International Trade-Technology ll

By Alfonso Llanes

December 10, 2016

Abstract

It is important to separate the different components of international trade between fixed and mobile assets. It is useful to view the fixed assets of international trade as the support functions for the mobile assets. For example seaports, airports and ground terminal for truck and rail services are some of those fixed assets. Domestic and international regulations are the administrative tools that run global commerce within the structure of treaties, unions, and agreements.

This paper will focus on the mobile equipment use for surface, air and water transportation used to transport merchandise across continents and country borders. Ocean is by volume the largest mover of commodities and finished goods around the world besides coastal trade also known as cabotage. Navigable rivers as well as intra-costal waterways serve as the feeder means to major ports that serve the continental trade across oceans also known as blue waters. Other important assets to the waterborne connections are the canals and the straits that become the limiting factors to the size of ships needing to get thru either because water depth or passage girth.

INTRODUCTION

Undeniably, enormous progress has been made on the vehicles used since traders use the Silk Road from China to the Mediterranean Sea for commerce. The Eurasian Land Bridge which is a railway through China, Kazakhstan, Mongolia and Russia is sometimes referred to as the "New Silk Road" has two distinct routes from China to Europe, the norther and the southern route railways.

The Silk Roads also provided access at ports like Guangzhou in southern China that led to maritime routes to India and Ceylon (modern-day Sri Lanka). The OECD states that the Indian Ocean Trade began with small trading settlements around 800 A.D., and declined in the 1500’s when Portugal invaded and tried to run the trade for its own profit. Malacca, the port which controlled trade and shipping from India to Indonesia and China, was captured in 1511 by th Potuguese and kept until 164. According to Thomas Anderson a lecturer at the University of New Hampshire, Melaka (modern day Malacca city) served as a major entrepot during the 15th and 16th centuries when it dominated the Indian Ocean trade. Melaka operated as an open, free market, welcoming a vast array of traders. As with so many ports in southeast Asia, Melaka survived off trade and charged a customs duty on all goods aboard a ship before allowing those merchants to trade.

In the basin of the Indian Ocean, the largest disparity between technological advancements occurred between the Chinese maritime culture and the culture of the Arabian Sea and East African Coast. Advancements in maritime technology in antiquity largely revolved around improving the speed and safety of a voyage. Most technological innovations can be separated into 3 categories: hull design, rigging design, and navigation.

IMPROVEMENTS TO MARITIME TECHNOLOGY OVER TIME

It is important to point out that maritime technologies varied throughout the Indian Ocean basin. While many technologies were similar and used in comparable settings, the distinctive details of each ship provide a larger view of the cultural identity of the ship’s original construction location. (Ray 2003)

Most vessels during this period could be categorized into one of three general categories for the type of job that the vessel would undertake: the river crafts, the coastal crafts, and the open ocean crafts as length to width ratio vary according to the function of the ship. One of the first advancements in navigational sailing was the identification of the trade winds; many inventions were used to make identifying the latitude easier for the navigator. The astrolabe evolved from the cross staff for determining star height, which in turn evolved into the qiyas (Sheriff 2010)

There was much diversity between Mediterranean Sea and Indian Ocean trade. For example, in the Mediterranean, sailors used square sails and long banks oars to maneuver among the sea's many islands. Traders of the Indian Ocean built sails the shape of triangles and did not use oars.

                    

The cargo carrying capacity of ships (at least English ships) by the 15th century was generally measured in "Tuns". The largest ship mentioned in Bristol port records from the 15th century could carry 511 tuns. The average large Bristol Merchant ship in this century was smaller, perhaps about 300 tuns. A port might have a crane for large objects or a crane could be rigged with pulleys in the spars. Those are the cross beams that hold the sails. Small objects could be loaded by stevedores or sailors. Loading and unloading of ships was accomplished with rigs of pulleys and ropes or with lightering small boats if the port water was too shallow for docking the ship.

MODERN FLEET BY SHIP TYPE 2016

Oil tankers                          Chemical tankers LNG tankers LPG tankers Other tankers

Dry bulkers General cargo Other dry cargo carriers Container ships Roll on-roll off

CONTAINER TRADE

 

 

  Source: IHS Fairplay

Member states as of October 2016 before Brexit

In this paper the description effort would be centered on containers and how this unit of trade has effected enormous change to the industry.

