Reducing port delays, not tariffs boosts trade performance

Every additional day that a product is delayed before being shipped reduces a country's trade by more than one percent, research with the World Bank and Deakin University has found.

Dr Cong Pham an expert on international trade at the University said that merely reducing the time it takes to get goods from the factory gate and onto a ship would have as much a positive impact on a country's trade performance as reductions in tariffs.

Dr Pham, and Simeon Djankov and Caroline Freund from the World Bank looked at how time delays as a form of trade costs affect international trade in 98 countries, including Australia.

"One day of delay is equivalent to a country distancing itself from its trade partners by 70km on average. The impact is twice as much for landlocked economies," Dr Pham said.

Dr Pham said getting products from factory to ship was, as you would expect, relatively quick in developed countries. Specifically, surveys undertaken by the World Bank's Doing Business team show that the whole process of documents preparation, customs clearance and technical control, ports and terminal handling and inland transportation takes average 10.7 days in the OECD countries and 23.3 in East Asia and the Pacific. While Australia's required time for export, which is 9 days, is less than its neighbours like New Zealand (10 days) and Indonesia (21 days) it needs to do much better in order to catch up with the best OECD performers in this respect. The export procedures only take 5 days in Denmark and Singapore and 6 days in Luxembourg, Hong Kong, Netherlands and the United States.

"The main reason for Australia's underperformance is that an exporter in Australia has to fill out on average six documents while those in the OECD on average fill out 4.5.

"Comparatively the cost of exporting in Australia is more expensive with the average cost being $1200US compared with $902US in East Asia and the Pacific and other OECD countries where the cost is $1069US. To improve our performance we would have to reduce any delays at our ports further and reduce the paperwork.

"While Australia can't reduce the spatial distance that separates it from the world it can promote its trade substantially by simplifying its export procedures"

Dr Pham said there was a greater impact of time delays on trade performance for goods like agricultural products which were time-sensitive.

"We find that a day's delay reduces exports of highly perishable agricultural goods by 7 percent, as compared to agricultural goods with a longer storage life. Similarly, the negative impact of time delays is much higher for time-sensitive manufactured products than for time-insensitive manufactured products."

Dr Pham said reforms of the export procedures to take full advantage of the trading system had become a major topic of the Doha negotiations especially for developing countries. There is now a complete consensus about the virtues of trade facilitation as a vehicle for development.

"Since many developing countries, particularly in Africa, have already benefited from existing duty free access provisions, estimates of increased exports by developing countries as a result of future trade liberalization in OECD agricultural market under a WTO agreement will remain limited unless export procedures are simplified," he said.

"For instance in Sub-Saharan Africa it takes 48 days to get a container from the factory gate loaded onto a ship. Reducing that by 10 days is likely to increase exports by 10 per cent in developing countries, than any feasible liberalisation of in Europe and North America."

The study by Dr Pham and his co-authors at the World Bank is forthcoming in the Review of Economics and Statistics 2009.