) Economies of scale
3) Imbalances
4) Type & value of goods
5) Competition
6) Port characteristics
Merchandize type and value

High value, perishable goods…
10
Differences in maritime freights depend on…
1) Distances
2) Economies of scale
3) Imbalances
4) Type & value of goods
5) Competition
6) Port characteristics

Competition between carriers
Case study Caribbean
3'500
3'000
2'500
Freight rate
y = 1814.9e-0.0671x
R2 = 0.4348
2'000
1'500
1'000
500
0
0
2
4
6
8
10
12
14
16
18
20
Number of Carriers providing direct services
UNCTAD Transport Newsletter, 1st Quarter 2007
11
Differences in maritime freights depend on…
1) Distances
2) Economies of scale
3) Imbalances
4) Type & value of goods
5) Competition
6) Port characteristics

Dependent variable:
maritime transport costs per tonne of containerizable cargo
Port reform
Better port infrastructure
reduces maritime transport costs
12

Dependent variable:
maritime transport costs per tonne of containerizable cargo
Port reform
Better (perceived) port efficiency
reduces maritime transport costs

Dependent variable:
maritime transport costs per tonne of containerizable cargo
Port reform
Port privatization in the EXPORTING country
reduces maritime transport costs
13

Dependent variable:
maritime transport costs per tonne of containerizable cargo
Port reform
Trade facilitation in the IMPORTING country
reduces maritime transport costs

Dependent variable:
maritime transport costs per tonne of containerizable cargo
Port reform
Better connectivity between ports/
more competition among carriers
reduces maritime transport costs
14
Trade
Transport
costs
Connectivity
Introducing containerization
leads to more trade
(Bernhofen et al, 2013)
15
Containerization of trade, and
access to containerized transport
services are important determinants
of SIDS’s trade competitiveness
How can we measure this?
“Maritime connectivity”
UNCTAD’s “Liner Shipping Connectivity Index” (LSCI):
An indicator for access to liner shipping services
Components:
• Ships
• TEU capacity
• Shipping companies
• Services
• Maximum ship sizes
16
Higher Liner Shipping Connectivity
leads to lower trade costs
(Arvis et al, 2013)
UNCTAD’s LSCI
available on-line
17
18
19
A global trend towards concentration
A global trend towards concentration
20
Determinants of maritime connectivity
• Geography
• Trade volumes
• Port characteristics
Trade
Transport
costs
Connectivity
21
Liner shipping connectivity and
transport costs in SIDS
Jan.Hoffmann@UNCTAD.org, Geneva, July 2014
22