Malcom Purcell McLean an American businessman was a transport entrepreneur who developed the modern intermodal shipping container, which revolutionized transport and international trade in the second half of the twentieth century. By handling cargo as a box unit that could be transferred from a ship to a flatbed truck or rail service modernized the industry to unprecedented levels. This lead to a significant savings in the cost of freight transportation by reducing repeated handling of individual pieces of cargo. Also, it improved reliability, reduced cargo theft, and cut inventory costs by shortening transit time between origin and destination as well as generating a new type of service named intermodal by using different modes of transport with the same standard boxed unit of cargo.

Other Advantages of using containers

  

                      World Fleet Operators of Cellular Ships

                                          

     CONCLUSION

The most productive flexibility of ocean containers is the intermodal transfer from one mode of transport to another without having to handle the cargo as individual packages but instead be handled as a unit.

Another important issue to keep in mind is that cellular ships assign vessel container capacity by the number of 20 foot containers or equivalent units such as that a 40 foot container is 2 units of 20. Each container has unique identifiers by means of a serial number so that loading position can be identified. Cargo is secured by locked doors and radio frequency identification (RFID) technology. This technology allows not only tracking of containers from origin to destination but when doors are open or close to prevent theft of merchandise in the container or load cargo not listed in the cargo manifest.

According to The Economist the shipping container altered the economics of shipping and with that the flow of world trade. Without the container, there would be no globalization.

The Economist continues: Consider the economics. Loading loose cargo, a back-breaking, laborious business, onto a medium-sized ship cost $5.83 a ton in 1956. McLean (inventor of the container) calculated that loading the Ideal-X cost less than $0.16 a ton. All of a sudden, the cost of shipping products to another destination was no longer prohibitively expensive.

On 23 April 1966, ten years after the first converted container ship sailed, Sea-Land’s Fairland sailed from Port Elizabeth in the USA to Rotterdam in the Netherlands with 236 containers becoming the first international voyage of a container ship.

During the build-up to the Vietnam War, the US military was faced with the logistical problem of getting supplies to troops, so, it turned to container shipping as the most efficient option.

 The efficiency of the military build-up did not go unnoticed by the industry and rom this point on it began to grow to the point where it would become the backbone of global trade.

In the period of 1968 18 container vessels were built, ten of them with a capacity of 1,000 TEUs which was large for the time. In 1969, 25 ships were built and the size of the largest ships increased to approaching 2,000 TEU. In 1972, the first container ships with a capacity of more than 3,000 TEU were completed by the Howaldtwerke Shipyard in Germany.

 An entire new industry had emerged, demanding unprecedented investment in vessels, containers, terminals, offices and information technology to manage the complex logistics that were to come.

Throughout the 1970's and 1980's the container shipping industry at exponential rates connecting Japan and the US west coast, and Europe and the US east coast. The Europe–Asia route began to be serviced by conference agreements (a group of carriers sharing space on ships). By the end of the decade, shipping between Europe, South East and Eastern Asia, South Africa, Australia/New Zealand, North America and South America were all largely containerized on scheduled services. In 1973, US, European and Asian containership operators were carrying 4 million TEUs all over the world. By 1983, 12 million TEUs were shipped which also arrived in the Middle East, the Indian sub-Continent, and East and West Africa beginning the trend to globalization of commerce.

According to Drewry Maritime Research the global container fleet is set to grow another 1.6 million TEU in 2013. This will make the global container fleet about 34.5 million TEU. Although the container fleet is still growing the rate of growth is slowing down to an estimated 38 million TEU of containers globally in 2016.

APPENDIX

Cellular Ship in Transit

  Intermodal Ocean Container                              Trucking Ocean Container

                    

                             

               Intermodal Ocean Roll-On Roll-Off Trailer

                        Intermodal Ocean Container Unit Train

Evolution of Container Ships

                                                 Container Port

        Ocean containers come in different sizes for difficult to stow cargoes.

