Trade Costs and Mark-Ups in Maritime Shipping

Transportation costs represent about 15\% of global import value. Non-competitive pricing behavior is the maritime shipping market is also widely believed to raise the cost of freight. Using U.S. import data, this paper estimates the effects of this presumably non-competitive behavior on (1) total freight costs, (2) international trade flows, and (3) economic welfare. It also evaluates whether such behavior disproportionately affects shipments from developing and/or countries distant from the U.S. To this aim, short-run pass-through rates of cost to freight rates are estimated and used to calculate the freight mark-ups charged on U.S. imports shipped by sea during 2002-2007, 2008-2012 and 2013-2017. The estimates show that freight mark-ups account for approximately one-third of total freight charges in U.S. imports, equivalent to an ad valorem tariff of 1.4-2.6 percent. U.S. imports would be 4.2 to 11.6 percent higher if these mark-ups were eliminated. The cost of these mark-ups in terms of economic welfare for U.S. consumers represents a reduction of approximately 0.1-0.2 percent of their real income. Goods imported from developing countries or from countries at greater distances to the U.S. have larger tariff equivalent mark-ups.