  

                                    Shipping Documentation for Containers

Transport Documentation	Methods of Payment	Insurance
Commercial Invoice	Cash in Advance	Cargo Insurance
Inspection Certificates	Commercial Letters of Credit	Coverage
Weight Certification	Standby Letter of Credit	Insurance Certificate
Packing List	Documentary Collection
Shipper’s Letter of Instruction	Open Account
Dock Receipt	Mixed Methods
Certificate of Origin	Currency of Payment
Consular Invoice
Bill of Lading
Air Waybill

SHIPPING FORMS

 

REFERENCES

Sheriff, Abdul. Dhow Cultures of the Indian Ocean: Cosmopolitanism, Commerce and Islam. New York. Columbia UP (2010).

Ray, Himanshu Prabha. The Archaeology of Seafaring in Ancient South Asia. Cambridge: Cambridge UP. (2003).

Ships and Seamanship in the Ancient World, by Lionel Casson (1971).

Kawamura, Kazumi. "Nine Transportation Corridors in Northeast Asia and Their Discontinuous Points". The Economic Research Institute for Northeast Asia. (2008).

J Cagan, K Shimada and S Yin. A Survey of Computational Approaches to Three dimensional Layout Problems’. Carnegie Mellon University, Pennsylvania. (2000).

Jan Hoffmann REVIEW OF MARITIME TRANSPORT. United Nations Conference on Trade and Development (UNCTAD 2015)

The World Bank Group. International Trade Strategy Approach Paper: (2010)

"World container-fleet capacity has grown by 50 percent since 2008". Progressive Economy. 12 December (2012).

Bohlman, Michael T. "ISO's container standards are nothing but good news". ISO Bulletin. Geneva: International Organization for Standardization: (September 2001). 12–15.

Levinson, Marc The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. Princeton, N.J: Princeton University Press. ISBN 0-691-12324-1. (2006).

Bhagwati, J., and A. Krueger. The Dangerous Drift to Preferential Trade Agreements.        Washington, DC: AEI Press.(2001).

Krugman, P., and M. Obstfeld. International Economics: Theory and Policy. Upper Saddle River, NJ: Addison Wesley. (1992)

International Trade-Theory

By Alfonso Llanes

November 10, 2016

Abstract

International trade is the inseparable companion of transportation and this paper will investigate in separate parts theory, technology, infrastructure, logistics, markets, methodology, commodities, economics, finance, and the public organizations and NGO’s  that encompass international commerce.

How cargo is classified not only for valuation of duties and taxation but for the efficient packaging, handling and movement from a point origin to destination as a single cargo units. In addition, this paper will examine international trade data regarding producer- consumer- countries across international such as energy, agriculture, base metals, ores and the exchanges for bulk, semi-manufactured, and manufactured merchandise and commodities were bidding takes place.

Thousands of books and papers have been written over a long span of years about transportation, trade, markets and so on, nonetheless, the intention of this paper is to revisit these same issues with a different lens and apply recent and the innovative approaches by making use of applied fractals for the analysis.  The reason for taking this method is that markets behave in chaotic ways with unpredictable economic swings that go beyond the business cycle, so, new tools are needed to explore our challenging times.

Introduction

Description of Fractals

Fractals are used in the study of chaos and chaotic systems such as the weather and other systems in disarray where mathematical geometry has proven to be very useful examining the sets that emerge from repeating patterns of disorder at every scale of reduction or amplification.

Fractal surfaces are set apart from Euclidian surfaces in unique ways as not being differentiable, usually exceeding its topological dimension. The term "fractal" was first used by mathematician Benoît Mandelbrot in 1975 when he came across fractals while studying the weather and coined the word fractal as in “fractured geometry”.

Some mathematical concepts that had been studied in the past are now an intrinsic part of a fractal set as is for example the Fibonacci sequence in a recursive process when a thing are defined in terms of itself or of its type as in “circular reasoning”.

Computer scientist programmers deal extensively with the use of self-referencing which is counter intuitive but follows a set of logical steps in a sequence that a computer can read and execute within the program’s logic. This is of course the opposite logic for mathematical teaching in Euclidian space.

There is some disagreement amongst authors on how the concept of a fractal should be formally defined but the general consensus is that theoretical fractals are infinitely self-similar, iterated, and detailed mathematical constructs having fractal dimensions. However, these dimensions are not limited to geometric patterns, but can also describe processes in time and patterns with various degrees of self-similarity in images, structures and sounds.

Since this paper is not about the study of fractals but rather the application of fractal patterns to the various disciplines that comprise international trade. This process of removing middle thirds is a simple example of a finite subdivision rule.

Cantor ternary set finite subdivision rule.

Source: Wikipedia        

Trade Theory

A division of labor in trade theory means that countries produce just a small range of goods or services, and may contribute only a small part to finished products sold in global markets. The assembly line and the assembly circles are methods of production still in use today but more becoming a robotic function as an economy modernizes from labor intensive to technology oriented and services.

Specialization is the second fundamental principle associated with trade, and results from the division of labor. Given each producer a given a specialist role, as efficient contributors to the overall process of production, and to the finished product. Specialization can be applied to individuals, firms, machinery and technology, and to whole countries. 

Comparative advantage is a term associated with 19th Century English economist David Ricardo (1817) which means that trade, encourages a country to specialize in producing only those goods and services which it can produce more effectively and efficiently, and at the lowest opportunity cost. Trade increases competition and lowers world prices, which provides benefits to consumers by raising the purchasing power of their own income, and leads a rise in consumer surplus. The quality of goods and services is likely to increases as competition encourages innovation, design and the application of new technologies. Trade will also encourage the transfer of technology between countries.  In order to set up comparative advantage to be studied by the use of fractals we can divide exports by imports of national economy to obtain and index for a given period of time. 

  in logarithmic form   

     

This relationship can be displayed in a time series graph and projected  over a future period that can be analized with fractals.  An iterative equation  can convert a time series into a fractal and use this equation to predict future behavior of the interaction.

Dow Jones industrial index 1988-97

           

Source Global Finance Data                                                                               The DJ chart can be approximated with the Weierstrass fractal function.                                                                                                                                                                                                                                                                                                                          

Below is a graph generated with random using Excel by the author showing a two country analysis of current accounts for a single year slotted in a regular 52 week interval applying the moving average method:

The challenge then becomes writing an equation for this time series that does not converge nor diverge but it is periodic either with real numbers or in the complex plane of the type x2 + 1 = 0, a + bi =z in order to project a trend line beyond 52 weeks. The advantage of using  fractals for the analysis is that a model can be easily simulated by a computer  or a worksheet.

Similarly the Weierstrass fractal function can be iterated using a computer or a worksheet. Here is the equation as a sum of a series which is entered into an Excel worksheet below.

Original equation

 

The time series generated indicates a negative trend; however, running the model for a longer period might bring a surprising result. Since this is just a sampling of the process this paper would not explore the issue any further for now as fractals will be taken on again at later writings on trade issues.

Harmonics

Regular circular harmonics in nature are often encountered in physics and engineering. Consider a point moving with constant speed in a circle of radius r.

The movement of the projection back and forth along the horizontal axis is described as simple harmonic motion. The parameters of the function are as follows:

r is amplitude

ω is the angular velocity or frequency

θ is the phase displacement

In order to induce fractal behavior for this model, only a very small variation is needed on any of the parameters which will induce unpredictable transformations over a number of iterations.

                                      

Irregular circular harmonics that become fractals can be reasonably model as seasonal fluctuation in terms of trigonometrical functions; but it is difficult to model cycles such as trade or economic activity of irregular cycles without applying better mathematical tools. It seems that something other than a perfectly regular sinusoidal component is required to model the secular fluctuations of economic activity which are described as business cycles.

To obtain a model for a cyclic fluctuation, it should be enough to modify the harmonic cycle by superimposing a disturbance term which affects the amplitude. However, in order to generate a cycle that is more affected by randomness the model should include both phase and amplitude disturbance.

A good example of irregular circular motion is the differential angular velocity on the wheels of turning car or the erratic rotation of water wheel with different sizes water buckets which generates the” chaotic wheel” known as the fractal “Lorenz attractor”.   

Endowments among countries are the basis for the Heckscher-Ohlin( 1949)model that relies on differences in factors of production endowments as the fundament for trade. It has been argued that world output would increase when the principle of comparative advantage is applied by countries to determine what goods and services they should specialize in producing.  Trade among core and peripheral countries can be visualized with this graph generated with Pajek 4G

Modern gravity theory and gravity models  since its original formulation by Jan Tinbergen ( 1962), gravity has long been one of the most successful empirical models in economics. (Princeton University Press) explains it as trade patterns and trade flows that have the tendency  of the positive attractiveness between two national economies based on economic size-- (in a similar fashion as planets attracting each other based on their mass)-- and the 'economic distance' between two economies. The stability of the gravity equation and its ability to explain bilateral trade flows led to the development of theories that could incorporate the model.  The gravity model is now seen at the workhorse of trade theory, and especially in terms of forecasting the impact of changes in trade policy on trade costs.

Gravity models begin with Newton’s law for the gravitational force between two objects i and j. In equation form, this is expressed as:    

Where the gravitational force is directly proportional to the masses of the objects (Mi and Mj)

and indirectly proportional to the distance between them (Dij).

Monopolistic competition among economies. According to influential US economist Paul Krugman, (1979) “New Trade Theory” states that the current continual application of new technology by global manufacturers to produce in large scale and very cheaply can compete in similar markets and export surpluses. Essentially, the model predicts that once a national economy achieves manufacturing in an economy of scale of some particular product, this economy will tend to trade with countries of similar development in what Paul Krugman describes with his linear model C = F + cX, which he calls “Monopolistically Competitive Models” in globalized economies of scale.

.

Recent research shows that when trade opens up, it is followed by adjustment not only between industries, but within them as well.

Module manufacturing leverages  and Integrates managing global supply chains, transferring production flexibly to emerging markets, refocusing on higher-value-added activities, and forming new pockets of low-cost expertise. These actions will permit to refocus t resources and capabilities on higher-value activities, thereby contributing to the further specialization of the industry’s value chain. Meanwhile, these two companies have been actively transferring some of their manufacturing activities to emerging markets for cheaper labor and also as consumers of the products, i.e.  Boeing-Aviation.

                                                    

Historical Development of Sea Commerce

According to historian Glenn Markoe, the Phoenicians established a maritime tradition, and the technology to build ships with a keeled hull which allowed them to sail the open seas resulting in a tradition that established sea trade.

The navigation of the Phoenicians was limited to coastal waters as a cautious and timid approach to the early years of commerce. It follows that the Phoenicians for a long time confined their navigation within the limits of the Mediterranean, the Propontis, and the Euxine, seas, which are far less rough than the open ocean. As they gain navigational experience with their vessels, no bigger than a fishing smack, the Phoenicians proceeded southwards along the West African coast, as far as Gambia and Senegal, while on the northern sided they braved the heavy seas of the Bay of Biscay, on the coast of Spain moreover, passing Cape Finisterre, these adventurer sailors went across the mouth of the English Channel to the Cassiterides.

Historians often refer to Henry the Navigator, prince of Portugal, as the initiator of the first great enterprise of the ‘Age of Discovery’—the search for a sea route east by south to Cathay. The Spanish galleon and the- caravels favored by pirates because of its speed and agility on the water—were the ships used by the explorers in the ‘Age of Discovery’. The Spanish embarked in long-distance maritime travels in search of alternative trade routes to "the East Indies” moved by the trade of gold, silver and spices.

In “The Golden Age of Sail” David Ross, (2013) describes it as  a period in which international trade and naval warfare were dominated by sailing ships, lasting from the 16th to the mid-19th century in the  European "Age of Sail" international trade and naval warfare were both dominated by sailing ships.

In the 20th century, the internal combustion engine and gas turbine came to replace the steam engine in most ship applications.

As ships evolved and merchants gain trade experience everyone foresaw the advantage of having trade agreements. The first international free trade agreement, the Cobden-Chevalier Treaty, was finalized in 1860 between the United Kingdom and France, prepared by Richard Cobden and Michel Chevalier; it sparks off successive agreements between other countries in Europe.

Trade Agreements after WW II

In 1946 the Bretton Woods system went into effect; it had been in the works since 1944 as an international economic structure to prevent further depressions and wars. In 1947, 23 countries agree to the General Agreement on Tariffs and Trade to rationalize trade among the nations.

For the first time there was a codified form of rules and principles that imposed some obligations on states in the conduct of their monetary affairs. Given that money had always been a symbol of political power, the incursion of Bretton Woods into state sovereignty was considerable as quoted from John Maynard Keynes the principal doctrinaire economist of the agreement.

List of International Trade Agreements active in 2016

African, Caribbean, and Pacific Group of States (ACP Group)

Andean Community of Nations (CAN)

Arab Cooperation Council (ACC)

A Black Sea Economic Cooperation Zone (BSEC)

Asia-Pacific Economic Cooperation (APEC)

Caribbean Community and Common Market (Caricom)

European Free Trade Association (EFTA)

North American Free Trade Agreement (NAFTA)

Shipping Insurance and Risk. Historical Perspective

Historians have traced the earliest instances of insurance to the Babylonian period circa 2250 BC, when they developed a type of loan insurance for maritime business. Examples can be found in the Code of Hammurabi 1750 B.C.E.  It formalizes the concepts of “bottomry” and “respondentia” (protection against loss of hull and cargo, respectively) – the link pins of maritime insurance.

Historian, Mark Cartwright, states that the ancient Athenian maritime loan advanced money for voyages with repayment being cancelled if the ship was lost. Ships sank, ran afoul of piracy, suffered delays due to weather, or arrived to find that prices of the goods they were carrying had unexpectedly drop in value. The practice and use of the maritime loan persisted until the thirteenth century in the Italian city - states of Genoa and Venice.

Shipwreck by storm or poor navigation was common while ships and their cargoes were constantly in danger of being seized by pirates or corrupt officials, or made to pay exorbitant tolls for safe passage.

In the late 1600s seafarers, merchants and insurers meet at the Edward Lloyd’s Coffee House for insurance business and coffee. (Lloyd’s of London, history of insurance).

The term “underwriting” is today synonymous with Lloyd’s contracts specified the premium with explicit sensitive to distance, route, season, and type of ship, as well as hostilities or piracy. Premiums were generally arrived at by bargaining for either ship or cargo coverage. Moral hazard encouraged captains to deliberate shipwreck to collect the insurance. One method of transaction that was particularly common was–the advance purchase–that combined a forward transaction with the extension of credit. (American Association of Law Libraries)

Trade Routes Between 1400-1800

Source: Hofstra University

REFERENCES

Markoe, Glenn Peoples of the Past: Phoenicians (Berkeley: University of California Press, (2000)

Thomas Chaney, Working Paper 19285 NATIONAL BUREAU OF ECONOMIC RESEARCH

THE GRAVITY EQUATION IN INTERNATIONAL TRADE (2013)

Peters, E Fractal Market Hypothesis, Wiley Finance. (1991).

Tinbergen J, Shaping the World Economy. Twentieth Century Fund, New York.

THE GRAVITY EQUATION IN INTERNATIONAL TRADE (1962)

J. Orlin Grabbe, Three Essays in International Finance, Dept. of Economics, Harvard University, (1981).

 B. B. Mandelbrot: The Fractal Geometry of Nature (1975)’

Markoe, Glenn Peoples of the Past: Phoenicians (Berkeley: University of California Press, (2000)

W .H. Freedman and Company, ISBN 0-1767-1186-9, (1983)

 K. Falconer: Fractal Geometry, Mathematical Foundations and Application, John Wiley & Sons (1990).

Vicsek: Fractal Growth Phenomena, Second Edition World Scientific Publishing Co. (1999).

S. F. Edwards, M. Schwartz: Exact differential equations for diffusion limited aggregation, (1996).

T. A. Witten, L. M. Sander: Diffusion-Limited Aggregation, a Kinetic Critical Phenomenon, (1981).

P. Meakin: Diffusion-controlled cluster formation in 2–6-dimensional space, Iterated Function Systems, Iterative method convergence and divergence. (1996)

John Maynard Keynes Collected Writings, London, vol. 26, p. 101, 22 July (1944)

Mark Cartwright. Trade in Ancient Greece. Ancient History Encyclopedia (2012).

Time Series and Forecasting. www.mcgrawhill.ca/college/lind . 2016